THE TRUSTED NAME IN INDUSTRIAL CHEMICAL SUPPLIES. Annual Report.

Transcription

1 LUXCHEM CORPORATION BERHAD (Company No D) THE TRUSTED NAME IN INDUSTRIAL CHEMICAL SUPPLIES 6, Jalan SS21/58, Damansara Utama, Petaling Jaya, Selangor, Malaysia T F ANNUAL REPORT 2011 Annual Report 2011

2 Contents Corporate Information Corporate Structure Financial Highlights Directors Profile Chairman s Statement Statement on Corporate Governance Audit Committee Report Statement on Internal Control Additional Compliance Information Financial Statements List of Properties Analysis of Shareholdings Notice of Annual General Meeting Proxy Form

3 Luxchem Corporation Berhad (Company No D) CORPORATE INFOATION BOARD OF DIRECTORS Dato Haji Mokhtar Bin Haji Samad Independent Non-Executive Chairman Tang Ying See Managing Director/Chief Executive Officer Chin Song Mooi Executive Director Chen Moi Kew Executive Director/Chief Financial Officer Chan Wan Siew Senior Independent Non-Executive Director Au Chun Choong Independent Non-Executive Director COMPANY SECRETARIES SHARE REGISTRAR REGISTERED OFFICE Wong Wai Foong (MAICSA ) Lim Lee Kuan (MAICSA ) AUDIT COMMITTEE Au Chun Choong Chairman Dato Haji Mokhtar Bin Haji Samad Member Chan Wan Siew Member NOMINATION COMMITTEE Chan Wan Siew Chairman Dato Haji Mokhtar Bin Haji Samad Member Au Chun Choong Member REMUNERATION COMMITTEE Dato Haji Mokhtar Bin Haji Samad Chairman Tang Ying See Member Au Chun Choong Member Tricor Investor Services Sdn. Bhd. ( V) Level 17, The Gardens North Tower Mid Valley City Lingkaran Syed Putra Kuala Lumpur Telephone No. : (03) Facsimile No. : (03) CORPORATE OFFICE No. 6, Jalan SS21/58 Damansara Utama Petaling Jaya Selangor Darul Ehsan Telephone No. : (03) Facsimile No. : (03) Website : Level 18, The Gardens North Tower Mid Valley City Lingkaran Syed Putra Kuala Lumpur Telephone No. : (03) Facsimile No. : (03) AUDITORS Folks DFK & Co (AF 0502) 12th Floor, Wisma Tun Sambanthan No. 2, Jalan Sultan Sulaiman Kuala Lumpur Telephone No. : (03) Facsimile No. : (03) STOCK EXCHANGE LISTING PRINCIPAL BANKERS The Main Market of Bursa Malaysia AmIslamic Bank Berhad ( U) Securities Berhad Stock Name : LUXCHEM AmBank (M) Berhad (8515-D) Stock Code : 5143 CIMB Bank Berhad (13491-P) Date of listing : 27 June 2008 HSBC Bank Malaysia Berhad ( V) United Overseas Bank (Malaysia) Berhad ( K) Malayan Banking Berhad (3813-K) 2

4 Annual Report 2011 CORPORATE STRUCTURE Luxchem Trading Sdn. Bhd. 100% Luxchem Polymer Industries Sdn. Bhd. 100% Luxchem Trading (S) Pte. Ltd. 100% Chemplex Composite Industries (M) Sdn. Bhd. 100% PT Luxchem Indonesia 70% 3

5 Luxchem Corporation Berhad (Company No D) FINANCIAL HIGHLIGHTS REVENUE ( 000) EBITDA ( 000) 299, , , , ,933 23,383 25,897 26,792 29,416 32, PAT ( 000) 15,281 17,973 19,133 20,478 22,690 Net EPS (sen) Revenue 299, , , , ,933 Earnings before interest, tax, depreciation and amortisation ( EBITDA ) 23,383 25,897 26,792 29,416 32,022 Profit Before Taxation ( PBT ) 20,654 23,580 25,764 27,860 30,216 Profit After Taxation ( PAT ) 15,281 17,973 19,133 20,478 22,690 EARNINGS PER SHARE ( EPS ) Gross EPS (sen) * Net EPS (sen) * * FYE 2007 : Computed based on the PBT and PAT for the relevant financial years under review and divided by the issued and paidup share capital of 110,000,000 Shares immediately prior to the Public Issue by Luxchem Corporation Berhad. * FYE 2008 : Computed based on the PBT and PAT and divided by the weighted average number of shares in issue during the financial year of 120,655,738. * FYE : Computed based on the PBT and PAT and divided by the number of shares in issue during the respective financial year of 130,000,000. 4

6 Annual Report 2011 DIRECTORS PROFILE DATO HAJI MOKHTAR BIN HAJI SAMAD Independent Non-Executive Chairman Dato Haji Mokhtar Bin Haji Samad, a Malaysian aged 64, was appointed an Independent Non-Executive Director of the Company on 15 May He is currently the Chairman of the Remuneration Committee and a member of the Audit Committee and Nomination Committee. He is the Non-Executive Chairman of Kossan Rubber Industries Berhad, the Executive Chairman of the Malay Contractor Consortium Wilayah Persekutuan, a Director of the Malay Contractor Consortium Malaysia and the Executive Chairman of Minat Megah Sdn. Bhd., a company principally involved in construction. He is also the President of the Malay Contractor Organisation Malaysia, the Yang DiPertua of the Malay Contractor Organization Wilayah Persekutuan, the Vice President of the Entrepreneur Development Agency Wilayah Persekutuan, a member of the Advisory Committee of Dewan Perniagaan Melayu Kuala Lumpur and a committee member of the Ministry of Domestic Trade, Cooperative and Consumerism, Wilayah Persekutuan. He does not have any family relationship with any Director or major shareholder of the Company, nor does he have any conflict of interest with the Group. He has not been convicted of any offences within the past ten (10) years. He attended all the five (5) Board meetings of the Company held during the financial year ended 31 December TANG YING SEE Managing Director / Chief Executive Officer Tang Ying See, a Malaysian aged 60, is the Managing Director / Chief Executive Officer of the Company. He is one of the First Directors appointed to the Board of the Company on 4 September He is currently a member of the Remuneration Committee. As the founder of the Company, he has been instrumental in our development, growth and success. He brings with him approximately 33 years of experience in the industrial chemicals industry and is mainly responsible for the overall strategic business direction of the Group. He obtained a Bachelor of Science Degree majoring in Physics from Nanyang University, Singapore in 1975 and has been a member of the Malaysian Institute of Management since Upon graduation, he joined a chemical trading company as a Sales Representative and was promoted to Senior Manager in In 1984, he left and established Lux Trading, a sole proprietorship, which business was taken over by Luxchem Trading Sdn Bhd in He currently holds several directorships in a number of private limited companies but does not hold any other directorships in other listed entities. He is the husband of Chin Song Mooi. He does not have any conflict of interest with the Group. He has not been convicted of any offences within the past ten (10) years. He attended all the five (5) Board meetings of the Company held during the financial year ended 31 December

7 Luxchem Corporation Berhad (Company No D) DIRECTORS PROFILE CHIN SONG MOOI Executive Director Chin Song Mooi, a Malaysian aged 60, is an Executive Director of the Company. She is one of the First Directors appointed to the Board of the Company on 4 September She graduated in 1976 with a Bachelor of Commerce Degree in Accountancy from Nanyang University, Singapore. She obtained her company secretary licence from the Registry of Companies in 1996 and has been a member of the Institute of Approved Company Secretaries since Her career began upon her graduation in 1976 when she joined Khoo, Junus & Co., an accounting firm located in Kuala Lumpur as an Auditor. In 1978, she left and joined Universal Cable (M) Bhd as an Accountant in the Johor Bahru branch. In 1979, she left and joined Syarikat Pembinaan Beng Teck Sdn Bhd, a building and construction company, as an Accountant. In 1988, she left to take up the position as Director of Finance and Administration with Luxchem Trading Sdn Bhd. She is mainly responsible for overseeing all aspects of finance and administration functions of the Group. She currently holds several directorships in a number of private limited companies but does not hold any other directorships in other listed entities. She is the wife of Tang Ying See. She does not have any conflict of interest with the Group. She has not been convicted of any offences within the past ten (10) years. She attended all the five (5) Board meetings held during the financial year ended 31 December CHEN MOI KEW Executive Director / Chief Financial Officer Chen Moi Kew, a Malaysian aged 49, was appointed an Executive Director / Chief Financial Officer of the Company on 2 January She obtained her Bachelor of Accounting Degree with First-Class Honours from the University of Malaya, Kuala Lumpur in She has been a member of both the Malaysian Institute of Accountants and the Malaysian Institute of Certified Public Accountants since 1990 and a Member of the Financial Planning Association of Malaysia since She began her career in 1987 when she joined Arthur Andersen & Co as an Audit Staff Assistant. In 1991, she left and joined United Malayan Banking Corporation Berhad as an Assistant Manager. In 1993, she left and took up the position as Deputy Manager in Southern Bank Berhad. In 1996, she left and was appointed Financial Controller at the Weld Centre (M) Sdn Bhd. She left in 1997 to join Luxchem Trading Sdn Bhd. She is currently mainly responsible for overseeing the accounting and finance functions as well as formulating financial strategies for the Group. She does not have any family relationship with any Director or major shareholder of the Company, nor does she have any conflict of interest with the Group. She does not hold any other directorships in other listed entities and has not been convicted of any offences within the past ten (10) years. She attended all the five (5) Board meetings held during the financial year ended 31 December

8 Annual Report 2011 DIRECTORS PROFILE PAUL CHAN WAN SIEW Senior Independent Non-Executive Director Paul Chan Wan Siew, a Malaysian aged 61, was appointed an Independent Non-Executive Director of the Company on 15 May He is currently a member of the Audit Committee, the Chairman of the Nomination Committee and a Senior Independent Director. He is also an Independent Non-Executive Director of Mycron Steel Berhad, Integrax Berhad and Prestariang Berhad. He is a Chartered Accountant, Certified Financial Planner, Chartered Financial Consultant (US), a Fellow Member of the Association of Chartered Certified Accountants (UK), CPA Australia, Chartered Secretaries (UK) and Chartered Tax Institute of Malaysia. He is the President of Business Transitions Asia Sdn Bhd, offering business and financial advisory services, serving the business-owners community and selected market segments. He has been in public accounting, corporate and financial advisory practice for over 30 years. He is the Deputy President and Founding Board Member of MACD (Malaysian Alliance of Corporate Directors), an EXCO Member of FPLC (Federations of Public Listed Companies Berhad), a Council Member of MIA (Malaysian Institute of Accountants), and a Member of NACD (National Association of Corporate Directors, USA) and the International Corporate Governance Network, UK (ICGN). He had served as Former President of MAICSA (Malaysian Institute of Chartered Secretaries and Administrators), Former President of ACCA Malaysia (Association of Chartered Certified Accountants), a Founding Board Member and Vice President of Financial Planning Association of Malaysia (FPAM), and a Global Advisory Council Member of Financial Planning Association, USA. He also sits on the Board of Prestariang Berhad and Integrax Berhad. He does not have any family relationship with any Director or major shareholder of the Company, nor does he have any conflict of interest with the Group. He has not been convicted of any offences within the past ten (10) years. He attended all the five (5) Board meetings held during the financial year ended 31 December AU CHUN CHOONG Independent Non-Executive Director Au Chun Choong, a Malaysian aged 60, was appointed an Independent Non-Executive Director of the Company on 15 May He is currently the Chairman of the Audit Committee, a member of the Remuneration Committee and Nomination Committee. He obtained his Diploma in Commerce from Tunku Abdul Rahman College in He is a Fellow of the Association of Chartered Certified Accountants since 1985, an Associate Member of the Institute of Chartered Secretaries and Administrators, London, UK since 1979, and a member of the Malaysian Institute of Accountants since He has vast experience in tax and finance in public accounting firms. He was attached to the Inland Revenue Department in Perak for several years. He left public service in 1980 and joined several public accounting firms as tax manager and financial consultant. He is an Independent Non-Executive Director of PJ Development Holdings Berhad, a company principally involved in property investment and development, construction, manufacturing and trading, and hotels and leisure operations. He does not have any family relationship with any Director or major shareholder of the Company, nor does he has any conflict of interest with the Group. He has not been convicted of any offences within the past ten (10) years. He attended all the five (5) Board meetings held during the financial year ended 31 December

9 Luxchem Corporation Berhad (Company No D) CHAIAN S STATEMENT Dear Valued Shareholders, On behalf of the Board of Directors, it gives me great pleasure to present to you the Annual Report of Luxchem Corporation Berhad ( LCB ) for the financial year ended ( FYE ) 31 December Financial year 2011 continued to be a challenging year, with fluctuating crude oil and raw material prices, as well as volatility of the USD/ exchange rate. Nevertheless, the LCB group achieved 25% growth in revenue and 11% increase in profit after tax. FINANCIAL PERFOANCE For FYE 31 December 2011, we achieved revenue of million, a 25% increased compared to FYE 31 December Profit After Tax increased 2.21 million or 11% to reach million in FYE BALANCE SHEET The increase in Revenue and Profit After Tax further strengthened our financial position. Our cash stood at million as at 31 December 2011 compared with million as at 31 December LOOKING AHEAD For 2012, we will continue to expand our product range as well as develop more high quality products. Having set up our subsidiary in Indonesia in FYE 2011, we are in better position to expand our customer base in Indonesia and this will enhance our group s performance. We remain dedicated, focused and committed towards delivering positive results to our shareholders. DIVIDENDS To reward shareholders loyalty, LCB has paid an interim dividend of 3 sen per share on 30 September Due to the good performance during FYE 2011, the directors are recommending a single tier final dividend and single tier special dividend of 5 sen per share and 1 sen per share respectively. If approved by shareholders, the total dividend for the year would be 9 sen per share, a rise of 1 sen per share compared to 8 sen per share paid out in FYE This 9 sen per share would amount to million representing 52% of our Profit after tax. CORPORATE SOCIAL RESPONSIBILITY The Group is mindful of its contribution to society and will continue to contribute to charitable organizations. APPRECIATION On behalf of the Board, I would like to thank our employees, shareholders, business associates and stakeholders for their continued support and confidence in Luxchem Corporation Berhad. DATO HAJI MOKHTAR BIN HAJI SAMAD Chairman 8

10 Annual Report 2011 STATEMENT ON CORPORATE GOVERNANCE The Malaysian Code on Corporate Governance~ Revised 2007 ( the Code ) sets out the basic principles and best practices on the structures and processes that companies may adopt in their operation towards achieving effective governance framework. In accordance with the Main Market Listing Requirements, the Board is pleased to present herewith its statement on how it has applied the principles of the Code and the extent of compliance with the Best Practices of the Code. THE BOARD OF DIRECTORS The Company continues to be led and controlled by the same board members with professional and business experiences. The Board has six (6) directors, three (3) of them being the Independent Non-Executive Directors and one third being female directors. The Board reviews the composition of the board members annually and ensures that the current composition of the board functions competently. In addition, with the presence of the independent non-executive directors constituting half of the board size, the Board ensures that the broader views and objectivity are brought into the Board s deliberation and decision making processes. The role and responsibilities of the Chairman and Managing Director are assumed by different directors. The Board had identified Mr. Chan Wan Siew to act as the Senior Independent Non-Executive Director to provide shareholders with an alternative to convey their concerns and seek clarifications from the Board. Mr. Chan Wan Siew s address can be contacted at PWChan@luxchem.com.my. A description of the background of each director is presented on pages 5 to 7. Schedule of Board and Audit Committee meetings are determined in advance before the new financial year. This enables the management to plan ahead the yearly business and corporate affairs and ensure timely preparation of information for dissemination to the Board members. Board has a defined schedule of matter reserved for Board s decision. The Board is provided with appropriate and timely information to enable it to discharge its duties effectively. The management is invited to attend the Board and Audit Committee meetings and to provide explanations to the Board on the operations of the Group. In addition, the Board is also briefed progressively by the Company Secretary, External Auditors and the Internal Auditors on new or changes in corporate regulatory requirements. The Board recognises the importance for reviewing and adopting a strategic plan and overseeing the conduct of the business in order to ensure that the business is being properly managed. Presently, the performance of the Group is reviewed by the Board in consideration of the quarterly financial results and operational information and explanations provided by the management. During the financial year, five (5) Board meetings were held and these meetings were fully attended by all the directors. All board members have access to the advice and service of the Company Secretaries. The Company Secretaries had attended all the Board and Board Committees meetings held during the financial year. Primarily, the Company Secretaries administer, attend, prepare minutes of the Board and Board Committees meetings; ensure that board procedures are followed; and advise the Board in repect of compliance issues. The Board maintains specific Board committees namely Audit Committee, Nomination Committee and Remuneration Committee. These Committees ensure objectivity and independence are provided in the deliberation of specific Board agenda. However, besides defining the schedule of matters reserved for decision by the Board, the Board has also defined the terms of reference for each Committee in order to ensure the direction and control of the Group is firmly within the Board. The Chairman of the respective Board Committees would report to the Board during the Board meetings on significant matters deliberated in the Committees. 9

11 Luxchem Corporation Berhad (Company No D) STATEMENT ON CORPORATE GOVERNANCE APPOINTMENT TO THE BOARD The Code provides greater clarity on the following aspects of which Nomination Committee should consider when recommending candidates for directorship: Skills, knowledge, expertise and experience; Professionalism; Integrity; and In the case of candidates for the position of independent director, the Nomination Committee should evaluate the candidates ability to discharge his/her functions as expected from an independent director. There was no nomination and appointment of new director during the financial year. One (1) meeting was held during the financial period. In line with the Best Practices, the appraisals on director, Board Committees and the Board were documented. DIRECTORS TRAINING Continuous learning and training are part of Directors development programmes. The Directors recognise the needs to attend trainings to enable the directors to discharge their duties effectively. The Directors have participated in various relevant training programmes to enhance their skills and knowledge and to keep abreast with the relevant change in laws, regulations and business environment. Additionally, the Directors continue to broaden their industry and professional knowledge continuously through their association with their business and corporate stakeholders and participation in the events conducted by them. The trainings attended by Directors during the financial year are as below: Director Training Attended Tang Ying See International Rubber Economic Conference 2011 Chin Song Mooi Licensed Secretaries Training Programme Communication Skills Chen Moi Kew Internal Quality Audit for ISO9001:2008 Key Amendments of Listing Requirements & Corporate Disclosure Guide Au Chun Choong The Fundamentals of Technical Analysis Essentials of Structured Warrant and ETFs Managing Risks in Investment Banks Improving Your Organization s Bottom line Through Leadership Driven High Performance Chan Wan Siew Sustainability Program for Corporate Malaysia FPLC-TI(M)-MACC Talk on Corruption in Malaysia Corporate Integrity Strategic IR & Effective Corporate Communication AIF International Symposium 2011: Talent Development The New Paradigm Corporate Directors Conference 2011 Competition & Data Protection Act Global Corporate Governance Forum (GCGF) CEO Forum 2011: Transforming Malaysia MAICSA Annual Conference 2011 Singapore Institute of Directors Annual Conference NACD Board Leadership Conference 2011 Malaysian Institute of Accountants ASEAN Federation of Accountants Conference 2011 SC-Bursa Corporate Governance Week 10

12 Annual Report 2011 STATEMENT ON CORPORATE GOVERNANCE RE ELECTION OF DIRECTORS The re-election of Directors provides an opportunity for shareholders to renew their mandate conferred to the Directors. In this respect, the Articles of Association of the Company provide that all directors shall retire by rotation once in every three (3) years or at least one-third (1/3) of the Board shall retire but shall be eligible to offer themselves for re-election at the Annual General Meeting ( AGM ). This requirement is adhered to by the Board in every AGM. Directors who are appointed by the Board during the financial period before the AGM are subject to re-election by the shareholders at the next AGM to be held following their appointments. The Articles of Association also provide that all directors including the Managing Director shall retire from office at least once every three (3) years but shall be eligible for re-election. DIRECTORS REMUNERATION The Committee considers the principles recommended by the Code in determining the directors remuneration, whereby, the executive remuneration is designed to link rewards to the Group s performance whilst the remuneration of the nonexecutive directors is determined in accordance with their experience and the level of responsibilities assumed. The number of Directors whose income falls within the following bands is set out as follows: Remuneration Bands Executive Directors Non-Executive 50,000 and below , , , , , , The aggregate remuneration paid or payable to all Directors of the Company are further categorised into the following components: Fees* Salaries and other emoluments Bonuses Benefitin-kind EPF and SOCSO Total () () () () () () Executive Directors - 1,110, ,560 26, ,431 1,566,923 Non-Executive Directors 66, ,560 73,560 * Subject to the approval by shareholders at the AGM. The Board views that the transparency in respect of the Directors remuneration has been reasonably dealt with by the band disclosure presented in the above. Therefore, the detailed remuneration of each director is not presented. 11

13 Luxchem Corporation Berhad (Company No D) STATEMENT ON CORPORATE GOVERNANCE SHAREHOLDERS The Board endeavours to provide timely and accurate disclosures of all material information of the Group to the shareholders and investors. Where practicable, the Board is prepared to enter into a dialogue with institutional shareholders. At present, the Board communicates information on the operations, activities and performance of the Group to the shareholders, stakeholders and the public through the following:- i. the Annual Report, which contains the financial and operational review of the Group s business, corporate information, financial statements, and information on Audit Committee and Board of Directors; ii. iii. iv. various announcements made to the Bursa Malaysia Securities Berhad, which include announcements on quarterly results to provide shareholders with an overview of the Company s performance and operations; the Company s website at is continuously updated to provide easy access to corporate information pertaining to the Company and its activities; and participation in surveys and research conducted by professional organisations as and when such requests arise. The AGM is the principal forum for dialogue with all shareholders while the Extraordinary General Meetings would be held as and when required. The Board encourages shareholders to attend the Company s AGM and would attend to questions raised by the shareholders. ACCOUNTABILITY AND AUDIT The Board is committed to present a balance and understandable assessment of the Group s financial position and prospects to the stakeholders and general public. In presenting the annual financial statements and quarterly announcements of its results, the Board assures that the Company uses appropriate accounting policies consistently and estimates are supported by reasonable and prudent judgments. It is the Board s responsibility to maintain a sound system of internal control for the Group. The effectiveness of the system of internal control is reviewed by the management and independently assessed by the Internal Auditors under the purview of the Audit Committee. The internal audit function is currently outsourced to an independent internal audit services company. Information on the Group s state of internal control is reported in the Statement on Internal Control which is presented on page 18. RELATIONSHIP WITH THE AUDITORS The Audit Committee establishes a transparent and professional relationship with the External Auditors. Annually, the Audit Committee reviews the appointment, performance and remuneration of the External Auditors before recommending them to the shareholders for re-appointment in the AGM. The Audit Committee would convene meeting with the External Auditors and Internal Auditors without the presence of the Executive Directors and employees of the Group as and when necessary. During the financial year, the Audit Committee conducted two (2) meetings with the External Auditors without the presence of the Executive Directors and employees of the Company. COMMITTEES OF THE BOARD The Board has established following Board Committees with formal terms of reference. 12

14 Annual Report 2011 STATEMENT ON CORPORATE GOVERNANCE AUDIT COMMITTEE The Audit Committee establishes transparent and professional relationship with the External Auditors. Annually, the Audit Committee reviews the appointment, performance and remuneration of the External Auditors before recommending them to the shareholders for re-appointment in the AGM. The Audit Committee would convene meeting with the External Auditors and Internal Auditors without the presence of the executive directors and employees of the Group as and when necessary. The Audit Committee noted the Code s best practice that at least two (2) meetings shall be held with the external auditors without the presence of executive board members annually and the Audit Committee Chairman should engage on continuous basis with the senior management. The Audit Committee noted the Code s best practice that at least two (2) meetings shall be held with the external auditors without the presence of executive board members annually and the Audit Committee Chairman should engage on continuous basis with the senior management. The Board continues to adhere to the composition requirement of the Audit Committee members in accordance with the regulatory requirements. The Audit Committee has access to all the Executive Directors, senior management, External Auditors and Internal Auditors. On a separate note, the Board noted the Main Market Listing Requirements on the review of the terms of office and performance of the Audit Committee and each of its member at least once every three (3) years. The review of Audit Committee and its members was conducted concurrently with the annual directors appraisal. The composition, key functions and activities of the Audit Committee are explained on Audit Committee Report on pages 15 to 17 of the Annual Report. REMUNERATION COMMITTEE The Remuneration Committee is responsible for reviewing and making recommendations to the Board the remuneration of the Executive Directors of the Company. The remuneration of the Executive Directors is approved by the full Board with the Director concerned and persons related to that Director abstaining from deliberations and voting on decisions in respect of his or her individual remuneration. Fees for Independent Directors would be determined by the full Board with the approval from shareholders at the Annual General Meeting. Subject to corporate and individual performances, the directors remuneration policy adopted by the Remuneration Committee is to provide the remuneration packages necessary to attract, retain and motivate Directors of the calibre required to manage the business of the Group. The majority of the members of Remuneration Committee are Independent and Non-Executive Directors. The members of the Remuneration Committee are as follows:- Chairman : Dato Haji Mokhtar Bin Haji Samad (Independent Non-Executive Director) Member : Au Chun Choong (Independent Non-Executive Director) Member : Tang Ying See (Managing Director/Chief Executive Officer) The Remuneration Committee meets periodically to carry out its functions and duties pursuant to its Terms of Reference. The Remuneration Committee conducted one (1) meeting during the financial year. 13

15 Luxchem Corporation Berhad (Company No D) STATEMENT ON CORPORATE GOVERNANCE NOMINATION COMMITTEE The Nomination Committee is responsible for the reviewing and making recommendation for any appointments to the Board. In making their recommendation, the Committee considers the size of the Board, the mix of skills and experience and other qualities which the Director should bring to the Company. New nomination is assessed and recommended to the full Board for appointment. The Nomination Committee consist of wholly Independent and Non-Executive Directors. The members of the Nomination Committee are as follows. Chairman : Chan Wan Siew (Senior Independent Non-Executive Director) Member : Dato Haji Mokhtar Bin Haji Samad (Independent Non-Executive Director) Member : Au Chun Choong (Independent Non-Executive Director) The key aspects of the functions of the Nomination Committee are: i) To consider, in making its recommendations, candidates for directorships proposed by the Managing Director and, within the bounds of practicability, by any other senior executive or any director or shareholder; ii) To recommend to the Board, directors to fill the seats on Board Committees; iii) To assess annually the effectiveness of the Board as a whole, the Committees of the Board and the contribution of each existing individual director and thereafter, to report its findings to the Board; and iv) To review and identify the required mix of skills and experiences and other qualities, including core competencies which non-executive directors should bring to the Board and thereafter, to recommend its findings to the Board. The Nomination Committee conducted one (1) meeting during the financial year. COMPLIANCE WITH THE BEST PRACTICES Except for the non-disclosure of individual director s remunerations; the Board believes that all material aspects of the Best Practices set out in Part 2 of the Code have been complied with during the financial year. DIRECTORS RESPONSIBILITY STATEMENT The Directors are responsible for ensuring that: I. The annual audited financial statements of the Group and of the Company are drawn up in accordance with applicable approved accounting standards in Malaysia, the provisions of the Companies Act, 1965 and the Main Market Listing Requirements of the Bursa Securities so as to give a true and fair view of the state of affairs of the Group and the Company for the financial year; and II. Proper accounting and other records are kept which enable the preparation of the financial statements with reasonable accuracy and taking reasonable steps to ensure that appropriate systems are in place to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. In the preparation of the financial statements for the financial year ended 31 December 2011, the Directors have adopted appropriate accounting policies and have applied them consistently in the financial statement with reasonable and prudent judgments and estimates. The Directors are also satisfied that all relevant approved accounting standards have been followed in the preparation of the financial statements. 14

16 Annual Report 2011 AUDIT COMMITTEE REPORT 1. COMPOSITION OF AUDIT COMMITTEE Au Chun Choong Chairman (Independent Non-Executive Director) Chan Wan Siew Member (Senior Independent Non-Executive Director) Dato Haji Mokhtar Bin Haji Samad Member (Independent Non-Executive Director) 2. TES OF REFERENCE Membership The Audit Committee must be composed of no fewer than 3 non-executive directors of which the majority shall be independent directors. All Audit Committee members should be financially literate, with at least one member:- (i) (ii) must be a member of the Malaysian Institute of Accountants; or if he is not a member of the Malaysian Institute of Accountants, he must have at least 3 years working experience and:- (a) (b) he must have passed the examinations specified in Part I of the 1st Schedule of the Accountants Act 1967; or he must be a member of one of the associations of accountants specified in Part II of the 1st Schedule of the Accountants Act 1967; or (iii) fulfils such other requirements as prescribed or approved by the Exchange. No Alternate Director shall be appointed as a member of the Committee. The Chairman of the Audit Committee should engage on a continuous basis with the senior management, the head of internal audit and the External Auditors in order to be kept informed of matters affecting the Company. All members of the Audit Committee, including the Chairman, will hold office only so long as they serve as Directors of the Company. The Board must review the term of office and performance of the Audit Committee and each of its members at least once every 3 years to determine whether the Audit Committee has carried out its duties in accordance with its terms of reference. 15

17 Luxchem Corporation Berhad (Company No D) AUDIT COMMITTEE REPORT 2. TES OF REFERENCE Rights and Authority In carrying out its duties and responsibilities, the Audit Committee will: i. have the authority to investigate any matter within its terms of reference; ii. iii. iv. have the resources which are required to perform its duties; have full and unrestricted access to any information pertaining to the Company; have direct communication channels with the External Auditors and person(s) carrying out the internal audit function or activity; v. be able to obtain independent professional or other advice at the expense of the Company and to invite outsiders with relevant experience and expertise to attend the Audit Committee meetings (if required) and to brief the Audit Committee; and vi. be able to convene meetings with the External Auditors, the Internal Auditors or both, excluding the attendance of other Directors and employees of the Company, whenever deemed necessary. Duties and Responsibilities The Audit Committee shall review and report to the Board on the following key matters: i. To review the appointment, resignation, conduct and audit plans of the Internal and External Auditors; ii. iii. iv. To review the assistance given by the employees of the Company to the External Auditors and the Internal Auditors; To review the quarterly results and year end financial statements, prior to the approval by the Board; To review any related party transactions and conflict of interest situations that may arise within the Company or Group including any transaction, procedure or course of conduct that raises questions of management integrity; and v. To review and report to the Board of the state of the system of internal control of the Group. 3. AUDIT COMMITTEE MEETING ATTENDANCE During the financial year, the Audit Committee conducted five (5) meetings and two (2) separate meetings with the External Auditors of the Company without the presence of the Executive Directors and employees of the Company and the subsidiaries. These meetings were attended by all the members of the Audit Committee. 16

18 Annual Report 2011 AUDIT COMMITTEE REPORT 4. ACTIVITIES OF THE AUDIT COMMITTEE The principal activities undertaken by the Audit Committee during the financial period were summarised as follows:- a) Reviewed the unaudited quarterly financial results, cash flows and financial positions for each financial quarter prior to submission to the Board for consideration and approval for announcement to the public; b) Reviewed the annual audited financial statement, Directors and Auditors Reports and other significant accounting issues arising from the financial year ended 31 December 2010 audit; c) Reviewed the External Auditors plan for the year ended 31 December 2011; d) Reviewed the internal audit reports and status presented by the Internal Auditors; e) Conducted meetings with the External Auditors without the presence of the Executive Directors and employees of the Group; f) Reviewed the Corporate Governance Statement, Audit Committee Report and Statement on Internal Control prior to submission to the Board for consideration and approval for inclusion in the 2010 annual report; and g) Reviewed the quarterly status of recurrent related party transactions. 5. INTERNAL AUDIT FUNCTION The internal audit function is essential in assisting the Audit Committee in reviewing the state of the systems of internal control maintained by Management. The Group had established an internal audit function upon listing. Currently, this function is outsourced to an internal audit services company and functionally, the internal auditor team reports to the Audit Committee directly. The Audit Committee reviews and approves the annual internal audit plan before the Internal Auditors carry out their functions. All audit findings are reported to the Audit Committee and areas of improvement and audit recommendations identified are communicated to Management for further action. The cost incurred for the internal audit function in respect of the financial year ended 31 December 2011 was 66,000 (2010:60,000). 17

19 Luxchem Corporation Berhad (Company No D) STATEMENT ON INTERNAL CONTROL Pursuant to paragraph 15.26(b) of the Main Market Listing Requirements, the Board of Directors of Luxchem Corporation Berhad is pleased to provide the following statement on the state of internal control of the Company and its subsidiaries ( the Group ). This Statement is made in accordance with the Statement on Internal Control - Guidance for Directors of Public Listed Companies issued by the Institute of Internal Auditors Malaysia, and endorsed by the Bursa Securities. The Board acknowledges the importance of the systems of internal control and recognises that it is their responsibility to maintain a sound system of internal control to safeguard the Group s interests. The Group has continuously embedded the risk management processes in identifying, evaluating and managing significant risks facing the organisation as part of its operating and business processes. Functionally, these processes also form the responsibility of all Executive Directors and the management team members. There are two aspects of review of system of internal control in the organisation. The first aspect of review is undertaken by Management while the second aspect constitutes the independent review performed by the Audit Committee. The presence of the internal audit function supports this review mechanism by reviewing and reporting the status of management control procedures to the Audit Committee. Besides reviewing the systems of internal control, the Audit Committee also reviews the financial information and reports produced by Management. In this case, the Audit Committee in consultation with Management deliberates the integrity of the financial results, annual report and audited financial statements before recommending to the Board. Apart from the above, the fundamental elements of internal controls that were practised perpetually in the Group remain unchanged. These controls are: i. Organisation structure defining the management responsibilities and hierarchy structure of reporting lines and accountability; ii. iii. iv. Limit of authority and approval facilitating delegation of authority and management succession; Performance reporting covering periodic reporting from the Heads of Management to the Executive Directors. This management reporting is intended to assure that business operations are progressed in accordance with the desirable objectives and targets; Monthly management and credit meetings attended by Head of Managements. These meetings have enabled Management to share, monitor and decide on the business development, changes and actions to ensure businesses are under control; v. Provision of continuous staff training and development to enhance the competitiveness and capability of our organisation as part of the Group s business control; and vi. ISO 9001:2008 Quality Management System in Luxchem Trading (S) Pte. Ltd. and Luxchem Trading Sdn. Bhd. and ISO 9001:2008, ISO14001:2004 and OHSAS18001:2007 management systems in Luxchem Polymer Industries Sdn Bhd forming the basis of production, operational and management procedures. In making this statement, the Board had considered the Bursa Malaysia Securities Bhd s Guidance on Statement on Internal Control for all subsidiaries. The Board feels that the existing level of system of internal control is acceptable to enable the Group to achieve its business objectives. Nonetheless, the Board recognises that the systems of internal control should be continuously improved in line with the evolving business development. It should also be noted that all risk management systems and systems of internal control could only manage rather than eliminate risks of failure to achieve business objectives. Therefore, these systems of internal control and risk management in the Group can only provide reasonable but not absolute assurance against material misstatements, frauds and losses. REVIEW OF STATEMENT ON INTERNAL CONTROL BY EXTERNAL AUDITORS The External Auditors have reviewed this Statement on Internal Control for inclusion in this annual report for the year ended 31 December 2011 and have reported to the Board that nothing has come to their attention that causes them to believe that this Statement is inconsistent with their understanding of the process the Board has adopted in the review of the adequacy and integrity of the systems of internal control of the Group. 18

20 Annual Report 2011 ADDITIONAL COMPLIANCE INFOATION Status of Utilisation of IPO Proceeds The Public Issue was expected to raise gross proceeds of 22.0 million, which will be utilised as follows:- Purpose Proposed Utilisation 000 Actual Utilisation 000 Intended Timeframe for Utilisation (i) Repayment of bank borrowings 7,000 7,000 Within 12 months (ii) Expansion of existing operations 7,000 3,179 Within 24 months (iii) Expansion of business and markets 2, Within 24 months (iv) Working capital 3,000 3,000 Within 24 months (v) Estimated listing expenses 2,500 2,257 Immediate Expansion of existing operations 22,000 16,334 As stated in the Prospectus dated 10 June 2008, we have intended to utilize approximately 3.0 million of the proceeds to purchase and install a new reactor and related equipment at our Unsaturated Polyester Plant in Melaka, to increase production capacity by another 50% in order to reach an output of 30,000 metric tonnes per annum. In addition, we intended to utilize approximately 500,000 of the proceeds to increase our warehouse storage capacity by installing improved rack systems at our manufacturing plant. During the financial year, we have invested about 400,000 for our plant expansion. Expansion of business and markets As disclosed in our Prospectus dated 10 June 2008, we intended to utilize 2.5 million of the proceeds to set up sales and marketing offices in Indonesia, Vietnam and China to improve our services to customers in the region. The setting up of the Representative office in Vietnam should be completed by Q On 18 July 2011, LCB has incorporated a subsidiary in Indonesia (PT. Luxchem Indonesia). PT. Luxchem Indonesia officially started operations on 3 Oct Share Buy-Backs There was no share buy-back during the financial year ended 31 December Options, Warrants or Convertible Securities No options, warrants or convertible securities were issued by the Company during the financial year ended 31 December Depository Receipt ( DR ) Programme The Company has not sponsored any DR programme for the financial year ended 31 December Sanctions and/or Penalties The Company and its subsidiaries, directors and management have not been imposed with any sanctions and/or penalties by any regulatory bodies. 19

21 Luxchem Corporation Berhad (Company No D) ADDITIONAL COMPLIANCE INFOATION Non-audit Fees The amount of non-audit fees paid to the external auditors by the Company for the financial year ended 31 December 2011 amounted to 48,398. Material Variances There was no material variance between the interim financial reports previously announced on the 4th Quarterly results and the audited financial results for the financial year ended 31 December Profit Guarantees No profit guarantee was given by the Company and/or its subsidiaries in respect of the financial year ended 31 December Material Contracts involving Directors or Major Shareholders Interest There were no material contracts entered into by the Company and its subsidiaries which involved directors and major shareholders interest subsisting as at the end of the financial year ended 31 December 2011 other than those disclosed under notes to financial statements. Revaluation Policy on Landed Properties The Group has not adopted a regular revaluation policy on its landed properties. Compliance to the Code Except for matters specifically identified, the Company was substantially in compliance with the Principles and Best Practices in Corporate Governance throughout the financial year ended 31 December Recurrent Related Party Transactions ( RRPT ) or Revenue Nature On 27 May 2011, the Company obtained approval from the shareholders of the Company and its subsidiaries to enter into RRPT of a revenue or trading nature with persons who are considered to be a Related Party as defined in Chapter 10 of the Listing Requirements. Transacting Parties Interested Related Parties Nature of Transaction Kossan Holdings Malaysia Sdn. Bhd. Group Interested Major Shareholder: CCM (1) Interested Person Connected: LKS (2) Sales of industrial chemicals and UPRs by LCB Group Purchase of industrial chemicals by LCB Group Actual Value () 9,898,857 - Details of the RRPT during the financial year ended 31 December 2011 is as follows:- Notes:- Chow Cheng Moey refers to CCM Lim Kuang Sia refers to LKS (1) CCM is a major shareholder of LCB. (2) LKS is the spouse of CCM, a major shareholder of LCB. He holds 0.08% direct shareholdings in LCB. LKS is also a Director and substantial shareholder of KHMSB. 20

22 Financial Statements Directors Report Consolidated Statement of Financial Position Consolidated Statement of Comprehensive Income Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Statement of Financial Position Statement of Comprehensive Income Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Statement by Directors/Statutory Declaration Independent Auditors Report

23 Luxchem Corporation Berhad (Company No D) DIRECTORS REPORT The Directors have pleasure in submitting their report together with the audited financial statements of the Group and of the Company for the financial year ended 31 December PRINCIPAL ACTIVITIES The principal activity of the Company is investment holding. The principal activities of the subsidiaries are set out in Note 7 to the financial statements. There have been no significant changes in the nature of these activities during the financial year. FINANCIAL RESULTS Group Company Profit for the financial year attributable to : - Owners of the Company 22,707,382 10,736,380 - Non - controlling interest (Loss) (16,883) - 22,690,499 10,736,380 RESERVES AND PROVISIONS There were no material transfers made to or from reserves or provisions accounts during the financial year other than those disclosed in the financial statements. DIVIDENDS Dividends paid, declared or proposed since the end of the Company s previous financial year were as follows :- (i) (ii) In respect of the financial year ended 31 December 2010, as proposed in the Directors Report for that financial year, a final single tier dividend of 5 sen per ordinary share amounting to 6,500,000 was paid on 30 June In respect of the financial year ended 31 December 2011, an interim single tier dividend of 3 sen per ordinary share amounting to 3,900,000 was paid on 30 September In respect of the financial year ended 31 December 2011, the Directors recommend a final single tier dividend of 5 sen per ordinary share amounting to 6,500,000 and a special single tier dividend of 1 sen per ordinary share amounting to 1,300,000. The financial statements for the current financial year do not reflect the proposed dividends. If approved by the shareholders at the forthcoming Annual General Meeting, the dividends will be accounted for in the shareholders equity as an appropriation of retained profits in the next financial year ending 31 December IMMEDIATE AND ULTIMATE HOLDING COMPANY The directors regard Chemplex Resources Sdn Bhd, a company incorporated in Malaysia as the Company s immediate and ultimate holding company. 22