THE TRUSTED NAME IN INDUSTRIAL CHEMICAL SUPPLIES

Transcription

1 LUXCHEM CORPORATION BERHAD (Company No D) THE TRUSTED NAME IN INDUSTRIAL CHEMICAL SUPPLIES ANNUAL REPORT , Jalan SS21/58, Damansara Utama, Petaling Jaya, Selangor, Malaysia T F annual report 2010

2 C O N T E N T S Corporate Information 2 Corporate Structure 3 Financial Highlights 4 Directors Profile 5 Chairman s Statement 8 Statement on Corporate Governance 9 Audit Committee Report 14 Statement on Internal Control 18 Additional Compliance Information 19 Financial Statements 21 List of Properties 87 Analysis of Shareholdings 88 Notice of Annual General Meeting 90 Proxy Form

3 2 Corporate Information 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 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 SHARE REGISTRAR 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) REGISTERED OFFICE Level 18, 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 : PRINCIPAL BANKERS AmIslamic Bank Berhad ( U) AmBank (M) Berhad (8515-D) CIMB Bank Berhad (13491-P) HSBC Bank Malaysia Berhad ( V) United Overseas Bank (Malaysia) Berhad ( K) 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 The Main Market of Bursa Malaysia Securities Berhad Stock Name : LUXCHEM Stock Code : 5143 Date of listing : 27 June 2008 Luxchem Corporation Berhad (Company No: D)

4 3 Corporate Structure 100% Luxchem Trading Sdn. Bhd. 100% Luxchem Polymer Industries Sdn. Bhd. 100% Luxchem Trading (S) Pte. Ltd. 100% Chemplex Composite Industries (M) Sdn. Bhd. Annual Report 2010

5 4 Financial Highlights REVENUE ( 000) EBITDA ( 000) 399,823 29, ,308 21,055 23,383 25,897 26, PAT ( 000) Net EPS (sen) 20, ,227 15,281 17,973 19, , , , Financial year ended 31 December 2006^ 2007^ 2008^ Revenue 248, , , , ,823 Earnings before interest, tax, depreciation and 21,055 23,383 25,897 26,792 29,416 amortisation ( EBITDA ) Profit Before Taxation ( PBT ) 17,864 20,654 23,580 25,764 27,860 Profit After Taxation ( PAT ) 13,227 15,281 17,973 19,133 20,478 EARNINGS PER SHARE ( EPS ) Gross EPS (sen)* Net EPS (sen)* ^ Assuming that the Group was in existence since 1 January * FYE : Computed based on the PBT and PAT for the relevant financial years under review and divided by the issued and paid-up 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 for FYE 2008 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 for the relevant financial years under review and divided by the weighted average number of shares in issue during the financial year of 130,000,000. Luxchem Corporation Berhad (Company No: D)

6 5 Directors Profile Dato Haji Mokhtar Bin Haji Samad Independent Non-Executive Chairman Dato Haji Mokhtar Bin Haji Samad, a Malaysian aged 63, 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 and Consumer Affairs, 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 four (4) of 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 59, 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 Annual Report 2010

7 6 Directors Profile Chin Song Mooi Executive Director Chin Song Mooi, a Malaysian aged 59, 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 48, 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 Luxchem Corporation Berhad (Company No: D)

8 7 Directors Profile Chan Wan Siew Senior Independent Non-Executive Director Chan Wan Siew, a Malaysian aged 60, was appointed an Independent Non-Executive Director of the Company on 15 May He was appointed as a Senior Independent Director on 3 November He is currently a member of the Audit Committee and the Chairman of the Nomination Committee. He is also an Independent Non-Executive Director of Mycron Steal Berhad and Prestariang Berhad, and a Director of Malaysian Alliance of Corporate Director. 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 S&P NetWorth Advisors and Business Transitions Asia Sdn. Bhd., offering business and financial advisory services, serving the businessowners 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), Secretary-General of MICG (Malaysian Institute of Corporate Governance) and the Secretary of MMAA (Malaysian Mergers and Acquisitions Association.) He had served as the 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 FPAM (Financial Planning Association of Malaysia), an EXCO Member of MIA (Malaysian Institute of Accountants) and a Global Advisory Council Member of the Financial Planning Association, USA. Au Chun Choong Independent Non-Executive Director Au Chun Choong, a Malaysian aged 59, 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 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 Annual Report 2010

9 8 Chairman 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 We began the financial year 2010 on a cautious note, given the challenges we faced in We continued to face challenges in 2010 with volatility of the USD/ exchange rate, increasing crude oil prices and the slow recovery of major economies. Despite the challenging operating environment, LCB group achieved 31% growth in Revenue and 7% growth in Profit After Tax. Financial Performance For FYE 31 December 2010, we recorded a Revenue of million. This represents an impressive growth of million or 31% of the Revenue achieved in FYE Profit After Tax increased 1.34 million or 7% to reach million in FYE Balance Sheet Our financial position strengthened even further with the rise in our Revenue and Profit After Tax. The Group does not have any long term debts. Our bank borrowings comprised of Bankers Acceptance. Our cash stood at million as compared with million as at 31 December This million would be equivalent to cash of 0.59 per share. Shareholders funds grew 10% to reach million as. Looking Ahead We will not be complacent with our growth and achievement. We strive to further improve our operations in the coming year. Persistent effort will be directed towards developing more high quality products and value-added customer service. We stay committed and focus in delivering strong results to our shareholders. Dividends To reward shareholders loyalty, LCB has paid a single tier interim dividend of 3 sen per share on 30 September In recognition of our good performance during FYE 2010, the Directors are recommending a single tier final dividend of 5 sen per share. If approved by shareholders, the total dividend for the year would be 8 sen per share, a rise of 1 sen per share compared to 7 sen per share paid out in FYE This 8 sen per share would amount to million representing 50% of our Profit After Tax. Corporate Social Responsibility The Group is mindful of its contribution to society and will continue to contribute to charitable organisations. 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 LCB. DATO HAJI MOKHTAR BIN HAJI SAMAD Chairman Luxchem Corporation Berhad (Company No: D)

10 9 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 of Bursa Malaysia Securities Berhad ( Bursa Securities ), 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 and three (3) of them being the Independent Non-Executive 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 roles 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. 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 Management to plan ahead the yearly business and corporate affairs and ensure timely preparation of information for dissemination to the Board members. During the financial year, the Board has defined a schedule of matters formally and reserve these matters under the Board s control. The Board is provided with appropriate and timely information to enable it to discharge its duties effectively. 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 Secretaries, External Auditors and 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, operational information and explanations provided by Management. During the financial year, five (5) Board meetings were held and the details of attendance of each director are as follows: Director No. of Meetings Attended Dato Haji Mokhtar Bin Haji Samad 4 Tang Ying See 5 Chin Song Mooi 5 Chen Moi Kew 5 Chan Wan Siew 5 Au Chun Choong 5 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. Annual Report 2010

11 10 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: 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 Board recognises the needs to attend trainings to enable the Board Members to discharge their duties effectively. The Board Members have participated in various relevant training programmes to enhance their skills and knowledge and to keep abreast with the relevant changes in laws, regulations and business environment. Additionally, the Directors continue to broaden their industry and professional knowledge through their association with their business and corporate stakeholders and participation in the events conducted by the stakeholders. Except for Dato Haji Mokhtar bin Haji Samad who did not attend training due to work commitments, the trainings attended by the Board Members during the financial year are as below: Director Tang Ying See Chin Song Mooi Chen Moi Kew Chan Wan Siew Au Chun Choong Training Attended Luxchem Corporation Berhad (Company No: D)

12 11 Statement on Corporate Governance RE-ELECTION OF DIRECTORS The re-election of Director 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 Remuneration 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 Non-Executive 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 Directors 50,000 and below , , , , ,100,000-1,150, The aggregate remuneration paid 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 - 1,076, ,560 31, ,137 1,818,709 Non-Executive Directors 60, ,000 The Board suggests Directors fee of 60,000 for Non-Executive Directors to be payable for financial year 2010 is subject to shareholders approval at the following 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. 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 dialogue with institutional shareholders. Currently, information is disseminated through various disclosures and announcements made to Bursa Securities. This information is published at Bursa Securities website at The Company also maintains its website at detailing the companies of the Group and the products information for the access of the general public. 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. Annual Report 2010

13 12 Statement on Corporate Governance 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 Group 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 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 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. Audit Committee 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 of Bursa Securities 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 14 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 remuneration. Fees for Independent Directors would be determined by the full Board with the approval from shareholders at the AGM. Subject to Group 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 with the calibre required to manage the business of the Group. The Remuneration Committee members, majority of whom are Independent and Non-Executive Directors, 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. Luxchem Corporation Berhad (Company No: D)

14 13 Statement on Corporate Governance COMMITTEES OF THE BOARD Nomination Committee The Nomination Committee is responsible for the reviewing and making recommendation for director appointments to the Board. In making their recommendation, the Nomination 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 Committee members are as follows:- Chairman : Chan Wan Siew (Independent Non-Executive Director) Member : Dato Haji Mokhtar Bin Haji Samad (Independent Non-Executive Director) Member : Au Chun Choong (Independent Non-Executive Director) These members are wholly Independent and Non-Executive Directors. 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 experience and other qualities, including core competencies which Non- Executive Directors should bring to the Board and thereafter, to recommend its findings to the Board. 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 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 2010, the Directors have adopted appropriate accounting policies and have applied them consistently in the financial statements 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. Annual Report 2010

15 14 Audit Committee Report 1. COMPOSITION OF AUDIT COMMITTEE Au Chun Choong Chairman (Independent Non-Executive Director) Chan Wan Siew Member (Independent Non-Executive Director) Dato Haji Mokhtar Bin Haji Samad Member (Independent Non-Executive Director) 2. TES OF REFERENCE The Committee shall be appointed by the Board of Directors from amongst the Directors of the Company who fulfills the following requirements:- i. The Audit Committee must be composed of no fewer than 3 members. The Committee shall comprise of only nonexecutive directors, of which the majority shall be independent directors. In the event of any vacancy in the Audit Committee resulting in the non-compliance of the above, the Company must fill the vacancy within 3 months. ii. All Audit Committee members should be financially literate, with at least one member:- (a) (b) must be a member of the Malaysian Institute of Accountants; or if he/she is not a member of the Malaysian Institute of Accountants, he/she must have at least three (3) years working experience and:- (1) he/she must have passed the examinations specified in Part I of the 1st Schedule of the Accountants Act, 1967; or (2) he/she must be a member of one (1) of the Associations of Accountants specified in Part II of the 1st Schedule of the Accountants Act, 1967; or (3) fulfills such other requirements as prescribed or approved by the Exchange. iii. iv. No Alternate Director shall be appointed as a member of the Committee. The members of the Audit Committee shall elect a Chairman from among themselves who shall be an Independent Director. 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. The Company Secretaries of the Company shall be the Secretaries of the Audit Committee. 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. have the resources which are required to perform its duties; Luxchem Corporation Berhad (Company No: D)

16 15 Audit Committee Report 2. TES OF REFERENCE iii. iv. 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. The following are the main duties and responsibilities of the Audit Committee collectively: i. Review the following and report the same to the Board of the Company:- (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) with the external auditors, the audit plan; with the external auditors, his evaluation of the system of internal controls; with the external auditors, his audit report; the assistance given by the employees of the Company to the external auditors and the internal auditors; the adequacy of the scope, functions, competency and resources of the internal audit functions and that it has the necessary authority to carry out its work; the internal audit programme, processes, the results of the internal audit programme, processes or investigation undertaken and whether or not appropriate action is taken on the recommendations of the internal audit function; the quarterly results and year end financial statements, prior to the approval by the Board, focusing particularly on:- (a) changes in or implementation of major accounting policy changes; (b) significant and unusual events; and (c) compliance with accounting standards and other legal requirements; any related party transaction and conflict of interest situation that may arise within the Company or group including any transaction, procedure or course of conduct that raises questions of management integrity; any letter of resignation from the external auditors and any questions of resignation or dismissal; and whether there is reason (supported by grounds) to believe that the Company s external auditor is not suitable for re-appointment; ii. iii. iv. Oversee the Company s internal control structure to ensure operational effectiveness and efficiency, reduce risk of inaccurate financial reporting, protect the Company s assets from misappropriation and encourage legal and regulatory compliance; Assist the Board in identifying the principal risks in the achievement of the Company s objectives and ensuring the implementation of appropriate systems to manage these risks; Recommend to the Board on the appointment and re-appointment of the external auditors and their audit fee, after taking into consideration the independence and objectivity of the external auditors and the cost effectiveness of the audit; Annual Report 2010

17 16 Audit Committee Report 2. TES OF REFERENCE v. Discuss with the external auditors before the audit commences the nature and scope of the audit and ensure coordination where more than one audit firm is involved; vi. vii. viii. Discuss problems and reservations arising from the audits and any matter the auditors may wish to discuss in the absence of the management where necessary; Review the external auditor s management letter and management s response therein; In relation to the internal audit function:- (a) (b) (c) (d) (e) review the adequacy of the scope, functions and resources of the internal audit function, and that it has the necessary authority to carry out its work; review the internal audit programme and results of the internal audit process and, where necessary, ensure that appropriate actions are taken on the recommendations of the internal audit function; review any appraisal or assessment of the performance of members of the internal audit function; approve any appointment or termination of senior staff members of the internal audit function; and take cognisance of resignations of internal audit staff members and provide the resigning staff member an opportunity to submit his reasons for resigning; ix. Consider the major findings of internal investigations and management s response; and x. Consider other matters as defined by the Board. i. The Committee will meet at least four (4) times in each financial year although additional meetings may be called at any time, at the discretion of the Chairman of the Audit Committee. ii. iii. iv. The quorum shall consist of a majority of Independent committee members and shall not be less than two. Recommendations to the Audit Committee are submitted to the Board for approval. The Company Secretaries shall be in attendance at each Audit Committee meeting and record the proceedings of the meeting thereat. v. Minutes of each meeting shall be kept as part of the statutory record of the Company upon confirmation by the Board and a copy shall be distributed to each member of the Audit Committee. vi. vii. viii. ix. The Managing Director and other appropriate officer may be invited to attend where their presence are considered appropriate as determined by the Audit Committee Chairman. The internal auditors and/or external auditors have the right to appear and be heard at any meeting of the Audit Committee and are recommended to attend each Audit Committee meeting. Upon the request of the internal auditors and/or external auditors, the Audit Committee Chairman shall also convene a meeting of the Audit Committee to consider any matter the auditor(s) believes should be brought to the attention of the Board or the shareholders. The Audit Committee must be able to convene meetings with external auditors without the presence of the executive board members and management at least twice a year and whenever deemed necessary. x. Where the Audit Committee is of the view that a matter reported by it to the Board has not been satisfactorily resolved resulting in a breach of Bursa Securities requirements, the Audit Committee must promptly report such matter to Bursa Securities. xi. The attendance of any particular Audit Committee meeting by other directors and employees of the Company shall be at the Audit Committee s invitation and discretion and must be specific to the relevant meeting. Luxchem Corporation Berhad (Company No: D)

18 17 Audit Committee Report 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. The details of attendance of each director are as follows: Director No. of Meetings Attended Au Chun Choong 5 Chan Wan Siew 5 Dato Haji Mokhtar Bin Haji Samad 4 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 statements, Directors and Auditors Reports and other significant accounting issues arising from the audit of financial year ended 31 December 2009; c) Reviewed the external auditors plan for the year ended 31 December 2010; d) Conducted meetings with the External Auditors and Internal Auditors without the presence of the Executive Directors and employees of the Group; e) Reviewed the internal audit reports and status presented by the Internal Auditors; 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 2009 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 s 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 2010 was 66,223 (2009:64,766). Annual Report 2010

19 18 Statement on Internal Control Pursuant to paragraph 15.26(b) of the Main Market Listing Requirements of Bursa Securities, 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 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. Principally, the Directors and Management, the review mechanism in the organisations and the operational procedures constitute the key elements in the risk management and internal control frameworks of the Group. 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. These processes are the responsibility and functions of all Executive Directors and Management. There are two aspects of review of systems 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 verifying 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. Similar with the previous year, Management with the assistance and facilitation of the Internal Auditors had conducted an assessment of risk in consideration of the current business environment during the financial year. In this exercise, the risk management framework was enhanced to incorporate measurable factors for quantification of risks and the control and mitigating action plans were updated. The re-assessed risk result and report was presented to the Board and the Audit Committee for review and deliberation during the financial year. 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; Provision of continuous staff training and development to enhance the competitiveness and capability of our organisation; and v. ISO 9001:2008 Quality Management System in Luxchem Trading (S) Pte. Ltd. and Luxchem Trading Sdn. Bhd. and ISO 9001:2008, ISO 14001:2004 and OHSAS 18001:2007 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 Bursa Securities Guidance on Statement on Internal Control for all subsidiaries. The Board feels that the existing level of systems of internal control is acceptable to enable the Group to achieve its business objectives. Nonetheless, the Board recognises that the system of internal control should be continuously improved in line with the evolving business development. It should also be noted that all risk management system and system 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 2010 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 reviewing the adequacy and integrity of the system of internal control of the Group. Luxchem Corporation Berhad (Company No: D)

20 19 Additional Compliance Information The status of utilisation of proceeds from the Initial Public Offering during the financial year ended 31 December 2010 is 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 operation 7,000 2,744 Within 24 months iii) Expansion of business and markets 2,500 - Within 24 months iv) Working capital 3,000 3,000 Within 24 months v) Estimated listing expenses 2,500 2,257 Immediate Total 22,000 15,001 Expansion of Existing Operations 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. We have yet to utilize this amount as we have put on hold this capital expenditure in view of the financial crises and global economic slowdown in 2008/2009. We are continuously monitoring the market situation and will only expand our plant capacity when there is sufficient and sustainable market demand. 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. In view of the global economic slowdown which resulted in drastic changes to market conditions, we have yet to set up sales and marketing offices overseas. However, we make regular trips overseas for market development. As we continue our efforts to expand our overseas customer base, we will continue to monitor the need to set up offices in these countries. When there are sufficient justifications in terms of market demand and economic conditions in these countries, we will proceed with the setting up of sales and market offices. There was no share buy-back during the financial year ended 31 December No options, warrants or convertible securities were issued by the Company during the financial year ended 31 December The Company has not sponsored any DR programme for the financial year ended 31 December Annual Report 2010