Tan Sri Abu Sahid bin Mohamed Executive Chairman. Tan Sri Dato Sri Pheng Yin Huah Managing Director. Encik Samad Bin Kassim

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1 ANNUAL REPORT

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3 CONTENTS O2 Corporate Information O4 Corporate Structure O5 Chairman s Statement 08 Profile of Directors 15 Statement on Corporate Governance 24 Audit Committee Report 29 Statement on Risk Management and Internal Control 31 Group Financial Highlights 32 Other Information 35 Financial Statements 112 Analysis of Shareholdings Proxy Form

4 CORPORATE INFORMATION Board of Directors Tan Sri Abu Sahid bin Mohamed Executive Chairman Tan Sri Dato Sri Pheng Yin Huah Managing Director Dato Henry Pheng Chin Guan Chief Executive Officer Tan Sri Mohd Bakri bin Haji Omar Independent Non-Executive Director Datuk Lim Chaing Cheah Non-Independent Non-Executive Directorr Encik Samad Bin Kassim Independent Non-Executive Director Mr Pheng Chin Shiun Non-Independent Non-Executive Director Dato Md Sharif bin Shamsuddin Independent Non-Executive Director Dato Siew Mun Chuang Independent Non-Executive Director Mr Pheng Chin Huat Non-Independent Non-Executive Director Mr Ravi Manchanda Non-Independent Non-Executive Director 2 annual report

5 CORPORATE INFORMATION (cont d) AUDIT COMMITTEE Encik Samad bin Kassim (Chairman) Tan Sri Mohd Bakri bin Haji Omar (Member - Independent Non-Executive Director) Dato Siew Mun Chuang (Member - Independent Non-Executive Director) Mr Ravi Manchanda (Member - Non-Independent Non-Executive Director) SECRETARY Chan Lai Choon MAICSA REGISTERED OFFICE Level 31 Maju Tower 1001 Jalan Sultan Ismail Kuala Lumpur Tel: Fax: REGISTRAR Mega Corporate Services Sdn Bhd Level 15-2, Sheraton Imperial Court Jalan Sultan Ismail Kuala Lumpur Tel: Fax: / AUDITORS Crowe Horwath Level 16 Tower C Megan Avenue II 2 Jalan Yap Kwan Seng Kuala Lumpur PRINCIPAL BANKERS Kuwait Finance House (Malaysia) Berhad OCBC Bank (Malaysia) Berhad RHB Bank Berhad Standard Chartered Bank Malaysia Berhad STOCK EXCHANGE LISTING Bursa Malaysia Securities Berhad - Main Market (Stock Code: 5146) HOMEPAGE perwaja holdings berhad ( D) 3

6 CORPORATE STRUCTURE 100% PERWAJA STEEL SDN BHD H 100% ESTEEM SCORE SDN BHD X 4 annual report

7 CHAIRMAN S STATEMENT Dear Shareholders, The global economy in has yet to recover from the financial crisis of and uncertainties continue to loom across the global markets. Weaker than expected economic growth and high unemployment rate in the United States of America ( USA ), recession and stagnation in the Euro zone as well as a slower pace of economic growth in China have impacted global trade and resulted in tepid foreign direct investment. The global economic slowdown adversely affected steel consumption. According to the World Steel Association, apparent steel use increased by only 1.2% in, which is the slowest growth rate since 2009 when demand declined by 6.5%. Despite external market pressures, the Malaysian economy recorded a growth of 5.6% in underpinned by robust domestic demand and the Government s support of income and consumption-boosting measures. Though the domestic economy performed fairly well the softening steel demand in the South East Asia region has led to an oversupply of steel products resulting in compressed margins and slower moving inventories. In addition, upstream steel players like Perwaja had to contend with the removal of duty exemptions for selected steel products, oversupply due to dumping activities, volatility in exchange rates and raw material prices, and delays in the implementation of several large-scale construction and infrastructure projects, which impacted the Group s earnings. FINANCIAL HIGHLIGHTS The Group also managed to narrow its pre-tax loss and net loss by 25% and 11% respectively. The Group posted a pre-tax loss of RM192.2 million and net loss of RM232.3 million this year versus RM256.7 million and RM261.7 million respectively the year before. The increase in revenue and lower losses were attributable to improved production levels, better margin, and improved sales of direct reduced iron ( DRI ) in. DRI sales increased more than 260% to 370,000 metric tonnes from 102,000 metric tonnes in the previous corresponding year. These positive outcomes amidst the difficult operating environment were due to the stimulus measures initiated by the government under the Economic Transformation Programme ( ETP ) and the National Key Economic Areas ( NKEA ). The 12 months losses were also attributable to decreased demand for billets in the international market due to volatility in iron ore prices. The Group s billet sales declined 15% to 618,000 metric tonnes in compared to 728,000 metric tonnes the year before. Perwaja mitigated the fall in the export of billets by selling the products in the local market for downstream steel production. Despite the challenging business landscape, the Group recorded higher revenue for its financial year ended 31 December. Revenue increased by 17% to RM1.86 billion against last year s revenue of RM1.59 billion. perwaja holdings berhad ( D) 5

8 CHAIRMAN S STATEMENT (cont d) REVIEW OF OPERATIONS was another challenging year for the steel sector which was inundated by depressed margins, rising costs of production namely the high natural gas price, volatile raw material prices and the weaker than expected steel demand due to the poor global economic performance. To make matters worse, the local steel players were adversely impacted by the steel dumping activities, which further led to depressed sales volumes and lower utilization rates. In view of the influx of cheaper steel products into Malaysia which has caused material injury to the local steel industry, the Malaysian Government has imposed anti-dumping duty for steel wire rods imported from China, Taiwan, Korea, Indonesia and Turkey effective 20 February 2013 for a period of five years. This augurs well for Perwaja as it curbs oversupply in the local market which may lead to a firmer steel price. In addition, I am also grateful for our government s foresight in the initiation and implementation of the various activities which boosted the construction sector leading to an improved consumer sentiment and which have cushioned the impact of the challenges faced by local steel players like Perwaja. The ongoing construction activities have boosted the overall economic growth and attracted foreign investment into the country. The ongoing construction of the Klang Valley Mass Rapid Transit ( KVMRT ), Light Rail Transit ( LRT ) extensions, the Second Penang Bridge and oil and gas projects, such as the Kebabangan gas field have contributed to the construction sector which recorded a commendable growth of 18.5% in. These stimulant activities have boosted Perwaja s DRI production level. During the year under review, Perwaja produced 977,000 metric tonnes, an increase of more than 100% from the 484,000 metric tonnes produced in PROSPECTS The key driver of steel consumption going forward will largely be the continual investments from both the government and private sector in ETP projects spanning across six growth corridors which comprise Greater KL, Iskandar Malaysia, the Northern Corridor Economic Region ( NCER ), East Coast Economic Region ( ECER ), Sabah Development Corridor ( SDC ) and Sarawak Corridor of Renewable Energy ( SCORE ). The growth corridors offer a range of opportunities across property and infrastructure sectors. As for macroeconomic indicators, Bank Negara Malaysia ( BNM ) pegs 2013 s gross domestic product ( GDP ) growth estimate to be in the range of 5% to 6% on the back of favourable domestic catalysts such as improved income growth, stable labour market conditions and an enhanced investment climate. 6 annual report

9 CHAIRMAN S STATEMENT (cont d) ACKNOWLEDGEMENTS I am pleased to welcome Mr Ravi Manchanda to the Board. His vast experience will certainly be valuable to the Group. At the same time, I would also like to take the opportunity to thank Yang Berbahagia Dato Abu Talib bin Mohamed and Mr Amro F F A H Alkhadra for their invaluable services during their respective tenure as our Non-Independent Non-Executive Director. My heartfelt gratitude goes out to my fellow Board of Directors and employees for the professionalism and dedication shown that have helped the Group to steer through yet another challenging year. My deepest appreciation is also extended to our bankers, customers, suppliers, business associates, government and relevant authorities, members of the media, investors, shareholders and all our friends for their support which have kept our spirit strong as we continue to steer the Group towards better earnings delivery. PROSPECTS (cont d) BNM has also forecast the Malaysian construction sector to grow approximately 15.9% in 2013, driven by the various infrastructure projects under the ETP and the six corridors of growth identified by the government while the Malaysian Institute of Economics Research ( MIER ) has forecast local steel consumption to improve at 3% in These indicators bode well for Perwaja. We at Perwaja will continue to work towards turning the Group to profitability and deliver better value to our shareholders. TAN SRI ABU SAHID BIN MOHAMED Executive Chairman In light of the opportunities and positive outlook, the Group is well placed to continue benefitting from the robust construction growth in Malaysia. Perwaja s growth will be further enhanced with the completion of the concentration and pelletizing plant, which will provide the Group with a good hedge against the volatile fluctuation of raw material prices and improve cost structure, leading to an improvement in earnings. The construction progress of the concentration and pelletizing plants is delayed due to some technical constraints and poor weather conditions. The Group expects the concentration plant to be fully commissioned in the third quarter of 2013, while the pelletizing plant is estimated to be commissioned six months after the commissioning of the concentration plant. perwaja holdings berhad ( D) 7

10 PROFILE OF DIRECTORS Tan Sri Abu Sahid bin Mohamed was appointed to the Board on 25 June Tan Sri Abu Sahid is presently the Group Executive Chairman of the Maju Group of Companies. He has been the driving force behind the growth of the Maju Group in all its activities over the past 35 years. He has made the Maju Group well diversified with activities in Construction, Property Development, Infrastructure, Services and Manufacturing. Tan Sri Abu Sahid also serves as the Executive Chairman of Ipmuda Berhad and Bright Focus Berhad as well as Chairman of Kinsteel Bhd. He is a major shareholder of Perwaja Holdings Berhad, Kinsteel Bhd, Ipmuda Berhad and also Avalon Minerals Ltd in Australia. Tan Sri Abu Sahid is also a director of various other private limited companies in Malaysia. Save as disclosed above, he does not have any family relationship with any Director and/or any other major shareholder of the Company and does not have any conflict of interest with the Company. He has not been convicted of any offence within the past 10 years. TAN SRI ABU SAHID BIN MOHAMED Executive Chairman, Age 61, Malaysian 8 annual report

11 PROFILE OF DIRECTORS (Cont d) Tan Sri Dato Sri Pheng Yin Huah was appointed Managing Director on 25 June He began his apprenticeship in the steel business in 1964 under the tutelage of his late father, Mr Hong Kim Kee, the founder of the Kin Kee group of companies. Through his leadership and guidance, the Kin Kee group of companies has transformed from collection of scrap iron into a conglomerate of integrated steel based companies involved in the trading and manufacturing of a wide variety of steel products. His involvement in the steel industry for more than 30 years has earned him the recognition and respect as one of the leading businessmen in the steel industry. He was appointed as the Managing Director of PSSB on 07 September He is primarily responsible for charting out the Group s long-term business strategy, leveraging off his extensive steel industry knowledge to build our group into an industry leader. He provides the vision and experience to bring the Group forward. He is also responsible for overseeing the overall development of the Group. TAN SRI DATO SRI PHENG YIN HUAH Managing Director Age 64, Malaysian He is also the Managing Director of Kinsteel Bhd, Kin Kee Hardware Sdn Bhd, Kin Kee Metal Sdn Bhd, Kin Kee Properties Sdn Bhd and Perniagaan Kin Kee Sdn Bhd, which are involved in trading of iron, metal and steel products and property development. He also sits on the board of several other private limited companies in Malaysia. He is also a representative of Kinsteel Bhd, a major shareholder of the Company. In addition to the above, he is also actively involved in social work. He is currently the President of the Federation of Chinese Associations Malaysia (Hua Zong), Deputy President of the Malaysia Steel Association, the Executive Advisor of Malaysia Hardware, Machinery and Building Material Dealers Association, Executive Advisor of Pahang Chinese Chamber of Commerce and Industries, Advisor of Persatuan Peniaga Logam Dan Jentera Pahang, Honorary Advisor of the Associated Chinese Chamber of Commerce and Industry of Malaysia, Vice-President of the Hokkien Association of Kuantan, Chairman of the Board of Governors of Sekolah Rendah Jenis Kebangsaan (C) Kuang Hwa, Chairman of the Board of Governors of Sekolah Menengah Chong Hwa Kuantan, President of the Gabungan Persatuan-Persatuan Cina Pahang and President of the Yayasan Pendidikan Gabungan Persatuan Cina Pahang, Honorary President of the Chinese Chamber of Commerce & Industry of Kuala Lumpur & Selangor, Honarary President of the Associated Eng Choon Societies of Malaysia and Life Honorary President of Persatuan Eng Choon Kuantan. Tan Sri Dato Sri Pheng is the father of Dato Henry Pheng Chin Guan, Mr Pheng Chin Huat and Mr Pheng Chin Shiun. He is the brother of Dato Hong Thian Hock, a major shareholder of the Company. He has no conflict of interest with the Company and has not been convicted for any offence within the past 10 years. perwaja holdings berhad ( D) 9

12 PROFILE OF DIRECTORS (cont d) DATO HENRY PHENG CHIN GUAN Chief Executive Officer, Age 41, Malaysian Dato Henry Pheng Chin Guan was appointed as the Chief Executive Officer on 25 June He graduated in 1993 with a Bachelor of Commerce degree from the University of Wollongong, Australia. He is a full member of the CPA Australia and a Chartered Accountant with the Malaysian Institute of Accountants. He was appointed as an Executive Director and Chief Executive Officer of Kinsteel Bhd on 05 February 1997 and has assumed the position since then. He was appointed as the Chief Executive Officer of Perwaja Steel Sdn Bhd on 07 September He is responsible for executing the Group s strategy and plays a pivotal role in developing the Group s business. He is also responsible for managing the Group s day-to-day operations. He is also a representative of Kinsteel Bhd, a major shareholder of the Company. Dato Henry Pheng Chin Guan is currently the Honorary Secretary of the Malaysia Steel Association. Dato Henry Pheng Chin Guan is the son of Tan Sri Dato Sri Pheng Yin Huah who is the Managing Director and a major shareholder of the Company. He is the brother of Mr Pheng Chin Huat and Mr Pheng Chin Shiun. He has no conflict of interest with the Company and has not been convicted for any offence within the past 10 years. TAN SRI MOHD BAKRI BIN HAJI OMAR Independent Non-Executive Director, Age 64, Malaysian Tan Sri Mohd Bakri bin Haji Omar was appointed to the Board on 25 June He is Chairman of the Nomination Committee and a Member of the Audit Committee and Remuneration Committee. He holds a Bachelor of Arts degree from the University of Malaya (1970) and Master of Arts in Political Science from the Ohio University, United States of America (1983). He also attended the Royal College of Defence Studies in London, United Kingdom (1995). Tan Sri Mohd Bakri bin Haji Omar was previously the Inspector-General of Police, Royal Malaysia Police. He joined the Police Force on 1 January 1971 as a Cadet Assistant Superintendent of Police and thereafter served in several departments in the Police Force. He was the Officer In-Charge of several Police Districts including Mersing (Johor), Balik Pulau (Penang) and Petaling Jaya (Selangor). He has also served as the Chief Police Officer of Kedah and Kuala Lumpur and the Commissioner of Police Sabah. In 1987, he held the post of Officer In-Charge of Criminal Investigation Department in Kuala Lumpur. In 1992, Tan Sri Mohd Bakri bin Haji Omar was seconded to Malaysia Airport Berhad as its General Manager - Security, Safety and Human Resource Management and later in 1998 to the Ministry of Home Affairs as the Director-General of the National Narcotics Agency. Upon his return to the Royal Malaysia Police Headquarters in October 1999, he assumed the post of Director of Management. On 10 March 2003, he was appointed the Deputy Inspector- General of Police of the Royal Malaysia Police and subsequently on 06 November 2003, he was appointed as Inspector-General of Police. He is also a director of PFCE Berhad. He does not have any family relationship with any Director and/or major shareholder of the Company and does not have any conflict of interest with the Company. He has not been convicted of any offence within the past 10 years. 10 annual report

13 PROFILE OF DIRECTORS (cont d) DATUK LIM CHAING CHEAH Non-Independent Non-Executive Director, Age 63, Malaysian Datuk Lim Chaing Cheah was appointed to the Board on 25 June He is Chairman of the Risk Management Committee. His professional qualification includes a fellowship ( FCA ) in the Institute of Chartered Accountants in England and Wales ( ICAEW ), member of the British Institute of Management and the Corporate Finance Faculty of the ICAEW. He is also a Chartered Accountant with the Malaysian Institute of Accountants ( MIA ). His career began at A.T. Chenhalls and Company in the United Kingdom where he articled for 4 years before joining B. Fish and Partners in the United Kingdom as an Audit Senior for 2 years. He then joined Standard Telephones and Cables PLC as a Financial Analyst and within 4 years quickly rose to the position of Financial Planning Manager. After garnering over 10 years of working experience in the United Kingdom, he returned to Malaysia where he worked in the automotive industry for 6 years under the employment of industry leaders such as Dunlop Malaysia Industries Berhad, Tan Chong Motor Holdings Berhad and Edaran Otomobil Nasional Berhad. In 1987, he returned to his profession as a Partner in Lew and Company before taking up various directorships in public and private companies. He joined Perwaja Steel Sdn Bhd ( PSSB ) as Director Corporate from 01 June 1988 to 31 December 1994, joined Kanzen Berhad as Executive Director from 13 February 1995 to 31 July He subsequently joined Maju Holdings Sdn Bhd ( Maju Holdings ) as Executive Director on 01 August 1996, and on 01 July 2002 he was appointed Chief Operating Officer of Maju Holdings. On 06 September 2006 he was appointed to the Board of PSSB as Director. He is a representative of Maju Holdings, a major shareholder of the Company. He is also a director and Chief Executive Officer of PFCE Berhad. He does not have any family relationship with any Director and/or major shareholder of the Company and does not have any conflict of interest with the Company. He has not been convicted of any offence within the past 10 years. DATO MD SHARIF BIN SHAMSUDDIN Independent Non-Executive Director, Age 62, Malaysian Dato Md Sharif bin Shamsuddin was appointed to the Board on 25 June Dato Md Sharif graduated from University of Malaya in 1973 with an honours degree in Anthropology and Sociology, a diploma in Public Administration in 1975 and a diploma in Marketing from the Chartered Institute of Marketing, United Kingdom in He has more than 20 years of experience in the public sector. He served as an Assistant Secretary at the Ministry of Housing and Local Government and the Ministry of Environment, Science and Technology from 1973 to 1975 and a Senior Project Officer and Lecturer at Institut Tadbiran Awam Negara ( INTAN ), Kuala Lumpur from 1975 to 1980, before joining the Kuantan Municipal Council in 1980 as Chief Administrator and in 1986 as Deputy President. In 1990, he was appointed the General Manager of Pahang State Foundation and held this position until He is the Deputy Chairman of Kinsteel Bhd and also sits on the board of several other private limited companies in Malaysia. He does not have any family relationship with any Director and/or major shareholder of the Company and does not have any conflict of interest with the Company. He has not been convicted of any offence within the past 10 years. perwaja holdings berhad ( D) 11

14 PROFILE OF DIRECTORS (cont d) DATO SIEW MUN CHUANG Independent Non-Executive Director, Age 59, Malaysian Dato Siew Mun Chuang was appointed to the Board on 25 June He is Chairman of the Remuneration Committee and a Member of the Audit Committee and Nomination Committee. From 1973 to 1979, he was with Price Waterhouse & Co and from 1980, he took over Tai Thong Restoran Sdn Bhd, and expanded it into a diversified food and beverage group and subsequently listed it on the Second Board of Bursa Malaysia Securities Berhad on 18 August 1997 under TT Resources Bhd ( TTRB ). He was the Managing Director of TTRB until 31 August 2000 afterwhich he assumed a Non-Executive Director s post until his retirement on 13 March Thereafter, he started his own business in the food and beverage industry and he is currently the Managing Director of the Oriental Group of Restaurants. He is also a director of Kinsteel Bhd and Ipmuda Berhad, and Deputy Chairman of Avalon Minerals Limited. He does not have any family relationship with any Director and/or major shareholder of the Company and does not have any conflict of interest with the Company. He has not been convicted of any offence within the past 10 years. SAMAD BIN KASSIM Independent Non-Executive Director, Age 66, Malaysian Encik Samad bin Kassim was appointed to the Board on 25 June He is Chairman of the Audit Committee and a Member of the Nomination Committee and Remuneration Committee. Encik Samad graduated in 1970 with a Bachelor of Economics degree from University of Malaya and completed his Masters degree in Public and International Affairs ( MPIA ) from University of Pittsburgh, United States of America in He has worked in the Government service for 31 years since 1970 of which 12 years was in the Ministry of International Trade and Industry ( MITI ). He was appointed Chief Executive Officer of Small and Medium Industry Development Corporation ( SMIDEC ) in early 2000 until his retirement in September He sits on the board of Century Logistics Holdings Berhad, Ingress Corporation Berhad, Supermax Corporation Berhad, Kinsteel Bhd, BHS Industries Berhad, Multi-Code Electronics Industries (M) Bhd and Master Tec Holdings Berhad and several other private limited companies in Malaysia. He does not have any family relationship with any Director and/or major shareholder of the Company and does not have any conflict of interest with the Company. He has not been convicted of any offence within the past 10 years. 12 annual report

15 PROFILE OF DIRECTORS (cont d) PHENG CHIN HUAT Non-Independent Non-Executive Director, Age 40, Malaysian Mr Pheng Chin Huat was appointed to the Board on 25 June He is a member of the Risk Management Committee. He graduated with a Bachelor of Business Administration from University of Central Oklahoma, United States in He is a director of Kinsteel Bhd. He is also a representative of Kinsteel Bhd, a major shareholder of the Company. He also sits on the board of various other private limited companies in Malaysia. Mr Pheng Chin Huat is the son of Tan Sri Dato Sri Pheng Yin Huah, the Managing Director of the Company and major shareholder of the Company. He is the brother of Dato Henry Pheng Chin Guan and Mr Pheng Chin Shiun. He does not have any conflict of interest with the Company and has not been convicted of any offence within the past 10 years. PHENG CHIN SHIUN Non-Independent Non-Executive Director, Age 38, Malaysian Mr Pheng Chin Shiun was appointed to the Board on 25 June He graduated with a Bachelor of Electrical Engineering (Honours) from University of Malaya, Malaysia in He is currently the Managing Director of PCS Vision Sdn Bhd, an electronic system provider. He is the alternate director to Datin Hong Cheng Guat on the board of Kinsteel Bhd. He is a representative of Kinsteel Bhd, a major shareholder of the Company. He also sits on the board of various other private limited companies in Malaysia. Mr Pheng Chin Shiun is the son of Tan Sri Dato Sri Pheng Yin Huah, the Managing Director of the Company and a major shareholder of the Company. He is the brother of Dato Henry Pheng Chin Guan and Mr Pheng Chin Huat. He does not have any conflict of interest with the Company and has not been convicted of any offence within the past 10 years. perwaja holdings berhad ( D) 13

16 PROFILE OF DIRECTORS (cont d) RAVI MANCHANDA Non-Independent Non-Executive Director, Age 54, Singaporean Mr Ravi Manchanda was appointed to the Board on 16 January He is a Member of the Audit Committee, Nomination Committee, Remuneration Committee and Risk Management Committee. He is currently the Group Chief Executive Officer of Maju Holdings Sdn Bhd ( Maju ) and all its subsidiaries. Prior to joining Maju Group, Ravi was the Managing Director of Wholesale Banking, Origination Client Coverage, Standard Chartered Bank (SCB) and also the Chairman of SCB s Seeing is Believing corporate social responsibility effort for Singapore. In August 2006, he was appointed as the Director of Head Corporate Banking Coverage at Deutsche Bank Singapore. Prior to that, he was the Managing Director of The 1 Group plc. specializing in corporate finance, capital markets, trade finance, factoring, credit insurance and private equity. He launched the first Vedic Astrological mobile platform in India and floated the first Singapore company on AIM, UK. He served as Director of Bharti Global Ltd between January 2000 to June His experience also includes being the Chief Executive and Chief Operations Officer at a commodities Trading House in London, 5 years as Chief Executive Officer and Director of International Operations at BY Design Group, New York and 9 years at KPMG Peat Marwick, where he rose from an Audit Trainee rising to Senior Manager. He is a Trustee and Probono Advisor to two Educational Schools in Zambia and Leicester. He is currently a director of Kinsteel Bhd. He does not have any family relationship with any Director and/or major shareholder of the Company and does not have any conflict of interest with the Company. He has not been convicted of any offence within the past 10 years. 14 annual report

17 STATEMENT ON CORPORATE GOVERNANCE The Malaysian Code on Corporate Governance essentially aims to set out principles and specific recommendations on structures and processes used to direct and manage the business and affairs of the company towards enhancing business prosperity and corporate accountability with the ultimate objective of realising long-term shareholders value. The Board of Directors of Perwaja Holdings Berhad strives to adopt the substance behind corporate governance prescription and not merely the form. The Board is fully committed to the maintenance of high standards of corporate governance by supporting and implementing the prescriptions of the principles and recommendations set out in Malaysian Code on Corporate Governance [ MCCG ] respectively. The manner in which the Corporate Governance framework is applied is summarized as follows:- BOARD OF DIRECTORS Board Responsibilities The Board is primarily responsible for the Group s overall strategic plans for business performance, overseeing the proper conduct of business, succession planning, risk management, shareholders communication, internal control, management information systems and statutory matters; whilst management is accountable for the execution of the expressed policies and attainment of the Group s expressed corporate objectives. The demarcation complements and reinforces the supervisory role of the Board. The Board has approved the Board Charter which sets out a list of specific functions that are reserved for the Board. The Board Charter addresses the following matters: i. Board Membership, which includes composition, appointments and re-election and independence of Directors; ii. Role of the Board, which includes duties and responsibilities and matters reserved for the Board; iii. Role of Chairman, Managing Director and Chief Executive Officer; iv. Board Committees and Board Meetings; v. Financial Reporting; vi. Directors Remuneration; vii. Directors Training and Continuing Education; viii. Company Secretary; ix. Investor Relations and Shareholders Communication; x. Access to Information and Independent Advice; and xi. Directors Code of Conduct and Ethics. The approval and adoption of the Board Charter in which the Code of Conduct and Ethics for Directors is embedded in the Board Charter formalizes the standard of ethical values and behavior that is expected of its Directors at all times. The Board Charter will be reviewed periodically to ensure its relevance and compliance. As at the end of the financial year under review, the Board Charter had yet to be made publicly available. Nonetheless, steps will be taken to upload the salient features of the Board Charter on the Company s website at com.my in line with Recommendation 1.7 of the MCCG. The Board recognizes the environment sustainability role as a corporate citizen in its business approach and always endeavors in adopting most environmental friendly, ecological and cost effective production process. The Board also endeavors in developing Group objectives and strategies having regard to the Group s responsibilities to its shareholders, employees, customers and other stakeholders and ensuring the long term stability of the business, succession planning and sustainability of the environment. The corporate social responsibilities undertaken by the Group is stated in page 23 of the Annual Report. perwaja holdings berhad ( D) 15

18 STATEMENT ON CORPORATE GOVERNANCE (cont d) BOARD OF DIRECTORS (cont d) Board Balance and Composition There are presently eleven (11) Board members in Perwaja Holdings Berhad comprising mainly three (3) executive directors, four (4) non-independent non-executive directors, and four (4) independent directors. The Board is made up of Directors who are qualified and experienced in various fields including accountancy, engineering, banking and economics. The profiles of the Directors are provided in pages 8 to 14 of the annual report. The Board is fairly represented by the substantial shareholders of the Company and, together with banking the four (4) independent non-executive directors, there is no individual or small group of individuals that can dominate the Board s decision making process. In line with the MCCG, the roles of the Executive Chairman, Managing Director and CEO of the Company are separated with clear division of responsibilities between them to ensure balance of power and authority. The Executive Chairman is primarily responsible for ensuring Board effectiveness and conduct and the Group s strategic business direction. He encourages a healthy debate on issues raised at meetings, and gives opportunity to Directors who wish to speak on motions, either for or against them. The Managing Director has the overall responsibility for the management of the Group s operations, organizational effectiveness and implementation of Board policies, decisions and strategies. The CEO has the responsibility of ensuring that the implementation of the Board s policies, decisions and strategies are effectively implemented and that the day-to-day management of the business are effectively managed as delegated by the Board from time to time. The segregation between the duties of the Executive Chairman, Managing Director and CEO ensures appropriate balance of role, responsibility and accountability at the Board level. The Non-executive Directors support the skills and experience of the Executive Chairman, the Managing Director and CEO, contributing to the formulation of policy and decision making through their knowledge and experience of other businesses sectors. The independent Non-Executive Directors are independent of management and free from any business relationship which could materially interfere with the exercise of their independent judgment. Together, they play an independent role in ensuring that the strategies proposed by the management are fully deliberated and examined, taking into account the long term interest of the shareholders, employees, customers, suppliers and the many communities in which the Group conducts its business. The composition and size of the Board are reviewed from time to time to ensure appropriateness. The Nomination Committee examines the size and composition of the Board with a view of determining the impact of the number upon effectiveness and makes recommendations to the Board on what it considers an appropriate size and composition for the Board. The current Board fulfils the requirement under Main Market Listing Requirements of Bursa Malaysia Securities Berhad to have at least 1/3 of the board comprised of Independent Non-Executive Directors. None of the current independent directors had served the Company for more than 9 years as per Recommendation 3.2 of the MCCG as they were appointed on 25 June Recommendation 3.5 of the MCCG states that the Board must comprise a majority of independent directors where the Chairman is not an independent director. Event though the number of Independent Directors of the Company do not meet the MCCG recommendation, the Board is still able to exercise objective judgment on business and corporate affairs, independent from management because of active participation and engagement of the Independent Directors during the Board meetings and meetings of the Board Committees. 16 annual report

19 STATEMENT ON CORPORATE GOVERNANCE (cont d) BOARD OF DIRECTORS (cont d) Board Meetings There were six (6) board meetings held during the financial year ended 31 December. The attendance of the Board Members is as follows: Director No of Meetings attended TAN SRI ABU SAHID BIN MOHAMED 6/6 TAN SRI DATO SRI PHENG YIN HUAH 6/6 DATO PHENG CHIN GUAN 6/6 TAN SRI MOHD BAKRI BIN HAJI OMAR 4/6 DATO ABU TALIB BIN MOHAMED 5/6 (Resigned on ) AMRO F F A H ALKHADRA 5/6 (Resigned on ) DATUK LIM CHAING CHEAH 5/6 DATO MD SHARIF BIN SHAMSUDDIN 4/6 DATO SIEW MUN CHUANG 6/6 SAMAD BIN KASSIM 6/6 PHENG CHIN HUAT 5/6 PHENG CHIN SHIUN 5/6 RAVI MANCHANDA Not Applicable (Appointed Alternate Director to AMRO F F A H ALKHADRA on and ceased to be Alternate Director on and Appointed Director on ) All the Directors have complied with the minimum attendance at Board meetings as stipulated by the Main Market Listing Requirements of Bursa Malaysia Securities Berhad during the financial year. Appointments to the Board The appointment of new Directors is under the purview of the Nomination Committee which is responsible for making recommendations to the Board on the suitable candidates for appointment. Recommendation 2.2 of the MCCG states that the Board should establish a policy formalizing its approach to boardroom diversity. The Board has no immediate plans to implement a gender diversity policy or targets as it is of the view that Board membership is dependent on each candidate s skills, experience, core competencies and other qualities regardless of gender. Time commitment of accepting new directorships Directors are expected to have such expertise so as to qualify them to make a positive contribution to the Board s performance of its duties and to give sufficient time and attention to the affairs of the Group. Any Director shall notify the Chairman before accepting any new directorship and the notification shall include the indication of time that will be spent on the new appointment. The aforesaid is set out in the approved Board Charter. Re-election All Directors (including the Managing Director) will retire at regular intervals by rotation once at least every three (3) years and they are eligible to offer themselves for re-election. perwaja holdings berhad ( D) 17

20 STATEMENT ON CORPORATE GOVERNANCE (cont d) BOARD OF DIRECTORS (cont d) Supply of Information Prior to each Board meeting, every director is given an agenda and a set of Board Papers for each agenda item to be deliberated. The Chief Executive Officer will lead the presentation of board papers and provide comprehensive explanation of pertinent issues. Information provided to the Board goes beyond quantitative performance data to include other qualitative performances. All directors are entitled to call for additional clarification and information to assist them in matters that require their decision. In arriving at any decision on recommendation by the Management, thorough deliberation and discussion by the Board is a prerequisite. All proceedings of Board meetings are minuted and signed by the Chairman of the meeting in accordance with provision of Section 156 of the Companies Act, There is a schedule of matters reserved specially for the Board s decision, including the approval of acquisition and disposal of major assets, major investments, changes to the management and control structure of the Group and issues in respect of key policies and procedures. In furtherance to their duties as Directors, whenever independent professional advice is required, external independent experts may and have been engaged at the Group s expense. All Directors have access to the advice and services of the Company Secretary. Committees The Board, in discharging its fiduciary duties, is assisted by the following Board Committees, each entrusted with specific tasks:- (i) Audit Committee; (ii) Remuneration Committee; and (iii) Nomination Committee; and (iv) Risk Management Committee These committees have the authority to examine particular issues and report to the Board their recommendations. The ultimate responsibility for the final decision on most matters lies with the entire Board. (i) Audit Committee The Audit Committee Report is detailed in pages 24 to 28 of the annual report. (ii) Remuneration Committee The present members of the Remuneration Committee are: (a) Dato Siew Mun Chuang (Chairman, Independent Non-executive Director) (b) Tan Sri Mohd Bakri bin Haji Omar (Member, Independent Non-executive Director) (c) Samad bin Kassim (Member, Independent Non-executive Director) (d) Dato Abu Talib bin Mohamed (Member, Non-Independent Non executive Director) (resigned on ) (e) Ravi Manchanda (Member, Non-independent Non-executive Director) (appointed on ) The primary functions of the Remuneration Committee are amongst others, establishing performance criteria to evaluate the performance of each member of the Board of Directors and the Managing Director/Chief Executive Officer, and reviewing their respective performances. The final remuneration package before offered to the Executive Directors and fee payable to Non-Executive Directors are the responsibilities of the entire Board and individual director is required to abstain from discussion on his own remuneration. The Committee met once during the year. 18 annual report

21 STATEMENT ON CORPORATE GOVERNANCE (cont d) BOARD OF DIRECTORS (cont d) Committees (cont d) (iii) Nomination Committee The present members of the Nomination Committee are: (a) Tan Sri Mohd Bakri bin Haji Omar (Chairman, Independent Non-executive Director) (b) Dato Siew Mun Chuang (Member, Independent Non-executive Director) (c) Samad bin Kassim (Member, Independent Non-executive Director) (d) Dato Abu Talib bin Mohamed (Member, Non-Independent Non-executive Director) (resigned on ) (e) Ravi Manchanda (Member, Non-independent Non-executive Director) (appointed on ) The primary functions of the Nomination Committee are amongst others: 1. recommend candidates for appointments to our Board of Directors, board committees, consultative panels, regulatory committees and key management positions. The final decision for any appointment remains the responsibility of the Board after considering the committee decision. 2. conduct annual review of the structure, size and composition of the Board (including skills, knowledge, experience and gender diversity), and those Directors who are due for re-election at the Company s Annual General Meeting. 3. review and assess the independence of the Independent Directors annually, term of office and to submit their relevant recommendation to the Board for the ultimate decision and endorsement. Among the criteria considered for independency includes ability to exercise independent comments, judgment, and contribution constructively at all times for an effective Board. The Committee met twice during the year. The Nomination Committee has assessed and recommended to the Board that the Directors retiring under the Articles of Association at the forthcoming Annual General Meeting be nominated for re-election/re-appointment having regard to the individual s experience, contributions and performance and the Board has endorsed the Nomination Committee s recommendations. (iv) Risk Management Committee Please refer to page 29 of the Annual Report on the composition of the Risk Management Committee and its activities. Directors Training All the Directors of the Company have completed the Mandatory Accreditation Programmes and are supportive of the Continuous Education Programmes and seminars so as to keep abreast with the current developments in the industry as well as the current changes in laws and regulations. For the financial year, all Directors have attended training programmes conducted in-house and seminars conducted externally mentioned below: perwaja holdings berhad ( D) 19

22 STATEMENT ON CORPORATE GOVERNANCE (cont d) BOARD OF DIRECTORS (cont d) Directors Training All the Directors of the Company have completed the Mandatory Accreditation Programmes and are supportive of the Continuous Education Programmes and seminars so as to keep abreast with the current developments in the industry as well as the current changes in laws and regulations. For the financial year, all Directors have attended training programmes conducted in-house and seminars conducted externally mentioned below: Director Tan Sri Abu Sahid bin Mohamed Tan Sri Dato Sri Pheng Yin Huah Dato Pheng Chin Guan Dato Abu Talib bin Mohamed (resigned on ) Amro F F A H Alkhadra (resigned on ) Datuk Lim Chaing Cheah Dato Md Sharif bin Shamsuddin Pheng Chin Huat Pheng Chin Shiun Tan Sri Mohd Bakri bin Haji Omar Title Failed Business: Deriving Sound Strategic Insights Failed Business: Deriving Sound Strategic Insights Failed Business: Deriving Sound Strategic Insights Failed Business: Deriving Sound Strategic Insights Failed Business: Deriving Sound Strategic Insights Failed Business: Deriving Sound Strategic Insights Failed Business: Deriving Sound Strategic Insights Failed Business: Deriving Sound Strategic Insights Failed Business: Deriving Sound Strategic Insights Case Studies For Boardroom Excellence FRAUD DETECTION AND PREVENTION A Necessity, Not A Choice Samad bin Kassim Role of Audit Committee in Assuring Audit Quality, Governance Program Institute of Accountants, Navigating Turbulence, MICPA-Bursa Malaysia Business Forum Audit Committee and Chief Audit Executive Forum: Enhancing Internal Audit s Value Dato Siew Mun Chuang Failed Business: Deriving Sound Strategic Insights Ravi Manchanda (Appointed Alternate Director to Amro F F A H Alkhadra on and ceased to be Alternate Director on and Appointed Director on ) Mandatory Accreditation Programme 20 annual report

23 STATEMENT ON CORPORATE GOVERNANCE (cont d) DIRECTORS REMUNERATION Level and Make Up The Company has adopted the objective as recommended by the Code to determine the remuneration of the Directors so as to ensure that the Company attracts and retains the Directors needed to run the Group successfully. The component parts of their remuneration are structured so as to link rewards to corporate and individual performance in the case of Executive Directors. In the case of Non-Executive Directors, the level of remuneration reflects the experience and level of responsibilities undertaken by the individual Non-Executive Director concerned. The details of the remuneration of the Directors are set out in Note 40 and 41 to the Financial Statements. The remuneration of the individual director is not disclosed due to security reasons. The directors fees are subject to the approval by shareholders at the forthcoming Annual General Meeting of the Company. INVESTORS RELATION AND SHAREHOLDERS COMMUNICATION Shareholders are kept well informed of developments and performances of the Group through disclosures to the Bursa Malaysia Securities Berhad and the press (where appropriate) as well as the annual report. The annual report contains all necessary disclosures in addition to facts and figures about the Group. Notices of Annual and Extraordinary General Meetings of the Group and related papers are sent out to shareholders within a reasonable and sufficient time frame in accordance with the Company s Articles of Association. Adequate time is given during the Annual and Extraordinary General Meetings to allow shareholders to seek clarifications or ask questions on pertinent and relevant matters. The shareholders are informed of their rights to demand for poll prior to the commencement of each general meeting. The results of all the resolutions set out in the Notice of Annual General Meetings and Extraordinary General Meetings were announced on the same day via Bursa Link which is accessible on the website of the Company and Bursa Malaysia Securities Berhad. Recommendation 8.2 of the MCCG recommends that the Board should encourage poll voting for substantive resolutions. The Board is of the view that the current level of shareholders attendance at the AGMs, voting by way of show of hands continues to be efficient. The Board will evaluate the feasibility of carrying out electronic polling at its general meetings in future. From time to time, the Directors and Senior Management will meet with the Institutional investors and analysts to explain to them the Group s Strategy, performance, major developments, and others matters affecting the shareholders interests. However, any information that may be regarded as undisclosed material information about the Group is not given. perwaja holdings berhad ( D) 21

24 STATEMENT ON CORPORATE GOVERNANCE (cont d) ACCOUNTABILITY AND AUDIT Financial Reporting The Board aims to present a balanced, clear and meaningful assessment of the Company s and the Group s financial position and prospects in all their reports to the shareholders, investors and regulatory authorities. This assessment is primarily provided through the annual financial statements, quarterly announcements of results to the shareholders as well as the Chairman s statement and review of the operations in the Annual Report. The Board is assisted by the Audit Committee to oversee the Group s financial reporting process and the quality of its financial reporting. Directors Responsibility Statement on Annual Audited Financial Statements The Directors are responsible for preparing the annual audited financial statements and the Board ensures that the financial statements and other financial reports of the Company and the Group are prepared in accordance with the applicable approved accounting standards in Malaysia and the provisions of the Companies Act, Risk Management and State of Internal Control The Statement on Risk Management and Internal Control furnished on pages 29 to 30 of the annual report provides an overview of the Group s state of internal control. Relationship with External Auditors The Company works closely with the external auditors and maintains a transparent relationship with them in seeking professional advice and ensuring compliance with applicable accounting standards and statutory requirements. 22 annual report

25 STATEMENT ON CORPORATE GOVERNANCE (cont d) STATEMENT OF CORPORATE SOCIAL RESPONSIBILITY The Group practices an informal policy on Corporate Social Responsibility. Together with the Board of Directors, the Group has continuously carried out its responsibility as a caring employer, preserving the environment and the betterment of the community. In the spirit of corporate citizenship, one of our subsidiaries, Esteem Score Sdn Bhd, took over operations of a vocational and training institute since Offering courses for mechanical, instrument, electronic, information technology and quality assurance industries, we hope to provide a second chance to disadvantaged students from lower income families who did not fare well enough in Secondary school mainstream examinations for further studies. The programme is supported by the Malaysian government, and fees received by the Group are mainly used to cover the institute s operating expenses. Any excess funds will be channeled towards enhancing the institute s infrastructure and facilities, as well as the welfare of its students. Since the institute opened its doors in 2009, the institute has enrolled more than 1,000 students. Some of the graduates will have the opportunity to join Perwaja in semi-skilled positions going forward. CORPORATE DISCLOSURE POLICY The Board places importance in ensuring disclosure made to shareholders and investors is comprehensive, accurate and on a timely and even basis as it is critical towards building and maintaining corporate creditability and investors confidence. A Corporate Disclosure Policy for the Group to set out the policies and procedures for disclosure of material information will be addressed in due course, following the emphasis by Bursa Malaysia Securities Berhad as outlined in its Corporate Disclosure Guide. perwaja holdings berhad ( D) 23