TRC SYNERGY BERHAD (413192-D) Annual Repor t 2006 www.trc.com.my TRC SYNERGY BERHAD I Annual Report 2006 TRC SYNERGY BERHAD (413192-D) Wisma TRC, 217 & 218, Jalan Negara 2. Taman Melawati 53100 Ulu Klang, Selangor Darul Ehsan. Tel : 03 4108 0105 / 06 Fax : 03 4108 0104 A s O n e w i t h t h e N A T I O N
table of contents Corporate Profile 1 Chairman s Statement 2 Profile Of Director 6 Corporate Information 8 Corporate Structure 9 Statement On Corporate Governance 10 Statement On Internal Control 19 Audit Committee Report 23 Financial Statements 29 List Of Properties 84 Analysis Of Shareholdings 86 Analysis Of Iculs Holdings 90 Analysis Of Warrant Holdings 93 Notice Of Tenth Annual General Meeting 96 Statement Accompanying Notice Of Annual General Meeting 99 Proxy Form
corporate profile TRC Synergy Berhad was initially incorporated as a private limited company in Malaysia under the Companies Act, 1965 on 11 December 1996 under the name TRC Synergy Sdn Bhd. On 8 January 1997, the company changed its status from a private limited company to a public company and assumed the name TRC Synergy Berhad (TRCS). TRCS was listed on the Main Board of the Bursa Malaysia Securities Berhad on 6 August 2002, where it offered Public Issue and Offer For Sale of 16,000,000 and 3,500,000 ordinary shares respectively. TRCS is principally an investment holding company while the principal activity of its subsidiary companies are construction, manufacturing of construction materials and property development. The TRCS group of companies employs over 450 personnel of which more than 15% are in the sub-professional and professional group. TRCS not only has the ability to undertake common projects like roads and building construction, but also specialized mega projects like airports, railway trackworks, stadium, hospitals and large property development ventures. The company s motto As one with the nation sums up the company s aspiration to progress in tandem with the nation s vision. AS ONE WITH THE NATION page
chairman s statement Dear Shareholders, On behalf of the Board of Directors, I am pleased to present the Annual Report and Audited Financial Statements of TRC Synergy Berhad for the Financial Year Ended 31 December 2006. Dato Sri Sufri Bin Hj Mohd Zin (Executive Chairman) page
chairman s statement (cont d) GROUP PERFORMANCE The year 2006 was a satisfactory year for the group. The group registered a higher turnover of RM225.6 million for the year under review, representing an increase of 59.2% over the turnover of RM141.7 million in the preceding year. Likewise, it also register a profit after-tax of RM10.5 million as compared to a loss of RM5.2 million in the preceding year. The marked improvement in the group s performance is largely due to the smooth implementation of the two major projects in the group, namely, the Design and Construction of Bentong Prison (RM238 million) and Bawang Assam Road (RM222 million) and the stabilisation of the construction material costs. We expect the group s performance to continue to improve next year as most of the projects under the Ninth Malaysian Plan is expected to be rolled out in 2007. In addition to the above projects, the group has also been awarded with a project known as the Design and Construction of the submarine base at Sepanggar Bay, Sabah. The contract value for this project is fixed at RM318million and is expected to be completed early 2009. Going forward, we expects these projects to contribute significantly to the group turnover and profitability. REVIEW OF OPERATIONS CONSTRUCTION For the year 2006, this division remains the main contributor to the group s turnover. The performance of this division for the period under review was satisfactory and the group managed to secured two major projects amounting to RM324.9 million to add to its orderbook. The projects in question are namely, the construction of the District Police Headquarter in Dang Wangi with contract value of RM125 million and the runway extension of Kuala Terengganu Airport with a contract value of RM199.9 million. page
chairman s statement (cont d) MANUFACTURING The performance of this division has improved when compared to the preceding year largely due to the recovery of the construction sectors in the year 2006. We envisage that the performance of this division to continue to improve in the coming year in tandem with the anticipated better performance in the construction sector resulting form the full scale implementation of the Ninth Malaysian Plan. ECONOMIC OUTLOOK PROPERTY DIVISION For the period under review, contribution to the turnover from this division was not significant. This is mainly due to the soft property market, in particular, in the Southern Region. During the period, the group s property arm completed two blocks of medium cost apartments under its Phase B development project in the Plentong region in Permas Jaya, Johor. This project is part of the mixed development project on a 163 acres piece of land that the group has joint ventured with a state owned organization. For the year under review, we have also, acquire a piece of land in Klang measuring 8.6 acres for future development. The outlook for the property market is expected to improve, especially in the southern region, in view of the recent announcement by the government to abolish Real Property gains tax and the generous incentives for the Iskandar Development Region. We expect this latest development to provide a major boost to the group s property division in the near future. The year under review has been a relatively positive year both from the country s economic point of view, and the construction industry. During the period, the country s Gross Domestic Product (GDP) has grown by 5.9% and inflation was at a manageable figure of 3.6%. The Ringgit has also appreciated against the US Dollar and most regional currencies. Likewise, it was a year of positive growth for the construction industry supported by increased activity in the civil engineering sub-sector and gradual commencement of projects under the Ninth Malaysian Plan. Going forward, we expect the country s economy to further strengthen in 2007. Growth will be broadbased with positive contribution from all sectors of the economy. The reduction of the corporate tax from 28% to 27% in 2007 will enhance corporate earnings. The construction sector is anticipated to grow by 3.7% in the coming year supported by the implementation of new projects under the Ninth Malaysian Plan, and the future development programme in the Iskandar Development Region. With these positive development, we are optimistic that construction company like TRC will continue to perform in the years ahead. page
chairman s statement (cont d) DIVIDEND With due recognition to the Company s shareholders support, the Board of Director is recommending a provisional first and final gross dividend of 2.3 sen per share less 27% income tax amounting to 2,240,181 for the financial year ended 31 December 2006. The dividend is subject to the shareholders approval at the forthcoming annual general meeting. ACKNOWLEDGEMENT AND APPRECIATION On behalf of the Board of Directors, I would like to extend our sincere appreciation to all our valued clients, bankers and business associates for their undivided support. I would also like to put on record my gratitude to the management and staff of the group for their effort and hard work in the preceeding year. Finally, I acknowledge and appreciate the continuing support of our shareholders and I am confident that the prospect in the coming years for the group would be better. Dato Sri Sufri Bin Hj Mohd Zin (Executive Chairman) page
profile of director Dato Sri Sufri Bin Hj Mohd Zin (Executive Chairman) 51 years of age Malaysian Dato Sri Sufri Bin Hj Mohd Zin was appointed as the Managing Director of TRC Synergy Berhad ( TRC or the Company ) on 29 March 2002 and presently he is the Executive Chairman of the Company and the Managing Director of its subsidiary Companies. He graduated from Institute of Teknologi MARA ( ITM ) in 1982 with a Diploma in Business Studies. He started his career as a banker with Bank Bumiputera Malaysia Bhd in 1982. His inherent perseverance and unique business acumen led him into the building and construction industry in 1984. YBhg Dato Sri Sufri is a member of the Audit Committee. During the Financial year ended 31 December 2006, he attended all four Board Meetings. Dato Abdul Aziz Bin Mohamad (Executive Director) 48 years of age Malaysian Dato Abdul Aziz Bin Mohamad was appointed as an Executive Director of the Company on 29 March 2002. He joined TRC Group as a Senior Contract Executive in 1994 and was later promoted to Deputy General Manager (Contracts) in 1997. He graduated from Trent Polytechnic in Nottingham, England in 1983. He is a Quantity Surveyor by profession and a member of the Institution of Surveyors, Malaysia. He started his career as an Assistant Quantity Surveyor in England with Rider Hunt and Partners in 1982. He later joined Jabatan Kerja Raya (JKR) Kuala Lumpur in 1983 as a Quantity Surveyor where he administered the contractual aspects of projects. YBhg Dato Aziz attended all four Board Meetings held during the financial year ended 31 December 2006. He does not have any personal interest in any business arrangement involving the Company. Note:- Save as disclosed: 1) none of the Directors have:- i) any family relationship with any director and/or substantial shareholders of the Company; ii) any conflict of interest with the Company; and iii) any conviction for offences (other than traffic offences) within the past ten (10) years. 2) none of the Directors holds directorship in other public companies. page
profile of director (cont d) Encik Noor Zilan Bin Mohamed Noor (Independent, Non Executive Director) 47 years of age Malaysian Encik Noor Zilan Bin Mohamed Noor was appointed as a Director of the Company on 13 May 2002. He graduated from ITM in 1983 with a Diploma in Law. He then joined United Malayan Banking Corporation as a Trainee Executive Officer before pursuing for further studies in the United Kingdom in 1984 and graduated from City of London Polytechnics with LLB (Hons) majoring in Business Law in 1987. Subsequently, he went on to read Law at Lincoln s Inn and was called to the English Bar in 1988 and upon returning to Malaysia he was then called and admitted to the Malaysian Bar in 1989 as an Advocate & Solicitor. He then worked as a Legal Assistant before starting his own law firm in 1991 and is now a Senior Partner with an established law firm in Kuala Lumpur specializing in the area of Corporate Law, Banking, Building and Construction Law apart from civil & criminal litigation. En. Noor Zilan is the Chairman to the Audit Committee, Nomination Committee and Remuneration Committee. He attended all four Board Meetings held during the financial year ended 31 December 2006. En. Abdul Rahman Bin Ali (Independent, Non Executive Director) 50 years of age Malaysian En. Abdul Rahman Bin Ali was appointed as a Director of the Company on 13 May 2002. He graduated from University of Malaya in 1982 with a Degree in Accounting. He is currently a Chartered Accountant of the Malaysian Institute of Accountants. He started his career as a credit officer with Bank Bumiputera Malaysia Berhad in 1982. He left the bank in 1986 to set up his own management consultancy company under the name of Advance Management Services in 1986 before becoming a Branch Manager with a public accounting firm, Sahir and Co. in 1990. In 1994, he set up his own accounting firm by the name A. Rahman & Associates and later became a partner of Omar Arif, A.Rahman & Associates in 1996. En. Abdul Rahman is a member of the Audit Committee, Nomination Committee and Remuneration Committee. He attended all the four Board Meetings held during the financial year ended 31 December 2006. General (R) Dato Seri Mohd Shahrom Bin Dato Hj Nordin (Non-Independent, Non-Executive Director) 59 years of age Malaysian General (R) Dato Seri Mohd Shahrom Bin Dato Hj Nordin was appointed as a Director of the Company on 25 March 2004. After his secondary education, he was selected for Officer Cadet training at the Royal Military College, Sungai Besi in 1966 before being commissioned as a Second Lieutenant into the Royal Malay Regiment in 1968 and assigned as a Platoon Commander with the 2nd Battalion, Royal Malay Regiment. General (R) Dato Seri Mohd Shahrom has served in various appointments at command, staff, training and the diplomatic services levels and he was the Chief of the Malaysia Army from 1st January 2003 to 15 September 2003. Prior to that appointment he was the Chief of staff at the Armed Forces Headquarters. Currently he is the Senior Vice President Defence of the National Aerospace & Defence Industries Sdn Bhd (NADI). He is also the Chairman of SME Aerospace Sdn Bhd (SMEA) and Director of SME Ordnance Sdn Bhd (SMEO). Both SMEA and SMEO are subsidiary companies of the NADI Group of Companies. General (R) Dato Seri Mohd Shahrom attended three of the four Board Meetings held during the financial year ended 31 December 2006. page
corporate information BOARD OF DIRECTORS Dato Sri Sufri bin Hj Mohd Zin (Executive Chairman) Dato Abdul Aziz bin Mohamad (Executive Director) Abdul Rahman bin Ali (Independent Non-Executive Directo) Noor Zilan bin Mohamed Noor (Independent Non-Executive Director) General (R) Dato Seri Mohd Shahrom Bin Dato Hj Nordin (Non-Independent, Non-Executive Director) COMPANY SECRETARY Abdul Aziz bin Mohamed (LS 007370) REGISTERED OFFICE / PRINCIPAL PLACE OF BUSINESS Wisma TRC, No. 217 & 218 Jalan Negara 2, Taman Melawati 53100 Ulu Klang, Selangor Tel : 603 4108 0105 / 603 4108 0106 Fax. : 603 4108 0104 E-mail : trc@tm.net.my BRANCH OFFICE Lot 3626, Block 16, KCLD Taman Timberland, Lorong Rock 2 93200 Kuching, Sarawak Tel : 6082 239 998 Fax : 6082 421 998 WEBSITE www.trc.com.my AUDITORS Kumpulan Naga (AF-0024) Suit 1, 1 st Floor, Wisma Leopad No. 5, Jalan Tun Sambanthan 50470 Kuala Lumpur SHARE REGISTRAR Mega Corporate Services Sdn Bhd Level 15-2, Faber Imperial Court Jalan Sultan Ismail 50774 Kuala Lumpur Tel : 603 2692 4271 Fax : 603 2732 5388 / 603 2732 5399 PRINCIPAL BANKERS EON Bank Berhad Malayan Banking Berhad Arab-Malaysian Merchant Bank Berhad Affin Bank Berhad SOLICITORS Messrs Noorzilan & Partners Messrs C.C. Choo & Co. STOCK EXCHANGE LISTING Bursa Malaysia Securities Berhad (Main Board) (Stock No. : 5054) page
corporate structure page
statement on corporate governance The Board of Directors of TRC Synergy Berhad ( the Board ) is committed to uphold the highest standards of corporate governance as set out in the Malaysian Code on Corporate Governance ( The Code ) are practiced throughout the Company and its subsidiaries. These have been recognized by the Board as the Group s key responsibilities in order to protect and enhance long term shareholder value and to safeguard the Group assets. The Board will continuously evaluate the Group s corporate governance practices and procedures, and where appropriate will adopt and implement the best practices as enshrined in the Code. In accordance with paragraph 15.26 of the Bursa Malaysia s Listing Requirements ( Listing Requirements ), the Board is pleased to provide the following statement detailing the manner the Group has applied the Principles and the extent of compliance with the Best Practices. page 0
statement on corporate governance (cont d) DIRECTORS THE BOARD The Group is led and controlled by an effective Board of Directors headed by the Executive Chairman who has detailed knowledge and vast experience in the construction industry. The rest of the Board members possess a wide range of skill and experiences ranging from construction, finance, legal and general management discipline suitable for managing the Group businesses. The Board of Directors has overall responsibility in the stewardship of the Group s direction and its performance inclusive of corporate governance, strategic planning and maintaining effective control over financial and operational matters. BOARD COMPOSITION AND BALANCE The Board currently consists of five (5) members comprising two Executive Directors, two (2) Independent Non- Executive Directors and one (1) Non Independent Non Executive Director. The Company complies with the criteria of having at least one-third of the Board Members as Independent Non-Executive Directors. The profiles of the Directors are presented in this Annual Report on pages 6 and 7. Two (2) of the Board members are Independent Non-Executive Directors who provide broad, unbiased and balanced assessment on proposals initiated by the Executive Directors and the senior management of the Group. The Non-Executive Directors also include a representative of Lembaga Tabung Angkatan Tentera, one of the substantial shareholders of the Company, who brings independent judgment that safeguards the interest of overall shareholders of the Company. In view of this composition, the present members of the Board are considered sufficient in addressing the issues affecting the Group and the Board has not considered it necessary to examine its size. BOARD MEETING During the financial year ended 31 December 2006, four (4) board meetings were held. In the meetings, the Board deliberated and considered matters relating to the Group s financial performance, key business and operational issues and business plans. Details of attendance at the meeting are as follows:- Name No. of Meeting Attended Dato Sri Sufri bin Hj Mohd Zin 4/4 Dato Abdul Aziz bin Mohamad 4/4 Jen (B) Dato Sri Mohd Shahrom bin Dato Hj Nordin 3/4 Noor Zilan Bin Mohamed Noor 4/4 Abdul Rahman bin Ali 4/4 page 11
statement on corporate governance (cont d) The Board has agreed to meet at least four times a year with additional matters addressed by way of circular resolutions and additional meeting to be held as and when the need arises. SUPPLY OF INFORMATION TO THE BOARD All Directors have unrestricted access to all information within the Group as a full Board or in their individual capacity in carrying out their duties and responsibilities. The Chairman undertakes primary responsibility for organizing information to be distributed to the Board. They also have direct access to the advice and services of the Company Secretary, internal and external auditors and other independent professional at all times. As for the Board meeting, the agenda and Board papers are distributed to the Board in advance before the meeting to ensure the Directors have sufficient time to appreciate the issues deliberated at the meetings. Senior officers of the Group are invited to clarify and explain the relevant matters tabled to the Board. APPOINTMENT AND RE-ELECTION OF THE BOARD The Company has a formal and transparent procedure for the appointment of new Directors and re-election of Directors. These aspects are spelt out clearly in the Company s Articles of Association. Besides, The Nomination Committee, comprising of two (2) Independent Non-Executive Directors, reviews and recommends any proposed appointments before the appointment are approved by the Board. All the newly appointed Directors are subject to election by shareholders at the Annual General Meeting subsequent to their appointment. As for the re-election of Directors, the Articles of Association of the Company provides at least one-third of the Directors are required to retire by rotation at each financial year and are eligible to offer themselves for reelection at the Annual General Meting. All Directors shall retire from office once at least in each three years. DIRECTORS TRAINING The Board as a whole will evaluate the training needs for Directors and they have principally agreed to attend at least one training programme every year. The Board will identify the relevant training programmes for all Directors to ensure that they are updated with appropriate professional training to enhance their knowledge and professionalism in discharging their duties to the Group. During the financial year ended 31 December 2006, all Directors attended the training programme initiated by the Company. The training was in relation to the strategic and operational risk faced by the Directors. page 12
statement on corporate governance (cont d) BOARD COMMITTEES As recommended by the Code, the Board has established the following committees to assist the Board in discharging its duties:- i) Audit Committee ii) Nomination Committee iii) Remuneration Committee iv) Employees and Directors Share Option Scheme (ESOS) Committee Each of this committee has its own functions and responsibilities and they report to the Board. DIRECTORS REMUNERATION The Group has adopted the principle recommended by the Code whereby the level or remuneration of the Directors and senior management should reflect the level of responsibility and contributions toward the successful and efficient running of the Group s activities. PROCEDURE To assist the Board in the discharge of its duties, the Board has established a Remuneration Committee. As at the date of the Annual Report, the composition of the Remuneration Committee is as follows:- i) Noor Zilan Bin Mohamed Noor ii) Abdul Rahman bin Ali The Committee will review and recommend to the Board the remuneration package of the executive directors and senior management of the Group with the main aim of providing level of remuneration sufficient to attract and retain competent executives who can manage the Group effectively. DISCLOSURE The aggregate remuneration of the Directors received and receivable from the Company and its subsidiaries during the financial year ended 31 December 2006 are as follows:- Category Fees (RM) Salaries (RM) EPF & SOCSO (RM) Executive Directors 1,699,000.00 204,499.80 Non-Executive Directors 84,000.00 Total 84,000.00 1,699,000.00 204,499.80 page 13
statement on corporate governance (cont d) The remuneration paid to the Directors, analysed into the following bands, is as follows:- Range of remuneration Number of Director Executive Non-Executive Less than RM 50,000 3 RM50,001 RM400,000* RM400,001 RM450,000 1 RM451,001 RM1,450,000 * RM 1,450,001 RM1,500,000 1 * No Directors within this range of remuneration RELATIONSHIP WITH INVESTORS AND SHAREHOLDER COMMUNICATION The Board acknowledges the important of communication and proper dissemination of all important issues and major development concerning the Company. In addition to the various announcements made during the year, the timely release of financial results on a quarterly basis provides shareholders with an overview of the Group s performance and operations. During the financial year ended 31 December 2006, the Company organized a number of meetings and briefings with financial analysts to establish better understanding of the Company s objective and performance and to convey other information that may affect shareholders interest. The Company also has a cordial relationship with reporters who have been playing a very effective role in conveying the Group s information to the public, shareholders and investors. Press releases are also occasionally organized to clarify on certain matters related to the Company and its operating unit. Besides, shareholders, investors and members of the public may also obtain updated information on the Group by accessing to the Company s website at www.trc.com.my. THE ANNUAL GENERAL MEETING The company uses the Annual General Meeting as the primary channel of communication with its shareholders. They are encouraged to raise questions and participate in discussions pertaining the operation and financial aspects of the Group. Shareholders who are unable to attend to the meeting can appoint their proxies who can vote on their behalf. Board of directors, senior management as well as the Company s Auditors are present to answer any relevant questions raised at the meeting. page 14
statement on corporate governance (cont d) ACCOUNTABILITY AND AUDIT FINANCIAL REPORTING In presenting the Company s financial statements and quarterly results to shareholders and other interested parties, the Board aims to present a balanced and understandable assessment of the Group s financial position and prospects. The financial statements of the Company and of the Group are prepared in accordance with the requirements of the applicable Approved Accounting Standards in Malaysia and the provisions of the Companies Act, 1965. The Group s annual financial statements and quarterly results are reviewed by the Audit Committee and approved by the Board before announcement to Bursa Malaysia for public release. The Statement explaining the Directors responsibilities for preparing the annual audited financial statements pursuant to paragraph 15.27(a) of the Listing Requirements is set out on page 18 of the Annual Report. INTERNAL CONTROL The Board acknowledges and placed strong emphasis in maintaining a sound system of internal control which is necessary to safeguard the Group s assets and shareholders interest. Details of the Group s internal control system is presented in the Statement On Internal Control and Audit Committee Report set out on pages 19 to 22 and pages 23 to 28 respectively. RELATIONSHIP WITH EXTERNAL AUDITORS Through the Audit Committee, the Group has established a transparent and appropriate relationship with the Group s external auditors in seeking their advice and towards ensuring compliance with the applicable Approved Accounting Standards. The external auditors are invited to attend the Audit Committee meeting and to the Board meeting on a need basis as and when deemed appropriate. page 15
statement on corporate governance (cont d) STATEMENT OF COMPLIANCE WITH THE BEST PRACTICE OF THE MALAYSIAN CODE ON CORPORATE GOVERNANCE (THE CODE) Save as disclosed below, the group has substantially complied with the Best Practices in Corporate Governance set out in Part 2 of the Code:- Provision of the Code Part 2, AA II Part 2, AA VII Details Chairman and Chief Executive Senior Independent Non-Executive Director to whom concerns may be conveyed Explanation The Company is headed by an Executive Chairman and therefore, the roles of the Chairman and the Chief Executive Officer are not separate. The Board is of the opinion that the check and balance of power is undertaken by the strong presence of Independent Non-Executive Directors in the Board. Furthermore, the Chairman encourages all Directors to participate actively in all deliberation of issues that concern the Group. Hence, the Board maintains the view that this combined arrangement will not hamper the Board from making fair decisions for the best interest of the Group. Presently all Board Members are accessible by the shareholders and public investors where they can relay their concerns over company matters. Therefore, the appointment of Senior Independent Non- Executive Director to assume such responsibilities is not timely necessary. ADDITIONAL COMPLIANCE INFORMATION In compliance with the Listing Requirements, the following information is provided:- Utilization Of Proceeds No proceed were raised by the Company for any corporate exercise during the financial year. Share Buybacks The Company has not undertaken any share buyback exercise during the financial year ended 31 December 2006. page 16
statement on corporate governance (cont d) Option, Warrants Or Convertible Securities No options, warrants or convertible securities were exercised by the Company during the financial year ended 31 December 2006. American Depository Receipt (ADR) / Global Depository Receipt (GDR) The Company has not sponsored any ADR or GDR Programme. Sanctions and / or penalties There were no sanction and/or penalty imposed on the Company and its subsidiaries, Directors or Management by the relevant regulatory bodies during the financial year ended 31 December 2006. Non-Audit Fees The non-audit fees paid to external auditors amounting to RM7,087.50 for the financial year ended 31 December 2006. Variation of Results There was no material variation between the audited results for the financial year ended 31 December 2006 with the unaudited results announced. Profit Guarantee There was no profit guarantee given by the Company during the financial year ended 31 December 2006. Material Contracts There was no material contracts between the Company and its subsidiaries involving Directors and major shareholders interests during the financial year ended 31 December 2006. Revaluation of landed properties The Company does not adopt a policy of regular revaluation of its properties. page 17
statement on corporate governance (cont d) Recurrent Related Party Transaction The Company did not enter into any recurrent related party transaction which requires the shareholders mandate during the financial year ended 31 December 2006. STATEMENT OF DIRECTORS RESPONSIBILITY IN RELATION TO THE FINANCIAL STATEMENTS The Board is responsible to ensure that the financial statements are prepared in accordance with the provision of the Companies Act, 1965 and applicable approved accounting standards in Malaysia so as to ensure a true and fair view of the state of affairs of the Group and the Company as at the end of each financial year and of their results and their cash flows for that financial year then ended. The Board is also responsible to maintain accounting records that disclose with reasonable accuracy the financial position of the Group and the Company, and which enable them to ensure that the financial statements comply with the Companies Act, 1965. The Directors have general responsibilities for taking such steps that are reasonably available to them to safeguard the assets of the Group, and to prevent and detect fraud and other irregularities. The Directors are satisfied that in preparing the financial statements of the Group for the financial year ended 31 December 2006, the Group has adopted appropriate accounting policies and applied them prudently and consistently. They are also satisfied that reasonable and prudent judgments and estimates were made and all applicable Approved Accounting Standards in Malaysia have been followed accordingly. page 18
statement on internal control The Board of Directors of TRC Synergy Berhad ( the Board ) is committed to maintaining a sound and effective System of Internal Control in the Group and is pleased to provide the following statement that outlines the nature and scope of internal control of the Group during the financial year ended 31 December 2006 pursuant to paragraph 15.27(b) of the Bursa Malaysia s Listing Requirements. page
statement on internal control (cont d) BOARD RESPONSIBILITY The Board acknowledges the importance of sound internal controls and risk management practices within the Group to meet its business objectives. The Board affirms its overall responsibility for the effectiveness of the Group s systems of internal control and risk management, and for reviewing the adequacy and integrity of these systems. The internal control system involves the core business and its key management, including the Board, and is designed to meet the Group s particular needs and to manage the risks to which it is exposed. The system of Internal Control aims to :- i) safeguard shareholders interest and the assets of the Group; ii) ensure that proper accounting records are maintained; and iii) that the financial information used within the business and the publication to the public is reliable. The Board is fully aware that this system, by its nature, can only provide reasonable, and not absolute, assurance against material misstatement, loss and fraud. These systems are designed to manage, rather than eliminate, the risk of failure to achieve business objectives of the Group. INTERNAL CONTROL The key elements of the Group s internal control system are described below:- INTERNAL AUDIT DEPARTMENT The Internal Audit Department which was established on 20 August 2004 is to review the key business processes and controls to assists the Audit Committee in the discharge of its duties and responsibilities. Its role is to provide independent and objective reports on the organization, management, records, accounting policies and internal controls to the Audit Committee and the Board. QUALITY POLICY There is clear and well documented Quality Policy in accordance with ISO 9001 : 2000 by a wholly-owned subsidiary of the Company which is undertaking the core business of the Group. This policy and the related procedures are communicated to the respective staff members. Amongst the salient features of the Quality Policy are as follows:- i) Internal Quality Audits are conducted at planned intervals to determine whether the Quality Management System is effectively implemented and maintained and conforms to the established system requirements of Internal Standard, ISO 9001:2000. ii) On an annual basis, an overall Internal Quality Audit Plan is devised encompassing every departments and projects, taking into consideration the status and importance of relevant process, areas to be audited as well as results of previous audits. page 20
statement on internal control (cont d) iii) Qualified Internal Quality Auditors will be assigned with audit works in accordance with the Internal Quality Audit Plan where the reports shall be examined and analyzed and reported to the management during Management Review Board Meeting. iv) As part of the Quality Management System, the management shall meet on monthly basis to discuss and deliberate all issues relating to the business of the Group. v) The Audit Committee is accessible to the relevant reports produced in relation to the Quality Management and if the need arise, the matter shall be further discussed in the Board Meeting. LINE OF REPORTING Clearly defined delegation of responsibilities to committees of the Board and to operating units, including authorisation levels for all aspects of the business. This also includes detailed job description and specification provided to each employee of the Group which is further reiterated through a well defined organizational structure. DISSEMINATION OF INFORMATION WITHIN THE GROUP Regular and comprehensive information is provided to Management covering financial performance and key business indicators, key operating statistics/ indicators, key business risks, legal, environmental and regulatory matters. Key matters affecting the Group are brought to the attention of the Audit Committee and are reported to the Board on a regular basis. DETAIL BUDGETING PROCESS A detailed budgeting process where operating units prepare budgets for every project for discussion in the Management Meeting. A monthly monitoring of results against budget, with major variances being followed up and management action taken, where necessary. RISK MANAGEMENT FRAMEWORK The Group has in place an on-going process for identifying, evaluating, monitoring and managing the significant risks affecting the achievement of its business objectives. This is an on-going process, subject to regular review by the Board, and accords with the Statement on Internal Control: Guidance for Directors of Public Listed Companies. The Group adopts a decentralised approach to risk management by encouraging participation of all employees in such a manner that the employees take ownership and responsibility for risks at their respective levels. The process of risk management and treatment is overseen by the senior management and report to the Board through the Audit Committee. The risk management framework is also embodied in the Quality Policy in accordance with ISO 9001 : 2000 practised by a wholly-owned subsidiary of the Company. page 21
statement on internal control (cont d) AUDIT COMMITTEE The Audit Committee, on behalf of the Board, regularly reviews and holds discussions with the management on the matters relating to internal control, the external auditors and the management. The Report on the Audit Committee set out on pages 23 to 28 of this Annual Report contains further details on the activities undertaken by the Audit Committee in the year 2006. BOARD The Board holds regular discussions with the Audit Committee, Management and external auditors and reads their reports on matters relating to internal controls and deliberates their recommendations for implementation. The Directors have taken the necessary steps, as are reasonably open to them, to ensure that appropriate systems are in place for the assets of the Group to be adequately safeguarded through the prevention and detection of fraud and other irregularities and material misstatements. The Directors believe that the system of internal control is considered appropriate to business operations, and that the risks taken are at an acceptable level within the context of the business environment of the Group. The Board is not aware of significant weaknesses in the internal control system that will result in material losses. This statement is made in accordance with a resolution of the Board of Directors dated 25 April 2007. page 22
audit committee report 1. COMPOSITION OF THE AUDIT COMMITTEE For the financial year ended 31 December 2006, the Audit Committee comprises of the following two Independent Non-Executive Directors and one executive director:- Chairman : Noor Zilan bin Mohamed Noor (Independent Non-Executive Director) Member : i) Dato Sri Sufri Bin Hj Mohd Zin (Executive Chairman) ii) Abdul Rahman Bin Ali (Independent Non-Executive Director) (Member of the Malaysian Institute of Accountants) Secretary : Abdul Aziz Bin Mohamed (Company Secretary) 2. TERMS OF REFERENCE i. COMPOSITION The Board of Directors shall elect an Audit Committee from amongst themselves (pursuant to a resolution of the Board of Directors) comprising not less than three (3) members where the majority of them shall be independent non-executive members of the Board. The members of the Audit Committee shall elect a Chairman from amongst themselves. All members of the Audit Committee, including the Chairman, will hold office only so long as they serve as Directors of the Company. Should any members of the Audit Committee cease to be a Director of the Company, his membership in the Audit Committee would cease forthwith. page
audit committee report (cont d) If the members of the Audit Committee for any reason be reduced to below three (3), the Board of Directors shall within three (3) months of that event, appoint such number of the new members as may be required to make up the minimum number of three (3) members. ii. OBJECTIVES The primary objectives of the Audit Committee are: a. To provide assistance to the Board in fulfilling its fiduciary responsibilities particularly relating to business ethics, policies and practices and financial management and control. b. To provide greater emphasis on the audit functions by increasing the objectivity and independence of external and internal auditors and providing a forum for discussion that is independent of the management. c. To maintain through regularly scheduled meetings a direct line of communication between the Board and the external auditors, internal auditors and management. iii. DUTIES AND RESPONSIBILITIES The duties and responsibilities of the Audit Committee shall be: a. To consider the appointment of the external auditors, determination of audit fee and any questions of resignation or dismissal. b. To discuss with the external auditor before the audit commences the nature and scope of the audit, and ensure co-ordination where more than one audit firm is involved. c. To review the quarterly results and year end financial statements before submission to the board, focusing particularly on: i. Any changes in accounting policies and practices ii. Major judgmental areas iii. Significant adjustments resulting from the audit iv. The going concern assumption v. Compliance with accounting standards vi. Compliance with the stock exchange and legal requirements page 24
audit committee report (cont d) d. To discuss problems and reservations arising from the interim and final audits, and any matters the auditors may wish to discuss (in the absence of management where necessary) e. To review the internal audit programme, consider the major findings of internal audit investigations and management s response, and ensure coordination between the internal and external auditors. f. To keep under review the effectiveness of the internal control system, and in particular review the external auditors management letter and management s response. g. To review any related party transactions and conflict of interest situations that may arise within the Group including any transactions, procedure or course of conduct that raises questions of management integrity. h. To carry out such other functions as may be agreed to by the Audit Committee and the Board of Directors. iv. AUTHORITY The Committee is authorized by the Board to investigate any activity within the terms of reference. It is authorized to seek any information it requires from any employees and all employees are directed to cooperate with any request made by the Committee. The Committee is empowered by the Board to retain persons having special competence as necessary to assist the Committee in fulfilling its responsibilities. v. MEETING AND MINUTES The Audit Committee shall not hold less than three (3) meetings a year and the quorum for each meeting shall be two (2) members. Minutes of each meeting shall be kept and distributed to each member of the Committee and also to the other members of the Board. The Committee Chairman shall report on each meeting to the Board. The Company Secretary shall act as the Secretary to the Audit Committee. page 25
audit committee report (cont d) 3. SUMMARY OF ACTIVITIES OF THE AUDIT COMMITTEE During the financial year ended 31 December 2006, the Audit Committee met four (4) times. The details of the attendance of the members of the Audit Committee are as follows:- No. Audit Committee Attendance 1 Noor Zilan bin Mohamed Noor 4/4 2 Dato Sri Sufri Bin Hj Mohd Zin 4/4 3 Abdul Rahman Bin Ali 4/4 During the financial year, the Audit Committee carried out the following review :- The quarterly management and annual audited financial statements to ensure compliance with statutory reporting requirements and appropriate resolution of all accounting and audit matters requiring significant judgment and where appropriate, made recommendations to the Board. The external auditor s audit plan and scope for the Company and the Group, the audit report, significant issues raised and management responses in relation thereto. The external auditors fees and to recommend their reappointment to the Board. Measures implemented by management with regard to risk management and internal control. The statement of Corporate Governance and Statement on Internal Controls which are prepared in accordance with the provisions set out under the Malaysian Code on Corporate Governance, the extent of compliance with the said Code and recommend to the Board action plan to address further compliance matters. 4. INTERNAL AUDIT FUNCTION The Group has established the Internal Audit Department in 2004 to assist the Audit Committee and the Management in discharging their duties and responsibilities. The principal objective of the Department is to ascertain that adequate internal control is maintained in order to safeguard the assets of the Group and the shareholders interest. page 26
audit committee report (cont d) Throughout the financial year under review, the Internal Audit personnel have actively conducted several independent audits based on the approved Annual Audit Plan of the various operations and systems of control of the Group. Details of the activities performed by the Internal Audit Department during the financial year are as follows:- Reviewed the adequacy of control on the advance payment to sub-contractors for all projects. Reviewed the completeness and accuracy of the interim progress billing and receipt on property development projects. Reviewed on the tendering procedures of sub-contract works for existing and new projects which include the evaluation and appointment of sub-contractors. Reviewed on the procurement procedures in ensuring the construction materials purchased are cost effective and of highest quality. Verification of contract documents to ensure procedures are executed in accordance with the Quality Management System of ISO 9001: 2000. Reviewed the operational efficiency of the maintenance centre for machinery and equipment to ensure resources are utilized to the optimum level From the internal audit findings, the Internal Audit Department will prepare independent opinions and reports accordingly to the Audit Committee on risks areas, weaknesses identified and the relevant recommendations. All recommendations shall be reviewed and discussed accordingly at the Audit Committee Meetings and communicated to the management to rectify the identified weaknesses. The Department also established followup audit reviews to monitor and ensure that the recommendations agreed by the Audit Committee have been effectively implemented. Going forward the Internal Audit Department will strengthen its capacity and efficiency for better contribution to the Group pursuant to the Audit Charter and Internal Audit Plan which have been approved by the Audit Committee. page 27
audit committee report (cont d) 5. STATEMENT IN RELATION TO THE ALLOCATION OF SHARE OPTION SCHEME The Audit Committee noted that the Company had established Share Option Scheme for Employees and Directors ( The Scheme ) pursuant to the By-Laws which were approved by the shareholders at the Extraordinary General Meeting held on 30 April 2004. The Scheme shall remain in force for a duration of five (5) years commencing from 22 June 2004. The salient terms of the Scheme are as follows:- i) the maximum number of the Company s new shares to be made available under the Scheme shall not exceed fifteen percent (15%) of the issued and paid up capital of the Company; ii) not more than fifty percent (50%) of the Company s shares available under the Scheme shall be allocated to Directors and senior management; iii) not more than ten percent (10%) of the Company s shares available under the Scheme shall be allocated to individual Director or eligible employees, who either singly or collectively through person connected to them holds twenty percent (20%) or more of the issued and paid up capital of the Company; iv) The eligible participants shall include eligible employees and Directors who as at the offer date have satisfied the following criteria :- a) is a confirmed employee or appointed director within the Group; b) has attained at least age of eighteen (18); c) is employed full time and on the payroll of the Group; d) is under such category and of such criteria that the option committee may from time to time decide. v) The Scheme shall remain in force for a duration of five (5) years from the effective date of the launch. vi) The option price for each share shall be based on the weighted average market price (WAMP) of the Company s share traded on the Exchange for the five (5) trading days preceding the date of offer with a discount if any, that does not exceed ten percent (10%) from the five (5) day of the Company s shares. The option under the Scheme was initially offered to the eligible employees and Directors at an offer price of RM1.70 per option share. Subsequently, consequent to the Rights Issue exercise which was completed on 31 January 2007, the exercise price of the Scheme was adjusted to RM1.47 per share. During the financial year ended 31 December 2006 the Company have not offered any option to its eligible employees, Directors as well as the Non-Executive Directors. page 28
contents of the financial statements Directors Report 30 Statement by Directors 35 Statutory Declaration 36 Report Of The Auditors 37 Income Statements 39 Balance Sheets 40 Consolidated Statement Of Changes In Equity 42 Company Statement Of Changes In Equity 43 Cash Flow Statements 44 Notes To The Financial Statements 46 page
directors report for the year ended 31st December, 2006 The directors have pleasure in presenting their report together with the audited financial statements of the Group and of the Company for the financial year ended 31 December 2006. PRINCIPAL ACTIVITIES The principal activities of the Company are investment holding, general contractors for supplying labour and provision of corporate, administrative and financial support services to its subsidiaries. The principal activities of the subsidiaries are as disclosed in Note 17 to the financial statements. There have been no significant changes in the nature of the principal activities during the financial year. RESULTS Group RM Company RM Profit for the year 10,520,891 2,228,099 Attributable to: Equity holders of the Company 10,520,891 2,228,099 Minority interest - - 10,520,891 2,228,099 There were no material transfers to or from reserves or provisions during the financial year other than as disclosed in the financial statements. In the opinion of the directors, the results of the operations of the Group and of the Company during the financial year were not substantially affected by any item, transaction or event of a material and unusual nature. DIVIDEND At the forthcoming Annual General Meeting, a provisional dividend in respect of the financial year ended 31 December 2006, of 2.3 sen per share less 27% taxation on 133,423,547 ordinary shares amounting to a dividend payable of RM2,240,181 (1.68 sen net per ordinary share) will be proposed for shareholders approval. The financial statements for the current financial year do not reflect this proposed dividend. Such dividend, if approved by the shareholders, will be accounted for in equity as an appropriation of retained earnings in the financial year ending 31 December 2007. page 30