( T) ( T) ANNUAL REPORT

Transcription

1 ( T) A N N U A L R E P O R T 2004 ( T) ANNUAL REPORT

2 CONTENTS Notice Of Annual General Meeting 3 Statement Accompanying Notice Of Annual General Meeting 5 Corporate Information 6 Group Structure 7 Financial Highlights 8 Directors Profile 9 Other Disclosure Information 11 Statement To Shareholders 12 Corporate Governance Statement 17 Statement Of Internal Control 20 ANNUAL REPORT 2004 Audit Committee Report 21 Statement Of Directors Responsibilities 25 Financial Statements 26 Properties Of The Group 63 Analysis Of Shareholdings 64 1 Substantial Shareholders 66 Directory Of Degem Group Showrooms 67 Proxy Form Enclosed

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4 NOTICE OF ANNUAL GENERAL MEETING NOTICE IS HEREBY GIVEN THAT the Eighth Annual General Meeting of the members of the Company will be held at East VIP Lounge, Kuala Lumpur Golf & Country Club, No. 10, Jalan 1/70D, Off Jalan Bukit Kiara, Kuala Lumpur on Monday, 27 June 2005, at a.m. for the purpose of transacting the following businesses:- 1. To receive and adopt the Audited Financial Statements for the year ended 31 December 2004 together with the Reports of the Directors and Auditors thereon. 2. To declare a first and final dividend of 6% less tax in respect of the year ended 31 December Resolution 1 Resolution 2 3. To approve the Directors fees of RM344,000/- (2003 : RM344,000/-) in respect of the year ended 31 December To re-elect the following Directors who retire pursuant to the Company s Articles of Association and, being eligible, offer themselves for re-election:- Article 100 (a) (b) (c) Choong Kai Fatt Encik Ahmad bin Habib Chuah Teong Aung Resolution 3 Resolution 4 Resolution 5 Resolution 6 ANNUAL REPORT 2004 Article 105 (a) Choong Kay Cheong Resolution 7 5. To re-appoint Messrs. Ernst & Young as Auditors of the Company and to authorise the Directors to fix their remuneration. 6. As special Business:- To consider and, if thought fit, to pass the following resolution as Ordinary Resolution:- THAT subject always to the Companies Act 1965, Articles of Association of the Company and approvals of the relevant governmental/regulatory bodies where such approvals shall be necessary, the Directors be and are hereby authorised and empowered pursuant to Section 132D of the Companies Act, 1965 to allot and 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 issued pursuant to this resolution does not exceed 10% of the issued capital for the time being of the Company and that the Directors be and are also empowered to obtain the approval for the listing of and quotation for the additional shares so issued on Bursa Malaysia Securities Berhad. 7. To transact any other business for which due notice has been given. Resolution 8 Resolution 9 3 BY ORDER OF THE BOARD, SHA THIAM FOOK CHOW CHOOI YOONG Secretaries Kuala Lumpur 3 June 2005

5 NOTICE OF ANNUAL GENERAL MEETING (CONT D) Notes: 1. A member of the Company entitled to attend and vote at the meeting is entitled to appoint a proxy or proxies to attend and vote instead of him. 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. 2. Where a member appoints more than one (1) proxy, the appointment shall be invalid unless he specifies the proportion of his shareholdings to be represented by each proxy. 3. In the case of a corporate member, the instrument appointing a proxy shall be under its common seal or under the hand of an officer or attorney of the corporation, duly authorised on that behalf. 4. The instrument appointing a proxy must be deposited at the Company s Registered Office at No. 42, 1 st Floor, Jalan Maarof, Bangsar Baru, Kuala Lumpur not less than forty eight (48) hours before the time set for the meeting or any adjournment thereof. 5. Explanatory Note on Special Business: Resolution pursuant to Section 132D of the Companies Act, 1965 Ordinary Resolution 9 proposed under item 6, if passed, will give the Directors of the Company, from the date of the above General Meeting, authority to allot and issue ordinary shares from the unissued capital of the Company being for such purposes as the Directors consider would be in the interest of the Company. This would avoid any delay and costs in convening a general meeting to specifically approve such an issue of shares. This authority will, unless revoked or varied by the Company in General Meeting, expire at the next Annual General Meeting. 4 DeGem Berhad ( T)

6 STATEMENT ACCOMPANYING NOTICE OF ANNUAL GENERAL MEETING (PURSUANT TO PARAGRAPH 8.28(2) OF THE LISTING REQUIREMENTS OF THE BURSA MALAYSIA SECURITIES BERHAD) 1. Directors who are standing for re-election at the Eighth Annual General Meeting of the Company Pursuant to Article 100 of the Company s Articles of Association (a) (b) (c) Choong Kai Fatt Encik Ahmad bin Habib Chuah Teong Aung Pursuant to Article 105 of the Company s Articles of Association (a) Choong Kay Cheong 2. Details of attendance of Directors at Board Meeting There were five Board Meetings held during the financial year ended 31 December Details of the Directors attendance were as follows:- Directors Attendance at the Board Meetings Attended / Held ANNUAL REPORT 2004 Hasan bin M. Taib 4 / 5 Chong Kai Choong Kai Sun 5 / 5 Choong Kai Soon 5 / 5 Choong Kai Fatt 5 / 5 Choong Khoi Onn 5 / 5 Koh Eng Yeah 5 / 5 Leou Thiam Lai 5 / 5 Chuah Teong Aung 5 / 5 Ahmad bin Habib 5 / 5 Choong Kay Cheong# *0 / 0 ( # Appointed on 31/3/2005) 5 * Reflect the number of meetings held during the time the Director held office 3. Place, Date and Time of Eighth Annual General Meeting The Eighth Annual General Meeting of the Company will be held at East VIP Lounge, Kuala Lumpur Golf & Country Club, No. 10, Jalan 1/70D, Off Jalan Bukit Kiara, Kuala Lumpur on Monday, 27 June 2005, at a.m. 4. Further details of Directors who are standing for re-election Further details of Directors who are standing for re-election are set out on pages 9 to 10 of the Annual Report.

7 CORPORATE INFORMATION DIRECTORS : Hasan bin M. Taib Chairman Chong Kai Choong Kai Sun Managing Director Choong Kai Soon Choong Kai Fatt Choong Khoi Onn Choong Kay Cheong Koh Eng Yeah Leou Thiam Lai Chuah Teong Aung Ahmad bin Habib SECRETARIES : Sha Thiam Fook (MIA 1832) Chow Chooi Yoong (MAICSA ) REGISTERED OFFICE : No. 42, 1st Floor Jalan Maarof, Bangsar Baru Kuala Lumpur Tel: Fax: address: pytj@po.jaring.my Website: PRINCIPAL PLACE OF : No. 42, 1st Floor BUSINESS Jalan Maarof, Bangsar Baru Kuala Lumpur 6 PRINCIPAL BANKERS : Malayan Banking Berhad No 66, 68 & 70 Jalan Maarof, Bangsar Baru Kuala Lumpur Southern Bank Berhad Wisma KFC 17, Jalan Sultan Ismail Kuala Lumpur DeGem Berhad ( T) SOLICITOR : Ariffin & Partners Unit A-3-8, Block A Megan Phileo Promenade No 189, Jalan Tun Razak Kuala Lumpur AUDITORS : Ernst & Young (AF: 0039) Chartered Accountants Level 23A Menara Milenium Jalan Damanlela, Pusat Bandar Damansara Kuala Lumpur SHARE REGISTRAR : Symphony Share Registrars Sdn Bhd Level 26, Menara Multi Purpose Capital Square No. 8 Jalan Munshi Abdullah Kuala Lumpur Tel: Fax: STOCK EXCHANGE LISTING : Bursa Malaysia Securities Berhad Main Board - Stock Code 7119

8 GROUP STRUCTURE AS AT 3 JUNE 2005 ANNUAL REPORT

9 FINANCIAL HIGHLIGHTS RM 000 RM 000 RM 000 RM 000 RM 000 Revenue 135, , ,276 83,048 88,039 Profit Before Tax 16,212 19,372 16,909 14,064 12,253 Taxation (3,954) (4,611) (3,821) (3,277) (2,724) Profit After Tax 12,258 14,761 13,088 10,787 9,529 Minority Interests (1,698) (1,633) (1,360) (700) (837) Profit After Tax And 10,560 13,128 11,728 10,086 8,692 Attributable To Shareholders Net Tangible Assets Per Share (Sen) (Based on issued and paid up share capital of 126,000,000 of RM0.50 each) 8 DeGem Berhad ( T)

10 DIRECTORS PROFILE ENCIK HASAN BIN M. TAIB, CHAIRMAN (Non-Executive Director) aged 51, Malaysian, was appointed to the board of directors of Degem ( Board ) on 6 April Encik Hasan bin M. Taib began his career in 1978 as a sales supervisor/computer co-ordinator for Redec Travel, which is the general sales agent for Malaysia Airline System in Jeddah, Saudi Arabia. In 1982, he left Redec Travel to start his own business in trading, property and investment in Saudi Arabia. After returning to Malaysia in 1986, he formed Misbah Travel & Tours Sdn Bhd, a company specializes in travel and umrah and haj business. Subsequently, he branched out into property investment and development business in He obtained a degree in Science in 1997 from Pacific Western University, United States of America. He presently sits on the board of several other private limited companies. Encik Hasan bin M. Taib does not hold any directorship in any other public corporation other than Degem Berhad. MR CHONG KAI CHOONG KAI SUN (Managing Director) aged 54, Malaysian, was appointed to the Board on 6 April He started his career as a jeweller in 1970 and founded P.Y.T. Jewel & Time Sdn Bhd in Mr Chong Kai Choong Kai Sun has more than 30 years experience in the jewellery business, of which he brings a wealth of experience to the jewellery industry and is actively involved in all the major decision making of the Degem group of companies ( Group ). Mr Chong Kai Choong Kai Sun does not hold any directorship in any other public corporation other than Degem Berhad. MR CHOONG KAI SOON (Executive Director) aged 46, Malaysian, was appointed to the Board on 6 April He started his career working as a goldsmith in He is responsible for the manufacturing divisions of the Group as well as in enforcing quality control during manufacturing and on-the-job training to craftsmen in the Group. He is actively involved in all the major decision making of the Group. Mr Choong Kai Soon does not hold any directorship in any other public corporation other than Degem Berhad. MR CHOONG KAI FATT (Executive Director) aged 44, Malaysian, was appointed to the Board on 6 April He is a member of the Remuneration Committee. He has more than 20 years experience in the jewellery business. He joined P.Y.T. Jewel & Time Sdn Bhd in 1983 and is a qualified gemologist since 1989, having studied gemology from the Gemological Institute of America. He is currently in charge of the purchasing and marketing operations of the Group. He is actively involved in all the decision making of the Group. Mr Choong Kai Fatt does not hold any directorship in any other public corporation other than Degem Berhad. MR CHOONG KHOI ONN (Executive Director) aged 49, Malaysian, was appointed to the Board on 6 April He is a member of Audit and Remuneration Committees. He obtained a diploma in Financial Accounting from Tunku Abdul Rahman College in 1979 and started his career as an audit assistant with Kassim, Chan & Co. from 1980 to 1981 before joining P.Y.T. Jewel & Time Sdn Bhd in He is now responsible for the financial and administrative matters of the Group. He is actively involved in all major decision making of the Group. Mr Choong Khoi Onn does not hold any directorship in any other public corporation other than Degem Berhad. MR CHOONG KAY CHEONG (Executive Director) aged 42, Malaysian, was appointed to the Board on 31 March He graduated with a Bachelor of Engineering (Civil) Hons from Universiti Teknologi Malaysia and a Master of Engineering (Civil) from University of Auckland, New Zealand. In 1991, he joined Syarikat Yuza Sdn Bhd as a project manager. He then formed CSTS Sdn Bhd in 1996 to undertake civil engineering and construction projects in the private sector before co founding Diamond & Platinum Sdn Bhd in Mr Choong Kay Cheong does not hold any directorship in any other public corporation other than Degem Berhad. ANNUAL REPORT

11 DIRECTORS PROFILE (CONT D) 10 MR KOH ENG YEAH (Executive Director) aged 62, Malaysian, was appointed to the Board on 6 April He holds a Bachelor of Science degree from Nanyang University, Singapore, which he obtained in Mr Koh Eng Yeah is in charge of the daily operations of the Group s retail outlets. He is actively involved in all major decision making of the Group. Mr Koh Eng Yeah does not hold any directorship in any other public corporation other than Degem Berhad. MR LEOU THIAM LAI (Independent Non-Executive Director) aged 49, Malaysian, was appointed to the Board on 21 May He is the Chairman of the Audit, Nomination and Remuneration Committees. Mr Leou is a Chartered Accountant of the Malaysian Institute of Accountants, Fellow member of the Chartered Association of Certified Accountants (UK) and an Associate member of the Malaysian Institute of Taxation. He was with Aljeffri, Siva, Heng and Monteiro from 1980 to 1981 and Baharom Hamdan from 1981 to He then set up his own Chartered Accountants firm, Leou & Associates, in 1988 and to date, he still serves as a partner of the firm. Currently, he also sits on the board of United Bintang Berhad, I-Power Berhad, Ramunia Holdings Berhad and Berjaya Holdings (HK) Limited. MR CHUAH TEONG AUNG (Independent Non-Executive Director) aged 66, Malaysian, was appointed to the Board on 21 May He is a member of the Audit, Nomination and Remuneration Committees. He graduated with a Bachelor of Science (Electrical Engineering) degree from Taiwan University, Taiwan and a Master in Science (Electrical Engineering) from the University of Manchester, United Kingdom in 1963 and 1965 respectively. He is a first grade engineer certified by Tenaga Nasional Berhad and also a chartered engineer certified by the Institute of Electrical Engineering, United Kingdom. He was attached with ABB, Sweden as an engineer in 1965 and was promoted to project manager before he left in Subsequently, he and his partner established TEG Engineering Sdn Bhd in 1973, a company that is principally involved in electrical, mechanical and civil engineering activities. Mr Chuah Teong Aung does not hold any directorship in any other public corporation other than Degem Berhad. DeGem Berhad ( T) ENCIK AHMAD BIN HABIB (Independent Non-Executive Director) aged 57, Malaysian, was appointed to the Board on 21 May He is a member of the Audit, Nomination and Remuneration Committees. Encik Ahmad bin Habib graduated with a diploma in Banking Studies from Mara Institute of Technology in He also holds a Bachelor in Science (Finance) as well as a Master in Business Administration from Northern Illinois University, USA. He was an Executive Officer with Bank Negara Malaysia from 1971 to 1974 before leaving for the USA to further his studies. He then joined Amanah Chase Merchant Bank Bhd in 1978 and was promoted to manager in the corporate finance department before he left in Subsequently he joined Ambang Corporation Sdn Bhd as the corporate planner in He left the same year to join Kuala Lumpur Commodities Clearing House Sdn Bhd as the deputy chief executive and left in 1984 as the acting chief executive. In 1985, he was with Construction and Supplies House Bhd as the general manager of the corporate planning department. At present, he also sits on the board of Kai Peng Berhad and several other private limited companies.

12 OTHER DISCLOSURE INFORMATION FAMILY RELATIONSHIP OF DIRECTORS Save as disclosed, none of the Directors has any family relationship with any Directors and/or substantial shareholders of the Company:- Chong Kai Choong Kai Sun, Choong Kai Soon, Choong Kai Fatt, Choong Khoi Onn, Choong Kay Cheong and Choong Sin Cheong are brothers. Lai Moi Fong is the wife of Chong Kai Choong Kai Sun. CONFLICT OF INTEREST Save as disclosed in Note 24 to the Financial Statements, none of the Directors has any conflict of interest with the Company. CONVICTION OF OFFENCES None of the Directors has been convicted for any offences within the past ten years other than traffic offences. UTILISATION OF PROCEEDS ANNUAL REPORT 2004 The Company did not make any corporate proposal to raise proceed during the financial year ended 31 December SHARE BUY-BACK The Company did not make any share buy-back during the financial year ended 31 December OPTIONS, WARRANTS OR CONVERTIBLE SECURITIES 11 No options, warrants or convertible securities were exercised in the financial year ended 31 December AMERICAN DEPOSITORY RECEIPT ( ADR ) OR GLOBAL DEPOSITORY RECEIPT ( GDR ) PROGRAMME During the financial year ended 31 December 2004, the Company did not sponsor any ADR or GDR programme. IMPOSITION OF SANCTIONS/PENALTIES There were no sanctions and/or penalties imposed on the Company and its subsidiaries, directors or management by the relevant regulatory bodies. NON AUDIT FEE No non-audit fees were paid to external auditors for the financial year ended 31 December VARIATION IN RESULTS There was no material variance between the audited results for the financial year ended 31 December 2004 and the unaudited results previously announced. PROFIT GUARANTEE The Company did not issue any profit guarantee during the financial year ended 31 December MATERIAL CONTRACTS There were no material contracts entered into by the Company and its subsidiary company which involve directors and major shareholders interests either still subsisting at the end of the financial year ended 31 December 2004 or entered into since the end of the previous financial year.

13 STATEMENT TO SHAREHOLDERS Dear Shareholders, On behalf of the Board of Directors, we are pleased to present the Annual Report and Financial Statements of the Group and the Company for the financial year ended 31 December 2004.

14 STATEMENT TO SHAREHOLDERS (CONT D) CORPORATE DEVELOPMENT a. Proposed Share Split On 2 March 2004, the Company announced the following proposals:- (i) (ii) a share split, whereby every existing one (1) ordinary shares of RM1.00 each will be subdivided into two (2) ordinary shares of RM0.50 each in Degem; and amendments to the Memorandum and Articles of Association of Degem. The Proposal are conditional upon approvals being obtained from the following:- (i) the Securities Commission ("SC"), for the Proposed Share Split; (ii) Bursa Malaysia Securities Berhad for the following:- (a) the Proposed Share Split; and (b) listing and quotation for the Degem Split Shares to be issued pursuant to the Proposed Share Split. On 15 April 2004, Bursa Malaysia Securities Berhad approved the Proposed Share Split by the Company. The Proposed Share Split involves the subdivision into two (2) ordinary shares in the Company of RM0.50 each for every one (1) existing ordinary share in the Company of RM1.00 each held by the shareholders of the Company. Upon completion of the Proposed Share Split, the Company's issued and paid up share capital of RM63,000,000 will comprise 126,000,000 ordinary shares of RM0.50 each. ANNUAL REPORT 2004 The Proposal was subsequently approved by Securities Commission on 4 June On 2 August 2004, the existing entire issued and paid up share capital of RM63,000,000 comprising 63,000,000 ordinary shares of RM1.00 each in Degem was subdivided into two (2) new ordinary shares comprising 126,000,000 ordinary shares of RM0.50 each. The Proposal was completed on 9 August 2004 with the requotation of entire Degem Berhad shares on the Bursa Malaysia Securities Berhad. 13 b. Proposed Issuance of up to RM50.0 million Murabahah Partially Underwritten Notes Issuance Facility/ Islamic Medium Term Notes Facility On 23 April 2004, the Securities Commission has approved the proposed issuance by Degem Berhad up to RM50.0 million Murabahah Partially Underwritten Notes Issuance Facility/ Islamic Medium Term Notes Facility ("MUNIF/IMTN"). The proceeds from the Proposed Issuance of the MUNIF/IMTN will be utilised for the purposes of: (i) repayment of existing borrowings of the Group; (ii) future capital expenditure and business expansion requirements of the Group: and (iii) working capital requirements of the Group. Amanah Short Deposit Berhad is the Lead Arranger for the Proposed Issuance of the MUNIF/IMTN. On 11 June 2004, the Company drawdown its first Islamic Debt Securities of MUNIF/IMTN amounted to RM25 million, for the purposes of retiring banking facilities and financing the working capital of the Group in the coming financial years. On 13 October 2004, the Company drawdown its second issuance amounted to RM 5 million for working capital purposes.

15 STATEMENT TO SHAREHOLDERS (CONT D) c. Proposed Acquisition Of 40% Equity Interest in Diamond & Platinum Sdn Bhd ( D&P ) ("Proposed Acquisition") On 16 June 2004, the Company announced that it has entered into a conditional sale and purchase agreement ( SPA ) with the vendors of D&P namely Choong Kay Cheong and Choong Sin Cheong (collectively referred to as Vendor(s) ) to acquire 40% equity interest in D&P comprising 400,000 ordinary shares of RM1.00 each in D&P ( D&P Shares ) for a purchase consideration of RM14,400,000 to be satisfied by the issuance of 4,000,000 new ordinary shares of RM1.00 each in Degem at a proposed issue price of RM3.03 per Degem Share and a cash consideration of RM2,280,000 ( Cash Consideration ). Subsequent to the subdivision of the existing issued and paid-up share capital of RM63,000,000 comprising 63,000,000 ordinary shares of RM1.00 each in Degem into two (2) new ordinary shares comprising 126,000,000 ordinary shares of RM0.50 each ( Share Split ), the proposed issued price of RM3.03 was adjusted accordingly to RM1.515 comprising 8,000,000 new ordinary shares of RM0.50 each in Degem ( Shares Consideration ) pursuant to the terms of the SPA. The Proposal is conditional upon approvals being obtained from the following:- 14 (i) (ii) (iii) (iv) (v) the approval of the Securities Commission ( SC ) for the Proposed Acquisition; the shareholders of Degem at an Extraordinary General Meeting to be convened; the Foreign Investment Committee (to be processed by the SC); Bursa Malaysia Securities Berhad ("BMSB") for the listing of and quotation for the Shares Consideration to be issued pursuant to the Proposed Acquisition; and any other relevant authorities, bodies and/or parties. K & N Kenanga Berhad is appointed as the Advisor for the above proposal. On 8 November 2004, Degem has received the conditional approval from SC on the Proposed Acquisition via its letter dated 4 November Bursa Malaysia has via its letter dated 7 January 2005, granted approval in-principal for the listing and quotation of 8,000,000 new ordinary shares of RM0.50 each to be issued pursuant to the Proposed Acquisition. DeGem Berhad ( T) On 25 January 2005, the shareholders of Degem has approved the Proposed Acquisition at an Extraordinary General Meeting. The additional 8,000,000 new ordinary shares of RM0.50 each issued pursuant to the acquisition was successfully quoted on the Main Board of Bursa Malaysia on 8 February Subsequently on 1 March 2005 the Proposed Acquisition was completed. FINANCIAL RESULTS For the financial year ended 31 December 2004, revenue of Degem Group have surged to RM135 million, an 18% increase over the revenue of RM114 million achieved in last year. In spite of increase in turnover, net profit was lower at RM10.6 million. The net profit was affected by the lower margin in a very competitive enviroment and a RM1.2 million charge of professional fees arising from the excercise of the issuance of Islamic Notes Facility and the acquisition of the remaining 40% shares in Diamond & Platinum Sdn Bhd. Initial set up costs and promotional expenses of the 2 new Degem outlets further eroded the bottom line for the year. As at 31 December 2004, shareholders' fund of Degem have strengthened to RM96 million from RM88 million in year Group net tangible assets improved to 76 sen per share from 70 sen in the corresponding year.

16 STATEMENT TO SHAREHOLDERS (CONT D) OPERATIONAL OVERVIEW The performance of the Group took an unexpected down turn toward the second half of the year. While competition during the year was much stiffer compared to last year, the Group managed to grow its revenue but at the expense of lower profit margin. Generally retail market demand is softer and the macro economic concerns of rising fuel prices, slow down in China and the timing of unpegging Ringgit Malaysia have not help consumption sentiment. PROSPECT FOR 2005 The Group is in a cleaner position having taken positive decision closing down retail outlets that were not profitable and relocating the human and capital resources to new and existing showrooms with better potential. The acquisition of the remaining 40% interest in Diamond & Platinum which was completed in March 2005 will check profit leakage in a high growth market segment. During the period under review, Diamond & Platinum had launched its customer loyalty program and it may soon cover the whole Degem group if the response is positive. Going forward, the Group will consolidate its local operation and seek opportunity outside the country as growth driver. In view of the competitive enviroment, the management is of the view that current year performance is expected to be satisfactory. ANNUAL REPORT 2004 DIVIDEND The Board recommended a first and final dividend of 6% per share less 28% tax for the year ended 31 December 2004, subject to your approval at the forthcoming AGM. The payment of the dividend will be made at a date to be announced later. 15 DIRECTORATE We would like to take this opportunity to extend a warm welcome to Mr. Choong Kay Cheong, who joined the Board as an Executive Director on 31 March ACKNOWLEDGEMENT AND APPRECIATION On behalf of the Board of Directors, we would like to extend our sincere appreciation to all shareholders, suppliers, financiers, business partners and our loyal customers for their continuous support and confidence in the Group. All of you have inspired Degem to grow from strength to strength and achieved new height every year. We also wish to express gratitude to the management and staff for their undivided dedication and loyalty to serve Degem all these years. Last but not least, we wish to extend our appreciation to our fellow Directors for their continuous commitment and dedication. Thank you. ENCIK HASAN BIN M. TAIB Chairman CHONG KAI CHOONG KAI SUN Managing Director

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18 CORPORATE GOVERNANCE STATEMENT This Statement describes the manner in which the Company has applied the principles and the extent of compliance with the best practice of corporate governance as set out in Part 1 and Part 2 respectively of the Malaysian Code on Corporate Governance ("the Code") pursuant to Paragraph of Listing Requirements of the Bursa Malaysia Securities Berhad ("the Listing Requirements"). 1. BOARD OF DIRECTORS 1.1 Composition The Board has 10 members comprising a Non-Executive Chairman, 6 Executive Directors and 3 Independent Non-Executive Directors. One-third of the Board members are make up of Independent Directors thereby bringing objective and independent judgement to the decision making process of the Board. A brief profile of each Director is presented on pages 9 to 10 of this Annual Report. 1.2 Duties and Responsibilities The principal functions of the Board are:- ANNUAL REPORT Reviewing, adopting and approving the Group's key operational and expansion plans, major investment strategy and funding decision; - Overseeing the day to day conduct of business of the Group; - Reviewing the risk management process within the Group; - Reviewing the internal control systems to ensure compliance with relevant rules and regulations. 1.3 Directors Training 17 All Directors have attended and successfully completed the Mandatory Accreditation Programme and are required to attend Continuing Education Programme prescribed by Bursa Malaysia Securities Berhad. In addition, the Directors will be encouraged to attend other relevant training programme and seminar relevant to jewellery industry. 2. BOARD MEETINGS The Board meets on a scheduled basis at least five times a year, with additional meetings convened as and when required. All Directors are provided with an agenda and Board reports prior to Board meetings. This is issued in sufficient time to enable the Directors to obtain further explanations, where necessary. The Board reports includes, among others, the following:- a. the quarterly consolidated income statement, balance sheet and notes to the unaudited results; b. Board papers for issues requiring Board's delibration and approval; and c. internal audit report and external audit management letter for the deliberation of Board and future development of the Group's business. During the financial year ended 31 December 2004, the Board met 5 times whereat it deliberated and considered a variety of matters including the Group's financial results and investment plan. Details of Board members' attendance are disclosed in the Statement Accompanying Notice of Annual General Meeting on page 5. All Directors have access to information within the Group, and they may seek the advice and services of company secretaries, independent professional advisors, internal and external auditors in appropriate circumstances at the Company's expense.

19 CORPORATE GOVERNANCE STATEMENT (CONT D) 3. BOARD COMMITTEES The following Board Committees were established to assist the Board in the execution of its responsibilities:- a. Audit Committee The terms of reference together with the Audit Committee Report are presented on pages 21 to 24 of the Annual Report. b. Nomination Committee The Nomination Committee was established on 22 April 2002 and the committee comprises 3 Independent Non-Executive Directors. The members are: i. Leou Thiam Lai - Independent Non-Executive - Chairman ii. Ahmad bin Habib - Independent Non-Executive iii. Chuah Teong Aung - Independent Non-Executive The Committee's responsibility among others, is to propose new nominees for the Board and to assess Directors on an on-going basis. Through the Nomination Committee, the Board will review annually the required skill and experience and other qualities, including core competencies which Non-Executive Directors should bring to the Board. c. Remuneration Committee The Remuneration Committee was established on 22 April 2002 and the committee comprises majority of Non-Executive Directors, 3 of whom are independent. The members are: 18 i. Leou Thiam Lai - Independent Non-Executive ii. Ahmad bin Habib - Independent Non-Executive iii. Chuah Teong Aung - Independent Non-Executive iv. Choong Kai Fatt - Executive v. Choong Khoi Onn - Executive The Committee's primary responsibility is to recommend to the Board, the remuneration of Executive Directors, drawing from external advice as necessary. Nevertheless, the determination of remuneration of Directors (Excutive and Non-Executive) is a matter for the Board as a whole and individuals are required to abstain from discussion of their own remuneration. DeGem Berhad ( T) 4. RE-ELECTION OF DIRECTORS In accordance with the Company's Articles of Association, all Directors who are appointed by the Board are subject to re-election by shareholders at the next following Annual General Meeting subsequent to their appointment. In accordance with the Articles of Association, one-third of the Directors shall retire and eligible to offer themselves for re-election at each Annual General Meeting. Thus, every Director shall retire from office once at least in each three (3) years. The details of Directors who retire at the forthcoming General Meeting and offer themselves for re-election are disclosed in the Statement Accompanying Notice of Annual General Meeting on Page DIRECTORS REMUNERATION The Level and Make-up of Remuneration The Board, upon the recomendation of the Remuneration Committee, reviewed and fixed the remuneration scheme for the Directors. The executive remuneration was designed to link rewards to the Group's performance whilst the remuneration of the Non-Executive Directors is determined in consideration of their experience and level of responsibilities. Fees payable to all Directors are proposed at the Annual General Meeting for the shareholders' approval. Details of remuneration of Directors of the Company for the financial year ended 31 December 2004 are set out on page 45 of this Annual Report.

20 CORPORATE GOVERNANCE STATEMENT (CONT D) 6. ACCOUNTABILITY AND AUDIT 6.1 Financial Reporting The Board aims to provide and present a balanced and understandable assessment of the Group and the Company's financial position and future prospect. The financial results announcements, press releases, annual report and the statement to shareholders are the main avenue of assessment of the Group's prospect. A statement of the Directors' responsibility in respect of the audited financial statements is published on Page Internal Control The Directors acknowledge their responsibilities for maintaining a sound system of internal controls of the Group. These systems cover the financial, operational and compliance controls. Such systems of internal control are designed to manage rather than eliminate risk of failure to achieve business objectives. Therefore the system can only provide reasonable but not absolute assurance against misstatements or losses. In the course of discharging their duties, the Board and the senior management continously identify and manage the risk faced by the Group. With the assistance of the Internal Audit function, the Audit Committee reviews the effectiveness of systems of internal control of the Group. ANNUAL REPORT Relationship with Auditors The external auditors, Messrs. Ernst & Young have continued to 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. In doing so, the Company has established a transparent arrangement with the auditors to meet their professional requirements. From time to time, the auditors highlight to the Audit Committee and the Board on matters that required their attention. The Audit Committee has reviewed the scope and results of the audit, its costs effectiveness, the independence and objectivity of the auditors SHAREHOLDERS 7.1 Dialogue with Investors Recognising the importance of timely information to shareholders and other stakeholders, the Board is committed to ensure that the shareholders and stakeholders are well informed of major developments of the Group and the information is communicated to them through the following:- - the Annual Report; - the various disclosures and announcements made to the Bursa Malaysia Securities Berhad including the Quarterly and Annually results; and - Degem Berhad's website at General Meetings The Company's Annual General Meeting serves as a principal forum for dialogue with shareholders. Extraordinary General Meeting are held as and when required. At the General Meetings, the Board provides opportunities for shareholders to raise questions on the business activities of the Group, agenda of the meetings and its proposed resolutions. The Chairman of the meeting will facilitate the discussion with the shareholders and provides further information in answering shareholders' questions.

21 STATEMENT OF INTERNAL CONTROL The Board of Directors of DEGEM BERHAD acknowledges the importance of the system of internal control and affirms that it is their responsibility to maintain a sound system of internal control to safeguard shareholders investment and the Group s assets. In this respect the Board assumes its responsibility for identifying principal risks, ensuring the implementation of appropriate systems to manage these risks and reviewing the adequacy and integrity of the Group s system of internal control. However, it should be noted that risk management system and system of internal control are only designed to manage rather than eliminate risks of failure to achieve business objectives. Therefore these systems can only provide reasonable and not absolute assurance against material misstatements or losses. The process of identifying, evaluating and managing significant risks faced by the Group is practiced continuously. These processes are managed under the leadership of the Executive Directors and management team. Operational meetings are regularly held and attended by the Executive Directors to assess the performance of the operations based on management accounts. During the meeting, key management issues are also identified, discussed and resolved to ensure that the operations are aligned with the financial targets. In addition, significant corporate and operation matters are brought to the Board meeting to ensure that issues are adequately deliberated and reviewed by the Board members. In order to assist the Board in reviewing the state of the internal control of the Group, the internal auditors conduct reviews and report their findings and recommendations to the Audit Committee. During the current financial year, some areas of improvement were identified, nevertheless, there was no major control matters noted that requires further disclosure in this Statement. As reported in the previous year s statement, to further enhance the current risk management practices in the Group, the management with the assistance and facilitation of the internal auditors has completed a risk assessment and documentation exercise. A report was presented during the financial period, to the Audit Committee for their consideration as part of their ongoing reviews of the state of the management systems of internal control. 20 There was no significant change in the other measures implemented in the Group for ensuring and reviewing the effectiveness of the system of internal control in the current financial period. These measures are:- Organisation structure that defines the management functions, responsibilities, authorities and segregation; Physical and electronic security measures for monitoring and ensuring authorized access to Group s assets and records and supplemented with regular inventory and cash counts; DeGem Berhad ( T) ISO 9001:2000 Quality Management System is implemented in Inticraft Sdn Bhd, the manufacturing arm of the Group. Internal quality audits are carried out by the management and annual surveillance audits are conducted by a certification body to provide assurance of compliance with the ISO 9001:2000 Quality Management System; and Quarterly and annual financial results are reviewed by the Audit Committee. The Board recognises that the system of internal control must continuously improve to cope with the evolving business environment. To this end, the Board would continuously improve the Group s system of internal control with reference to the principles of the guidelines issued for directors on internal control i.e The Statement on Internal Control: Guidance for Director of Public Listed Companies. This Statement is made in accordance with a resolution of the Board of Director dated 25 May 2005.

22 AUDIT COMMITTEE REPORT The Audit Committee ( the Committee ) was established on 21 May ROLE OF AUDIT COMMITTEE The Audit Committee assists, supports and implements the Board's responsibility to oversee the Company's operations in the following manner:- - provides a means for review of the Company's processes for producing financial data, its internal controls and independence of the external and Internal Auditors; - reinforces the independence of external auditors; and - reinforces the objectivity of Internal Audit Department 2. MEMBERSHIP The Committee presently comprises the Directors listed below:- ANNUAL REPORT 2004 Name Leou Thiam Lai Chuah Teong Aung Ahmad bin Habib Choong Khoi Onn Status of Directorship Independent Non-Executive (Chairman) Independent Non-Executive (Member) Independent Non-Executive (Member) Executive (Member) TERMS OF REFERENCE The terms of reference of the Committee are as follows: A. MEMBERSHIP (i) (ii) (iii) (iv) (v) (vi) The Committee shall be appointed by the Board from amongst the Directors of the Company and shall consist of not less than three members, of whom the majority shall be independent; The Committee shall include at least one person who is a member of the Malaysian Institute of Accountants or alternatively a person who must have at least 3 years' working experience and have passed the examinations specified in Part I of the 1st Schedule of the Accountants Act 1967 or is a member of one of the association specified in Part II of the said Schedule; No alternate Director shall be appointed as a member of the Committee; The members of the Committee shall elect from among their number a chairman who is non-executive and independent, as defined above; If one or more members of the Committee resign, die or for any other reason cease to be a member with the result that the Listing Requirements of the Bursa Malaysia Securities Berhad are breached, the Board shall, within three months of the event, appoint such number of new members as may be required to correct the breach; The Board shall review the term of office of Committee members no less than once every three years.

23 AUDIT COMMITTEE REPORT (CONT D) 3. TERMS OF REFERENCE (CONT D) B. AUTHORITY The Committee is authorised by the Board, in accordance with the procedures to be determined by the Board (if any) and at the cost of the Company, to:- (i) (ii) (iii) (iv) (v) (vi) investigate any activity within the Committee's terms of reference; have resources which are reasonably required to enable it to perform its duties; have full and unrestricted access to any information pertaining to the Company or the Group; have direct communication channels with the external auditors and person(s) carrying out the internal audit function or activity (if any); obtain outside legal or other independent professional advice and secure the attendance of outsiders with relevant experience and expertise if it considers this necessary; and convene meetings with the external auditors, excluding the attendance of the executive members of the Committee, whenever deemed necessary. C. DUTIES The duties of the Committee shall be to review the following and report the same to the Board:- 22 (i) (ii) (iii) (iv) any matters concerning the appointment and dismissal of the external auditor and the audit fee; the nature and scope of the audit by the external auditors before commencement; the external auditors' report, areas of concern arising from the audit and any other matters the external auditors may wish to discuss (in the absence of management if necessary); any financial information for publication, including quarterly and annual financial statements, before submission to the Board, focusing particularly on:- DeGem Berhad ( T) (v) (vi) (a) (b) (c) (d) any changes in accounting policies and practices; significant adjustments from the audit; the going concern assumption; and compliance with accounting standards and other legal requirements. the external auditors management letter and management s response; to do the following where an internal audit function exists:- (a) (b) review the adequacy of the scope, functions and resources of internal audit function, and that it has the necessary authority to carry out its work; review the internal audit programme and results of the internal audit process and where necessary ensure that appropriate action is taken on the recommendations of the internal audit function; (c) (d) (e) review any appraisal or assessment of the performance of members of the internal audit function; approve any appointment or termination of internal auditor; and inform itself of resignations of internal audit staff members and provide the resigning staff member an opportunity to submit his reasons for resigning. (vii) (viii) (ix) (x) to consider the major findings of internal audit work and management's response; extent of co-operation and assistance given by employees; the propriety of any related party transactions and conflict of interest situations that may arise within the Company or the Group; and any other matters as directed by the Board.

24 AUDIT COMMITTEE REPORT (CONT D) 3. TERMS OF REFERENCE (CONT D) D. OVERSEEING THE INTERNAL AUDIT FUNCTION (i) (ii) The Committee shall oversee all internal audit functions and is authorised to commission investigations to be conducted by internal audit as it deems fit. The internal auditor shall report directly to the Committee and shall have direct access to the Chairman of the Committee. (iii) All recommendations by management regarding the appointment, transfer or dismissal of the internal auditor shall require the prior approval of the Committee. E. QUORUM FOR MEETINGS The quorum shall be formed only if there is a majority of members present at the meeting who are independent directors. ANNUAL REPORT 2004 F. ATTENDANCE AT MEETINGS The Head of Finance, the Head of Internal Audit and a representative of the External Auditors shall normally attend meetings. Other Board members and employees may attend any particular meeting only at the Audit Committee's invitation, specific to the relevant meeting. However, at least once a year the Committee shall meet with the External Auditors without executive Board members present. 23 G. FREQUENCY OF MEETINGS The Chairman shall call for meetings to be held not less than four times a year. The External Auditors may request a meeting if they consider one necessary. H. PROCEEDINGS OF MEETINGS (i) (ii) (iii) A member may at any time and the Secretary shall on the requisition of a member summon a meeting of the Audit Committee by giving the members not less than seven days notice thereof unless such requirement is waived. In the absence of the Chairman, the Committee shall appoint one of its members present to chair that meeting. A resolution put to vote shall be decided by a majority of votes of the members present, each member having one vote. I. REPORTING PROCEDURES (i) (ii) The Company Secretary shall be the Secretary of the Committee. He shall record attendance of all members and invitees and take minutes to record the proceedings of every meetings of the Committee. All minutes of meetings shall be circulated to every member of the Board. The Committee shall prepare an annual report to the Board that provides a summary of the activities of the Committee for inclusion in the Company's annual report.

25 AUDIT COMMITTEE REPORT (CONT D) 3. TERMS OF REFERENCE (CONT D) I. REPORTING PROCEDURES (CONT D) (iii) The Committee shall assist the Board in reviewing the following for publication in the Company's annual report:- (a) (b) (c) (d) statement on the Company's application of the principles set out in Part 1 of the Malaysian Code on Corporate Governance; statement on the extent of compliance with the Best Practices in Corporate Governance set out in Part 2 of the Malaysian Code on Corporate Governance, specifying reasons for any areas of non-compliance (if any) and the alternatives adopted in such areas; statement on the Board's responsibility for preparing the annual financial statements; and statement about the state of internal control of the Group. (iv) The Committee may report any breaches of the Listing Requirements, which have not been satisfactorily resolved, to the Bursa Malaysia Securities Berhad. 4. MEETINGS AND ACTIVITIES OF THE AUDIT COMMITTEE During the year under review, the Committee met 5 times and have carried out its duties as set out in the terms of reference. Each meeting is conducted with due notice of meetings and pre-defined agenda to ensure that issues are deliberated in a focused and efficient manner. 24 Details of attendance of members at Audit Committee meetings held during the year under review were as follows:- Name Status of Directorship No. of Meetings Attended Leou Thiam Lai Independent Non-Executive 5 - Chairman of the Committee Chuah Teong Aung Independent Non-Executive 5 DeGem Berhad ( T) Ahmad bin Habib Independent Non-Executive 5 Choong Khoi Onn Executive 5 The Committee has also met with the external auditors and discussed the nature, scope and findings of the audit. The Committee reviewed and approved the internal plan prepared by the Internal Auditor, assessed the audit findings and recommendations and monitored the implementation of audit recommendations. 5. INTERNAL AUDIT FUNCTION The Internal Audit Department ("IAD") of the Company was established on 1 March 2002 with the appointment of an Internal Auditor. During the period under review, the Internal Auditor has:- a. reviewed the major operations process in subsidiary companies; b. facilitated the risk management practices; c. recommended improvements to existing system of controls; and d. reported the result of his findings to the Audit Committee independently.

26 STATEMENT OF DIRECTORS RESPONSIBILITIES The Directors are required by the Companies Act, 1965 to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and the Group at the end of the financial year and of their results and cash flow for the financial year then ended. In preparing the financial statements, the Directors have:- - Considered the applicable approved Malaysian accounting stardards; - Adopted and consistently applied appropriate accounting policies; and - Made judgements and estimates that are prudent and reasonable. The Directors have responsibilitity for ensuring that the Company and the Group keep accounting records which disclose with reasonable accuracy the financial position of the Company and the Group and which enable them to ensure the financial statements comply with the Companies Act, The Directors have general responsibility for taking such steps as are reasonable open to them to safeguard the assets of the Company and the Group to prevent and detect fraud and other irregularities. ANNUAL REPORT