CONTENTS. 01 Financial Highlights. Corporate Governance Statement. 02 Corporate Information. Additional Compliance Statement. 03 Group Structure

Transcription

1 ANNUAL REPORT 2016

2 CONTENTS 01 Financial Highlights 02 Corporate Information 03 Group Structure Corporate Governance Statement Additional Compliance Statement 04 Directors Profile 32 Financial Statements Executive Chairman s Statement Management Discussion and Analysis Corporate Social Responsibility Corporate Events List of Properties Notice of Tenth Annual General Meeting Analysis of Shareholdings Analysis of Warrant Holdings 14 Audit Committee Report Proxy Form 16 Statement on Risk Management and Internal Control

3 Annual Report FINANCIAL HIGHLIGHTS GROUP FIVE-YEAR SUMMARY FYE FYE FYE FYE FYE Ringgit Malaysia ('000) 29 Feb Feb Feb Feb Feb 2016 Revenue 434, , , , ,293 EBITDA 62, ,115 96,272 81,352 75,240 Profit Before Tax 47,198 80,255 75,227 58,702 53,076 Profit After Tax 34,223 56,063 54,637 43,152 37,945 Profit Attributable to Shareholders 34,232 56,066 54,638 43,152 37,973 Paid-Up Capital 90, , , , ,294 Shareholders' Equity 337, , , , ,297 Total Assets 596, , , , ,307 Total Net Tangible Assets 337, , , , ,270 Total Borrowings 192, , , , ,665 Basic Earnings Per 0.20 Share (sen) Diluted Earnings Per 0.20 Share (sen) Total Net Dividend Declared 15,728 23,795 24,916 22,546 16,548 Net Dividend Per 0.20 Share (sen) Net Tangible Assets Per Share () Total Net Dividend declared for FYE2016 is million, representing 44% of our PAT REVENUE , , , , , PROFIT AFTER TAXATION ,223 56,063 54,637 43,152 37, NTA stands at million translating to a NTA/share of 0.83 EARNING PER SHARE SEN SHAREHOLDERS EQUITY , , , , ,

4 2 Pantech Group Holdings Berhad ( W) CORPORATE INFOATION BOARD OF DIRECTORS Dato Chew Ting Leng Executive Chairman / Group Managing Director Dato Goh Teoh Kean Group Deputy Managing Director Mr. Tan Ang Ang Executive Director Mr. To Tai Wai Executive Director Ms. Ng Lee Lee Executive Director Mr. Tan Sui Hin Senior Independent Non-Executive Director Mr. Loh Wei Tak Independent Non-Executive Director Tuan Haji Yusoff Bin Mohamed Independent Non-Executive Director Datuk Hanapi Bin Suhada Non-Independent Non-Executive Director (Ceased w.e.f. 29/02/2016) AUDIT COMMITTEE Chairman Mr. Tan Sui Hin Members Mr. Loh Wei Tak Tuan Haji Yusoff Bin Mohamed REMUNERATION COMMITTEE Chairman Tuan Haji Yusoff Bin Mohamed Members Dato Chew Ting Leng Mr. Tan Sui Hin NOMINATION COMMITTEE Chairman Mr. Loh Wei Tak Members Mr. Tan Sui Hin Tuan Haji Yusoff Bin Mohamed COMPANY SECRETARIES Ms. Lim Seck Wah (MAICSA No.: ) Ms. Liang Siew Ching (MAICSA No.: ) REGISTERED OFFICE Level 15-2, Bangunan Faber Imperial Court Jalan Sultan Ismail Kuala Lumpur Tel : Fax : PRINCIPAL BANKERS AmBank (M) Berhad AmIslamic Bank Berhad CIMB Bank Berhad CIMB Islamic Bank Berhad Citibank Berhad Hong Leong Bank Berhad Hong Leong Islamic Bank Berhad HSBC Amanah Malaysia Berhad HSBC Bank Malaysia Berhad HSBC Bank Plc OCBC Bank (Malaysia) Berhad The Bank of Nova Scotia Berhad United Overseas Bank Limited United Overseas Bank (Malaysia) Berhad SOLICITORS Ng Kee Chong & Co. AUDITORS Messrs SJ Grant Thornton (Member of Grant Thornton International Ltd) Chartered Accountants Unit 29-08, Level 29, Mailbox 227 Menara Landmark 12, Jalan Ngee Heng Johor Bahru STOCK EXCHANGE LISTING Main Market Bursa Malaysia Securities Berhad STOCK CODE: 5125 SHARE REGISTRAR Mega Corporate Services Sdn. Bhd. (Company No.: H) Level 15-2, Bangunan Faber Imperial Court Jalan Sultan Ismail Kuala Lumpur Tel No. : Fax No. :

5 Annual Report GROUP STRUCTURE 100% PANTECH CORPORATION SDN. BHD. 100% Pantech (Kuantan) Sdn. Bhd. 100% Pantech Realty Sdn. Bhd. 40% Tuah Nusa Sdn. Bhd. 100% PANTECH STEEL INDUSTRIES SDN. BHD. 100% PANTECH STAINLESS & ALLOY INDUSTRIES SDN. BHD. 100% PANAFLO CONTROLS PTE. LTD. 70% JC Flow Controls Pte. Ltd. 100% NAUTIC STEELS (HOLDINGS) LIMITED 100% Nautic Steels Limited 100% NAUTIC STEELS SDN. BHD. 100% PANTECH INTERNATIONAL (KSA) SDN. BHD. 51% PANTECH GALVANISING SDN. BHD.

6 4 Pantech Group Holdings Berhad ( W) DIRECTORS PROFILE DATO CHEW TING LENG Executive Chairman/Group Managing Director TO TAI WAI Executive Director Dato Chew Ting Leng, Malaysian, aged 61, is one of the co-founders of the Group. He has more than 30 years of experience in the Pipes, Valves and Fittings ( PVF ) solutions industries. He was appointed as Group Managing Director and Executive Chairman of Pantech Group Holdings Berhad on 11 November 2006 and 13 November 2006 respectively. He is a member in the Remuneration Committee. He does not hold any directorships in any other public companies. DATO GOH TEOH KEAN Group Deputy Managing Director Dato Goh Teoh Kean, Malaysian, aged 60, graduated with Diploma in Commerce (Financial Accounting) from Tunku Abdul Rahman College. He has more than 20 years of experience in the PVF solutions industry. He is one of the co-founders of the Group and was appointed as the Group Deputy Managing Director on 11 November He is responsible for the financial functions of the Group. He does not hold any directorships in any other public companies. TAN ANG ANG Executive Director Mr. Adrian Tan, Malaysian, aged 60, was appointed as the Executive Director on 11 November He is responsible for the overall operation and performance of the Group s manufacturing business and is also the Managing Director of Pantech Steel Industries Sdn. Bhd., Pantech Stainless & Alloy Industries Sdn. Bhd. and Nautic Steels Limited. He obtained his professional Diploma from the Chartered Institute of Marketing in Mr. David To, Malaysian, aged 45, was appointed as the Executive Director on 11 November He started his career in Pantech Corporation Sdn. Bhd. since 1989 and has more than 20 years of experience in the PVF solution industries. He is primarily responsible for the domestic, international and project sales activities of the Group s trading division and trading operation in Malaysia. He does not hold any directorships in any other public companies. NG LEE LEE Executive Director Ms. Ng Lee Lee, Malaysian, aged 49, was appointed as the Executive Director on 8 May She started her career in Pantech Corporation Sdn. Bhd. since She is primarily responsible for the human resources, administration and project sales division. She does not hold any directorships in any other public companies. TAN SUI HIN Senior Independent Non-Executive Director Mr. Tan Sui Hin, Malaysian, aged 66, was appointed as an Independent Non-Executive Director on 30 November He graduated with a Diploma in Mechanical Engineering from Ungku Omar Polytechnic in He has more than 35 years of experience in the manufacturing and building engineering field. He was appointed as the Senior Independent Director with effective from 19 June He is the Chairman of the Audit Committee and a member of both the Nomination and Remuneration Committees. He does not hold any directorships in any other public companies. He does not hold any directorships in any other public companies.

7 Annual Report DIRECTORS PROFILE LOH WEI TAK Independent Non-Executive Director Mr. Loh Wei Tak, Malaysian, aged 43, was appointed as an Independent Non-Executive Director on 30 November He is a qualified accountant and a member of the Malaysian Institute of Accountants. He completed his Bachelor of Business Degree (Majoring in Accounting) from Monash University, Melbourne, Australia in 1994 and was admitted to Certified Practicing Accountant from Australia in In 2000, he was admitted as a Chartered Accountant to the Malaysian Institute of Accountants. He is the Chairman of the Nomination Committee and a member of the Audit Committee. He does not hold any directorships in any other public companies. TUAN HAJI YUSOFF BIN MOHAMED Independent Non-Executive Director Tuan Haji Yusoff Bin Mohamed, Malaysian, aged 65, was appointed as an Independent Non-Executive Director on 10 August He graduated from University Kebangsaan Malaysia with a Bachelor Degree in Economics (Hons). He is the Chairman of the Remuneration Committee and a member of both the Audit and Nomination Committees. He does not hold any directorships in any other public companies. OTHER INFOATION:- Directors Shareholdings Details of Directors Shareholdings in the Company are as disclosed on page 34 of the Annual Report Family relationship with Directors and/or Major Shareholders Dato Chew Ting Leng and his spouse, Datin Shum Kah Lin are major shareholders of Pantech Group Holdings Berhad ( PGHB ) by virtue of their substantial shareholdings in CTL Capital Holding Sdn. Bhd. pursuant to Section 6A of the Companies Act Dato Goh Teoh Kean and his spouse, Datin Lee Sock Kee are major shareholders of PGHB by virtue of their substantial shareholdings in GL Management Agency Sdn. Bhd. pursuant to Section 6A of the Companies Act Conflict of Interest All Directors have no family relationship with each other or major shareholders of PGHB. They have no conflict of interest in PGHB. Conviction of Offences All Directors have no convictions of offences within the past 10 years. Attendance at Board Meetings The attendance of the Directors is disclosed in the Corporate Governance Statement on page 24 of the Annual Report 2016.

8 6 Pantech Group Holdings Berhad ( W) EXECUTIVE CHAIAN S STATEMENT Dear Shareholders, This year, Pantech Group marks a decade as a public listed company. It has been a journey of growth, challenges and achievements shared with our loyal shareholders.

9 Annual Report EXECUTIVE CHAIAN S STATEMENT I am honoured to be able to report another profitable performance for Pantech Group Holdings Berhad, for the financial year ended, despite the numerous events that rocked the equity market, especially oil and gas related companies witnessed collapse in oil prices and the aftershocks were felt throughout world. The tremors reverberated throughout the financial market when energy related stocks tumbled. With reduced risk appetite, capex were slashed and cost cutting measures became the norm for the period under review. Such dark clouds of uncertain economic outlook proved to be a test for every level of management and companies. Pantech Group turned in a revenue of million and profit before tax (PBT) of million for the financial year ended (FYE 2016) and it was a commendable performance in the face of such headwinds. This result was attained through the grit of the team who had the steely determination to probe for sales in the RAPID projects from the preceding years. While FYE 2016 group performance was comparatively lower by 2.37% and 9.58% in revenue and PBT respectively against the financial year ended 28 February 2015, it stands out among its peers in the industry. Business was more competitive and pricing was pressured, while expectations rose, causing margins to narrow. Business in both the Trading and Manufacturing divisions were sustained with Trading registering an increase of 6.63% whilst sales at Manufacturing division declined 14.15%. Despite the lacklustre international market, Pantech Group continues to have product presence in 67 countries with Malaysia continuing to be our main market for the period under review. Our reputation as a reliable supplier of pipes, valves and fittings (PVF) as well as strong foothold and understanding of the Malaysian market, which was built over the years, have helped Pantech Group to establish a constant presence in tenders. Coupled with stringent financial management, the efforts have given rise to a strong balance sheet and good cash flow. Even in such challenging times, our prudence has enabled Pantech Group to be in a position to establish a new hotdip galvanising facility. This process that will create a new product line that has a cost saving advantage in corrosion protection. The Group holds 51 percent in this subsidiary company, Pantech Galvanising Sdn. Bhd., and the balance 49 percent is held by minority shareholders with established commercial presence in Johor. Operations for Pantech Galvanising is expected to commence by December this year. Our approach to any venture is on the side of caution and will remain so in the face of market uncertainty and fluctuating currency. Inventory value was reduced to million but the inventory items have remained the same at about 30,000 items, in line with our One Stop Centre value proposition. We continue to have a firm grip on the financials of the group and seek to extract best returns from all our asset class. Even while we brace ourselves for the daunting year ahead, our financial prudence has put us in the position to reward loyal shareholders once again this year. Upon the approval by shareholders at the 10th Annual General Meeting, the total dividend payout will amount to approximately million or 43.6% of our profit after tax, including share dividend reward from our 6.10 million treasury shares. CORPORATE GOVERNANCE As doing business becomes tougher and compounded by unfavourable market conditions and weak sentiments in the oil and gas industry, it is easy to fall prey to unethical practices in the desire to return a positive year. Pantech Group vigilantly upholds integrity, doing business the ethical way while balancing the interest of stakeholders. The trustworthiness earned over the years is an asset that we guard watchfully. Our corporate governance statement and reports are on page 18 to 27. ACKNOWLEDGEMENT Throughout the last 29 years of operations, of which ten were as a public listed company, we are regularly reminded that it is the belief of shareholders, foresight of the directors and management, the hard work of the team and most of all, the confidence of customers in us that have brought us through. I would like to express my deepest appreciation to all stakeholders who have put their faith in us. The last financial year was a period of working doubly harder and belt tightening, a path which our team will continue as we brace for another tough year ahead as oil prices are projected to remain low in the coming year. Dato Chew Ting Leng ( Jimmy) Executive Chairman

10 8 Pantech Group Holdings Berhad ( W) MANAGEMENT DISCUSSION AND ANALYSIS The financial period of 1 March 2015 to under review was an extremely challenging season for Pantech Group Holdings Berhad. The full impact of the unsettling oil price which tumbled at the end of 2014 was felt during this period. It was a time when oil and gas players cut back on capital expenditure, taking on a subdued stance as economists and researchers reported that the price of crude is expected to remain low in the near future. Faced with such dim outlook, Pantech Group challenged ourselves to continue returning a profitable year. FINANCIAL Pantech Group was able to harvest from the groundwork laid for inroads into tenders and contracts at Refinery and Petrochemical Integrated Development (RAPID) over the last two years. The focus on RAPID was also an insightful move towards servicing downstream industries whereas previously sales had come very largely from upstream oil and gas activities. This helped the Group to return a group performance of million in revenue and million in Profit Before Tax (PBT) for FYE2016. Profit After tax (PAT) stood at million. Overall, for the financial year ended, group revenue declined by million or 2.4% and group PBT decreased by 5.63 million or 9.6% compared to FYE2015 s revenue of million and PBT of million respectively. Correspondingly, PAT margin had decreased from approximately 8.2% to 7.4% year-on-year. Profitability came under severe pressure arising from competitive pricing from international players faced by the group both domestically and overseas, and the result was reflected in the profit margins. The weakened sales was due to lower contribution from Manufacturing, which felt the impact of weaker demand from oil and gas sector, international competition and lower product prices. However, the improved performance from the Trading division which benefited from RAPID projects lessened the reduced demand in the manufacturing division. For FYE2016, Trading recorded million or 6.6% higher revenue of million as compared to FYE2015 revenue of million. In line with the increased revenue, segment profit before finance cost and interest income for Trading also rose by 1.56 million or 5.0% from FYE2015 for this financial year. Sales at the Manufacturing division came in at million, which was million or 14.2% lower than the sales recorded for FYE2015. The decline in revenue contribution from the Manufacturing division was attributable to lessened production brought about by weak global demand. Sales at Nautic also declined as international demand slowed and compounded by strong pound sterling. The drop in revenue also translated to a correspondingly pressured segment profit before finance cost and interest income for Manufacturing which stood at million, a decrease in margin from approximately 17.6% to 15.6% year-on-year. The challenging market scenario was exacerbated by the squeeze on pricing by customers and rising cost of business in particular higher material costs. All these factors ate into our gross profit by one percentage, bring it from FYE2015 s gross profit margin of 24.1% to 22.9% this year. The management reevaluated the financing arrangements, applying stricter cost control and cost cutting measures including insurance rationalisation. The belt tightening extended to working capital and loan management, which resulted in million or 25.7% reduction in borrowings, down to million as at FYE2016 from FYE2015 s million. Under a more circumspect approach to financial management, we also strengthened the receivables management and managed to reduce our receivables from FYE2015 s million to million this financial year. In terms of inventory management, the group reduced inventory holdings to million, down million from FYE2015 s million. This was an exercise in prudence in consideration of uncertain business environment. The stringent measures undertaken enabled our NTA per share to rise 0.05 to 0.83 from FYE on the back of stronger non-current assets. Dividend Our ability to be resilient in a growingly challenging market and turn in profitable performance year after year is also without doubt attributable to loyal shareholders who have put trust in the management to drive the strategy and business. Even as we proceed with caution, we believe in rewarding our loyal shareholders. In view of the current market situation, the Board of Directors has taken a measured approach of balancing rewarding loyal shareholders with conserving cash in order to enable Pantech Group to develop accordingly in anticipation of market direction. Thus, Pantech Group has to-date paid out three tiers of cash dividends for FY2016: First interim dividend of 0.5 sen per ordinary share was paid on 22 October 2015, the payout amounted to 3.08 million Second interim dividend of 0.6 sen per ordinary share was paid on 14 January 2016, with the total payout of 3.68 million Third interim dividend of 0.5 sen per ordinary share was paid on 15 April 2016 and the total cash payout came up to 3.06 million

11 Annual Report MANAGEMENT DISCUSSION AND ANALYSIS We have also proposed for shareholders approval at the 10th Annual General Meeting, a final single tier cash dividend of 0.5 sen per ordinary share of 0.20 each and a share dividend distribution of approximately 6.10 million treasury shares on the basis of 1 treasury share for every 100 existing ordinary shares of 0.20 each. Upon approval by shareholders, this dividend payout will bring the total dividend for FY2016 to approximately 2.7 sen or million, translating to a payout ratio of 43.6%. OPERATIONS New subsidiary for hot-dip galvanising On 29 Sept 2015, Pantech Group entered into a 51:49 joint venture agreement with Euromech Machinery Sdn. Bhd., which resulted in the incorporation of Pantech Galvanising Sdn. Bhd. on 13 October 2015, and currently has a paid up capital of 20 million. Pantech Group holds 51% equity with 10.2 million shares of 1.00 each. This move is in line with our strategy to supply value-added products. Works are underway to enable us to hot-dip galvanise our pipes and fittings specific to our customers requirements - providing a value-add service with cost saving solution in corrosion protection while enhancing our One Stop Centre advantage. Commencement of operations at Pantech Galvanising Sdn. Bhd. is anticipated to be in December 2016, with revenue contribution coming on stream for our FY2017. Warehouse Changes took place at the warehouse in Pengerang, where it was trimmed down by hectares, the portion was requisitioned by the Johor State Government. Our land parcel near Sungai Rengit is now hectares in size and houses an off-site office to provide customers in Pengerang with faster response. The new warehouse on a six-acre site which is part of the 26-acre plot that houses our consolidated operations and head office in Zon 12B in Pasir Gudang Industrial Area, has been completed and is now fully utilised by Pantech Stainless and Alloy Industries Sdn. Bhd. Manufacturing & Capacities Capacity at Pantech Steel Industries Sdn. Bhd., Pantech Stainless & Alloy Industries Sdn. Bhd. and Nautic Steels remained, unchanged at 21,000, 14,400 and 800 metric tonnes respectively. Due to shrunken global demand, output was moderated to 70%, 80% and 60% accordingly for each of the manufacturing plants. We will continue the ongoing focus of increasing operation efficiency at the manufacturing side. MARKET The market for Pantech Group pipes, valves and fittings (PVF) remain a global one despite the depressed market worldwide. Our reputation as a One Stop Centre that has the expertise and experience to support the fluid transmission requirements of customers at their demand level, was built over 29 years. It is a position that holds us in good stead when competing for contracts, as exemplified by the contracts won for supply to RAPID projects. Under the current tough business environment, it is hence all the more important that we continue to maintain market presence. In 2015, Pantech Group was highly selective of the exhibitions that we chose to invest in to meet and exchange ideas with industry players and be kept abreast of developments in the oil and gas industry. Balancing expenses with the need to continue marketing effort, Pantech Group was present at the Tube Southeast Asia 2015 exhibition in Bangkok, Thailand, where we communicated our value proposition while strengthening ties with customers and prospects. OUTLOOK AND PROSPECTS The international oil price remains low currently and we are cautious with challenges faced by this industry in Malaysia and the region. On the international front, we do not see significant changes in the fortunes of the oil and gas industry, causing demand to remain dull. On the domestic front, the announcement by Petronas of slashing 50 billion in capital expenditure and operating expenditure over the next four years had put many players on tenterhooks. The Group will prudently continue to focus and expand on existing revenue generating business and seek opportunities to grow, both locally and overseas. As we charily expand our capacity as the major PVF solutions provider to the oil and gas sector for both upstream and downstream, we are also hunkered down to take on the onslaughts of poor market sentiments. We are positive on the long term outlook in particular with the continuous development of the RAPID projects and associated facilities in Johor. As we brace ourselves for the coming uncertainties, we hope to return another profitable year on the back of sustained maintenance orders and harvesting on supply contracts that Pantech Group has tendered.

12 10 Pantech Group Holdings Berhad ( W) CORPORATE SOCIAL RESPONSIBILITY No act of kindness, no matter how small, is ever wasted. - Aesop The Pantech Group understands that the long-term success of any business cannot be determined by its profitability bottom-line concerns alone and that corporations can no longer operate detached from society and its concerns. With this in mind, the Group is fully committed to its Corporate Social Responsibility (CSR) programs, highlighting accountability to its stakeholders and their well-being, in particular to its employees and the community at large. WORKPLACE SAFETY As with previous years, the focus of Pantech Group s CSR activities in FY2016 was on its workforce; the Group cared for its most valuable assets, its employees, by providing them with workplace safety training activities to increase their situational awareness and equip them with new skills. Emergency Response Training (ERT) training sessions were conducted throughout the year at various subsidiaries by Jabatan Bomba dan Penyelamat Malaysia (BOMBA) to teach employees how to use fire-fighting equipment such as fire hydrant hose and extinguisher, as well as what to do during an emergency. Some of the sessions were led by external trainer, educating employees on emergency response and rescue in situations involving electricity, chemical spillage and fire. Programs to raise health and safety awareness were also organised with the aim of improving the protection and wellbeing of machine operators in the workplace. Personal Protective Equipment (PPE) and Hazard at Workplace Trainings were conducted to improve PPE awareness as well as highlighting the potential hazards. There was also a Safety in Handling Forklift Truck Training to improve safety awareness among forklift operators. In addition, an Audiometric Test was conducted for factory workers to determine their hearing levels as well as to recommend action to prevent hearing problems among the employees.

13 Annual Report CORPORATE SOCIAL RESPONSIBILITY WORKPLACE RECOGNITION CARING FOR THE COMMUNITY Back to School In November and December 2015, Pantech Corporation Sdn. Bhd., Pantech Stainless & Alloy Industries Sdn. Bhd., Pantech (Kuantan) Sdn. Bhd. and Pantech Steel Industries Sdn. Bhd. (PSI) once again provided a helping hand to their employees with vouchers to buy uniforms and bags for their school-going children. Pantech Group extended this simple but meaningful assistance to employees for the eighth consecutive year; a timely support when family budgets have been stretched tight by rising costs of living. Pantech Group understands that the true measure of success is not merely by how much wealth is accumulated but also by how that wealth is used with compassion to care for those less fortunate in the community. With this in mind, the Group continues to care for those who have fallen on hard times whether it is due to economic or medical reasons. The Group via PSI has maintained contributions to support a grandmother in Klang who is caring for her five orphaned grandchildren, as well as provided meals to another poor family, a mother with three children, who was unable to work due to an accident. Appreciation - Pantech Group recognises that the success of the company depends on its employees and in appreciation of their valuable contribution, the Group celebrated its employees over Appreciation Dinners in Johor and Klang. The dinners were the perfect occasion for employees from various departments to get to know one another better. Also not forgotten were the Group s migrant workers in production; they were treated to a warm and welcoming dinner to show appreciation for their hard work here in Malaysia. As the Pantech Group grows from strength to strength, it will do so by ensuring that their employees and the community at large will also benefit from this growth by its continued appreciation and support. This underscores its unfailing commitment to being known not only for its top quality products and people, but also for the Group s integrity, character and compassionate concern for its stakeholders and society at large.

14 12 Pantech Group Holdings Berhad ( W) CORPORATE EVENTS Tube Southeast Asia September 2015 Bangkok, Thailand Offshore Technology Conference Asia (OTC) Exhibition March 2016 Kuala Lumpur Convention Centre, Malaysia

15 Annual Report CORPORATE EVENTS International Tube & Pipe Trade Fair 4-8 April 2016 Fairground Dusseldorf, Germany Green Energy Asia & Tenaga rd - 25 April 2016 Kuala Lumpur Convention Centre, Malaysia

16 14 Pantech Group Holdings Berhad ( W) AUDIT COMMITTEE REPORT The primary objective of the Audit Committee is to assist the Board in the effective discharge of its fiduciary responsibilities for corporate governance, financial reporting process and internal control system. The Audit Committee have adopted practices aimed at maintaining appropriate standards of responsibility, integrity and accountability to all the Company s shareholders. MEMBERSHIP The Audit Committee is appointed by the Board and comprises exclusively of Independent Non-Executive Directors:- Chairman Mr. Tan Sui Hin : Senior Independent Non-Executive Director Members Tuan Haji Yusoff Bin Mohamed Mr. Loh Wei Tak : Independent Non-Executive Director : Independent Non-Executive Director MEETINGS There were five (5) Audit Committee meetings held during the financial year The details of attendance of Committee members are as follows:- Name of Committee Members Designation Attendance Mr. Tan Sui Hin Chairman 5/5 Tuan Haji Yusoff Bin Mohamed Member 5/5 Mr. Loh Wei Tak Member 5/5 SUMMARY OF ACTIVITIES OF THE AUDIT COMMITTEE In line with the Terms of Reference of the Audit Committee, the following activities were carried out by the Audit Committee during the financial year ended in discharging its functions and duties:- a) Reviewed the External Auditors scope of work and audit plans for the financial year under review; b) Reviewed the results of audit and the audit report; c) Reviewed and approved the Internal Audit Plan and the Internal Audit Report; d) Reviewed the quarterly and annual financial statements of the Group prior to submission to the Directors for their perusal and approval. This was to ensure compliance of the financial statements with the provisions of the Companies Act, 1965, Malaysian Financial Reporting Standards, International Financial Reporting Standards and applicable Listing Requirements of Bursa Malaysia Securities Berhad; e) Reviewed the audit memorandum plan; f) Reviewed the independence and competence of the external auditors; g) Considered and recommended to the Board the re-appointment of External Auditors and their fees; and h) Reviewed the related party transactions and conflict of interest situation that may arise within the Company and its subsidiary companies including any transaction, procedure or course of conduct that raises questions of management integrity.

17 Annual Report AUDIT COMMITTEE REPORT INTERNAL AUDIT FUNCTION The Group has an in-house internal audit function and supported by an independent professional consulting firm to assist the Audit Committee in discharging their responsibilities and duties. The role of the internal audit function is to undertake independent, regular and systematic reviews of the system of internal controls so as to provide reasonable assurance that such systems continue to operate satisfactory and effectively. The professional fee and other cost incurred in respect of the internal audit function for the financial year ended 29 February 2016 was 206,332. The detail of internal audit functions during the period under review is stated in the Statement on Risk Management and Internal Control of this Annual Report. During the period under review, the Internal Auditors carried out the following activities:- a) Presented and obtained approval from the Audit Committee the annual internal audit plan, its audit strategy and scope of audit work; b) Performed audits according to the annual internal audit plan, to review the adequacy and effectiveness of the internal control system, compliance with policies and procedures and reported ineffective and inadequate controls and made recommendations to improve their effectiveness; and c) Performed follow-up reviews in assessing the progress of the agreed management s action plans and report to the management and Audit Committee.

18 16 Pantech Group Holdings Berhad ( W) STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL The Malaysian Code on Corporate Governance stipulates that the Board of Directors of a listed company should establish a sound risk management framework and internal control system to safeguard shareholders investment and the Company s assets. The system of risk management and internal control covers not only financial controls but operational and compliance controls as well. This Statement on Risk Management and Internal Control is made pursuant to paragraph 15.26(b) of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad. Pursuant to Paragraph of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad, the Group has requested that the external auditors to review this Statement on Risk Management and Internal Control in accordance with Recommended Practice Guide ( RPG ) 5 issued by the Malaysian Institute of Accountants. The Board is pleased to note that external auditors find this Statement to be consistent with their understanding of the risk management and internal control processes implemented by the Group during their review. BOARD RESPONSIBILITY The Board acknowledges its overall responsibility for the Group s risk management and internal control system and has in place an on-going process for identifying, evaluating and managing the significant risks faced by the Group in its achievement of business objectives and strategies during the financial year and up to the date of approval of this statement for inclusion in the annual report. The risk management and internal control system are designed to manage, rather than eliminate the risk that may impede the achievement of the Group s business objectives and strategies. Due to the inherent limitations of internal controls, the system can only provide reasonable but not absolute assurance against material misstatement, loss or fraud. The Board also takes into consideration the need to balance the business risks and the potential returns to stakeholders in its daily operations, with the dynamic business climate it operates in. The Board recognises the need for a concerted effort from the management, head of department and senior staff members in ensuring that the integrity, effectiveness and adequacy of the control mechanism are monitored and maintained throughout the financial period. ENTERPRISE RISK MANAGEMENT FRAMEWORK During the financial year, the Group monitored significant risks and implement risk mitigation strategies on an ongoing basis through its Executive Directors, management and Risk Management Committee ( C ) within its risk appetite. The Board has set up a Risk Management Committee ( C ) which comprises of Executive Directors and Senior Management of the Group. Executive Directors, senior management personnel and Departmental Heads are responsible for assessing and managing the risks of their respective business units, operational units and departments. Significant issues and risks are discussed during Executive Group Directors Meeting and management meetings which are attended by Executive Directors and senior management personnel. This process has been in place during the year under review and up to the date of approval of this statement for inclusion in the annual report. INTERNAL AUDIT FUNCTION The Group has an in-house internal audit function and supported by an independent professional firm, both report directly to the Audit Committee on its findings and recommendations for improvements. An internal audit charter and internal audit plan has been submitted and approved by the Audit Committee. For the financial year under review, the internal auditors have carried out their review according to the approved internal audit plan. The review covered the assessment on the adequacy and effectiveness of the Group s risk management and internal control system. Upon completion, the internal audit observations, recommendations and management comments were reported to the Audit Committee. The Audit Committee reviews internal control matters and updates the Board on significant issues for the Board s attention and action. Total cost incurred for the internal audit function in respect of the financial year ended was 206,332.

19 Annual Report STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL KEY ELEMENTS OF THE GROUP S INTERNAL CONTROL SYSTEM The key elements of the Group s internal control system comprise the following:- Responsibilities of the Board and management are defined to ensure effective discharge of roles and responsibilities; The Board and the Audit Committee meet every quarter to discuss matter(s) raised by Management and/or Internal Audit on business and operational matters including potential risks and control issues; The Board has established and documented a Schedule of Matters Reserved for the Board to facilitate the effective reporting and operation of the Board at regular Board meeting. Major capital investment, acquisition, disposals or any other transaction that are not in the ordinary course of business exceeding a certain threshold must be referred to the Board for approval; Management reports to the Board on material findings and/or variances, if any, and the Board will review their implications to the Group and advise accordingly; Annual budgeting process is in place and performance is monitored on an ongoing basis; Senior Management attends management meetings on a regular basis to address budgets, operational and financial performance, business planning, control environment and other key issues; Key personnel from respective subsidiaries provide monthly reports to the corporate office on the subsidiaries performance; Communication channels have been established between subsidiaries, business units, divisions and employees through internal memorandums, staff briefings and operational meetings to achieve the Group s overall business objectives; Close and active involvement of the Executive Directors on the day-to-day business operations of the Group; Health, Safety and Environmental Committee has been established in order to review and ensure compliance with occupational safety and health policies and procedures on a continuous basis; and System access controls are established to ensure the information systems are duly safeguarded and secured from unauthorised access. Regular review on user access rights for the Enterprise Resource Planning Systems is also in place. CONCLUSION In reviewing the risk management and internal control system of the Group, the Board has, through the Audit Committee, received reports from External Auditors and Internal Auditors in relation to the findings on risk and internal audit control system. The Board has also received reasonable assurance from the Group Managing Director and Chief Financial Officer that the Group s risk management and internal control system is operating adequately and effectively, in all material respects. No major weaknesses in the internal control system were noted that may have resulted in any material losses, contingencies or uncertainties that would require disclosure in the Group s annual report. The Board is of the opinion that the risk management and internal control system in place is adequate and effective at its current level of operations and will continuously strive to enhance the Group s risk management and internal control system in safeguarding stakeholders interest, shareholders investment and Group s assets.

20 18 Pantech Group Holdings Berhad ( W) CORPORATE GOVERNANCE STATEMENT The Board of Directors ( the Board ) of Pantech Group Holdings Berhad ( Pantech or the Company ) recognises and subscribes to the importance of the principles and recommendations set out in the Malaysian Code on Corporate Governance 2012 ( the Code ) as a key factor towards achieving an optimal governance framework and process in managing the business and operational activities of the Company and its subsidiaries ( the Group ). The Board believes that good corporate governance practices are pivotal towards enhancing business prosperity and corporate accountability with the ultimate objective of realizing long-term shareholder value, whilst taking into account the interests of other stakeholders. Hence, the Board is fully dedicated to continuously appraise the Group s corporate governance practices and procedures to ensure that the principles and recommendations in corporate governance are applied and adhered to in the best interests of the stakeholders. The Statement below sets out the manner in which the Group has applied the principles of the Code and the extent of compliance with recommendations advocated therein. PRINCIPLE 1 - ESTABLISH CLEAR ROLES AND RESPONSIBILITIES OF THE BOARD AND MANAGEMENT The Board recognises the key role it plays in charting the strategic direction of the Company and has assumed the following principal responsibilities in discharging its fiduciary and leadership functions: reviewing and adopting a strategic plan for the Company, addressing the sustainability of the Group s business; overseeing the conduct of the Group s business and evaluating if its businesses are being properly managed; identify principal business risks faced by the Group and ensuring the implementation of appropriate internal controls and mitigating measures to address such risks; ensuring that all candidates appointed to senior management positions are of sufficient calibre, including the orderly succession of senior management personnel; overseeing the development and implementation of a shareholder communications policy, including an investor relations programme for the Company; and reviewing the adequacy and integrity of the Group s internal control and management information systems. To assist in the discharge of its stewardship role, the Board has established Board Committees, namely the Audit Committee, Nomination Committee, Remuneration Committee and Risk Management Committee, to examine specific issues within their respective terms of reference as approved by the Board and report to the Board with their recommendations. The ultimate responsibility for decision making, however, lies with the Board. SCHEDULE OF MATTERS RESERVED FOR THE BOARD The following matters (including changes to any such matters) require approval from the Board of Directors, except where they are expressly delegated to a Committee of the Board:- (A) Strategy and Management 1. Responsibility for the overall strategic direction and strategic plans for, and the overall management of, Pantech and its subsidiaries (the Group ). 2. Approval of the Group s long-term objectives and sustainability strategy. 3. Approval of the annual operating and capital expenditure budgets and any material changes thereto. 4. Review of performance in the light of the Group s strategy, objectives, business plans, borrowings from financial institution, budgets and ensuring that any necessary corrective action is taken.

21 Annual Report CORPORATE GOVERNANCE STATEMENT PRINCIPLE 1 - ESTABLISH CLEAR ROLES AND RESPONSIBILITIES OF THE BOARD AND MANAGEMENT SCHEDULE OF MATTERS RESERVED FOR THE BOARD (A) Strategy and Management 5. Oversight of the Group s operations ensuring: (a) (b) (c) (d) (e) competent and prudent management sound planning adequate system of internal control adequate accounting and other records compliance with statutory and regulatory obligations 6. Expansion of the Group s activities into new business or geographical areas. 7. Decision to cease to operate all or any material part of the Group s business or to cease to operate in any country that would result in the Group no longer having a presence in that country. 8. Any matters materially affecting the Group s overall reputation, including its brand and values. (B) Structure and Capital 1. Changes relating to Group s capital structure including: (a) (b) (c) (d) share split, capital reduction, issuance of unsecured securities new share issues (except pursuant to approved option scheme) share buy-back (including the disposal/use of treasury shares) establishment of employees share and/or performance option scheme(s) 2. Changes to the Group s corporate structure or creation or liquidation of subsidiary/joint venture. 3. Any changes to Pantech s listing status or matters affecting Pantech s listing status. (C) Financial Reporting and Controls 1. Approval of the announcements of the interim and final results. 2. Approval of Pantech s audited financial statements and annual report. 3. Approval of any significant changes in accounting policies or practices. 4. Approval of significant treasury policies, including policies on foreign currency exposure and use of financial derivatives. 5. Approval of dividend policy, declaration of interim dividend and recommendation of final dividend. (D) Investment 1. Approval of major investment proposal, such as expansion of the Group s activities into new business, acquisitions, disposals and other contractual commitments entered into by Group (not in the ordinary course of business). (E) Financial 1. Approval of Group capital expenditure and commitment that is anticipated to exceed or has exceeded the threshold of 5 million. 2. Approval of bank borrowings and pledging of any asset in excess of the thresholds, and corporate guarantees of any amount granted by Pantech in favour of financial institutions or third parties.

22 20 Pantech Group Holdings Berhad ( W) CORPORATE GOVERNANCE STATEMENT PRINCIPLE 1 - ESTABLISH CLEAR ROLES AND RESPONSIBILITIES OF THE BOARD AND MANAGEMENT SCHEDULE OF MATTERS RESERVED FOR THE BOARD (F) Communication 1. Approval of resolutions and corresponding documentation to be put forward to shareholders at a general meeting. 2. Approval of all circulars, prospectuses and listing particulars. (G) Board Membership and Other Appointments 1. Consider recommendations from the Nomination Committee on changes to the structure, size and composition of the Board (including appointment, re-designation, resignation and removal). 2. Establishment of Board committees, membership and terms of reference. 3. Review the continuation in office of directors at the end of their term of office, when they are due for retirement by rotation and consider recommendation of Nomination Committee on the continuation of office of directors. 4. Appointment or removal of Company Secretary. 5. Appointment, reappointment or removal of external auditors and determination of their remuneration, upon recommendation from the Audit Committee. (H) Remuneration 1. Review and approve the remuneration package for the Chairman/Group Managing Director and Executive Directors upon recommendation from Remuneration Committee. 2. Recommend Directors fees for the Non-Executive Directors, subject to the Articles of Association and shareholders approval as appropriate. (I) Internal Controls and Governance 1. Review of the Group s internal controls and risk management, including the effectiveness of the system of internal controls, and consider significant risk issues referred to it. 2. Review of the Group s compliance with the Code on Corporate Governance. 3. Approve prosecution, defence and settlement of major litigation involving more than 10% of the Group s latest audited net profit or otherwise material to the interests of the Group. 4. Review of the performance of the Board, its Committees and individual Directors. 5. Development of sustainability terms and succession plan. Board Charter The Board had formalized and approved the Board Charter. The Board Charter will be reviewed as and when to ensure that it remains consistent with the Board s objectives and best practices. The Board Charter can be accessed at the Company s website at Code of Ethics and Whistleblowing Policy The Board has finalized and approved the Code of Ethics and Whistleblowing policy. They can be accessed at the Company s website at

23 Annual Report CORPORATE GOVERNANCE STATEMENT PRINCIPLE 1 - ESTABLISH CLEAR ROLES AND RESPONSIBILITIES OF THE BOARD AND MANAGEMENT Sustainability of Business The Board is mindful of the importance of business sustainability in conducting the Group s business and the impact on the environmental, social, health and safety, staff welfare and governance aspects are taken into consideration. The Board takes heed of go green and energy saving by implement several measures on sustainability. The Board actively reviews the Group business plan for diversification. Supply of, and Access to, Information The Board is supplied with relevant information and reports on financial, operational, corporate, regulatory, business development and audit matters, by way of Board reports or upon specific requests, for decisions to be made on an informed basis and effective discharge of Board s responsibilities. Good practices have been observed for timely dissemination of meeting agenda, including the relevant Board and Board Committee papers to all Directors prior to the Board and Board Committee meetings, to give effect to Board decisions and to deal with matters arising from such meetings. The Executive Directors and/or other relevant Board members furnish comprehensive explanation on pertinent issues and recommendations by Management. The issues are then deliberated and discussed thoroughly by the Board prior to decision making. In addition, the Board members are updated on the Company s activities and its operations on a regular basis. All Directors have access to all information of the Company on a timely basis in an appropriate manner and quality necessary to enable them to discharge their duties and responsibilities. Senior Management of the Group and external advisers are invited to attend Board meetings to provide additional insights and professional views, advice and explanations on specific items on the meeting agenda. Besides direct access to Management, Directors may obtain independent professional advice at the Company s expense, if considered necessary, in furtherance of their duties. Directors have unrestricted access to the advice and services of the Company Secretary to enable them to discharge their duties effectively. The Board is regularly updated and advised by the Company Secretary who is qualified, experienced and competent on statutory and regulatory requirements, and the resultant implications of any changes therein to the Company and Directors in relation to their duties and responsibilities. The Company Secretary, who oversees adherence with board policies and procedures, briefs the Board on the proposed contents and timing of material announcements to be made to regulators. The Company Secretary attends all Board and Board Committees meetings and ensures that meetings are properly convened, and that accurate and proper records of the proceedings and resolutions passed are taken and maintained accordingly. The removal of Company Secretary, if any, is a matter for the Board, as a whole, to decide. PRINCIPLE 2 - STRENGTHEN COMPOSITION OF THE BOARD As at the date of this report, the Board consists of eight (8) members, comprising of an Executive Chairman who is also the Group Managing Director, one (1) Group Deputy Managing Director, three (3) Executive Directors and three (3) Independent Non-Executive Directors. This composition fulfills the requirements as set out under the Listing Requirements of Bursa Malaysia Securities Berhad ( Bursa ), which stipulate that at least two (2) Directors or one-third of the Board, whichever is higher, must be Independent. The profile of each Director is set out in this Annual Report. The Directors, with their differing backgrounds and specializations, collectively bring with them a wide range of experience and expertise in areas such as finance; accounting and audit; corporate affairs; and marketing and operations. Nomination Committee Selection and Assessment of Directors A Nomination Committee has been established, with specific terms of reference, by the Board, comprising exclusively Independent Non-Executive Directors as follows: Chairman Mr. Loh Wei Tak Independent Non-Executive Director Members Mr. Tan Sui Hin Tuan Haji Yusoff Bin Mohamed Senior Independent Non-Executive Director Independent Non-Executive Director