Group Financial Highlights

Transcription

1 Group Financial Highlights RM`000 RM`000 RM`000 RM`000 RM`000 RM`000 RM`000 RM`000 RM`000 RM`000 1 Result of Operations Revenue 388, , , , , , , , , ,255 Profit Before Tax 44,398 58,019 55,959 55,358 7,026 72,296 67,913 42,823 77,534 80,554 Profit After Tax 36,723 45,733 44,783 44,974 7,880 62,251 59,502 53,936 56,622 64,440 2 Balance Sheet Share Capital 78,883 78,943 79,023 79,046 79,046 79,046 79,046 79, , ,312 Bonus Shares ,046 0 Issue During the Year Shareholders` Funds 272, , , , , , , , , ,111 Total Assets 388, , , , , , , , , ,770 3 Financial Ratio Return on Equity (%) Debts/ Equity (Times) Current Ratio (Times) Liquidity Ratio (Times) Dividend Cover (Times) Pre-Tax Return on Average Shareholders` Fund (%) Pre-Tax Profit to Revenue (%) Per Share Net Tangible Asset per share (RM) Gross Earnings per share (sen) Net Earnings per share (sen) Dividends Interim (%) (Tax Exempt) (Gross) Final (%) (Tax Exempt) First and Final (%) Special (%) (Tax Exempt)

2 Group Financial Highlights REVENUE RM (Million) PROFIT BEFORE TAX PROFIT AFTER TAX RM (Million) RM (Million) SHAREHOLDERS FUND TOTAL ASSETS RM (Million) RM (Million)

3 Analysis of Shareholdings As at 11 May 2004 Authorised Share Capital - RM500,000,000 Issued and Paid-up Capital - RM160,973,800 Class of Shares - Ordinary Shares of RM1 each Voting Rights - 1 Vote Per Ordinary Share No. of Shareholders - 8,464 Size of No. of % of No. of % of Shareholdings Shareholders Shareholders Shares Issued Capital Less than 1, , ,000-10,000 7, ,269, , ,000 1, ,044, ,001 to less than 5% of issued shares ,368, % and above of issued shares ,150, Total 8, ,973, Thirty Largest Shareholders As at 11 May 2004 Name Ordinary Shares % of of RM1/- each Issued Capital 1. Thong & Kay Hian Nominees (Tempatan) Sdn Bhd Beneficiary : UOB Kay Hian Pte Ltd for Melewar Equities (BVI) Ltd 37,354, Employees Provident Fund Board 21,796, HDM Nominees (Asing) Sdn Bhd Beneficiary : UOB Kay Hian Pte Ltd for Ovington Finance Limited 13,000, Malaysian Assurance Alliance Berhad 7,896, Thong & Kay Hian Nominees (Tempatan) Sdn Bhd Beneficiary : UOB Kay Hian Pte Ltd for Melewar Equities Sdn Bhd 4,750, M & A Nominee (Asing) Sdn Bhd Beneficiary : UOB Kay Hian Private Limited for Ace Financial Services Inc. 2,893, Permodalan Nasional Berhad 2,650, Citicorp Nominees (Asing) Sdn Bhd Beneficiary : Goldman Sachs International 1,475, Bumiputra-Commerce Trustee Berhad Beneficiary : Amanah Saham Darul Iman 850, HSBC Nominees (Tempatan) Sdn Bhd Beneficiary : Pledged securities account for Koon Yew Yin 716, Kumpulan Wang Amanah Pencen 707, Palani Appan Subramanian 526,

4 Analysis of Shareholdings As at 11 May 2004 Thirty Largest Shareholders Name Ordinary Shares % of of RM1/- each Issued Capital 13. Public Nominees (Tempatan) Sdn Bhd Beneficiary : Pledged securities account for Zet Enterprise Sdn Bhd 505, Yeoh Kean Hua 480, Citicorp Nominees (Asing) Sdn Bhd Beneficiary : CBNY for DFA Emerging Markets Fund 479, Lee Hau Hian 476, HSBC Nominees (Tempatan) Sdn Bhd Beneficiary : HSBC (Malaysia) Trustee Berhad for Amanah Saham Sarawak 464, Daiman bin Jamaluddin 420, Botly Nominees (Tempatan) Sdn Bhd Beneficiary : Pledged securities account for Tan Kit Pheng 415, Citicorp Nominees (Tempatan) Sdn Bhd Beneficiary : Pledged securities account for Chin Chan Leong 409, Md Nahar bin Noordin 400, Wong Yoon Chyuan 340, Nik Hatmah binti Nik Hassan 327, HLG Nominee (Asing) Sdn Bhd Beneficiary : IBB Securities Sdn Bhd 300, HSBC Nominees (Asing) Sdn Bhd Beneficiary : HSBCIT HK for JF Pacific Smaller Companies Fund 266, Wong Yoon Tet 264, HDM Nominees (Tempatan) Sdn Bhd Beneficiary : UOB Kay Hian Pte Ltd for Teh Kee Hong 260, Saw Cheng Kim 250, Seow Tek Lin 248, PRB Nominees (Tempatan) Sdn Bhd Beneficiary : Rubber Industry Smallholders Development Authority 240, ,161,

5 Analysis of Shareholdings As at 11 May 2004 List of Substantial Shareholders As at 11 May 2004 Name Number of Shares Held Direct % Indirect % Melewar Equities (BVI) Ltd ,354, Employees Provident Fund Board 21,796, Ovington Finance Limited ,000, Tunku Abdullah ibni Almarhum Tuanku Abdul Rahman ,200, Tunku Dato Ya acob bin Tunku Abdullah 200, ,000, Tunku Dato Seri Iskandar bin Tunku Abdullah ,200, Tunku Yahya bin Tunku Abdullah ,200, Directors Shareholdings As at 11 May 2004 Number of Shares Held Name Direct % Indirect % Tunku Abdullah ibni Almarhum Tuanku Abdul Rahman ,200, Tunku Dato Ya acob bin Tunku Abdullah 200, ,000, Tunku Dato Seri Iskandar bin Tunku Abdullah ,200, Tunku Yahya bin Tunku Abdullah ,200, Mr. Lim Kim Chuan 140, En. Azlan bin Abdullah 100,

6 Chairman s Statement On behalf of the Board of Directors, I have pleasure in presenting the Group s Annual Report for the year ended 31 January Financial Results For the year under review, the Group achieved total revenue of RM462 million, which is 18% higher than the previous year. Sales of steel tubes amounted to RM214 million, whilst sales of Cold Rolled Coils ( CRC ) steel sheets amounted to RM270 million (gross of inter-company sales). In terms of earnings, the Group registered a pre-tax profit of RM80.6 million, compared with the preceding year s pre-tax profit of RM77.5 million. Of this amount, steel tubes contributed profits of RM21.1 million, whilst CRC steel sheets contributed profits of RM32.7 million. The Group also registered a gain on disposal of its minority investment in shares in a steel centre of RM25.3 million. Review of Operations Steel Tube Division With the resolution of the construction industry s labour shortage problems of 2002, as a result of the government s decision to permit the re-entry of foreign labour back into the construction sector, the first half of 2003 saw robust growth for the country s construction industry. In tandem with that growth, the pipe division also experienced positive tonnage sales growth in the first half of Under current regulations, tube makers are required to purchase their core feedstock of Hot Rolled Coil ( HRC ) steel sheets from the country s sole HRC producer. During the third quarter, the price of HRC dropped substantially, followed subsequently by a huge price increase in the fourth quarter. This gravely unsettled the domestic steel tube market, causing many of our competitors to undertake panic selling practices, where steel tubes were sold at much reduced prices. As a result of this severe competition and distributors fear of being over-stocked, the industry experiences an overall decline in tonnage of steel tubes sales. For the Group, total sales for steel tube for the year experienced a drop of 11.7%, from RM 239 million in 2003, to RM 214 million in Being the industry leader, with a market share of about 20% of the country s steel tube sales, the Group continued to maintain its premium pricing policy. I am happy to report therefore, that in spite of the difficult circumstances experienced from the third quarter onwards, the steel tube division had successfully registered a profit before tax of RM 21.1 million (2003 : RM 43.1 million). Fortunately, the market situation has now improved, with steel tube prices differentials returning to their former levels once again, effective the first quarter of Cold Rolled Coils ( CRC ) Steel Sheet Division In compliance with the government s requirement in 2002 for domestic CRC mills to increase their purchase of local Hot Rolled Coils ( HRC ) steel sheets, from the sole domestic supplier, from 30% to 40% of total production, the Group incurred a much higher average raw material cost during the year. In spite of this, the industry experienced a growth in the sales tonnage for CRC from its core customers, namely from the drum making, the furniture and the electronic industry and from steel centres. I am happy to report that as a result, the CRC division was able to turn in a strong 34% increase in sales revenue (i.e. from RM 201 million in 2003, to RM 270 million in 2004), brought about by an increase in CRC sales tonnage, coupled with an increase in CRC prices. As a result, the CRC division reported a satisfactory profit before tax of RM32.7 million (2003 : RM 33.9 million). Quality Strategy The Group is fully aware that its success to-date has been brought about because of the high standards it maintains in all its operations. Being ISO certified, we are committed to press forward with new ideas and methods, to continue to provide our customers with the highest quality products and services in the country. The steel tube division s two (2) core brands, namely MIG-MARUICHI (for construction & furniture tubes) and AURORA (for conduit tubes) are synonymous with quality. These tubes command a premium in pricing over our competitors, and have become the benchmark product for industry pricing. 23

7 Chairman s Statement The CRC division s product, namely MYCRON STEEL CRC, is known in the market as a high-end product. With only two CRC manufacturers in Malaysia, Mycron Steel has set itself apart, by catering to the higher end segment of the market. Our CRC s are known in the industry for its high quality in terms of its finish and metallic properties. The Group s strategy will continue to be focused on quality, as opposed to quantity. It is only through this continued effort will margins be maintained, and profits attained. Business Outlook China s strong consumption growth caused global steel shortages and fuelled dramatic price increases for all steel manufacturing feedstock, including HRC, during the first quarter of Malaysia was not spared, and the domestic industry has experienced huge price increases for its feedstock HRC, both from its domestic as well as its foreign suppliers. Fortunately, the industry appears to have successfully passed through these raw material price increases, down to its customers, with profits margins being unaffected. China has recently introduced measures to cool down its boiling economy, in particular, by imposing certain restrictions on bank credit, together with a ban on new licenses for steel manufacturing facilities. It is forecasted that should China achieve its soft-landing objectives, its GDP (Gross Domestic Product) growth will level off at 7.5% per annum for As a result of this, the steel industry will expect to see a levelling, and possibly a decline, of feedstock HRC prices in the second half of the year. These are challenging times, during which critical strategic inventory management will be of absolute importance. With its wealth of over 34 years of experience, barring unforeseen circumstances, the management is confident that the performance of the Group shall remain strong in the current financial year. In the longer term, we expect domestic demand for steel tubes to increase substantially, especially from the water sector. Following the privatisation of much of the State water systems, there have been numerous public announcements made, for the impending, and much over-due replacement of the nation s water pipe systems. This augurs well for the future of the industry, and management is monitoring the situation closely. Corporate Development The Group had on 11 August 2003 announced on the Bursa Malaysia, the following scheme :- The Proposed listing of Mycron Steel Berhad (a subsidiary of Melewar Industrial Group Berhad) on the Main Board of Bursa Malaysia, with a public issue of 44,938,000 new ordinary shares of RM1.00 each at an offer price of RM1.40 per new ordinary share, and The Proposed capital distribution of 40,243,434 new Mycron Steel Berhad shares of RM1.00 each to the shareholders of Melewar Industrial Group Berhad on the basis of one (1) Mycron Steel Berhad share for every four (4) Melewar Industrial Group Berhad shares held. The company has appointed OSK Securities Berhad as the adviser of the abovesaid proposals. On 6 January 2004, the Company announced that the Securities Commissions had, vide its letter dated 29 December 2003, approved the above proposals. The shareholders of the Group have, also at the recent EGM held on 26 March 2004 approved the proposals. The listing of Mycron Steel Berhad is expected to complete by end June Dividend In addition to the 70% (tax exempt) and 180% (gross dividend less 28%) Interim Dividend paid on the 28 July 2003, a Final Dividend of 10% (tax exempt) is being recommended by the Board of Directors, subject to shareholders approval at the forthcoming Annual General Meeting. If approved, the final dividend will be paid on 23 July The Board of Directors, are of the strong conviction that the Group should be focused on optimising shareholder wealth, and has through numerous public announcements, set itself the goal of attaining a dividend payout ratio of at least 50% of Profit After Tax. Management is aware of these goals, and are committed to ensure strong cash flows from all its operations, in order to attain this goal. Acknowledgement On behalf of the Board of Directors, I wish to thank all our staff and members of the management team, for their hard work and dedication. It is only through their focused efforts and smart planning, that the Group has continued to enjoy its track record of strong profits, over the past decade. TUNKU TAN SRI ABDULLAH IBNI ALMARHUM TUANKU ABDUL RAHMAN CHAIRMAN 7 June

8 Statement on Corporate Governance It is the commitment of the Board of Directors ( the Board ) of Melewar Industrial Group Berhad (formerly known as Maruichi Malaysia Steel Tube Berhad ) to ensure that the Company and its subsidiaries maintain a high standard of corporate governance. The Board recognizes the importance of discharging its responsibilities effectively to protect and enhance shareholders value and the financial performance of the Group. The manner in which the Corporate Governance framework is applied is summarized as follows:- A. Directors a) Board Responsibilities The Board assumes the responsibility for the strategic direction of the Group and oversees the conduct and performance of the Group by reviewing and approving strategies, business plans and annual budget. The Board has delegated specific responsibilities to 5 sub-committees namely Audit Committee, Nomination Committee, Remuneration Committee, ESOS Committee and Risk Management Committee. These Committees have the authority to examine particular issues and will report to the Board with their recommendations. The Board, however, makes the final decision on all matters in the best interest of the Company. b) Board Balance and Composition The Board currently has 10 members comprising of the following :- 1 non-independent non-executive Chairman 1 Managing Director/Chief Executive Officer 2 Executive Directors 2 non-independent non-executive directors 4 independent non-executive directors Premised on the above Board balance, the Board has complied with Paragraph of the Listing Requirements to have at least one-third (1/3) of the Board to comprise of independent directors. The composition of the Board reflects a balance of Executive, Independent Non- Executive Directors with a wide range of technical skills in steel industry, business, financial and legal experience. The profile of the Directors are set out on Page 13 to 17. There is a clear division of responsibilities between the Chairman and the Managing Director/Chief Executive Officer to ensure that there is a balance of power and authority. The Chairman is primarily responsible for the working of the Board, its membership and participation of the members at Board meetings. The Managing Director/Chief Executive Officer is responsible for the execution of strategic goals, effective operation within the Group, to explain, clarify and inform the Board on matters pertaining to the Group. The Executive Directors are responsible for implementing the policies and decisions of the Board, overseeing the daily operations and business development of the Group. The Independent Non-Executive Directors provide the support to complement the skills and experience of the Executive Directors. They offer the unbiased independent view, advise and judgement in the best interest, not only for the Group but also of shareholders, employees and communities in which the Group conducts business. c) Board Meetings The Board meets at least four (4) times a year, with additional meetings convened as necessary, to review Management Reports on the progress of business operations and minutes of meetings of the various Board Committees and to consider and if deem fit approve proposals that require the sanction of the Board. Senior Management staff may be invited to attend Board meetings to provide the Board with their views and explanations on certain agenda items tabled to the Board and to furnish their clarification on issues that may be raised by the Board. 25

9 Statement on Corporate Governance During the financial year ended 31 January 2004, 5 meetings were held. The following is the record of attendance of the Directors :- Executive Directors Total 1. Tunku Dato Ya acob bin Tunku Abdullah 5/5 2. Mr Lim Kim Chuan (Appointed w.e.f ) 1/1 3. Encik Azlan bin Abdullah (Redesignated from Non-Executive Director to Executive Director w.e.f ) 5/5 4. Mr Liew Yew Meng (Resigned w.e.f ) 4/5 Non-Executive Directors Total 1. Tunku Tan Sri Abdullah ibni Almarhum Tuanku Abdul Rahman 5/5 2. Tunku Dato Seri Iskandar bin Tunku Abdullah (Appointed w.e.f ) N/A 3. Tunku Yahya bin Tunku Abdullah (Appointed w.e.f ) N/A 4. Tengku Ahmad Fuad bin Tengku Ahmad Burhanuddin 4/5 5. Dato Jaffar bin Ahmad Indot (Appointed w.e.f ) 1/1 6. Mr Terence Francis Mahony (Appointed w.e.f ) 1/1 7. Mr Lee Ching Kion (Appointed w.e.f ) 1/1 8. Mr Seiji Yoshimura (Resigned w.e.f ) 0/1 9. Mr Yuji Wada (Resigned w.e.f ) 1/4 10. Mr Hiroyuki Suzuki (Resigned w.e.f ) 0/3 11. Ms Saw Cheng Kim (Resigned w.e.f ) 3/4 12. Madam Yang Yen Fang (Resigned w.e.f ) 2/4 13. Mr Muk Sai Tat (Resigned w.e.f ) 5/5 Alternate Director Total 1. Mr Chan Sang Whye (Resigned as the Alternate Director to Madam Yang Yen Fang w.e.f ) 1/1 d) Supply of Information The Board Members are given board papers with appropriate support documentation in a timely fashion prior to each Board Meeting to enable them to function effectively and allow Directors to discharge their responsibilities accordingly. These include, a periodic financial and operational report, proposals for capital expenditure and proposals for investment. All directors have access to the advice and services of the Company Secretary, who is responsible for ensuring that Board procedures are followed. In addition, the Directors may obtain independent professional advice at the Company s expense, where necessary, in the furtherance of their duties. The proceedings and resolutions reached at each Board Meeting are recorded in the minutes of the meetings, which are kept in the Minute Book at the registered office. Besides Board Meetings, the Board also exercises control on matters that require Board s approval through circulation of Directors Resolutions. 26

10 Statement on Corporate Governance e) Appointments to the Board A Nomination and Remuneration Committee was set up on 28 March 2003 whose responsibility was to recommend board appointments and to assess directors on an on-going basis. On 10 June 2003, the Board had made a decision to split the Nomination and Remuneration Committee into two (2) separate Committees, namely a Nomination Committee and a Remuneration Committee for better segregation of responsibilities and functions of the respective Committees. The Nomination Committee is responsible for making recommendation for any appointments to the Board. Any new nomination received is put to the Board for assessment and endorsement. During the financial year ended 31 January 2004, the Nomination Committee recommended the appointment of Dato Jaffar bin Ahmad Indot as the Senior Independent Director to whom all concerns may be conveyed and which was endorsed by the Board. The members of the Nomination Committee comprises of the following members :- (i) Mr Lee Ching Kion (Chairman); (ii) Tunku Yahya bin Tunku Abdullah; and (iii) Tengku Ahmad Fuad bin Tengku Ahmad Burhanuddin f) Re-election Every Director is required by the Company s Articles of Association to retire from office once at least every three years except for those who retire every year in accordance with Section 129 of the Companies Act, 1965 and to seek re-election by the shareholders at the Annual General Meeting. g) Directors Training All Directors have also attended the Mandatory Accreditation Programme ( MAP ) within the period stipulated. The Directors will continue to undergo other relevant training programmes to further enhance their skill and knowledge. B. Directors Remuneration The Company has adopted the principle recommended in the Code whereby the level of remuneration of the Directors is sufficient to attract and retain the Directors needed to manage the Group successfully. The Remuneration Committee was set up on 10 June 2003 whose main responsibility is to review and assess the remuneration payable to the Non- Executive Directors and recommends to the Board for approval by the shareholders at the AGM. The members of the Remuneration Committee comprises of the following members :- (i) (ii (iii) Mr Lee Ching Kion (Chairman); Tunku Yahya bin Tunku Abdullah; and Tengku Ahmad Fuad bin Tengku Ahmad Burhanuddin Non-Executive Directors are paid attendance allowance for each Board Meeting. Directors fees are also paid to the Non-Executive Directors which will be presented to shareholders for approval at the Annual General Meeting. The Company recognises the need to have a competitive remuneration package to attract and retain the Directors of the calibre needed to lead the Group successfully. In the case of the Executive Directors, their remuneration are linked to level of responsibilities, experience, contributions and individual as well as Group performance. For the Non-Executive Directors, the level of remuneration reflects the experience and level of responsi bility undertaken by them. 27

11 Statement on Corporate Governance The remuneration of Directors, in aggregation and analysed into bands of RM50,000 is as follows :- Types of Remuneration Executive Directors Non-Executive Directors RM 000 RM 000 Salaries Allowances Bonuses 7 - Fees Benefits-In-Kind - 13 Other Emoluments (EPF/Leave Pay) Total 1, Number of Directors Range of Remuneration Executive Non-Executive Less than RM50, RM50,001 to RM100, RM100,001 to RM150, RM150,001 to RM200, RM200,001 to RM250, RM300,001 to RM350,000-1 RM700,001 to RM750, C. Relations with Shareholders and Investors The Board recognises the need to communicate with shareholders and investors on all material business matters of the Group. The results of the Company and the Group are published quarterly via the BMSB website. In addition to various announcements made during the year, information on the Company is available on the Company s website at Any general enquiries and comments can be addressed to enquiry@melewar-mig.com. The Company also encourages shareholders to attend its Annual General Meeting as this is the principal forum for dialogue and interaction with shareholders. At each Annual General Meeting, the Directors usually provide adequate time to attend to questions and comments of shareholders. Notices of each meeting are issued on a timely manner to all the shareholders. The Managing Director, Executive Directors and Senior Management have periodical dialogues with existing and prospective investors and the analysts to enhance understanding of the Group s objectives and provide insight on the latest developments in the Group. D. Accountability and Audit a) Financial Reporting The Board aims to present a balanced, clear and understandable assessment of the Group s financial positions and prospects in the annual financial statements and quarterly announcements to the shareholders, investors and regulatory authorities. Before releasing to the BMSB, the quarterly financial results are reviewed by the Audit Committee and approved by the Board of Directors. The details of the Company s and the Group s financial positions are included in the Financial Statements section of the Annual Report. 28

12 Statement on Corporate Governance b) Internal Control The Board recognizes that it has overall responsibility for maintaining a sound system of internal control for the Group in order to safeguard shareholders interest of the Group s assets. The system of internal control not only covers financial controls but also operational and compliance controls as well as risk management. The Group s Statement of Internal Control is set out on pages 31 to 32 of this Annual Report. The system of internal control involves each key business unit and its management, including the Board, and is designed to meet the business units particular needs, and to manage the risks to which they are exposed. The system, by its nature, can only provide reasonable and not absolute assurance against material misstatement, loss or fraud. The concept of reasonable assurance recognizes the costing aspect, whereby the cost of control procedures is not to exceed the expected benefits. The Board further recognizes that risks cannot be fully eliminated. As such, the systems, processes and procedures being put in place are aimed at minimizing and managing them. Ongoing reviews are continuously carried out to ensure that the effectiveness, adequacy and integrity of the system of internal controls in safeguarding the Company s assets. A Risk Management Committee ( RMC ) has been formed to look into the risk management of the Group. The RMC comprises of three (3) Independent Non-Executive Directors. The members of the RMC are as follows :- (i) Dato Jaffar bin Ahmad Indot (Chairman); (ii) Mr Terence Francis Mahony; and (iii) Mr Lee Ching Kion The RMC is to meet regularly, at least once every quarter in a financial year to review risk management report of the Company and its subsidiary companies. The RMC has categorized risks into nine(9) key risk factors affecting the Company and the Group, namely, Product Risk, Human Risk, Regulatory Risk, Operational Risk, Financial Risk, External Risk, Customer Risk, Integrity Risk and Supplier Risk ( Key Risk Factors ). The Group has embarked on a risk identification and assessment process whereby all department heads of the Company and subsidiary companies are required to assess their operations and identify risk under each of the Key Risk Factors affecting their operations, identify existing controls in place to manage those risks and risk transferred and the probability of the risk occurring and its impact. c) Audit Committee The Audit Committee meets regularly with senior financial and internal audit management, and the external auditors to review the Company s and the Group s financial reporting, the nature and scope of audit reviews, and the effectiveness of the systems of internal control and compliance. The terms of reference and activities of the Audit Committee during the financial year ended 31 January 2004 are provided separately in this Annual Report. d) Relationship with the Auditors The Board through the Audit Committee has established a transparent and appropriate relationship with the Company s auditors, Messrs PricewaterhouseCoopers ( PwC ). PwC will report to members of the Company on their findings which are included as part of the Company s financial reports with respect to each year s audit on the statutory financial statements. The Audit Committee meets with the auditors on a quarterly basis. 29

13 Statement on Corporate Governance E. Directors Responsibility Statement in respect of Financial Statements The Directors are required to prepare the financial statements which give a true and fair view of the state of affairs of the Company and of the group at the end of each financial year end of the results and cashflow for that year. The financial statements must be prepared in compliance with the Companies Act, 1965 and with applicable approved accounting standards. The Directors considered the following in preparing the financial statements :- select suitable accounting policies and apply them consistently; make judgements and estimates that are reasonable and prudent; and state whether applicable approved accounting standards have been followed. The Directors are of the opinion that the financial statements comply with the above requirements. The Directors are also responsible for ensuring the maintenance of adequate accounting records to enable them to ensure that the financial statements comply with the requirements of the Companies Act, F. Additional Information During the financial year under review : a) there were no corporate exercises in which funds had been raised share buybacks warrants or convertible securities exercised ADR or GDR programmers sponsored by the Company sanctions and or penalties imposed on the Company or its subsidiaries, directors or management by any relevant authority profit estimates, forecasts or projections or unaudited results released which differ by 10 per cent or more from the audited results profit guarantees given in respect of the Company material contracts between the Company and its subsidiaries that involve directors or major shareholders interests loans between the Company and its subsidiaries that involve directors or major shareholders interests b) The Company and the Group have the policy of revaluing their land and building at least once in every 5 years. c) There were no non-audit fees paid by the Group to the external auditors during the financial year. 30

14 Statement on Internal Control 1. Introduction Pursuant to Paragraph (b) of the Listing Requirements of Bursa Malaysia Securities Berhad, the Board of Directors of listed companies are required to include in their annual report a statement about the state of their internal controls of the listed issuer as a group. The Board of Melewar Industrial Group Berhad recognizes the importance of sound internal control and risk management practices for good corporate governance. In acknowledging the above statement, the Board is pleased to provide the following statement which outlines the state of internal control of the Group for the year under review. 2. Board s Responsibility The Board affirms its overall responsibility for the Group s system of internal controls and for reviewing its effectiveness, adequacy and integrity. Due to the limitations that are inherent in any system of internal control, the Board is aware that such system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can provide only reasonable and not absolute assurance against material misstatement or loss. 3. Risk Management Framework During the current financial year, a Risk Management Committee ( RMC ) was established and together with the assistance of Management and the internal auditor have identified the key risks of the respective departments within the Company and the subsidiaries as well as documenting the existing controls that have been in place for managing the risks and assessing the effectiveness of the Group s system of internal controls and risk management processes. The RMC will co-ordinate the implementation of a risk management programme for the Group. The implementation of the risk management programme will ensure a more coordinated and consistent approach in managing the Group s significant risk exposures. 4. Key Elements of Risk Management and Internal Control In undertaking such a process as mentioned above, the Board confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Group and this process is regularly reviewed by the Board. During the year under review before the establishment of the RMC, the Internal Audit Department had taken on the role of a risk manager and in the process have identified the key elements. The Key elements of which are as follows : a. The internal audit department has prepared a risk-based internal audit plan which considers all the critical and high impact areas within the business operations. During the financial year, internal audits on various audit areas per the approved internal audit plan were carried out by the internal audit department. Any weaknesses identified during the reviews were reported to the Audit Committee and improvement measures were recommended to strengthen controls. This provides assurance regarding the adequacy and the integrity of the internal controls system. 31

15 Statement on Internal Control b The Group s operations are accredited with ISO9001 international quality system standard and such quality management system provides the Group with improved control of key processes and a foundation for improving quality and customer satisfaction. During the financial year, the Group had achieved and upgraded the ISO9002:1994 to a newer version, i.e. ISO9001:2000. c. The Group has an appropriate organisational structure for planning, executing and controlling business operations which enables adequate monitoring of the activities and ensures effective flow of information across the Group. d. The Management is responsible for the identification and evaluation of key risks applicable to their areas of business on a continuous basis. Risks identified are reported in a timely manner during the periodic management meetings to enable corrective actions to be taken. e. Lines of responsibility and delegations of authority are clearly defined which include amongst others approval of capital expenditure and investment programmes. f. The Executive Directors and Management monitor the Group s performance via key performance indicators, monthly management report and periodic management meetings. Any exceptions noted will be duly investigated and reported. g. Key processes of the Group are governed by policies and procedures. h. The Group has in place a Safety and Health Committee to review the occupational safety and health procedures. i. The Audit Committee meets at least four times a year and, within its limit, reviews the effectiveness of the Group s system of internal controls. The Committee receives reports from the internal audit department and management. 5. Controls Weaknesses The Management continues to take measures to strengthen the controls environment and during the current financial year, there were no major weaknesses of internal control which result in material losses, contingencies or uncertainties that would require disclosure in the Company s Annual Report. 6. Financial Reporting In presenting the annual financial statements and quarterly announcements of its results, the Board of Directors has ensured that the financial statements present a balanced and understandable assessment of the Company and the Group s position and prospects. 32

16 Audit Committee Report Members and Meetings Chairman of the Audit Committee Mr Terence Francis Mahony (Independent Non-Executive Director) Members of the Audit Committee Tengku Ahmad Fuad bin Tengku Ahmad Burhanuddin (Independent Non-Executive Director) Mr Lee Ching Kion (Independent Non-Executive Director) Mr Lim Kim Chuan (Executive Director) Encik Azlan bin Abdullah (Executive Director) Secretary The Company Secretary is the Secretary of the Audit Committee. During the financial year ended 31 January 2004, 4 Audit Committee meetings were held. The details of attendance of each Committee member are as follow : Name Total Encik Azlan bin Abdullah (Redesignated from Non-Executive Director to Executive Director w.e.f ) 4/4 Mr. Muk Sai Tat (Resigned w.e.f ) 4/4 Tengku Ahmad Fuad bin Tengku Ahmad Burhanuddin 3/4 Mr. Lee Ching Kion (Appointed Audit Committee Member w.e.f ) 1/1 Mr. Terence Francis Mahony (Appointed Chairman of the Audit Committee w.e.f at the Board Meeting which was held after the conclusion of the Audit Committee Meeting ) Mr. Lim Kim Chuan (Appointed Audit Committee Member w.e.f ) N/A N/A Madam Saw Cheng Kim (Resigned w.e.f ) 3/3 Terms of Reference The terms of reference of the Committee are as follows : Formation 1. The Board of Directors of Melewar Industrial Group Berhad ( the Company ) had established an Audit Committee ( the Committee ) on 15th April Membership 2. The Committee shall be appointed by the Board from amongst the Directors of the Company and shall consist of not less than 3 members of which the majority of them must consist of Independent Directors. At least one of the Committee members must be a member of the Malaysian Institute of Accountants, or such other qualifications approved by the Bursa Malaysia Securities Berhad ( BMSB ). 33

17 Audit Committee Report No member of the Committee shall be : An alternate Director, or A spouse, parent, brother, sister, son or adopted son, daughter or adopted daughter of an Executive Director of the Company or of any related corporation, or Spouse of brother, sister, son or adopted son, daughter or adopted daughter of an Executive Director of the Company or of any related corporation, or Any person having a relationship which, in the opinion of the Board of Directors, would interfere with the exercise of independent judgement in carrying out the functions of the Committee. 3. The members of the Committee shall elect a Chairman from amongst their number who shall be an Independent Director. 4. 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 below 3, the Board of Directors shall, within 3 months of that event, appoint such number of new members as may be required to make up the minimum number of 3 members. 5. The term of office of Committee members should be reviewed by the Board no less than every 3 years. Authority 6. The Committee is authorised by the Board to investigate any activity within its terms of reference and has the right to any resources which are required to perform its duties. It is authorised to seek any information it requires from any employee and all employees are directed to co-operate with any request made by the Committee. 7. The Committee is authorised by the Board to obtain outside legal or other independent professional advice to secure the attendance of outsiders with relevant experience and expertise if it considers this necessary. 8. The Committee is authorised by the Board to have direct communication channels with the external auditors and person(s) carrying out the internal audit function. It is also authorised to convene meeting with the external auditors whenever deemed necessary. Functions 9. The functions of the Committee shall be : (a) to review the following and report the same to the Board of Directors : (i) with the external auditors, the audit plan; (ii) with the external auditors, the evaluation of the system of internal controls; (iii) with the external auditors, the audit report; (iv) the assistance given by the Company s officers to the external auditors; (v) 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; (vi) the internal audit programme, processes or investigations, undertaken and whether or not appropriate action is taken on the recommendations of the internal audit function; (vii) the quarterly results and year end financial statements, prior to the approval by the Board of Directors, focusing particularly on : - changes in or implementation of major accounting policy; - significant and unusual events; and - compliance with accounting standards and other legal requirements; (viii) 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; (ix) any letter of resignation from the external auditors of the Company; and (x) whether there is reason (supported by grounds) to believe that the external auditors of the Company is not suitable for reappointment; and (b) to consider the nomination of external auditors together with such other functions as may be agreed to by the Committee and the Board of Directors. 34

18 Audit Committee Report Attendance at meetings 10. The Finance Manager, Group Internal Auditor, a representative of the external auditors and other authorised officers shall normally attend meetings. Other Board members may attend meeting upon the invitation of the Committee. 11. The Company Secretary shall be the Secretary of the Committee. Frequency of meetings 12. (a) Meetings shall be held not less than 4 times a year. The external auditors may request a meeting if they consider necessary. (b) In order to form a quorum in respect of a meeting of the Committee, the majority members present must be Independent Directors. Reporting procedures 13. The Secretary shall circulate the minutes of meeting of the Committee to all members of the Board. Summary of Activities of the Committee during the financial year ended 31 January 2004 During the financial year ended 31 January 2004, the main activities undertaken by the Audit Committee were as follows :- i. Reviewed the adequacy and the relevance of the scope, functions, resources, internal audit plan and results of internal audit processes with the internal auditor ; ii. iii. iv. Reviewed the quarterly financial reports and year-end financial statements with management and recommend the same to the Board for approval before release to BMSB ; Reviewed with external auditors on their audit plan (including system evaluation, audit fee, issues raised and management s response) prior to the commencement of audit ; Reviewed the financial statements, the audit report, issues and reservations arising from audits and the management letter with the external auditors and recommend the same to the Board ; v. Reviewed the disclosure of related party transactions and any conflict of interest situation and questionable transactions ; vi. Reviewed the findings of the risk management process and recommended to the Board improvement opportunities in risk management, internal controls and governance process ; vii. Reviewed the countermeasures undertaken by the risk committee ; viii. Prepared the Audit Committee Report for inclusion in the Company s Annual Report ; ix. Reported to and updated the Board on significant issues and concerns discussed during the Committee s meetings and where appropriate, made the necessary recommendations to the Board ; x. Reviewed the disclosure statements on compliance of Malaysian Code on Corporate Governance, Board s responsibility on the annual audited financial statements and the state of internal control and other relevant documents for publication in the Company s Annual Report. 35

19 Audit Committee Report Internal Audit Function The Board recognises the importance of Internal Audit Function to assist the Directors in maintaining a sound system of internal controls within the Group to safeguard the shareholders investment and the Company s assets. As a result, the Company set up an internal audit function during the financial year of The Head of the Internal Audit Department shall have unrestricted access to the Committee Members and report to the Committee whose scope of responsibility includes overseeing the development and the establishment of the Internal Audit function. The summary of the activities of the Internal Audit Department for the year ended 31st January 2004 is as follows :- a) Conducted risk-based audits of strategic business units of the Group, which cover reviews of the operational and financial internal controls. b) Issued audit reports to the Audit Committee Members and Management that identify weaknesses of system of internal controls and propose recommendations for improvement. c) Acted on suggestions made by the Audit Committee and/or senior management on concerns over operations or control. d) Attended Audit Committee meeting to table and discuss the audit reports and follow up on matters raised. e) Attended training from time to time to keep abreast with the latest development of internal auditing. 36