Shaping Our Future ANNUAL REPORT 2007

Transcription

1 Shaping Our Future ANNUAL REPORT 2007

2 Contents Notice of Annual General Meeting > 2 Notice of Dividend Entitlement > 4 Statement Accompanying Notice of Annual General Meeting > 4 Corporate Information > 5 Profile of the Board of Directors > 6 Corporate Governance Statement > 8 Report of the Audit Committee > 13 Internal Control Statement > 17 Chairman s Statement > 18 Corporate Social Responsibility > 19 Statement of Directors Responsibility > 19 Financial Highlights > 20 Directors Report > 21 Balance Sheets > 25 Income Statements > 26 Statements of Changes in Equity > 27 Cash Flow Statements > 29 Notes to the Financial Statements > 31 Statement by Directors > 53 Statutory Declaration > 53 Report of the Auditors > 54 Analysis of Shareholdings > 55 List of Landed Properties > 57 Form of Proxy

3 Notice of Annual General Meeting NOTICE IS HEREBY GIVEN THAT the Twenty-First Annual General Meeting of the Company will be held at the First Floor, Bilik Langat, Kelab Shah Alam Selangor, No. 1A, Jalan Aerobik 13/43, Section 13, Shah Alam, Selangor Darul Ehsan on Wednesday, 14 May 2008 at a.m. for the following purposes: AGENDA 1) To receive the Audited Financial Statements for the year ended 31 December, 2007 together with the Directors and Auditors Reports thereon. Resolution 1 2) To approve a First and Final Dividend of 5% of which 3% will be net of income tax at 26% and 2% will be tax exempted, and a Special Dividend of 2% tax exempt for the year ended 31 December, Resolution 2 3) To approve the payment of Directors fees for the year ended 31 December, Resolution 3 4) To re-elect the following Directors who are retiring in accordance with Article 76 of the Company s Articles of Association: (a) Mr. Kit Lew Lin Resolution 4 (b) Dato Mohd Ali Bin Abd Samad Resolution 5 5) To re-elect the following Directors who are retiring in accordance with Article 81 of the Company s Articles of Association: (a) Mr. Lim Kau Chia Resolution 6 (b) Mr. Michiaki Nagai Resolution 7 6) To re-appoint Messrs Azman, Wong, Salleh & Co., the retiring Auditors, and to authorise the Board of Directors to fi x their remuneration. Resolution 8 7) SPECIAL BUSINESS To consider and, if thought fit, to pass with or without modifi cations, the following Resolutions: Ordinary Resolution - Proposed Renewal Of And Additional Shareholders Mandate For Recurrent Related Party Transactions Of A Revenue Or Trading Nature ( Proposed Renewal of and Additional Shareholders Mandate for RRPT ) THAT the Company and/or its subsidiaries ( the Group ) be and are hereby authorised to enter into the specified Recurrent Related Party Transactions as set out in section 2.3 of the Circular to Shareholders dated 21 April, 2008 with the specified classes of the related parties mentioned therein which are necessary for the Group s day to day operations subject to the following: i) the transactions are in the ordinary course of business and are on terms not more favourable to the related parties than those generally available to the public and are not to the detriment of the minority shareholders; and ii) disclosure of the aggregate value of transactions pursuant to the Proposed Renewal of And Additional Shareholders Mandate for RRPT conducted during a financial year will be made in the annual report for the said fi nancial year, AND THAT such authority conferred by the above mandate shall continue to be in force until: a. the conclusion of the Twenty-Second Annual General Meeting of the Company following the forthcoming Twenty-First Annual General Meeting at which the Proposed Renewal of and Additional Shareholders Mandate for RRPT is approved, at which time it will lapse, unless by a resolution passed at the Twenty-Second Annual General Meeting the mandate is renewed; b. the expiration of the period within which the Twenty-Second Annual General Meeting after that date is required to be held pursuant to Section 143(1) of the Companies Act, 1965 (but shall not extend to such extension as may be allowed pursuant to Section 143(2) of the Companies Act, 1965); or c. revoked or varied by resolution passed by the shareholders in general meeting; whichever is the earlier. 2 Sunchirin Industries (Malaysia) Berhad

4 AND FURTHER THAT the Directors and the Secretaries of the Company be and are hereby authorised to complete and do all such acts and things as they may consider expedient or necessary to give effect to the Proposed Renewal of and Additional Shareholders Mandate for RRPT. Resolution 9 Ordinary Resolution - Authority For Directors To Allot And Issue Shares THAT pursuant to Section 132D of the Companies Act, 1965, the Directors be and are hereby authorised to issue shares in the Company at any time until the conclusion of the next Annual General Meeting and upon such terms and conditions and for such purposes as the Directors may, in their absolute discretion, deem fit provided that the aggregate number of shares to be issued does not exceed 10% of the issued and paid-up share capital of the Company for the time being, subject always to the approvals of the relevant regulatory authorities. Resolution 10 8) To transact any other ordinary business of the Company of which due notice shall have been given in accordance with the Company s Articles of Association and the Companies Act, BY ORDER OF THE BOARD SUNCHIRIN INDUSTRIES (MALAYSIA) BERHAD NG YIM KONG LIM KAU CHIA Company Secretaries 21 April, 2008 Notes: > A member entitled to attend and vote at the Meeting is entitled to appoint a Proxy or Proxies to attend and vote on his(her) behalf. A Proxy may but need not be a member of the Company and the provisions of Section 149(1)(b) of the Companies Act, 1965 shall not apply to the Company. > Where a member appoints two (2) or more Proxies, the appointment shall be invalid unless he(she) specifies the proportions of his(her) shareholdings to be represented by each Proxy. > The Form of Proxy shall be signed by the appointor or his(her) attorney duly authorised in writing or, if the member is a corporation, must be executed under its common seal or, by its duly authorised attorney or officers. > The instrument appointing a Proxy must be deposited at the Registered Office of the Company at Lot 7, Jalan Api-api 26/1, Hicom Industrial Estate, Section 26, Shah Alam, Selangor Darul Ehsan, not less than forty-eight (48) hours before the time set for the Meeting or any adjournment thereof. EXPLANATORY NOTES ON SPECIAL BUSINESS a) Proposed Renewal Of And Additional Shareholders Mandate For RRPT The proposed Resolution 9 above, if passed, will enable the Company and its subsidiaries ( the Group ) to continue entering into the specified Recurrent Related Party Transactions as set out in section 2.3 of the Circular to Shareholders dated 21 April, 2008 with the specified classes of the related parties mentioned therein which are necessary for the Group s day to day operations. b) Authority For Directors To Allot And Issue Shares The proposed Resolution 10 above, if passed, will give the Directors of the Company authority to issue and allot shares for such purposes as the Directors in their absolute discretion consider to be in the interest of the Company without having to convene a general meeting. This authority, unless revoked or varied by the Company in general meeting, will expire at the next Annual General Meeting of the Company. Annual Report

5 Notice of Dividend Entitlement and Payment NOTICE IS HEREBY GIVEN THAT the 5% First and Final Dividend of which 3% less tax at 26% and 2% tax exempt, and the 2% Special Dividend tax exempt in respect of the financial year ended 31 December, 2007 will be payable on 12 August, 2008 to Depositors registered in the Record of Depositors at the close of business on 22 July, A Depositor shall qualify for entitlement only in respect of: a) shares transferred to the Depositor s Securities Account before 4.00 p.m. on 22 July, 2008 in respect of ordinary transfers; and b) shares bought on Bursa Malaysia Securities Berhad on a cum entitlement basis according to the Rules of Bursa Malaysia Securities Berhad. BY ORDER OF THE BOARD SUNCHIRIN INDUSTRIES (MALAYSIA) BERHAD NG YIM KONG LIM KAU CHIA Company Secretaries 21 April, 2008 Statement Accompanying Notice of Twenty-First Annual General Meeting Details of Directors who are standing for re-election in Agenda 4(a) (Mr. Kit Lew Lin), Agenda 4(b) (Dato Mohd Ali Bin Abd Samad), Agenda 5(a) (Mr. Lim Kau Chia) and Agenda 5(b) (Mr. Michiaki Nagai) of the Notice of the Twenty-First Annual General Meeting are laid out in pages 6 to 7 of this Annual Report. 4 Sunchirin Industries (Malaysia) Berhad

6 Corporate Information Board of Directors Kit Lew Lin Executive Chairman Mitsuru Ishimoto Group Managing Director Lim Kau Chia Deputy Group Managing Director Datin Nik Radiah Binti Nik Hassan Independent Non-Executive Director Dato Wan Mohamad Zin Bin Mat Amin Independent Non-Executive Director Kim Kwei Tsang Independent Non-Executive Director Dato Mohd Ali Bin Abd Samad Non-Independent Non-Executive Director Tamiyo Maeda Non-Independent Non-Executive Director Michiaki Nagai Non-Independent Non-Executive Director Audit Committee Datin Nik Radiah Binti Nik Hassan Chairperson Dato Wan Mohamad Zin Bin Mat Amin Dato Mohd Ali Bin Abd Samad Kim Kwei Tsang ESOS Committee Dato Mohd Ali Bin Abd Samad Chairman Dato Wan Mohamad Zin Bin Mat Amin Tamiyo Maeda Lim Kau Chia Siah Chong Yong Nomination Committee Dato Wan Mohamad Zin Bin Mat Amin Chairman Datin Nik Radiah Binti Nik Hassan Dato Mohd Ali Bin Abd Samad Remuneration Committee Datin Nik Radiah Binti Nik Hassan Chairperson Kit Lew Lin Dato Mohd Ali Bin Abd Samad Secretaries Registered Office Ng Yim Kong (LS ) Lim Kau Chia (MIA 06503) Lot 7, Jalan Api-api 26/1, Hicom Industrial Estate, Section 26, Shah Alam, Selangor Darul Ehsan Tel : Fax : Auditors Azman, Wong, Salleh & Co (AF 0012) Chartered Accountants Principal Bankers Share Registrars Business Address Stock Exchange Listing Malayan Banking Berhad CIMB Bank Berhad HSBC Bank Malaysia Berhad Public Bank Berhad Symphony Share Registrars Sdn Bhd Level 26, Menara Multi-Purpose, Capital Square, No. 8, Jalan Munshi Abdullah, Kuala Lumpur Tel : Fax : / Website : Lot 7, Jalan Api-api 26/1, Hicom Industrial Estate, Section 26, Shah Alam, Selangor Darul Ehsan Tel : Fax : enquiry@sunchirin.net Website : Bursa Malaysia Securities Berhad Second Board Annual Report

7 Profile of the Board of Directors KIT LEW LIN, Aged 60, Malaysian Executive Chairman Kit Lew Lin was appointed to the Board as an Executive Director on 25 January, 1990 and as Managing Director on 25 May He was redesignated as Executive Chairman of the Company on 3 January, 2008 respectively. He is a member of the Remuneration Committee. Kit Lew Lin is a graduate of the Malaysian Association of Certified Public Accountants (now renamed as Malaysian Institute of Certified Public Accountants) and a member of the Malaysian Institute of Accountants. He has experience in auditing, accounting and financial management, contracts supervision and general management prior to joining the Company in He has more than twenty eight (28) years of experience in the manufacturing sector of which the last twenty one (21) years was in the automotive parts manufacturing. He does not have any family relationship with any Director. However, he is a Director and shareholder of Sunrise Asia Management Pte. Ltd. which holds substantial interest in Sunrise Industry Company Limited, which in turn is a substantial shareholder of the Company. He currently holds 500,000 ordinary shares in the Company. He does not have any conflict of interest with the Company and has no conviction for any offence within the past ten (10) years. MITSURU ISHIMOTO, Aged 44, Japanese Group Managing Director Mitsuru Ishimoto was appointed to the Board as Executive Director on 26 May, He was redesignated as Group Managing Director on 3 January, Mitsuru Ishimoto graduated from Osaka Commercial University with a Bachelor degree in Commerce in Upon graduation, he joined Sunrise Industry Company Limited holding various capacities in the production area including production planning. He was seconded to Sunchirin in 1987 and held various positions until he returned to Japan in However, he was again seconded to Sunchirin as Administration and Marketing Director of its Thai subsidiary in 2000 and in 2001 he was transferred to Sunchirin to head the Sales and Marketing Division. He does not have any family relationship with any Director and/or substantial shareholders of the Company. However, he is a Director of Sunrise Asia Management Pte. Ltd. which holds substantial interest in Sunrise Industry Co., Ltd., which in turn is a substantial shareholder of the Company. He currently holds 51,000 ordinary shares in the Company. He does not have any conflict of interest with the Company and has no conviction for any offence within the past ten (10) years. LIM KAU CHIA, Aged 46, Malaysian Deputy Group Managing Director Lim Kau Chia was appointed to the Board as Deputy Group Managing Director on 3 January, He is also the Joint Company Secretary of the Company. Lim Kau Chia is a Chartered Accountant and member of the Malaysian Institute of Accountants and an Associate of the Chartered Institute of Management Accountants, United Kingdom. He has experience in accounting, financial and general management prior to joining the Company in He has more than twenty two (22) years of experience in the manufacturing sector of which the last nineteen (19) years was in the automotive parts manufacturing. He does not have any family relationship with any Director. He currently holds 63,000 ordinary shares in the Company. He does not have any confl ict of interest with the Company and has no conviction for any offence within the past ten (10) years. DATIN NIK RADIAH BINTI NIK HASSAN, Aged 57, Malaysian Independent Non-Executive Director Datin Nik Radiah Binti Nik Hassan was appointed to the Board on 13 November, She is the Chairperson for both the Audit Committee and Remuneration Committee and is a member of the Nomination Committee. Datin Nik Radiah Binti Nik Hassan holds a Bachelor of Science degree in Electrical and Electronic Engineering from King s College, University of London, United Kingdom. She started her career with Lembaga Letrik Negara (now known as Tenaga Nasional Berhad) and she was later involved in the stockbroking industry. Her career spanned thirty three (33) years where she held positions of engineer, dealer s representative, executive director and executive director cum corporate nominee. She is presently the CEO of Asia Pacific Flight Training, a flight training academy. She does not have any family relationship with any Director and/or substantial shareholders of the Company except for her beneficial interest of 396,100 ordinary shares in the Company. She does not have any conflict of interest with the Company and has no conviction for any offence within the past ten (10) years. DATO WAN MOHAMAD ZIN BIN MAT AMIN, Aged 61, Malaysian Independent Non-Executive Director Dato Wan Mohamad Zin Bin Mat Amin was appointed to the Board on 13 November, He is the Chairman of the Nomination Committee and is a member of the Audit Committee and Remuneration Committee. Dato Wan Mohamad Zin Bin Mat Amin graduated from Malaysian Armed Forces Staff College and holds a Masters of Business Administration degree from Greenwich University, Australia. He had served in the Malaysian Armed Forces for seventeen (17) years and after retiring from the Armed Forces, he ventured into business. He has over twenty one (21) years of experience in the fields of defence related supplies, property development, automotive parts manufacturing, information technology services and investment holding. He does not have any family relationship with any Director and/or substantial shareholders of the Company except for his beneficial interest of 1,500,000 ordinary shares in the Company. He does not have any conflict of interest with the Company and has no conviction for any offence within the past ten (10) years. He sits on the board of Caely Holdings Berhad and PA Resources Berhad. 6 Sunchirin Industries (Malaysia) Berhad

8 KIM KWEI TSANG, Aged 34, Malaysian Independent Non-Executive Director Kim Kwei Tsang was appointed to the Board on 18 February, 2003 and is a member of the Audit Committee. Kim Kwei Tsang is a Chartered Accountant and a fellow member of The Association of Chartered Certified Accountants, United Kingdom. He has extensive experience in the field of financial statutory audit, corporate finance and corporate restructuring and recovery. Presently, he is attached with the corporate advisory unit of Messrs Horwath - Kuala Lumpur Office. He does not have any family relationship with any Director and/or substantial shareholders of the Company. He does not have any confl ict of interest with the Company and does not hold any shares in the Company. He has no conviction for any offence within the past ten (10) years. DATO MOHD ALI BIN ABD SAMAD, Aged 60, Malaysian Non-Independent Non-Executive Director Dato Mohd Ali Bin Abd Samad was appointed to the Board on 18 May, 2004 and is a member of the Audit Committee and Nomination Committee. Dato Mohd Ali Bin Abd Samad holds a Bachelor of Arts degree from the Universiti Malaya and a Master in Public Policy and Administration from the University of Wisconsin, United States of America. He began his long and illustrious career with the Government in 1972, serving more than thirty-one (31) years before retiring in His stellar career history included service as an Assistant Secretary to the Ministry of Defence, Principle Assistant Secretary to the State Secretariat of Malacca, Principle Assistant Secretary (Finance) to the Ministry of Information, District Officer of Hulu Langat District, Selangor, District Officer of Klang District, Selangor, Secretary (Property Division) to the Prime Minister s Department, Deputy Director General of Malaysian Highway Authority and State Financial Officer of Negeri Sembilan before he retired as State Secretary of the State Government, Negeri Sembilan in October He does not have any family relationship with any Director and/or substantial shareholders of the Company except by virtue of him being a nominee director of Permodalan Nasional Berhad. He does not have any conflict of interest with the Company and does not hold any shares in the Company. He has no conviction for any offence within the past ten (10) years. He sits on the boards of Perbadanan Nasional Berhad, Bank Simpanan Nasional Berhad and Tabung Haji Properties Sdn. Berhad. He is also the chairman of New Pantai Expressway Sdn. Bhd. and ECM Libra Investment Bank Bhd. TAMIYO MAEDA, Aged 52, Japanese Non-Independent Non-Executive Director Tamiyo Maeda was appointed to the Board on 29 March, He also sits on the Board of Nichirin Co., Ltd., a company listed on the Osaka Stock Exchange and a substantial shareholder of the Company. Tamiyo Maeda graduated from Osaka Institute of Technology with a Bachelor degree in Electrical Engineering in Upon graduation, he joined Nichirin Co., Ltd. in the sales department and during this period has held various positions within the Nichirin Group including as general manager and vice-president of Nichirin Inc., Canada. He is presently a Director and the Deputy Head of Sales Division of Nichirin. He has over thirty (30) years of working experience in the automotive industry. He does not have any family relationship with any Director and/or substantial shareholders of the Company except by virtue of him being a director of Nichirin Co., Ltd. and its board representative in the Company. He does not have any conflict of interest with the Company and does not hold any shares in the Company. He has no conviction for any offence within the past ten (10) years. MICHIAKI NAGAI, Aged 45, Japanese Non-Independent Non-Executive Director Michiaki Nagai was appointed to the Board on 3 January, Michiaki Nagai graduated from Temple University, USA with a Bachelor degree in Science (Architecture) in He served with Sumitomo Mitsui Banking Corporation from 1988 until He subsequently joined Sunrise Industry Co., Ltd. in 1993 and was seconded to both of its overseas subsidiaries, Sunrise Industry America Ltd. and Sunrise Industry Mexico SA de CV as Accounting cum General Affairs Manager and subsequently promoted to Senior Vice President. When Nichirin Co., Ltd., Japan acquired both the companies in 1998, he was appointed as Senior Vice President of Nichirin Coupler Tec U.S.A. Inc, and Nichirin Coupler Tec Mexico SA de CV and served until year He then joined Himeji Logistics Co., Ltd. and left in 2002 to join Sunrise Industry Company Limited as Director cum General Manager of Corporate Planning. Michiaki Nagai is the son-in-law of Masahito Hiraishi, a major shareholder of the Company. He is also a Director of Sunrise Asia Management Pte. Ltd. which holds substantial interest in Sunrise Industry Co., Ltd., which in turn is a substantial shareholder of the Company. He does not have any confl ict of interest with the Company and does not hold any shares in the Company. He has no conviction for any offence within the past ten (10) years. Annual Report

9 Corporate Governance Statement The Company s Board of Directors ( Board ) is fully committed in ensuring that the highest standards of corporate governance is practised and maintained throughout the Group and to adhere to Bursa Malaysia Securities Berhad ( Bursa Securities ) Listing Requirements as a fundamental part of discharging its responsibilities to protect and to enhance shareholders value and the financial performance of the Company and the Group. Based on the Principles of the Malaysian Code on Corporate Governance ( the Code ), the Board is pleased to present its report on the extent of compliance with the Best Practices as recommended under Part 2 of the Code. THE BOARD OF DIRECTORS Composition and Board Balance The Board currently has nine (9) members, comprising three (3) Executive Directors and six (6) Non-Executive Directors. Three (3) of the nine (9) Directors are Independent Non-Executive Directors, satisfying the Listing Requirements of Bursa Securities on Board Composition for Non-Executive Directors to make up at least one third of the Board membership. Together the composition of the Board refl ects a mix of members with a wide blend of different backgrounds, business and commerce, engineering, financial, other commercial experience and cultures which is necessary for the successful direction of the Group. The Board is regularly briefed by its executive members on strategic plans undertaken by the Group to ensure continued business progress and to enhance its performance and market leadership. The Board meets regularly, normally four (4) times a year to review the quarterly performance with additional meetings as and when required. All Directors are briefed in advance of Board meetings on the matters to be discussed and have access to any further information which they may require in discharging their duties including seeking independent professional advice, if necessary, at the Company s expense. They also have access to the advice and services of the Company Secretaries. A Company Secretary may only be appointed and removed with the approval of the Board. All Non-Executive Directors, with the exception of Mr. Tamiyo Maeda, Mr. Michiaki Nagai and Dato Mohd Ali Bin Abd Samad are independent of management and free from any business or other relationship which could materially interfere with the exercise of their independent judgement. Mr. Tamiyo Maeda, Mr. Michiaki Nagai and Dato Mohd Ali Bin Abd Samad are deemed to be non-independent as they are board representatives of Nichirin Co., Ltd., Sunrise Industry Co., Ltd. and Permodalan Nasional Berhad respectively, who are substantial shareholders of the Company. Role and Responsibilities The Board practices clear demarcation of duties, responsibilities and authority whereby the roles of the Executive Chairman and Managing Director are separate and are held by two (2) different individuals. The Executive Chairman is primarily responsible for the orderly conduct of the Board meeting and working of the Board whereas the Managing Director is subject to the control of the Board and is responsible for the implementation of Board policies, making operational decisions and monitoring day to day running of the business. He also defines the limits of the management s responsibilities and also formulates operational strategies which include succession planning for senior management. The roles of the Non-Executive Directors are to deliberate and discuss policies and strategies formulated and proposed by the management with the view of the long term interests of all shareholders and contribute to the formulation of policies, and decision making using their expertise, experience and guidance to promote professionalism. The presence of Independent Non-Executive Directors ensures the unbiased and independent view, advice and judgement as well as to safeguard the interest of other parties such as minority shareholders and the community. The strategies proposed by the management are fully deliberated and examined with the interest of the shareholders, employees, customers, and the other interested parties taken into consideration. The Non-Executive Directors as a group are of sufficient calibre and number to bring strength of independence to the Board. The Board has appointed Datin Nik Radiah Binti Nik Hassan as the senior Independent Non-Executive Director to deal with issues regarding the Company and any concerns regarding the Group may be conveyed to her. Board Meetings and Supply of Information The Board meets on a scheduled basis, at least four (4) times a year with additional meetings convened as necessary. During the year there were five (5) Board meetings and the attendance of the Board members are as follows: 8 Sunchirin Industries (Malaysia) Berhad

10 DATE OF BOARD MEETING 14 FEBRUARY, MAY, JULY, AUGUST, NOVEMBER, 2007 Masahito Hiraishi (retired on 3 January, 2008) - Kit Lew Lin Mitsuru Ishimoto Datin Nik Radiah Binti Nik Hassan Dato Wan Mohamad Zin Bin Mat Amin Kim Kwei Tsang Toyofumi Katsuda (resigned on 29 March, 2007) N/A N/A N/A N/A Tamiyo Maeda (appointed on 29 March, 2007) N/A - Dato Mohd Ali Bin Abd Samad - Michiaki Nagai (ceased as alternate director to Masahito Hiraishi on 3 January, 2008 and appointed as director on the same date) N/A Not applicable All members of the Board are provided with reports and other relevant information in advance of Board Meetings, covering various aspects of the Group s operations and performance. The Board has unrestricted access to all information pertaining to the Group s affairs and also to the advice and services of the Company Secretaries. The Board can at any time request for the services of independent professional advice as well as for the services of the internal auditors. BOARD COMMITTEES The Board has established various committees to meet the Best Practices of the Code. These committees are Audit Committee, Employees Share Option Scheme ( ESOS ) Committee, Nomination Committee and Remuneration Committee. All Committees are delegated with specifi c responsibilities which operate within clearly-defined terms of reference. The Committees are empowered to deliberate and examine issues delegated to them and report back to the Board with their recommendations and comments. Audit Committee The Audit Committee was established in 1996 to assist the Board in overseeing the Group s activities within its defined terms of reference. The Best Practices BB Part 2 of the Code and Paragraph of the Listing Requirements spell out the duties of an Audit Committee. Pursuant to Paragraph of the Listing Requirements, the Audit Committee Report for the current fi nancial year is laid out in pages 13 to 16 of this Annual Report. The Board shall review the term of office and performance of the Audit Committee and each of its members to determine whether members of the Audit Committee have carried out their duties in accordance with their terms of reference. The Board has full access to both internal and external auditors and receive reports on all audits performed via the Audit Committee. The Audit Committee had at the financial year end verified the allocation of share options to ensure its compliance with the criteria for allocation of options pursuant to the ESOS for the Company s employees. ESOS Committee The ESOS Committee consists of three (3) Non-Executive Directors and two (2) management representatives. The ESOS Committee s main responsibility is the administration of the ESOS in accordance with its approved Bye-Laws and guidelines imposed by the relevant authorities during the duration of the ESOS. At least once a year at each financial year end, the Audit Committee will verify the allocation of options to ensure compliance with the criteria for allocation of options. The ESOS which implemented for an option period of 5 calendar years commencing from 2 December, 2002 had expired on 1 December, Remuneration Committee The Remuneration Committee consists of two (2) Independent Non-Executive Directors and one (1) Executive Director. The Remuneration Committee s main responsibility is to establish and recommend to the Board the structure and policy for remuneration which is sufficient to attract and retain Directors to steer the Company competitively. The Remuneration Committee also deals with any other matters as referred to it by the Board. The Remuneration Committee met once during the financial year ended 31 December, Annual Report

11 Corporate Governance Statement Nomination Committee The Nomination Committee consists of three (3) Non-Executive Directors and a majority of whom are independent. The Nomination Committee s main responsibility is to review regularly the Board structure, size and composition and make recommendations to the Board with regards to any adjustments that are deemed necessary. The Nomination Committee will also propose and identify new candidacy to the Board, assess its size and effectiveness as a whole. There were two (2) meetings held during the fi nancial year ended 31 December, The Company is entitled to the service of the Company Secretaries to ensure the appointment of each of its Directors are properly made. DIRECTORS TRAINING All Directors have completed the Mandatory Accreditation Programme (MAP) in compliance with the Listing Requirements of Bursa Securities. The Board encourages its Directors to attend talks, seminars, workshops and conferences to keep abreast with current affairs and new regulatory development and to enhance their skills and knowledge. During the year, all Directors attended the following in-house programmes: Briefing on Commodities Derivatives Price Risk Management Briefing on Malaysian Code on Corporate Governance The above programmes were designed to keep the Directors abreast with current trends as well as the new statutory and regulatory requirements. The Directors are also updated on a continuing basis by the Company Secretary on new and/or revised Listing Requirements of Bursa Securities as and when the same are advised by Bursa Securities ( Continuing Updates ). The Board views the attendance of the Directors at the aforementioned programmes, and the Continuing Updates as adequate to comply with the Listing Requirements of Bursa Securities under paragraph 15.09(2). APPOINTMENT AND RE-ELECTION OF DIRECTORS The appointments of Directors are made upon the recommendation of the Nomination Committee who would review the required mix of skills and experience as well as other qualities of candidates for the approval of the Board. In accordance with the Company s Articles of Association, all newly appointed Directors are subject to re-election by shareholders at the first opportunity at an annual general meeting after appointment and thereafter retire from office on a rotation basis. The Articles of Association of the Company provides that one third (1/3) of the Board of Directors retire from office by rotation and be eligible for re-election at every annual general meeting including the Managing Director. A Director over seventy (70) years of age is required to submit himself for re-appointment annually in accordance with the Section 129(6) of the Companies Act, DIRECTORS REMUNERATION Non-Executive Directors are paid an attendance allowance for each Board and Committee Meeting they attend. Directors fees are paid to Non- Executive Directors after approval by shareholders at the Annual General Meeting. The Board as a whole determines the fees of each Non-Executive Director. Executive Directors are not paid attendance allowance and Directors fees. The Remuneration Committee in consultation with the Board will set and recommend the basic salary of the Executive Directors of the Group taking into account the compensation practice of other companies within the industry and the performance of each individual. Annual review on the salaries where necessary will be made to appropriately reflect the performance and market pressure. Non-Executive Directors are paid fixed yearly Directors fees, committee fees for Board committees and also meeting allowances. Their level of remuneration is structured to reflect their individual experience and level of responsibilities undertaken. 10 Sunchirin Industries (Malaysia) Berhad

12 Details of Directors remuneration for the financial year ended 31 December, 2007, distinguishing between Executive Directors and Non-Executive Directors are as follows: SALARIES/FEES BONUS OTHERS BENEFITS-IN-KIND TOTAL RM 000 RM 000 RM 000 RM 000 RM 000 Executive ,210 Non-Executive The number of Directors whose total remuneration fall within the following bands: RANGE OF REMUNERATION EXECUTIVE NON-EXECUTIVE Below RM50,000-5 RM50,001 to RM300, RM300,001 to RM350, RM350,001 to RM550, RM550,001 to RM600, RELATIONSHIP WITH SHAREHOLDERS The Board recognises the importance of effective communication with its shareholders. The Board ensures timely dissemination of information on the Group s performance, strategies and major developments via the distribution of the Annual Report, circulars, quarterly financial statements, announcements and press releases whenever applicable. In this regard, the Company adheres to the disclosure requirements of Bursa Securities. The Company s Annual Reports are sent to its shareholders at least twenty-one (21) days before the Annual General Meeting. The Group s performance and progress are presented to the shareholders during the meeting and the shareholders are given the opportunity to seek clarification on any matters pertaining to the business and financial performance of the Group. ACCOUNTABILITY AND AUDIT Financial Reporting The Board is responsible to ensure that the financial statements are prepared in accordance with the provisions of the Companies Act, 1965, applicable approved accounting standards in Malaysia, and give a true and fair view of the state of affairs of the Company and the Group at the end of the financial year. In compliance with the Listing Requirements of Bursa Securities, the Board is satisfied that the Company s and Group s results are made available on a timely manner so that shareholders and investors are kept abreast with the development of the Group. Related Party Transactions All related party transactions are reviewed by the Audit Committee on a quarterly basis. Details of these transactions are set out under Notes to the Financial Statements on pages 49 to 51 of this Annual Report. Relationship with Auditors The Company s external auditors, Messrs Azman, Wong, Salleh & Co. have continued to report to the shareholders of the Company on their findings which are included as part of the Statutory Financial Statements. The Group has established transparent and appropriate relationship with the external auditors whereby the Audit Committee reviews with the external auditors, the audit plan, the scope of audit and the audit report. The external auditors have reported their findings to the Audit Committee and have discussed with the Board of Directors on matters that require the Board of Directors attention. Annual Report

13 Corporate Governance Statement Internal Controls Internal control mechanism is embedded in the various work processes and procedures of the Group. This control mechanism is based on the assessment of both the operational and financial risks of the Group s activities. The Managing Director is responsible for the effectiveness of this control mechanism. The Board has the authority to assess the state of internal control as it deems necessary and seeks input from the Audit Committee, internal auditors and external auditors. To fulfil this role, the Audit Committee is established with an advisory capacity with specific terms of reference which include the overseeing and monitoring of the Group s financial reporting system and internal and external audit processes. The Board has outsourced the internal audit functions to a professional services firm, BDO Governance Advisory Sdn. Bhd. which assist the Audit Committee in monitoring and assessing risks and internal control system of the Group. During the year, BDO Governance Advisory Sdn. Bhd. on the instruction of the Audit Committee had carried out assessments on the adequacy, integrity and effectiveness of Group s internal control and reviewed various operational activities to identify key risk areas. The information of the Group s internal control is presented in the Statements on Internal Control as set out on page 17 of this Annual Report. COMPLIANCE WITH THE CODE The Board is committed to uphold and continue to maintain the Best Practices of the Code. The Group has maintained a high standard of corporate governance and practises a high level of integrity and ethical standard in all its business dealings and will continue the best practices as set out in the Code in all its future business dealings. ADDITIONAL COMPLIANCE INFORMATION Material Contracts There were no material contracts entered into by the Group which involve Directors or substantial shareholders interests subsisting at the end of the financial year ended 31 December, 2007 or entered into since the end of the previous financial year. Other transactions are as disclosed in the related parties transactions presented in the Audited Financial Statements under Note 27. All recurring related party transactions are subject to the approval of shareholders by resolution in a general meeting. The Audit Committee reviews at least once a year whether the guidelines and procedures established to monitor these recurrent related party transactions are complied with. Non-Audit Fees Non-audit fees paid to Messrs Azman, Wong, Salleh & Co. amounted to RM300. Sanctions/Penalties There were no sanctions and/or penalties imposed on the Company and its subsidiary companies by the relevant regulatory bodies during the financial year. Profit Guarantees During the fi nancial year, there were no profit guarantees given by the Company. Options, Warrants and Convertible Securities During the financial year, the Company did not issue any options, warrants or convertible securities. The Employee Share Options Scheme ( ESOS ) which was implemented in year 2002 had expired on 1 December, No option was exercised under the ESOS during the year. Share Buy-back, American Depository Receipt ( ADR ) or Global Depository Receipt ( GDR ) Programme During the fi nancial year, the Company did not engage in share buy-back or sponsor any ADR or GDR programme. 12 Sunchirin Industries (Malaysia) Berhad

14 Report of the Audit Committee The Audit Committee ( Committee ) supports and provides assistance to the Board in discharging its responsibilities to meet its objectives of enhancing shareholders value with accountability. Its role in reviewing the Group s financial reporting processes, internal control system and reinforcing the independence of the internal and external auditors adds credence to the governance and transparency of the Board. The Committee comprises the following Directors: Chairperson and Independent Non-Executive Director Datin Nik Radiah Binti Nik Hassan Managing Director Kit Lew Lin (resigned on 27 November, 2007) Independent Non-Executive Directors Dato Wan Mohamad Zin Bin Mat Amin Kim Kwei Tsang Non-Independent Non-Executive Director Dato Mohd Ali Bin Abd Samad (appointed on 27 November, 2007) TERMS OF REFERENCE OF THE AUDIT COMMITTEE 1. Objectives The primary objective of the Committee is to assist the Board of Directors in fulfilling its responsibilities relating to accounting and reporting practices of the Company and its subsidiary companies ( the Group ). In addition, the Committee shall: (a) oversee and appraise the quality of the audits conducted both by the Company s internal and external auditors; (b) maintain open lines of communication between the Board of Directors, the internal auditors and the external auditors for exchange of views and information, as well as to confirm their respective authorities and responsibilities; (c) determine the adequacy of the Group s administrative, operating and accounting controls. 2. Composition The Committee shall be appointed by the Board of Directors from amongst the Directors of the Company. The Committee shall comprise not less than three (3) members of whom: (a) a majority shall be independent Directors; (b) at least one (1) member of the Committee: (i) must be a member of the Malaysian Institute of Accountants; or (ii) if he is not a member of the Malaysian Institute of Accountants, he must have at least three (3) years working experience and: he must have passed the examinations specifi ed 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 specifi ed in Part II of the 1st Schedule of the Accountants Act (c) No alternate Director shall be appointed as a member of the Committee. The members of the Committee shall elect a Chairman from among their number who shall be an independent director. The Board of Directors must review the term of office and performance of the Committee and each of its members at least once every three (3) years to determine whether the Committee and its members have carried out their duties in accordance with the terms of reference. If a member of the Committee resigns, dies or for any other reason ceases to be a member with the result that the number of members is reduced to below three (3), the Board of Directors shall, within three (3) months of that event, appoint such number of new members as may be required to make up the minimum number of three (3) members. Annual Report

15 Report of the Audit Committee 3. Quorum The quorum of the Committee shall be two (2) of whom the majority of members present shall be Independent Directors. 4. Attendance and Meetings Apart from the members of the Committee who will be present at the meetings, the Committee may invite any member of the management, employees, other Directors and representatives of the external auditors to be present at meetings of the Committee. The Committee shall meet at least four (4) times a year and such additional meetings as the Chairman shall decide in order to fulfill its duties. In addition, the Chairman may call a meeting of the Committee if a request is made by any Committee member, the Company s Managing Director, or the internal or external auditors. 5. Secretary The Company Secretaries shall be the Secretaries of the Committee. 6. Functions and Responsibilities The functions and responsibilities of the Committee shall include the following: (a) to review with the external auditors their audit plan, their evaluation of the system of internal accounting and controls and their audit report; (b) to review the assistance given by the Company s employees to the external auditors; (c) to review the adequacy of scope, functions and resources of the internal audit functions and that it has the necessary authority to carry out its work; (d) to review the financial condition of the Group, its internal controls and audit programme, the performance and findings of internal audit staff and to recommend action to be taken thereon by Management and whether or not appropriate action is taken on the recommendations of the internal audit function; (e) to review the quarterly results and year end financial statements, prior to the approval by the Board of Directors, focusing particularly on: (i) changes in/or implementation of major accounting policy changes; (ii) significant and unusual events; and (iii) compliance with accounting standards and other legal requirements; (f) to review any related party transactions and conflict of interest situation that may arise within the Company or the Group including any transaction, procedure or course of conduct that raises questions of management integrity; (g) to review and report the same to the Board of Directors any letter of resignation from the external auditors of the Company as well as whether there is any reason (supported by grounds) to believe that the Company s external auditors are not suitable for re-appointment; (h) to make recommendations concerning the appointment of the external auditors and their remuneration to the Board of Directors; (i) Prompt reporting to Bursa Securities on any matter reported by the Committee to the Board which has not been satisfactory resolved resulting in a breach of the Listing Requirements of Bursa Securities; and (j) such other functions as may be agreed to by the Committee and the Board of Directors. The reports of the Committee and the external and internal auditors and corrective actions taken shall be tabled for discussion by the Board of Directors. 14 Sunchirin Industries (Malaysia) Berhad

16 7. Minutes Minutes of each Committee meeting are to be prepared and sent to its members. The Secretary shall also circulate the Minutes of meetings of the Committee to all members of the Board of Directors. 8. Rights of the Audit Committee The Committee shall, wherever necessary and reasonable for its performance of its duties and in accordance with a procedure to be determined by the Board of Directors and at the Company s costs: (a) have authority to investigate any matter within its terms of reference; (b) have the resources which are required to perform its duties; (c) have full and unrestricted access to any information pertaining to the Company; (d) have direct communication channels with the external auditors and person(s) carrying out the internal audit function or activity (if any); (e) be able to obtain independent professional or other advice; and (f) be able to convene meetings with the external auditors, excluding the attendance of the executive members of the Committee, wherever deemed necessary. 9. Audit Committee Report The Committee shall ensure that an Audit Committee Report be prepared at the end of each financial year that complies with subparagraphs (9.1) and (9.2) below:- 9.1 The Audit Committee Report shall be clearly set out in the annual report of the Company; 9.2 The Audit Committee Report shall include the following: (a) the composition of the Committee, including the name, designation (indicating the chairman) and directorship of the members (indicating whether the Directors are independent or otherwise); (b) the terms of reference of the Committee; (c) the number of Committee meetings held during the fi nancial year and details of attendance of each member; (d) a summary of activities of the Committee in the discharge of its functions and duties for that fi nancial year of the Company; and (e) the existence of an internal audit function or activity and where there is such a function or activity, a summary of the activities of the function or activity. Where such a function or activity does not exist, an explanation of the mechanisms that exist to enable the Committee to discharge its functions effectively. 10. Reporting of Breaches to The Exchange Where the Committee is of the view that a matter reported by it to the Board of Directors of the Company has not been satisfactorily resolved resulting in a breach of the Bursa Malaysia Securities Berhad s Listing Requirements, the Committee shall promptly report such matter to the Exchange. Annual Report

17 Report of the Audit Committee MEETINGS OF THE AUDIT COMMITTEE The Committee normally meets four (4) times a year to review the quarterly performance and with additional meetings as and when required. External and internal auditors were also present when their inputs and recommendations were required. During the year there were five (5) Audit Committee meetings and the attendance of the Audit Committee members were as follows: DATE OF MEETING 14 FEBRUARY, MARCH, MAY, AUGUST, NOVEMBER, 2007 Datin Nik Radiah Binti Nik Hassan Dato Wan Mohamad Zin Bin Mat Amin Kit Lew Lin Kim Kwei Tsang Internal Audit Function The Group does not have an Internal Audit Department. The internal audit function was out-sourced to Messrs BDO Governance Advisory Sdn. Bhd. to enable the Group to benchmark its processes, controls and risks management to a level consistent with the best practices commonly adopted by leading industrial organisations. The Committee had reviewed with the internal auditors, their scope of work, internal audit timetable, audit plans and programmes to ensure adequate coverage. The internal auditors had carried out their internal audit programmes on several key risk areas both at the Company and Group level and reported their audit findings to the Committee during the various scheduled meetings held during the year. Their findings were based on the audit of the Group s operational activities and compliance with internal control procedures. They had also highlighted weaknesses, identifi ed key risk areas and made appropriate recommendations for improvement. The internal auditors, Messrs BDO Governance Advisory Sdn. Bhd. had carried out their internal audit programmes on several key risk areas both at the Company and Group level and reported their audit findings to the Committee during the various scheduled meetings held during the year. Their findings and recommendations were reported directly to the Committee thereby ensuring independence and impartiality. Activities During the Financial Year The Committee met five (5) times during the year with due notices of meetings and appropriate agenda to discuss and deliberate on matters raised in a focus and systematic manner. The Committee had reviewed the Group s quarterly, half-yearly and year end financial statements before Board meetings where the Chairperson of the Committee presented the Committee s reports. Prior to the audit of the Group s financial statements, the external auditors, Messrs Azman, Wong, Salleh & Co. presented their audit plan whereby the nature and extent of their audit were tabled for discussion and approval. The external auditors also informed the Committee of the additional disclosure requirements and the adoption of relevant revised Financial Reporting Standards issued by the Malaysian Accounting Standards Board (MASB) and its effects on the Audited Financial Statements of the current year. During the review of the Group s Audited Financial Statements, the external auditors briefed the Committee on the disclosure requirements of the MASB on the current year s accounts and discussed on pertinent issues and findings raised during their examination. The Committee had reviewed with the internal auditors, Messrs BDO Governance Advisory Sdn. Bhd., the scope of their internal audit work, audit timetable, plans and programmes. On completion of each audit programme, the internal auditors presented their findings and recommendations to the Committee for review where appropriate follow up actions had to be taken by the management to address them. The Committee had also reviewed and ascertained that the guidelines and procedures established to monitor recurrent related party transactions were adhered to and complied. The Committee was satisfied that the review was sufficient and recommended for the proposed shareholders mandate on this matter. The Committee had verified allocation of options pursuant to the Employees Share Option Scheme as being in compliance with the established criteria. 16 Sunchirin Industries (Malaysia) Berhad