ANNUAL REPORT 2 0 0 3 ANNUAL ANNUAL REPORT REPORT 2003 2 0 0 3 ANNUAL REPORT
CONTENTS 2-3 4 5 6 8-9 10 11-12 13 14-15 16 17 18 19-20 21-39 40 40 41 42-43 44 45 46 47 Notice of Annual General Meeting Corporate Information Board of Directors Chairman s Statement Corporate Governance Statement Statement of Internal Control Audit Committee Five-Year Group Financial Highlights Directors Report Income Statements Balance Sheets Statements Of Changes In Equity Cash Flow Statements Notes To The Financial Statements Statement By Directors Statutory Declaration Report Of The Auditors Statement Of Shareholdings Statement Of Shareholdings Directors Shareholdings Other Information Property Held By A Subsidiary Of The Company Proxy Form
NOTICE OF ANNUAL GENERAL MEETING NOTICE IS HEREBY GIVEN that the Ninth Annual General Meeting of the Company will be held at Level 2, Grand Seasons Hotel, No. 72 Jalan Pahang, 53000 Kuala Lumpur, on Thursday, 28 August 2003 at 2.30 p.m. for the purpose of transacting the following businesses: AGENDA 1. To receive and adopt the Audited Financial Statements for the financial year ended 28 February 2003 together with the Reports of the Directors and Auditors thereon. 2. To approve the payment of Directors fees for the year ended 28 February 2003. 3. To re-elect Mr Chan Teik Huat who retires pursuant to Article 82 of the Company s Articles of Association. 4. To re-elect Encik Faris Bin Abdullah @ Patrick Chen Yee Ching who retires pursuant to Article 74 of the Company s Articles of Association. 5. To re-appoint Messrs Ernst & Young as Auditors of the Company and to authorise the Directors to fix their remuneration. (Resolution 1) (Resolution 2) (Resolution 3) (Resolution 4) (Resolution 5) As Special Business : To consider and, if thought fit, to pass the following Ordinary Resolutions: 6. Authority to Directors to Allot and Issue Shares THAT pursuant to Section 132D of the Companies Act, 1965, the Directors be and are hereby authorized to issue shares in the Company at any time until the conclusion of the next Annual General Meeting and upon such terms and conditions and for such purposes as the Directors may, in their absolute discretion, deem fit provided that the aggregate number of shares to be issued does not exceed 10 per centum of the issued share capital of the Company for the time being, subject always to the approval of all the relevant regulatory bodies having been obtained for such allotment and issue. (Resolution 6) 2 7. Proposed Renewal Of Shareholders Mandate for Recurrent Related Party Transactions of a Revenue or Trading Nature THAT subject always to the Listing Requirements of the Kuala Lumpur Stock Exchange, approval be and is hereby given to the Company and its subsidiaries ( the Group ) to enter into recurrent related party transactions of a revenue or trading nature with those Related Parties as set out and described in section 2.2 of the Circular to Shareholders of the Company dated 6 August 2003 which are necessary for the Group s day-to-day operations and are in the ordinary course of business made on an arm s length basis and on normal commercial terms which are not more favourable to the related parties than those extended to the public and not to the detriment of the minority shareholders of the Company, AND THAT the Directors be and hereby authorised to complete and do all such acts and things (including executing such documents as may be required) to give effect to the transactions contemplated and/or authorised by this ordinary resolution, AND FURTHER THAT such authority shall commence immediately upon the passing of this Ordinary Resolution and shall continue to be in force until: a) the conclusion of the next Annual General Meeting ( AGM ) of the Company at which time it will lapse, unless by a resolution passed at the meeting, the authority is renewed; or b) the expiration of the period within which the next AGM after the date it is required to be held pursuant to Section 143(1) of the Companies Act 1964 ( the Act ) (but shall not extend to such extension as may be allowed pursuant to Section 143(2) of the Act); or c) revoked or varied by resolution passed by the shareholders in general meeting; whichever is earlier. To consider and, if thought fit, to pass the following Special Resolution: PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION OF THE COMPANY 8. THAT the amendments to the Articles of Association of the Company as set out in Appendix 1 of the Circular to Shareholders of the Company dated 6 August 2003 be and hereby approved and adopted. (Resolution 7) (Resolution 8)
NOTICE OF ANNUAL GENERAL MEETING 9. To transact any other business of the company for which due notice shall have been given BY ORDER OF THE BOARD KOO LAI KIM Company Secretary Kuala Lumpur Date : 6 August 2003 NOTES ON APPOINTMENT OF PROXY 1. A member entitled to attend and vote at the Meeting is entitled to appoint a proxy to attend and vote in his stead. A proxy need not be a member of the Company. The instrument appointing a proxy shall be in writing under the hand of the appointer or his attorney duly authorized in writing or if such appointer is a corporation, under its common seal or the hand of its attorney. 2. All forms of proxy must be deposited at the Company s Registered Office at Level 10, Grand Seasons Avenue, No. 72 Jalan Pahang, 53000 Kuala Lumpur, not less than 48 hours before the time appointed for holding of the Meeting or any adjournment thereof. EXPLANATORY NOTES ON SPECIAL BUSINESS 1. Resolution 6 : Authority to Directors to Allot and Issue Shares The Proposed Resolution 6, if passed, would enable the Directors to issue up to a maximum of 10% of the issued share capital of the Company as at the date of this Annual General Meeting for such purposes as the Directors consider would be in the best interest of the Company. This authority, unless revoked or varied by the Company at a General Meeting, will expire at the next Annual General Meeting. 2. Resolution 7 : Proposed Renewal of Shareholders Mandate for Recurrent Related Party Transactions of a Revenue or Trading Nature The Proposed Resolution 7 is to obtain shareholders mandate for the Company and its subsidiaries to enter into recurrent related party transactions of a revenue or trading nature with those related parties as set out in Section 2.2 of the Circular to Shareholders of the Company dated 6 August 2003 which are necessary for the Group s day-today operations and are in the ordinary course of business made at arm s length basis and on normal commercial terms which are not more favourable to the related parties than those extended to the public and are not to the detriment of the minority shareholders of the Company. If the Proposed Resolution 7 is passed at the forthcoming Annual General Meeting, the shareholders mandate shall commence immediately upon passing of this ordinary resolution until the conclusion of the next Annual General Meeting ( AGM ) of the Company at which time it will lapse, unless by resolution passed at the meeting, the authority is renewed, or the expiration of the period within which the next AGM after the date it is required to be held pursuant to Section 143(1) of the Companies Act,1965 (the Act)(but shall not extend to such extension as may be allowed pursuant to Section 143(2) of the Act) or revoked or varied by resolution passed by shareholders in general meeting, whichever is the earlier. 3. Resolution 8 : Proposed Amendments to the Articles of Association of the Company The Proposed Resolution 8, if passed, will enhance the Company s flexibility in the way the directors conduct their meetings. The Company proposes to introduce a new provision to the Articles of Association of the Company to provide for the conduct of Board Meetings via electronic means, which allows simultaneous or instantaneous transmission. STATEMENT ACCOMPANYING NOTICE OF ANNUAL GENERAL MEETING The Directors who are standing for re-election at the Ninth Annual General Meeting of the company are:- Mr Chan Teik Huat Article 82 (Resolution 3) Encik Faris Bin Abdullah @ Patrick Chen Yee Ching Article 74 (Resolution 4) The profile of the Directors standing for re-election for Resolutions 3 and 4 are shown on page 5 of the Annual Report 2003. The securities holdings of the abovenamed Directors in the Company or it s subsidiaries are disclosed in the Directors Report on page 14 of the aforesaid Annual Report. 3 The details of the Directors attendance for Board Meetings are disclosed in the Corporate Governance Statement. The Ninth (9th) Annual General Meeting of the Company will be held at Level 2, Grand Seasons Hotel, No. 72 Jalan Pahang, 50000 Kuala Lumpur on Thursday, 28 August 2003 at 2:30p.m.
CORPORATE INFORMATION DIRECTORS Sharifah Noor Binti Syed Abdul Rahman Al-Attas Dato Haji Man Bin Haji Mat Chan Teik Huat Faris Abdullah @ Patrick Chen Yee Ching SECRETARY Koo Lai Kim (MIA 7849) REGISTRAR PFA Registration Service Sdn Bhd 1301 Level 13 Uptown 1 No 1, Jalan SS21/58 Damansara Uptown 47400 Petaling Jaya Tel: 03-7725 4888 Fax: 03-7722 2311 REGISTERED OFFICE Level 10, Grand Seasons Avenue No. 72, Jalan Pahang 53000 Kuala Lumpur Tel: 03-2693 1828 Fax: 03-2691 2798 PRINCIPAL PLACE OF BUSINESS 18.02, 18th Floor 100, Putra Place 50350 Kuala Lumpur GRASS-FALL 2002 PRINCIPAL BANKERS Hong Leong Bank Berhad RHB Bank Berhad 4 AUDITORS Ernst & Young Chartered Accountant INTERNAL AUDITORS KPMG DOMICILE MALAYSIA LEGAL FORM PUBLIC LIMITED COMPANY
BOARD OF DIRECTORS Puan Sharifah Noor Binti Syed Abdul Rahman Al-Attas, Independent Non-Executive Director, aged 47, was appointed to the Board of Aktif Lifestyle Corporation Berhad on 6 September 2000 and was appointed as the Chairman on 25 April 2003, she is also a member of the Audit Committee. She graduated from University Sains Malaysia in 1985 with a Bachelor of Economics (Hons) degree. She then obtained a Diploma in Pengurusan Awam from Institute Tadbiran Awam Negara (INTAN) in 1987. She worked in the Prime Minister's Department before joining MITI and held the position of Assistant Director. She was awarded the title of Ahli Mahkota Pahang (AMP) in 1990 by the Sultan of Pahang. Puan Sharifah is a member of Peniagawati since 1992 and is appointed as Vice President I in June 2003. She is the consultant for two entreprenuer development programmes conducted by Kementerian Pembangunan Usahawan and Kementerian Pembangunan Luar Bandar. She is currently the Managing Director of NS Linencraft Sdn Bhd as well as a director of several other private limited companies. She does not have any family relationship with any Director and/or major shareholder of the Company nor has she any conflict of interest with the Company. Dato' Haji Man Bin Haji Mat, Independent Non-Executive Director, Malaysian, aged 53, was appointed Director of Aktif Lifestyle Corporation Berhad on 8 November 1995 and the Chairman of the Audit Committee. He holds a diploma in Public Administration from Institute Teknologi MARA and holds a Bachelor of Business Administration degree from Ohio State University, United States of America. He was formerly with the Government and was the Assistant Director of the Public Services Department Planning Unit before he opted for early retirement in 1978 to join the private sector. He worked for Matsushita Electric Co. (M) Berhad and East Asiatic Co (Malaysia) Berhad before joining Texchem Group of companies. He is currently a Director of Wong Engineering Corporation Berhad, a company listed on the KLSE. He also sits on the board of several other private limited companies. He does not have any family relationship with any Director and/or major shareholder of the Company nor has he any conflict of interest with the Company. Mr. Chan Teik Huat, Non-Independent Executive Director, Malaysian, aged 63, has been a Director of Aktif Lifestyle Corporation Berhad since 13 October 1995. Mr. Chan is an accountant by profession. He is a fellow of the Institute of Chartered Accountants in Australia and a member of the Malaysian Institute of Certified Public Accountants ("MICPA"), which he joined in August 1966 and July 1984 respectively. He also holds a Bachelor of Commerce degree from the University of Melbourne, Australia. He was one of the two founder members of the accounting firm, Kassim Chan & Co., and was attached to the firm for more than 18 years from 1967 to 1984. Mr. Chan currently also sits on the Board of Metroplex Berhad and Anglo-Eastern Plantations Plc. Mr. Chan is the spouse of Mdm Lim Siew Kim, a substantial shareholder of Aktif Lifestyles Corporation Berhad. He is, by virtue of Section 6A of the Companies Act, 1965, deemed to have substantial interest in the shares in the Company. Except for certain recurrent related party transactions of revenue nature which are necessary for day-to-day operations of the Company and its subsidiaries and for which he is deemed to be interested, there are no other business arrangements with the Company in which he has personal interests. Faris Bin Abdullah @ Patrick Chen Yee Ching, Non-Independent, Non-Executive Director, aged 44 was appointed to the Board of Aktif Lifestyle Corporation Berhad on the 25 April 2003. He is a lawyer by profession having been called to the UK Bar (Gray s Inn) in 1983 before returning to Malaysia where he practised as an Advocate and Solicitor until 1991. Mr Chen then joined the MBf group of companies as Head of Legal for 6 years before moving to the Philippines in 1997 to head up MBf s operations there as President and CEO of its public listed holding company until the end of 1999. Thereafter he remained in the Philippines until December 2002 as Executive Director and CFO of a privately held group of companies involved in US retail franchise brands before returning to and settling back in Malaysia. He does not have any family relationship with any Director and/or major shareholder of the Company nor has he any conflict of interest with the Company Attendance at Board Meeting Board Meeting Puan Sharifah Noor Binti Syed Abdul Rahman Al-Attas* 4 Mr Chan Teik Huat* 4 YBhg Dato' Haji Man Bin Haji Mat* 4 5 Encik Faris Bin Abdullah @ Patrick Chen Yee Ching 1 (Appointed wef 25/4/2003) Mdm Lim Siew Kim (Resigned wef 25/4/2003) 1 Ms Susan Low Mei Wan (Resigned wef 24/4/2003) 3 Ms Anne Paw Swee Choo (Alternate Director) (Resigned wef 25/4/2003) 1
CHAIRMAN S STATEMENT On behalf of the Board of Directors of Aktif Lifestyle Corporation Berhad, I present herewith the Annual Report and Financial Statements for the year ended 28 February 2003. FINANCIALS Turnover for the Group decreased marginally to RM217.4 millions for the year under review compared to RM228.3 million in the previous year. Net loss was also reduced to RM20.03 from RM23.4 million in the previous year. The smaller loss was achieved through slightly improved margins due to better control over markdowns and tighter control over expenditure, which was reduced to RM68.4 millions from RM72.2 millions in the previous year. REVIEW OF OPERATIONS During the financial year, the Company undertook several rationalisation exercises by reducing floor space at some of its operation locations, improving merchandise mix and tighter control over head office and other costs. These have contributed toward a reduction in operating losses despite a difficult retail environment due to stiff competition from hypermarkets and other department stores. To meet competition, the Company, through its subsidiary Retail Commercio Sdn Bhd, launched a new line of ladies garments and homes brand under the name Zense and opened its first specialty store at Jalan Telawi in Bangsar, Kuala Lumpur. The results have been promising and the Company is currently looking at expanding this concept through company-owned stores and at other retail outlets through franchising. PROPOSED FINANCIAL RESTRUCTURING In view of its PN4 status, the Company has on 25 October 2002 appointed Southern Investment Bank Berhad as its merchant bankers/advisers to review the Company s financial situation and formulate a proposal to restructure the Group. Under review is a scheme which would involve an injection of a viable business asset into the Company. Once the scheme proposal is ready, the Company would make an appropriate announcement of the details PROSPECTS Malaysia s GDP for 2002 reflected a growth of 4.2% compared to 0.4% in 2001 despite the threat of war in Iraqs. Forecasted growth for the forthcoming year, factoring in the impact of SARS, has been optimistically maintained at 4.5% despite a very difficult second quarter. The Directors expect the current financial year to be extremely challenging especially with the recent outbreak of SARS which has adversely affected the retail sectors by more than 20% due to reduced tourist arrivals as well as domestic shoppers staying at home. With further tightening of control over costs and further rationalisation of merchandise mix, it is expected that margins would further improve, thereby reducing the impact of lower sales. Other areas which the Company is focusing on to differentiate the Aktif Lifestyle department stores from the new hypermarket concept including offering better and more personalised service and creating a more intimate shopping environment. ACKNOWLEDGEMENTS On behalf of the Board of Directors, I am pleased to extend our sincere appreciation to our financiers, suppliers, business associates, customers and shareholders for their continuing support and to the Management and Staff of the Group for their efforts and dedication in their service. The Board would also like to extend its special thanks to Madam Lim Siew Kim, the outgoing founder Chairman for her contributions to the Company since its inception, for her confidence in the new team, and for her continuing guidance and support. Puan Sharifah Noor Binti Syed Abdul Rahman Al- Attas Chairman 6
ZENSE NOVEMBER 2002 7
CORPORATE GOVERNANCE STATEMENT The Board of Directors fully appreciates the importance of adopting the code of corporate governance within the group. As such the Board strives to adopt the substance and form behind the corporate governance prescriptions. The Board is fully committed to the maintenance of corporate governance by implementing the prescriptions of the principles and best practices as set out in Parts 1 and 2 of the Malaysian Code of Corporate Governance respectively. (The Code) The Board is pleased to provide the following statement, which outlines the main corporate governance practices that were in place throughout the financial year, unless otherwise stated Compliance Statement The Group has complied throughout the year ended 28 February 2003 with all the best practices of corporate governance set out in Part 2 of the Code except for the following: - A formal enterprise risk management framework Committee is not established. The Group is in the process of setting up the Committee. Principles Statement The following statement sets out how the Company has applied the principles in Part 1 of the code. A. Board of Directors The Group acknowledges the pivotal role played by the Board of Directors to lead and control the Company with the ultimate objective of realizing long-term shareholder value. To fulfill this role, the board is responsible for the overall corporate governance of the Group, including setting the strategic direction, establishing goals for the management and monitoring the achievement of these goals. Meetings The Board meets at least four times a year at quarterly intervals with additional meetings convened when urgent and important decisions need to be taken between the scheduled meetings. During the financial year, four (4) meetings were held. The Board receives documents on matters requiring its consideration to and in advance of each meeting. The Board papers are comprehensive and encompass both quantitative and qualitative factors so that informed decisions are made. All proceedings from the Board meetings are minuted and signed by the Chairman of the meeting. The number of meetings attended by the directors is shown on page 5 of the Annual Report. Board Balance As at the date of this statement, the Board consists of 4 members; comprising the Independent Non-Executive Chairman, Independent Non-Executive Director, Non-Independent Non-Executive Director and Non-Independent Executive Director. The Board complies with paragraph 1.01 and 15.02 of the KLSE Listing Requirements where requires that at least two directors or one third of the Board of Directors whichever is the higher, are Independent Directors. 8 There is a clear division of responsibility for the Directors. The Executive Director is responsible for implementing the policies and decision of the Board, overseeing the operations as well as coordinating the development and implementation of business and corporate strategies. The Independent Non-Executive Directors will provide independent judgement to the decision making of the Board and provide a capable check and balance for the Executive Directors. The Non-Executive Directors contribute significantly in areas such as policy and strategy, performance monitoring, allocation of resources as well as improving governance and control. The Chairman is responsible for running the Board and ensures that all Directors receive sufficient relevant information on financial and non-financial matters to enable them to participate actively in Board decisions. The Board is satisfied that the current board composition fairly reflects the investment of minority shareholders in the Company. B. Directors remuneration Details of the Directors remuneration are set out on page 26 of the Annual Report. C. Shareholder communication The Group values dialogue with investors and do this through the Annual Report and the Annual General Meeting (AGM). The Group policy is to maintain an active dialogue with its shareholders with the intention of giving shareholders a good understanding of the Group s performance. At each of the AGM, the Board presents the progress and performance of the business and encourages shareholders to participate in the question and answer session. All the Directors are available to respond to shareholders questions during the meeting. Where it is not possible to provide immediate answers, the Chairman will undertake to furnish the shareholder with a written answer after the AGM.
CORPORATE GOVERNANCE STATEMENT While the Group endeavour to provide as much of information possible to its shareholders, it must also be wary of the legal and regulatory framework governing the release of material and price sensitive information. The guidelines provide for corporate disclosure which takes into account the prevailing legislative restrictions and requirements as well as the investors needs for timely release of price sensitive information such as financial performance results and statements, material acquisitions, significant corporate proposals as well as other significant corporate events. D. Accountability and Audit The Board aim to provide a balanced assessment of the Group s financial performance and prospects at the end of the financial year, primarily through the annual financial statements, quarterly announcement of results to shareholders as well as the Chairman s statement and review of operations in the Annual Report. The Board is assisted by the Audit committee to oversee the Group s financial reporting processes and quality of its financial reporting. Statement of Directors responsibility for preparing the financial statements. 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 Group and their profit and loss and cashflows for the period then ended. The Directors are satisfied that in preparing the financial statements of the Group, the Group has used the appropriate accounting policies and applied them consistently and have made reasonable and prudent judgement and estimates. The Directors also consider that all relevant approved accounting standards have been followed in the preparation of these statements. The Directors have overall responsibility for taking such steps as is reasonably open to them to safeguard the assets of the Group to prevent and detect fraud and other irregularities. Internal Control The Group s internal control statement is set out on pages 10. Relationship With The Auditors The role of the Audit Committee in relation to the external auditors is described on page 12. A summary of the activities of the Audit Committee during the year are set out on pages 11 and 12 of the Annual Report. E. Additional Compliance Information In conformance with the Kuala Lumpur Stock Exchange Listing Requirements, the following information is provided: Material Contracts Involving Directors and Substantial Shareholders Interest To the best of the Board s knowledge, there are no material contracts involving the Group with any of the major shareholders nor Directors in office as at 28 February 2003 except for those disclosed under Recurrent Related Party Transactions of a Revenue or Trading Nature. TAMY-SPRING 2003 9
STATEMENT OF INTERNAL CONTROL The Kuala Lumpur Stock Exchange s Revamped Listing Requirements requires the Board of Directors of public listed companies to include in its annual report a statement about the state of internal control of the listed issuer as a group. The Board is committed to maintaining a sound system of internal control in the Group and is pleased to provide the following statement, which outlines the nature and scope of internal control of the Group during the year. Board Responsibility The Board of Directors acknowledges their responsibility for the Group s system of internal control and for reviewing its adequacy and integrity. Because of the limitations that are inherent in any system of internal control, it should be noted, that such systems are designed to manage, rather than eliminate, the risk of failure to achieve corporate objectives. Accordingly it can only provide reasonable but not absolute assurance against material misstatement or loss. The Group had in place an on-going process for identifying, evaluating, monitoring and managing the significant risks faced by the Group. This process is regularly reviewed by the Board, in accordance with the Statement on Internal Control and Guidance for Directors of Public listed Companies (the Internal Control Guidance) Risk Management Framework The Board fully supports the contents of the Internal Control Guidance and has extended the responsibilities of the Audit Committee to include the work of monitoring all internal control on its behalf, including identifying risk areas and communicate to the Board of Directors the critical risks area faced by the Group. Internal Audit Function The Group has outsourced the internal audit function to KPMG in 2001, as part of its internal audit strategy in order to have an independent third party review of its operations. The Internal Audit was directed towards selected risk areas of the operations and was carried out in accordance with the internal audit plan approved by the Audit Committee. ZENSE-SPRING 2003 An internal audit report is submitted to the Audit Committee on the compliance of Group s policies and procedures on a quarterly basis. The Audit committee reviews and ensures that the risk monitoring and compliance procedures are adequate and presents its findings to the Board on a quarterly basis. 10 Other Risks and Control Processes Apart from the internal audit and risk management, other risks and control are described below clearly defined delegation of responsibilities to the Board of Directors and management of Head Office and Operating Units; clearly documented internal policies and procedures. These policies and procedures are subject to regular review; regular and comprehensive reports to the Board on financial performance and key performance and risk indicators, this includes, amongst others, the monitoring of results against budget, with major variances being followed up and management action taken, where necessary; regular visits to operating units by the senior management A number of minor internal control weaknesses were identified during the current financial year, all of which have been, or are being addressed. None of the weaknesses have resulted in any material losses that would require disclosure in the Company s Annual Report. Management continues to take measures to strengthen the control environment.
AUDIT COMMITTEE Members and Meetings The Audit Committee held four (4) meetings during the year ended 28 February 2003. The members of the Audit Committee and record of their attendance are as follows: Name Designation No. of Meetings Attended Dato Haji Man Bin Mat Chairman of Audit Committee 4 Independent Non-Executive Director Sharifah Noor binti Syed Abdul Independent Non-Executive Director 4 Rahman Al-Attas Chan Teik Huat Non-Independent Non-Executive Director 4 Terms Of Reference The terms of reference of the Audit Committee are as follows: Membership The members of the Audit Committee shall be appointed by the Board from amongst its members. It shall consist of at least three (3) members of whom a majority shall be Independent Non-Executive Directors. The Audit Committee shall elect a Chairman from amongst its members who shall be an Independent Non-Executive Director. No alternate director shall be appointed as a member of the Audit Committee. At least one (1) member of the Committee: i. must be a member of the Malaysian Institute of Accountants (MIA); or ii. if he is not a member of the MIA, he must have at least three (3) years working experience and : must have passed the examinations specified in Part 1 of the 1st Schedule of the Accountants Act 1967; or must be a member of one of the associations of accountants specified in Part II of the 1st Schedule of the Accountant Act, 1967. iii. a degree/masters/doctorate in accounting or finance and at least 3 years post qualification experience in accounting and finance; or iv. at least 7 years experience being a chief financial officer of a corporation or having the function of being primarily responsible for the management of the financial affairs of the corporation. If a member of the Audit Committee resigns or for any other reason ceases to be a member with the result that the numbers of members is reduced to below three (3), the Board of Directors shall within three months (3) of that event appoint such number of new members as may be required to make up the minimum number of three (3) members. The term of office and performance of the Audit Committee and each of its members shall be reviewed by the Board at least once every three years. Meetings The Committee shall meet at least four times a year, and at such times as and when necessary. A quorum shall be two (2) members, a majority of whom must be independent non-executive directors. The Committee may require any employee and a representatives of the external auditors to attend meetings. The Head of Internal Audit function shall attend all meetings of the Committee. Other Board members and employees of the Company and external auditors (or their representatives) may all also attend upon the invitation of the Committee. The Committee shall cause minutes to be made in respect of the proceedings and resolutions of all its meetings. The minutes of the meetings of the Committee shall be tabled at Board Meetings to inform the Board of the activities of the Committee. The Company Secretary shall be the Secretary of the Committee. Authority The Audit Committee is authorized by the Board :- To investigate any activity within its term of reference; To have the resources required to perform its duties; To have full and unrestricted access to information about the Company and the Group; To have unrestricted access to both the internal and external auditors and to all employees of the Group; and To obtain external legal or other independent professional advice as necessary. 11
AUDIT COMMITTEE Duties The duties of the Committee are to: a) consider the appointment, resignation and dismissal of the external auditors and audit fee; b) review the nature and scope of the audit with external auditors before the audit commences; c) review the quarterly and annual financial statements of the Group, focusing on the matters set out below, and thereafter to submit them to the Board:- i) any changes in accounting policies and practices; ii) significant and unusual events; iii) significant adjustment arising from the audit; iv) the going concern assumption; v) compliance with accounting standards and other legal requirements d) discuss problems and reservations arising from the interim and final audits, and any matter the external auditors may wish to discuss; e) review with the external auditors, their evaluation of the systems of internal controls; f) review the audit reports prepared by the external auditors g) review the audit reports of the scope, functions and resources of the internal audit function, and that is has the necessary authority to carry out its work; h) 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; i) review any appraisal or assessment of the performance of members of the internal audit function; j) approve any appointment or termination of senior staff members of the internal audit function; k) be informed of any resignations of senior internal audit staff members and provide the resigning staff member an opportunity to submit his reasons for resigning; l) consider any related party transactions and conflicts of interest situations that may arise within the Group; m) consider the major findings of internal investigations and management s response; n) consider any other issues as may be designated by the Board from time to time Summary of Activities Pursuant to the revamped Kuala Lumpur Stock Exchange Listing Requirements, public companies are required to adhere to basic principles and best practices of corporate governance. In line with the above, the following issues has come under the discussion and review of the audit committee meetings:- a) The audited Financial Statements of the Group and the Company prior to the submission to the Board for their consideration and approval; b) The quarterly unaudited financial result announcements before submission to the Board for their consideration and approval; c) External auditors scope of work and audit plans for the year; d) The audit plans for the Group prepared by the internal auditor; e) The internal audit reports, recommendations and management s response; and f) Better communication between the management and the audit committee and/or the board of directors; 12
FIVE - YEAR GROUP FINANCIAL HIGHLIGHTS 2003 2002 2001 2000 1999 RM'000 RM'000 RM'000 RM'000 RM'000 Turnover 217,439 228,308 251,717 287,418 293,201 (Loss)/Profit before taxation (22,872) (24,566) (18,976) (15,628) (16,497) (Loss)/Profit after taxation before minority interest (21,046) (24,566) (19,216) (15,853) (16,604) (Loss)/Profit attributable to shareholders (20,030) (23,451) (18,303) (15,234) (16,435) Net dividend - - - - - Balance Sheets Fixed assets 13,567 21,143 27,560 34,659 41,313 Investment 1,198 1,034 2,835 2,974 2,976 Expenditure carried forward - 738 1,508 2,294 3,187 Current assets 53,613 60,037 74,641 110,853 125,502 Total assets 68,378 82,952 106,544 150,780 172,978 Current Liabilities (101,450) (92,428) (70,449) (101,702) (103,870) Long term and deferred liabilities - (2,550) (23,555) (22,345) (26,653) Total net assets (33,072) (12,026) 12,540 26,733 42,455 Financed By: Share Capital 20,479 20,479 20,479 20,121 20,012 Capital reserves 15,262 15,262 15,262 15,190 15,168 (Accumulated loss) / Retained profit (69,490) (49,460) (26,009) (12,299) 2,935 Shareholders funds (33,749) (13,719) 9,732 23,012 38,115 Minority interest 677 1,693 2,808 3,721 4,340 (33,072) (12,026) 12,540 26,733 42,455 STATISTICS Earnings per share (sen) (97.81) (114.51) (89.72) (75.94) (82.13) Gross dividend per share (%) - - - - - Net tangible assets backing per share (RM) (1.65) (0.71) 0.40 1.03 1.75 13
DIRECTORS' REPORT The directors present their report together with the audited financial statements of the Group and of the Company for the financial year ended 28 February 2003. PRINCIPAL ACTIVITIES The principal activity of the Company is that of an investment holding company. The principal activities of the subsidiaries are the operation of supermarkets and departmental stores; operation of bakeries and food court; operation of specialty retail stores; and retailing of electrical and electronic household appliances. There have been no significant changes in the nature of these activities during the financial year except that: (i) a subsidiary, Aktif-Sunway Sdn. Bhd., has ceased the operation of supermarkets. (ii) a subsidiary, Retail Commercio (M) Sdn. Bhd., has changed its principal activity from the provision of factoring services to operation of specialty retail stores. RESULTS Group Company RM RM Loss after taxation (21,046) (38) Minority interests 1,016 - Loss for the year (20,030) (38) There were no material transfers to or from reserves or provisions during the financial year other than as disclosed in the statements of changes in equity. 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 The directors do not recommend any dividend for the year ended 28 February 2003. DIRECTORS The names of the directors of the Company in office since the date of the last report and at the date of this report are: Chan Teik Huat Dato' Haji Man Bin Haji Mat Sharifah Noor Binti Syed Abdul Rahman Al-Attas Faris Bin Abdullah@Patrick Chen Yee Ching (appointed on 25 April 2003) Susan Low Mei Wan (resigned on 24 April 2003) Lim Siew Kim (resigned on 25 April 2003) Paw Swee Choo (Alternate director to Lim Siew Kim) (resigned on 25 April 2003) 14 DIRECTORS' BENEFITS Neither at the end of the financial year, nor at any time during that year, did there subsist any arrangement to which the Company was a party, whereby the directors might acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate. Since the end of the previous financial year, no director has received or become entitled to receive benefits (other than benefits included in the aggregate amount of emoluments received or due and receivable by the directors shown in the Note 7 to the financial statements or the fixed salary of a full-time employee of the Company), by reason of a contract made by the Company or a related corporation with any director or with a firm of which he is a member, or with a company in which he has a substantial financial interest, except as disclosed in Note 29 to the financial statements. DIRECTORS' INTERESTS According to the register of directors' shareholdings, the interests of directors in office at the end of the financial year in shares in the Company and its related corporations during the financial year were as follows: Number of Ordinary Shares of RM1 Each 1 March 28 February 2002 Bought Sold 2003 The Company Direct interest Lim Siew Kim 1,518,784 - - 1,518,784 Chan Teik Huat 4,000 - - 4,000 Dato' Haji Man Bin Haji Mat 7,000 - - 7,000 Paw Swee Choo 1,000 - - 1,000 Indirect interest Lim Siew Kim 6,908,464-663,000 6,245,464 Chan Teik Huat 6,908,464-663,000 6,245,464 None of the other directors in office at the end of the financial year had any interest in shares in the Company or its related corporations during the financial year.
DIRECTORS' REPORT EMPLOYEE SHARE OPTION SCHEME ("ESOS") The Company's ESOS which was in force for a period of 5 years from 29 December 1997 expired on 28 December 2002. There was no exercise of the options during the year in respect of the option brought forward from the previous financial year of 1,519,000, to take up unissued new ordinary shares of RM1.00 each at an option price of RM1.20. OTHER STATUTORY INFORMATION (a) Before the income statements and balance sheets of the Group and of the Company were made out, the directors took reasonable steps: (i) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of provision for doubtful debts and satisfied themselves that all known bad debts had been written off and that adequate provision had been made for doubtful debts; and (ii) to ensure that any current assets which were unlikely to realise their value as shown in the accounting records in the ordinary course of business had been written down to an amount which they might be expected so to realise. (b) At the date of this report, the directors are not aware of any circumstances which would render: (i) the amount written off for bad debts or the amount of provision for doubtful debts in the Group and in the Company inadequate to any substantial extent; and (ii) the values attributed to the current assets in the financial statements of the Group and of the Company misleading. (c) At the date of this report, the directors are not aware of any circumstances which have arisen which would render adherence to the existing method of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate. (d) At the date of this report, the directors are not aware of any circumstances not otherwise dealt with in this report or financial statements of the Group and of the Company which would render any amount stated in the financial statements misleading. (e) As at the date of this report, there does not exist: (i) any charge on the assets of the Group or of the Company which has arisen since the end of the financial year which secures the liabilities of any other person; or (ii) any contingent liability of the Group or of the Company which has arisen since the end of the financial year. (f) In the opinion of the directors: (i) no contingent or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the financial year which will or may affect the ability of the Group or of the Company to meet their obligations when they fall due; and (ii) no item, transaction or event of a material and unusual nature has arisen in the interval between the end of the financial year and the date of this report which is likely to affect substantially the results of the operations of the Group or of the Company for the financial year in which this report is made. AUDITORS The auditors, Ernst & Young, have expressed their willingness to continue in office. Signed on behalf of the Board in accordance with a resolution of the directors CHAN TEIK HUAT Kuala Lumpur, Malaysia 30 June 2003 FARIS BIN ABDULLAH@ PATRICK CHEN YEE CHING 15
INCOME STATEMENTS For the Year Ended 28 February 2003 Group Company 2003 2002 2003 2002 Note RM'000 RM'000 RM'000 RM'000 Revenue 4 217,439 228,308 8 10 Cost of sales (174,855) (183,082) - - Gross profit 42,584 45,226 8 10 Other operating income 4,410 4,578 - - Gain on disposal of discontinuing operations 5 652 - - - Administrative expenses (58,938) (63,874) (30) (31) Distribution costs (6,723) (5,700) - - Other operating expenses (2,801) (2,609) (54) (37) Loss from operations 6 (20,816) (22,379) (76) (58) Finance costs 8 (2,055) (2,186) - - Share of results from associates (1) (1) - - Loss before taxation (22,872) (24,566) (76) (58) Taxation 9 1,826-38 - Loss after taxation (21,046) (24,566) (38) (58) Minority interests 1,016 1,115 - - Net loss for the year (20,030) (23,451) (38) (58) Basic loss per share (sen) 10 (97.81) (114.51) 16 The accompanying notes form an integral part of the financial statements.
BALANCE SHEETS As At 28 February 2003 NON-CURRENT ASSETS Group Company 2003 2002 2003 2002 Note RM'000 RM'000 RM'000 RM'000 Property, plant and equipment 11 13,567 21,143 - - Investments in subsidiaries 12 - - 18,415 18,415 Investments in associates 13-205 - - Other investments 14 1,198 829 806 806 Deferred expenditure 15-738 - - 14,765 22,915 19,221 19,221 CURRENT ASSETS Inventories 16 25,406 32,381 - - Trade receivables 17 752 347 - - Other receivables 18 13,161 14,382 7,050 7,098 Cash and bank balances 19 14,294 12,927 10 9 53,613 60,037 7,060 7,107 CURRENT LIABILITIES Borrowings 20 21,519 23,912 - - Trade payables 22 41,387 45,191 - - Other payables 23 32,945 17,703 19 16 Tax payable 192 215 73 73 Dividend payable 24 5,407 5,407 - - 101,450 92,428 92 89 NET CURRENT (LIABILITIES)/ASSETS (47,837) (32,391) 6,968 7,018 (33,072) (9,476) 26,189 26,239 FINANCED BY : Share capital 25 20,479 20,479 20,479 20,479 Reserves 26 (54,228) (34,198) 5,710 5,748 Shareholders' equity (33,749) (13,719) 26,189 26,227 Minority interests 677 1,693 - - (33,072) (12,026) 26,189 26,227 Borrowings 20-319 - - Deferred taxation 27-2,231-12 - 2,550-12 (33,072) (9,476) 26,189 26,239 17 The accompanying notes form an integral part of the financial statements.
STATEMENTS OF CHANGES IN EQUITY For the Year Ended 28 February 2003 GROUP Non-Distributable Share Share Merger Reserve on Accumulated Capital Premium Reserve Consolidation Losses Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 At 1 March 2001 20,479 4,371 10,833 58 (26,009) 9,732 Loss for the year - - - - (23,451) (23,451) At 28 February 2002 20,479 4,371 10,833 58 (49,460) (13,719) Loss for the year - - - - (20,030) (20,030) At 28 February 2003 20,479 4,371 10,833 58 (69,490) (33,749) COMPANY Non- Distributable Distributable Share Share Retained Capital Premium Profits Total RM'000 RM'000 RM'000 RM'000 At 1 March 2001 20,479 4,371 1,435 26,285 Loss for the year - - (58) (58) At 28 February 2002 20,479 4,371 1,377 26,227 Loss for the year - - (38) (38) At 28 February 2003 20,479 4,371 1,339 26,189 18 The accompanying notes form an integral part of the financial statements.
CASH FLOW STATEMENTS For the Year Ended 28 February 2003 CASH FLOWS FROM OPERATING ACTIVITIES Group Company 2003 2002 2003 2002 RM'000 RM'000 RM'000 RM'000 Loss before taxation (22,872) (24,566) (76) (58) Adjustment for : Amortisation of deferred expenditure 738 770 - - Bad debts written off 9 - - - Depreciation of property, plant and equipment 6,522 6,946 - - Property, plant and equipment written off 102 - - - Loss on disposal of property, plant and equipment 6 11 - - Provision for doubful debts 876 - - - Impairment of property, plant and equipment 200 - - - Impairment of investments 380 1,800 - - Provision for slow moving inventories 544 - - - Dividend income (8) (7) (8) (7) Interest income (78) (47) - (3) Gain on disposal of discontinuing operation (Note 5) (652) - - - Interest expense 2,055 2,186 - - Share of results from associates 1 1 - - Write back of management fees payable - (1,697) - - Write back of overprovision for rental payable - (77) - - Operating loss before working capital changes (12,177) (14,680) (84) (68) Decrease in inventories 5,135 10,940 - - (Increase)/decrease in receivables (69) 5,030 48 (370) Increase/(decrease) in payables 11,438 4,328 3 (4) Cash generated from /(used in) operations 4,327 5,618 (33) (442) Interest paid (2,055) (2,186) - - Taxes (paid)/recovered (428) (113) 26 (11) Net cash generated from/(used in) operating activities 1,844 3,319 (7) (453) 19 The accompanying notes form an integral part of the financial statements.
CASH FLOW STATEMENTS For the Year Ended 28 February 2003 CASH FLOWS FROM INVESTING ACTIVITIES Group Company 2003 2002 2003 2002 RM'000 RM'000 RM'000 RM'000 Dividend received 8 7 8 7 Interest received 78 47-3 Proceeds from disposal of property, plant and equipment 56 4 - - Proceeds from disposal of discontinued operation (Note 5) 3,500 - - - Purchase of investments (545) - - - Purchase of property, plant and equipment (862) (544) - - Net cash generated from/(used in) investing activities 2,235 (486) 8 10 CASH FLOWS FROM FINANCING ACTIVITIES Repayment of term loans (933) (933) - - Repayment of revolving credits (300) (500) - - Repayment of hire purchase payables (72) (114) - - Net cash used in financing activities (1,305) (1,547) - - NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 2,774 1,286 1 (443) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 11,520 10,234 9 452 CASH AND CASH EQUIVALENTS AT END OF YEAR (NOTE 19) 14,294 11,520 10 9 20 The accompanying notes form an integral part of the financial statements.
NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 28 February 2003 1. Corporate Information The principal activity of the Company is that of an investment holding company. The principal activities of the subsidiaries are the operation of supermarkets and departmental stores; operation of bakeries and food court; operation of specialty retail stores; and retailing of electrical and electronic household appliances. There have been no significant changes in the nature of these activities during the financial year except that: (i) a subsidiary, Aktif-Sunway Sdn. Bhd., has ceased the operation of supermarkets. (ii) a subsidiary, Retail Commercio (M) Sdn. Bhd., has changed its principal activity from the provision of factoring services to operation of specialty retail stores. The Company is a public limited liability company, incorporated and domiciled in Malaysia, and is listed on the Second Board of the Kuala Lumpur Stock Exchange. The registered office of the Company is located at Level 10, Grand Seasons Avenue, No 72, Jalan Pahang, 53000 Kuala Lumpur. The numbers of employees in the Group at the end of the financial year were 934 (2002: 1,055). There was no employee in the Company during the year. The financial statements were authorised for issue by the Board of Directors in accordance with a resolution of the directors on 30 June 2003. 2. Fundamental Accounting Concept As at 28 February 2003, the Group recorded negative shareholders fund of RM33.7 million and its current liabilities exceeded its current assets by RM47.8 million. The financial statements of the Group and the Company have been prepared on a going concern basis which assumes that the Group and the Company will continue in operational existence for the foreseeable future and having adequate funds to meet their obligations as and when they fall due. The validity of this assumption is dependent upon the continued support from the shareholders, bankers and creditors of the Group and the Company and the formulation of a tenable restructuring scheme as well as its successful and timely implementation. The financial statements of the Group and the Company do not include any adjustments relating to the recoverability and reclassification of recorded assets amounts or to amounts and classification of liabilities that may be necessary if the Company and the Group is unable to continue as a going concern. As the directors are optimistic with regard to the formulation and outcome of the restructuring scheme, they believe that it is appropriate for these financial statements of the Company and of the Group to be prepared on a going concern basis. 3. Significant Accounting Policies (a) Basis of Preparation The financial statements of the Group and of the Company have been prepared under the historical cost convention and comply with the provisions of the Companies Act, 1965 and applicable Approved Accounting Standards in Malaysia. (b) Basis of Consolidation (i) Subsidiaries The consolidated financial statements include the financial statements of the Company and all its subsidiaries. Subsidiaries are those companies in which the Group has a long term equity interest and where it has power to exercise control over the financial and operating policies so as to obtain benefits therefrom. Subsidiaries are consolidated using the acquisition method of accounting except for Aktif Lifestyle Stores Sdn. Bhd. which is consolidated on the merger method of accounting in accordance with Malaysian Accounting Standard No. 2, Accounting for Acquisitions and Mergers. 21