BANENG HOLDINGS BHD ( W)

Transcription

1 Annual Report 2003

2 BANENG HOLDINGS BHD ( W)

3 CONTENTS 2 Notice of Annual General Meeting 4 Statement Accompanying the Notice of AGM 5 Corporate Information 6 Corporate Structure 7 Profile of Directors 11 Chairman s Statement 13 Corporate Governance Statement 17 Statement of Directors Responsibilities for Preparing the Financial Statements 18 Statement on Internal Control 20 Audit Committee Report 23 Other Information Required by the Listing Requirements of Bursa Malaysia Securities Berhad 25 Financial Statements 57 List of Properties 58 Analysis of Shareholdings 61 Form of Proxy

4 NOTICE OF ANNUAL GENERAL MEETING NOTICE BE AND IS HEREBY GIVEN that the Ninth Annual General Meeting of the Company will be held at Diamond Room, Level 2, Katerina Hotel, 8 Jalan Zabedah, Batu Pahat, Johor on Saturday, 26 June, 2004 at 2.30 p.m. to consider the following purposes:- AGENDA 1. To receive and adopt the Audited Financial Statements for the financial year ended 31 December, 2003 together with the Directors and Auditors Reports thereon. 2. To approve the payment of Directors fee for the financial year ended 31 December, Resolution 1 Resolution 2 3. To re-elect the following retiring Directors who retire by rotation and being eligible, offer themselves for re-election in accordance with the Article 101(a) of the Company s Articles of Association:- i) Mr. Lim Meng Hee ii) Dr. Ng Soon Lim 4. To re-elect the retiring Director, Mr. Chai Koh Wah who retires and being eligible, offer himself for re-election in accordance with the Article 102(c) of the Company s Articles of Association. 5. To re-appoint Messrs Ernst & Young as Auditors of the Company for the financial year ending 31 December, 2004 and to authorise the Directors to fix the Auditors remuneration. Resolution 3 Resolution 4 Resolution 5 Resolution 6 6. As special business:- To consider and if thought fit, to pass with or without modifications, the following resolutions:- ORDINARY RESOLUTION Authority To Issue Share Pursuant To Section 132D of the Companies Act, 1965 That subject always to the Companies Act, 1965, the Articles of Association of the Company and the approvals of the relevant government/regulatory authorities, the Directors be and are hereby authorized, pursuant to Section 132D of the Companies Act, 1965, to allot and issue shares in the Company at any time until the conclusion of the next Annual General Meeting of the Company and upon such terms and conditions and for such purposes as the Directors may, in their absolute discretion, deem fit provided that the aggregate number of shares to be issued pursuant to this resolution does not exceed 10% of the issued capital of the Company for the time being and that the Directors are also empowered to obtain the approval from Bursa Malaysia Securities Berhad (formerly known as Malaysia Securities Exchange Berhad) for the listing of and quotation for the additional shares to be issued. Resolution 7 2 BANENG HOLDINGS BHD ( W)

5 NOTICE OF ANNUAL GENERAL MEETING SPECIAL RESOLUTION Proposed Amendments to the Articles of Association That subject to the approval of Bursa Malaysia Securities Berhad (formerly known as Malaysia Securities Exchange Berhad) pursuant to Article 147 of the Company s Articles of Association, Article 1 of the Company s Articles of Association be amended by deleting the following existing definition in entirety and to adopt the new definition:- Existing definition New definition Exchange means Kuala Lumpur Exchange means Bursa Malaysia Securities Stock Exchange (30632P) Berhad (formerly known as Malaysia Securities Exchange Berhad) Resolution 8 7. To transact any other ordinary business of which due notice has been given in accordance with the Companies Act, By Order Of The Board TEO SOON MEI (MAICSA ) Company Secretary Melaka Dated: 3 June, 2004 Explanatory Notes On Special Business 1. The Ordinary Resolution proposed under item 6 above, if passed, will empower the Directors to issue shares up to 10% of the issued capital of the Company for the time being for such purposes as the Directors may consider to be in the interest of the Company. This authority, unless revoked or varied by the Company in a general meeting, will expire at the conclusion of the next Annual General Meeting of the Company, or the expiration of period within which the next Annual General Meeting is required by law to be held, whichever is earlier. 2. The proposed adoption of the Special Resolution under item 6 above is in line with the demutualization of Kuala Lumpur Stock Exchange. NOTES: 1. A member of the Company who is entitled to attend and vote at the meeting is entitled to appoint more than two proxies to attend and vote in his stead and he shall specify the proportion of his shareholdings to be represented by each proxy. A member may appoint any person to be his proxy without limitation and the provision of Section 149(1)(b) of the Companies Act, 1965 shall not apply to the Company. 2. Where a member is an authorised nominee as defined under the Securities Industry (Central Depository) Act, 1991, it may appoint more than (1) proxy in respect of each securities account it holds with ordinary shares of the Company standing to the credit of the said securities account. 3. The instrument appointing a proxy must be in writing under the hand of the appointor or of his attorney duly authorised in writing or, if such appointor is a corporation, either under its common seal or under the hand of an officer or attorney duly authorised. 4. The instrument appointing a proxy, together with the power of attorney (if any) or other authority (if any) under which the instrument is signed or a notarially certified copy of that power or authority shall be deposited at the Registered Office of the Company at Lot /2 Miles, Jalan Tanjung Laboh, Batu Pahat, Johor not less than 48 hours before the time for holding the meeting or otherwise the instrument appointing the proxy will not be treated as valid. BANENG HOLDINGS BHD ( W) 3

6 STATEMENT ACCOMPANYING THE NOTICE OF ANNUAL GENERAL MEETING PURSUANT TO PARAGRAPH 8.28(2) OF THE LISTING REQUIREMENTS OF THE BURSA MALAYSIA SECURITIES BERHAD (FORMERLY KNOWN AS MALAYSIA SECURITIES EXCHANGE BERHAD) Details of the particulars of all the retiring Directors namely, Mr. Lim Meng Hee, Dr. Ng Soon Lim and Mr. Chai Koh Wah are set out in pages 8 to 10 of the Annual Report of the Company for the Financial year ended 31 December DIRECTORS STANDING FOR RE-ELECTION Directors who are retiring and standing for re-election at the Ninth Annual General Meeting of the Company to be held at Diamond Room, Level 2, Katerina Hotel, 8 Jalan Zabedah, Batu Pahat, Johor on Saturday, 26 June, 2004 at 2.30 p.m. are as follows:- 1. The Directors who are retiring and standing for re-election in accordance to Article 101(a) of the Company s Articles of Association:- Mr. Lim Meng Hee Dr. Ng Soon Lim 2. Mr. Chai Koh Wah, the Director who is retiring and standing for re-election in accordance to Article 102(c) of the Company s Articles of Association. A total of Five (5) Board of the Directors Meetings were held during the financial year ended 31 December, 2003 and all the Board of Directors meetings were held at the registered office of the Company at Lot /2 Miles, Jalan Tanjung Laboh, Batu Pahat, Johor except for the Board of Directors Meeting held on 29 May, 2003, which was held at Diamond Room, Level 2, Katerina Hotel, 8 Jalan Zabedah, Batu Pahat, Johor. The date and time of the Board of the Directors Meetings were as follows:- Date of the Board Meeting Time 23 February April May August November Details of attendance at board meetings held during the financial year ended 31 December Name of Director Date of appointment No. of Meetings attended Mr. Lim Meng Hee 31 May, Dr. Ng Soon Lim 31 May, Mr. Chai Koh Wah 25 April, BANENG HOLDINGS BHD ( W)

7 CORPORATE INFORMATION Y. Bhg. Tan Sri A. Rahim bin Tamby Chik Non-Executive Chairman Mdm. Lim Choon Hiok Managing Director Mr. Lim Meng Hong Executive Director Mr. Lim Meng Hee Executive Director Dr. Ng Soon Lim Independent Non-Executive Director Mr. Chai Koh Wah Independent Non-Executive Director (appointed on 25/4/2004) Mr. Keah Say Wan Independent Non-Executive Director (resigned on 15/3/2004) Audit Committee Dr. Ng Soon Lim (Chairman) Mr. Lim Meng Hong Mr. Chai Koh Wah (appointed on ) Mr. Keah Say Wan (resigned on ) Nomination Committee Y. Bhg. Tan Sri A. Rahim bin Tamby Chik (Chairman) Dr. Ng Soon Lim Mr.Chai Koh Wah (appointed on ) Mr. Keah Say Wan (resigned on ) Remuneration Committee Mdm. Lim Choon Hiok (Chairman) Dr. Ng Soon Lim Mr. Chai Koh Wah (appointed on ) Mr. Keah Say Wan (resigned on ) Registered Office Lot 4979, 2 1 /2 Miles, Jalan Tanjung Laboh Batu Pahat, Johor Darul Takzim Tel : Fax : Date and Place of Incorporation Incorporated in Malaysia on 11 July, 1994 Registrar Securities Services (Holdings) Sdn Bhd Level 7 Menara Milenium, Jalan Damanlela Pusat Bandar Damansara, Damansara Heights Kuala Lumpur Tel : / Fax : / Company Secretary Ms. Teo Soon Mei (MAICSA ) Auditors Ernst & Young Graha Maju (Bangunan PKNM) Tingkat 10, Lot 1, Jalan Graha Maju Melaka Tel : Fax : Web-Site Address Stock Exchange The Main Board of Bursa Malaysia Securities Berhad Principal Bankers EON Bank Berhad Malayan Banking Berhad HSBC Bank Malaysia Berhad Bumiputra-Commerce Bank Berhad BANENG HOLDINGS BHD ( W) 5

8 CORPORATE STRUCTURE Baneng Holdings Bhd 100% Chenille International Pte Ltd 100% Baneng Industries Sdn Bhd 100% Maxlin Garments Sdn Bhd 55% Seri Pertamas Garment Manufacturer Sdn Bhd 100% Baneng Trading Sdn Bhd 100% Baneng Lesotho (Pty) Ltd 6 BANENG HOLDINGS BHD ( W)

9 PROFILE OF DIRECTORS Name : Age : 54 Nationality : Qualification : Position in Company : Working experience : Y. Bhg. Tan Sri A. Rahim bin Tamby Chik Malaysian Other directorship of Public companies : The family relationship with any director and/ or major shareholder of the Company : List of convictions for offences within the past 10 years other than traffic offences, if any : Degree in Bachelor of Economics (Honours) and Doctorate of Philosophy in Business Administration. Non-Executive Chairman. He is also the Chairman of the Nomination Committee. He was appointed to the Board of the Company on 31 May He was the Parliamentary Secretary for the Ministry of Primary Industries and Trade Industries between 1978 and A Deputy Minister of the Ministry of Home Affairs between 1981 and 1982; and was the Chief Minister of Melaka between 1982 and Currently is involved in business. He also sits on the boards of several other private limited companies. None None None Number of board meetings attended in the financial year : 4 / 5 Name : Age : 48 Nationality : Qualification : Position in Company : Working experience : Mdm. Lim Choon Hiok Malaysian Other directorship of Public companies : The family relationship with any director and/ or major shareholder of the Company : List of convictions for Company : List of convictions for offences within the past 10 years other than traffic offences, if any : Completed her secondary education and obtained her Malaysian Certificate of Education in Managing Director. She is also the Chairman of the Remuneration Committee. She was appointed to the Board of the Company on 31 May She has been with the Baneng Group for the past 18 years and is in charge of the overall direction and management of the Baneng Group of companies. She also sits on the boards of several other private limited companies. None She is the sister to Mr. Lim Meng Hong and Mr. Lim Meng Hee who are also directors of the Company. She is also the sister to Ms. Lim Poh Choo who is a major shareholder of the Company. None None Number of board meetings attended in the financial year : 5 / 5 BANENG HOLDINGS BHD ( W) 7

10 PROFILE OF DIRECTORS Name : Age : 45 Nationality : Qualification : Position in Company : Working experience : Mr. Lim Meng Hong Malaysian Other directorship of Public companies : The family relationship with any director and/ or major shareholder of the Company : List of convictions for offences within the past 10 years other than traffic offences, if any : Degree in Bachelor of Economics. Fellow member of the CPA Australia and a Chartered Accountant of the Malaysian Institute of Accountants (MIA). Executive Director. He is also a Member of the Audit Committee. He was appointed to the Board of the Company on 31 May Prior to joining Baneng Group of companies in 1992 as a Group Financial Controller, he was the Group Financial Controller with Jardine Matheson Private Limited. Currently, he also sits on the boards of several other private limited companies. None He is the brother of Ms. Lim Choon Hiok and Mr. Lim Meng Hee who are also directors of the Company. He is also the brother to Ms. Lim Poh Choo who is a major shareholder of the Company. None Number of board meetings attended in the financial year : 4 / 5 Name : Age : 40 Nationality : Mr. Lim Meng Hee Malaysian Qualification : Completed his secondary education and obtained his Sijil Pelajaran Malaysia in Position in Company : Executive Director. Working experience : Other directorship of Public companies : The family relationship with any director and/ or major shareholder of the Company : List of convictions for offences within the past 10 years other than traffic offences, if any : He was appointed to the Board of the Company on 31 May He joined the Baneng Group of companies in 1986 and has more than 17 years experience in the textile and apparel industry. Currently, he is responsible for the overall direction and management of the apparel division of the Company. None He is the brother to Ms. Lim Choon Hiok and Mr. Lim Meng Hong who are also directors of the Company. He is also the brother to Ms. Lim Poh Choo who is a major shareholder of the Company. None Number of board meetings attended in the financial year : 5 / 5 8 BANENG HOLDINGS BHD ( W)

11 PROFILE OF DIRECTORS Name : Age : 56 Nationality : Qualification : Position in Company : Working experience : Dr. Ng Soon Lim Malaysian Other directorship of Public companies : The family relationship with any director and/ or major shareholder of the Company : List of convictions for offences within the past 10 years other than traffic offences, if any : Graduated from the University of Malaya in 1973 in Medicine (MBBS Malaya). Independent Non-Executive Director. He was appointed as the Chairman of the Audit Committee on 25 April, He is a Member of the Nomination and the Remuneration Committees. He was also appointed as a Senior Independent Non-Executive Director on 4 September, 2002 in compliance with the Code on Corporate Governance. He was appointed to the Board of the Company on 31 May Upon graduation in 1973, he worked for the Government until 1977 where he became a general medical practitioner with his own medical practice until to date. None None None Number of board meetings attended in the financial year : 5 / 5 Name : Mr. Keah Say Wan (resigned on 15 March 2004) Age : 43 Nationality : Malaysian Qualification : Graduated from the University of Malaya in 1986 with a Bachelor of Law ( Honours ) Position in Company : Independent Non-Executive Director. He is the Chairman of the Audit Committee and a Member of the Nomination and the Remuneration Committees. He resigned as the Independent Non- Executive Director of the Company on 15 March, Working experience : Other directorship of Public companies : The family relationship with any director and/ or major shareholder of the Company : List of convictions for offences within the past 10 years other than traffic offences, if any : He was appointed to the Board of the Company on 31 May After being called to the Malaysian Bar in 1987, he joined the legal practice of Mohd Yamin Ismail and Partner as a legal assistant for 3 years. In 1990 he set-up a legal firm with a partner and has been the managing partner of the firm till todate. He sits on the Board of the Hokkien Association in Batu Pahat and also several other private limited companies. None None None Number of board meetings attended in the financial year : 5 / 5 BANENG HOLDINGS BHD ( W) 9

12 PROFILE OF DIRECTORS Name : Mr. Chai Koh Wah (appointed on 25 April 2004) Age : 45 Nationality : Qualification : Position in Company : Working experience : Malaysian Other directorship of Public companies : The family relationship with any director/ or major shareholder of the Company : List of convictions for offences within the past 10 years other than traffic offences, if any : Hold a Bachelor of Economics from La Trobe University (Australia) in He is a Chartered Accountant of the Malaysian Institute of Accountants. He is also a Fellow member of CPA Australia and an associate of the Malaysian Institute of Taxation. Independent Non-Executive Director. He is also a Member of the Audit, the Nomination and the Remuneration Committees. He was appointed to the Board of the Company on 25 April 2004 as an Independent Non- Executive Director. He is an approved company auditor and has more than 20 years of experience in the auditing and accounting profession. Number of board meetings attended in the financial year : 0 None None None 10 BANENG HOLDINGS BHD ( W)

13 CHAIRMAN S STATEMENT To all our valued shareholders, On behalf of the Board of Directors, I am pleased to present to you the Annual Report and Financial Statements of the Group and the Company for the financial year ended 31 December Industry Overview It has been another challenging year for the whole textile and apparel industry. During the financial year under review, the industry continued to face intense competition from lower cost and huge labour-pool countries such as India, Vietnam and the People s Republic of China. Towards trade liberalization in 2005, the global market for the industry will see huge changes. Globalisation provides buyers with opportunities to get cheaper products than before, especially the traditional trading markets in USA and EU countries. In additional to that, buyers are given more options to decide when and what to buy: they are unwilling to commit orders in advance as they need to respond to the market trend in terms of fashions and designs. Thus, a shorter production lead time is essential for the manufacturers.these directly result in the compulsory strengthening of manufacturers production efficiency and order responsiveness. On top of that, the big retailers are identifying their sourcing partners who can manufacture for them a wider range of products. They will like to increase their portfolios with those established vertically set-up manufacturers who can provide more competitive prices, shorter leadtimes and wider range of products in different countries of production depending on their strengths. This will narrow down their sourcing and eventually achieve their objectives and yet quality and ethical issues can still be managed objectively. Financial Highlights For the financial ended 31 December 2003, the Group recorded a consolidated turnover of RM275.9 million compared to RM317.7 million in the preceding year. Pre-tax profit for the current financial year decreased to RM2.9 million as compared to RM19.2 million in 2002 while profit after tax was reported at RM3.7 million compared to RM18.9 million in the preceding year. The reduction in profitability is mainly attributed to the fabric division within the Group. This is due to the direct impact of pricing competition from China after its entrance as WTO member. The Group has taken necessary measures to downsize the division and forming new strategy for its operation; mainly to concentrate and expanding in the niche market that is the apparel divisions. Business Overview Being a fully vertically integrated fabric and apparel manufacturer, we offer a one-stop services and solutions to our customers ranging from design and product development, technical and sampling services, sourcing and logistic management. With large and established production set-ups, we are able to offer more value-added services to our end customers in terms of sharper pricing, shorter lead time to delivery and enhanced quality controls. With our established creditability, we believe we can serve our customers better and act as their strategic partners. With Malaysia as our headquarter, our growth will continue to be around this region. Countries which are in proximity to our headquarter and with abundant source of labour will be our target production base. With the establishment of our current strategic operating locations, besides having our production presence in Malaysia, Brunei and Lesotho, we are looking into acquisitions of more established garment factories in lower cost countries like Sri Lanka, Vietnam, Cambodia and China. These are our future identified countries for the Group s future potential production bases. With these, we believe we can provide sharper pricing, shorter leadtimes and a wider range of products for our valued customers. BANENG HOLDINGS BHD ( W) 11

14 CHAIRMAN S STATEMENT The management is prudent on the competitiveness of the fabric division in the international market in Year However, with our expansions into more apparel production bases, the fabric division will enhance and complement the apparel division in terms of production leadtimes which is very important for us to get nearer to the customers. As the apparel industry is becoming more and more globalized, there is a growing trend for established customers to select manufacturers who have sizeable capabilities which are strategically located and most importantly, with ability to offer cost-competitive solutions. Our marketing arms with Research & Development, designs and technical supports will enhance and give the full supports for the necessary first hand information in areas where our customers needs can be met. Such knowledge is very important as it provides and enhances the confidence levels for our customers. b. We will continue to expand and upgrade our production capacities and capabilities worldwide. This continuity to look for and expand into countries suitable for us and increase the Group s performance will help us to ensure further growth; c. We will continue to improve our efficiency and productivity through production management and process refinement. We will also continue to invest in more efficient ways of production and in management tools. We will set aside a budget to automate part of our production process to cater for more complicated and value styling jobs. d. We will continue to explore and integrate into other domains of the value chain of the fabric and apparel business. Where opportunities arise, we will expand our capabilities and business by acquiring or forming strategic partnerships or joint ventures with other manufacturers in these domains, who can add value to our business by allowing us to have greater involvement in businesses on which our present business is reliant. We believe that this will give us additional competitive edge over our competitors. Acknowledgement and Appreciations On behalf of the Board, I would like to extend out deepest appreciation to our shareholders, valued customers, financiers and business associates and especially to our employees for their continued supports, commitments and confidence in the Group. Future Prospects and Challenges Despite the improved economic outlook for 2004, external factors such as price deflation, the weaken US Dollar, unpegging of Ringgit Malaysia against US Dollar, fluctuation in cotton price, political instability and new quota-free and duty free system in 2005 have created many uncertainties in the industry. Y. Bhg. Tan Sri A Rahim Bin Tamby Chik Chairman With a good established network of customers, we believe that we are able to further advance the business and explore more business opportunities in the future. In order to keep up with various market changes, we are embarking on the following: a. We will be expanding the range and profile of our customers beyond our current main market in the United State of America. In this respect, we are exploring new markets in China, Middle East and Asean countries; 12 BANENG HOLDINGS BHD ( W)

15 CORPORATE GOVERNANCE STATEMENT The Board recognizes the significance of practicing good and sound corporate governance in preserving and enhancing shareholders value. The Board of Directors is pleased to report that throughout the financial year under review, it had applied the Principles of Corporate Governance and the Best Practices in Corporate Governance as set out in Part 1 and 2 of the Malaysian Code of Corporate Governance (the Code ) pursuant to Paragraph of the Listing Requirements of Bursa Malaysia Securities Berhad whilst managing and directing the business and operations for the Company and its group of companies. A. Board of Directors 1. Board Duties and Responsibilities The Board assumes full responsibilities to lead and control the Group s direction and operation for the enhancement of the long-term shareholders value. The Board is responsible for the overall corporate governance, strategic formulations, business conduct and stewardship of the Group s resources. The Directors, with their diverse background and experience collectively bring with them a wide range of business acumen, management skills and expertise in areas such as finance, accounting, marketing, operations and auditing. There is a clear division of responsibilities between the Chairman and Managing Director of the Company to ensure a balance of power and authority. The Managing Director and the Executive Directors are responsible for implementing the policies and decision of the Board, overseeing the day to day operations as well as coordinating and monitoring the implementation of business and corporate strategies. The independent non-executive Directors play a pivotal role in providing objective and independent judgement to the decision making of the Board. Dr. Ng Soon Lim was appointed on the 4 September 2002 as the Senior Independent Non-Executive Director to whom shareholders may convey their concerns to. 2. Board Composition and Balance The Board currently consists of six (6) members. The Board comprises the Chairman who is Non independent nonexecutive, one (1) managing director, two (2) executive directors and two (2) independent non-executive directors. A brief profile of each Director is presented on pages 7 to 10 of this annual report. The Board s composition complies with the provisions of the Code and paragraph of the Listing Requirements of Bursa Malaysia Securities Berhad that require a minimum of two (2) directors or one third of the Board to be independent Directors. The Three (3) Directors holding executive office represent the interest of the largest shareholders of the Company and the investment of remaining shareholders is fairly reflected in the Board representation. No individual or a group of individuals dominate the decision making of the Board and enable the Board to effectively discharge its principle responsibilities as set out in the Code. 3. Board Meetings The Board meets on a quarterly basis, with additional meetings convened as and when necessary. Five (5) board meetings were held during the financial year ended 31 December 2003 and the Directors attendance are as follows: Director Attendance Y. Bhg. Tan Sri A. Rahim Bin Tamby Chik 4 Mdm. Lim Choon Hiok 5 Mr. Lim Meng Hong 4 Mr. Lim Meng Hee 5 Dr. Ng Soon Lim 5 Mr. Chai Koh Wah (appointed on 25 April 2004) - Mr. Keah Say Wan (resigned on 15 March 2004) 5 All Directors have complied with the minimum attendance at the Board meetings as stipulated by the Listing Requirements of Bursa Malaysia Securities Berhad. BANENG HOLDINGS BHD ( W) 13

16 CORPORATE GOVERNANCE STATEMENT 4. Supply of Information The Directors have full access to all information and records of the Group. The meeting agenda, together with reports and preposition papers for each meeting are circulated prior to the meeting to ensure the Directors have sufficient time to consider and deliberate on the matters to be discussed at Board meetings. Senior Management staffs as well as the external auditor are invited to attend Board meetings to provide their views and explanations on certain agenda items tabled to the Board, and to furnish their clarification on issues that may be raised by the Directors. The Directors are updated by the Company Secretary on new statutory as well as regulatory requirements relating to the duties and responsibilities. Full Board have ready access to the Company Secretary. The Directors have the right to engage independent professional advise (if necessary) at the Company s expense in furtherance of their duties. 5. Board Committees The Board of Directors has established several Board Committees to delegate their duties. This includes the Audit Committee, the Nomination Committee and the Remuneration Committee. The Chairman of the respective committee will brief the Board on the matters discussed at the meetings and minutes of those meetings are circulated to the full Board. The ultimate responsibilities for the decision on all matters are reserved for the Board. 6. Appointments to the Board The Nomination Committee is empowered by the Board and its term of reference to bring to the Board recommendations as to the appointment of new Directors. The Committee reviews the effectiveness of the Board, its Committees and the contributions of each individual Director on an annual basis. The Committees also keeps under review the Board structure, size, composition and mix of skills, business acumen and the competencies required for the Board to effectively discharged its duties. The memberships of the Nomination Committee during the year are as follows: Chairman Member : Y. Bhg. Tan Sri A. Rahim bin Tamby Chik : Dr. Ng Soon Lim Mr. Chai Koh Wah (appointed on 25 April 2004) Mr. Keah Say Wan (resigned on 15 March 2004) This Committee is empowered to bring the Board recommendations on appointment of any new director and would ensure that Board has an appropriate balance of expertise and ability. The Nomination Committee had on 25 April, 2004 made its recommendation on the appointment of Mr. Chai Koh Wah as an Independent Non-Executive Director of the Company to the Board of Directors for approval to fill in the vacancy created due to the resignation of Mr. Keah Say Wan as the Independent Non-Executive Director of the Company on 15 March, The Nomination Committee met one time during the financial year where all members were present. The Nomination Committee met to:- i) Approve the principles and processes of assessing Board effectiveness and performance evaluation of Senior Management; and ii) Deliberate and approve performance objectives and standards for the Board and the contributions of each individual director. 14 BANENG HOLDINGS BHD ( W)

17 CORPORATE GOVERNANCE STATEMENT A. Board of Directors (Cont d) 7. Directors Training All Directors except for Mr Chai Koh Wah have completed the Mandatory Accreditation Program conducted by the Research Institute of Investment Analyst Malaysia. The Directors will be undergoing the Continuing Education Programs and other relevant training programs as a continuous effort to enhance their skills and knowledge to effectively discharge their duties. 8. Re-Election of Directors In accordance to the Company s Articles of Association, all newly appointed directors shall retire from office at the close of the next Annual General Meeting and shall then be eligible for re-election. The Articles also provided that at least one-third of the Board or the number nearest to one-third are subject to retirement and are eligible for re-election at the Annual General Meeting at least once every three years. Details of Directors seeking re-election at the forthcoming annual general meeting are disclosed in the statement accompanying the Notice of annual general meeting as set out on page 4 of this annual report. B. Directors Remuneration The Board recognizes the need to structure the remuneration packages for Directors so as to be able to attract, retain and motivate Directors of the right caliber required to mange the Company and to align the interests of the Directors with those of the shareholders. The Remuneration Committee is responsible for setting the remuneration policy framework and making recommendations to the Board on the remuneration and other terms of employment for the Executive Directors of the Group. The terms of reference of the Remuneration Committee are clearly defined to its members. The determination of remuneration of Non Executive Directors is a matter for the Board as a whole. The individual concerned has abstains from deliberations in respect of their own remuneration. The memberships of the Remuneration Committee during the year are as follows: Chairman Member : Mdm. Lim Choon Hiok : Dr. Ng Soon Lim Mr. Chai Koh Wah (appointed on 25 April 2004) Mr. Keah Say Wan (resigned on 15 March 2004) The remuneration of the Executive Directors of the Company is structured so as to link rewards to corporate and individual performance. Reference have also been made to established survey findings on directors allowance, roles and remuneration of listed firms for proposing the remuneration packages of the Executive Directors of the Company. The remuneration of the Non-Executive Directors is fixed after taking into consideration their level of experience and responsibilities. The Remuneration Committee has on 27 February, 2004, reviewed annually the performance of the Executive Directors and furnished recommendations to the Board on specific adjustments. In accordance with the Company s Articles of Association, the Directors remuneration is subject to Shareholders approval. BANENG HOLDINGS BHD ( W) 15

18 CORPORATE GOVERNANCE STATEMENT B. Directors Remuneration (Cont d) The Company s Directors aggregate remuneration is categorized into appropriate components are as follows: Non-Executive Directors RM 000 Executive Directors RM 000 Fees Salaries and other emoluments Contribution to EPF - 68 Bonus - 57 Allowances 7 - Total 115 1,196 The number of Directors of the Company who served during the financial year and whose aggregate remuneration from the Group failing within the respective band are as follows: Non-Executive Directors Executive Directors Below RM50, RM50,001 RM250, RM250,001 RM450, RM450,001 RM650,000-2 C. Shareholders The Board recognizes the importance of maintaining active communication with its shareholders and timely dissemination of information concerning the Group s business performance. Announcements on various disclosures and the quarterly financial reports are made to Bursa Malaysia Securities Berhad and the annual reports provide shareholders and the investing public with an overview of the Group s performance. The principal forum for dialogue with shareholders is the general meeting of the Company. Appropriate notice of meeting would be communicated depending on the purpose of the meeting. The notice would be accompanied by the prescribed documents or statement providing explanation of the intended agenda to facilitate full understanding and evaluation. All Directors are available to provide responses to questions from the shareholders during the general meeting. D. Accountability and Audit 1. Financial Reporting The Board aims to provide a true and fair assessment of the Group s financial performance and a balanced assessment of the Group s prospects through the quarterly financial reports to the Bursa Malaysia Securities Berhad and the annual report to shareholders. The Board is responsible for ensuring that the financial statements give a true and fair view of the state of affairs of the Group and the Company as at the end of the accounting period and of the results of the operations and cash flows for the period then ended. In preparing the financial statements, the Directors have ensured that applicable approved accounting standards in Malaysia and the provisions of the Companies Act, 1965 have been consistently applied, and made reasonable and prudent judgements and estimates. 16 BANENG HOLDINGS BHD ( W)

19 CORPORATE GOVERNANCE STATEMENT D. Accountability and Audit (Cont d) 2. Internal Control The Directors are fully aware of their responsibilities to maintain a sound system of internal control to safeguard shareholders investment and the Group s assets. The Statement of Internal Control furnished on pages 18 to 19 of this Annual Report provides an overview on the state of internal controls within the Group. 3. Audit Committee The roles of the Audit Committee together with their duties and summary of the activities during the year are set out in the Audit Committee Report on pages 20 to 22 of this Annual Report. 4. Relationship with External Auditors The Board has established an appropriate and transparent relationship with the Company s external auditors in seeking professional advice through the Audit Committee. The Audit Committee meets with the external auditors whenever it deem necessary to discuss the audit plan, annual financial statements and their audit findings. E. Compliance with Best Practices The Board has throughout the financial year complied with the best practices as set out in Part 2 of the Code. STATEMENT OF DIRECTORS RESPONSIBILITIES FOR PREPARING THE FINANCIAL STATEMENTS The Board is required by the Companies Act, 1965 to prepare the financial statements so as to give true and fair view of the state of affairs of the Company and the Group at the financial year end, and of the results and cash flows of the Company and the Group for the financial year under review. The Directors have used suitable accounting policies and applied them consistently, made judgments and estimates that are prudent and reasonable, and adopted applicable accounting standards during the preparation of the financial statements. The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and the Group and to enable them to ensure that the financial statements comply with the Companies Act, In addition, the Directors are also responsible for taking reasonable steps to safeguard the assets of the Group and to detect and prevent any fraud as well as any other irregularities. The collective approval by the Board on this Statement was tabled on 25 April, BANENG HOLDINGS BHD ( W) 17

20 STATEMENT ON INTERNAL CONTROL Introduction Paragraph 15.27(b) of the Listing Requirements of Bursa Malaysia Securities Berhad requires the Board of Directors of listed companies to include in its annual report a statement about the state of internal control of the listed issuer as a group. The Board is committed in maintaining a sound system of internal control in the Group and is pleased to provide the following statement which outlines the nature and scope of internal controls of the Group during the year. The Board is ultimately responsible for the Group s system of internal control and risk management, including the establishment of an appropriate control environment and framework as well as reviewing its adequacy and integrity. Due to the inherent limitations in any system of internal controls, such a system is designed to manage rather than eliminate the risk of failure to achieve business and corporate objectives and can only provide reasonable and not absolute assurance against materials misstatement or loss. The system of internal controls covers risk management and financial, organizational, operational and compliance controls. Risk Management Framework Although there is no formal structured risk management framework was developed, the Board fully recognizes the importance and supports the content of the Internal Control Guidance. The Board continually reviews the adequacy and effectiveness of the risk management process through regular informal management and departmental meetings held by the Executive Directors and key management staff in each operating unit. Key risks identified includes but not exclusively, competitors activities through market information, buyers compliance, market changes, production scheduling, quality control, financial planning and human management. Internal Control Process The Board is committed in maintaining a strong and effective internal control structure to compliment the proper conduct of the Group s business operations. The internal control process is reviewed regularly, informally by the managing directors through their close involvement in daily business operation, to ensure effectiveness and business objectives are achieved in a controlled environment. Major internal control elements of the Group include but not exclusive: a) Financial and credit control Personnel are carefully selected to prevent any misconduct. Authorisation limits are set to minimise risk of unauthorised transaction. Purchasing function were centralised at Head Office to ensure minimise mishandlings as well as to leverage on the Group s purchasing power b) Organizational structure The Group has established a clear organisational structure with defined lines of reporting, responsibility and delegation of authority. c) Reporting and reviewing Timely financial reports were submitted to Top Management for review, monitoring of results with management action taken, where necessary. d) Monitoring of business units Regular visits to business units by Executive Directors to ensure compliance with the Group s policies and procedures. Regular informal evaluation are conducted with manager in charged on areas and matters pertinent to the business units for compliance. 18 BANENG HOLDINGS BHD ( W)

21 STATEMENT ON INTERNAL CONTROL Internal Control Process (Cont d) The Board has reviewed the effectiveness of the internal control through the above processes and is not aware of any significant deficiencies in the Group s system of internal control for the year under review which may resulted in any material losses, contingencies or uncertainties that would require disclosure in the Group s annual report. Apart from the above internal framework, the Group also relies on findings by the external auditors. In the absence of any formal internal control department, the Board believes they are capable of safeguarding shareholders investment by constant monitoring and reviewing of the above processes. Nevertheless, the Board is constantly looking out for a suitable out-sourcing support. The Board remained committed towards operating a sound system of internal control and strives for continuous improvement to further enhance the Group s system of internal framework. BANENG HOLDINGS BHD ( W) 19

22 AUDIT COMMITTEE REPORT A. Establishment and Memberships The membership of the Audit Committee is as follow: Chairman : Dr. Ng Soon Lim/Independent Non-Executive Director (appointed on 25 April 2004) Mr. Keah Say Wan/Independent Non-Executive Director (resigned on 15 March 2004) Member : Mr. Lim Meng Hong/Executive Director Mr. Chai Koh Wah/Independent Non-Executive Director Mr. Lim Meng Hong and Mr. Chai Koh Wah are members of the Malaysian Institute of Accountants. B. Terms of Reference The terms of reference of the Audit Committee are as follows:- Composition The Company shall appoint an AuditCommittee from amongst its directors and shall consist of not less than three (3) in numbers of whom a majority shall be independent directors. No alternate director is appointed as a member of the Committee and at least one (1) member of the Committee:- (a) Shall be a member of the Malaysian Institute of Accountants; or (b) If he is not a member of the Malaysian Institute of Accountants, he must have at least three (3) years working experiences and:- (i) he must have passed the examinations specified in Part I of the 1st Schedule of the Accountants Act 1967; or (ii) he must be a member of one of the associations of accountants specified in Part II of the 1st Schedule of the Accountants Act The members of the Audit Committee shall elect a Chairman from among their members who shall be an independent director. In the event of any vacancy in the Committee resulting in the non-compliance of the above stated conditions, the company shall fill the vacancy within three (3) months. The Board of directors of the company shall review the term of office and performance of the Audit Committee and each of its members at least once every three (3) years to determine whether such audit committee and members have carried out their duties in accordance with their terms of reference. Rights The Audit Committee shall, in accordance with a procedure to be determined by the Board of directors and at the cost of the Company: (a) have authority to investigate any matter within its terms of reference; (b) have the resources which are required to perform its duties; (c) have full and unrestricted access to any information pertaining to the company; (d) have direct communication channels with the external auditors and person(s) carrying out the internal audit function or activity (if any); (e) be able to obtain independent professional or other advice; and (f) be able to convene meetings with the external auditors, excluding the attendance of the executive members of the committee, whenever deemed necessary. Where the Committee is of the view that a matter reported by it to the board of directors of the company has not been satisfactorily resolved resulting in a breach of the Listing Requirements of Kuala Lumpur Stock Exchange, the Audit Committee shall promptly report such matter to the Kuala Lumpur Stock Exchange. 20 BANENG HOLDINGS BHD ( W)

23 AUDIT COMMITTEE REPORT B. Terms of Reference (Cont d) Meeting The Audit Committee shall meet at least each quarter of a financial year and such additional meetings as the Chairman shall decide in order to fulfill its duties. The Company Secretary or any person appointed by the Audit Committee shall act as Secretary of the Audit Committee and shall be responsible, in conjunction with the Chairman, for drawing up the agenda and other supporting explanatory documentation for circulation to the Committee Members prior to each meeting. The Secretary will also be responsible for keeping the minutes of the meetings of the Audit Committee, and circulating them to Committee Members and to other members of the Board of Directors. The Chairman of the Audit Committee shall convene a meeting of the audit committee to consider any matter the external auditor believes should be brought to the attention of the directors or shareholders. Other directors and employees must attend any particular Audit Committee meeting only at the Audit Committee s invitation, specific to the relevant meeting. A quorum shall consist of a majority of members present who must be independent directors. Functions The functions of the Audit Committee are as follow:- 1. review the following and report the same to the board of directors of the Company:- (a) the audit plan with the external auditor. (b) with the external auditor its evaluation of the system of internal controls. (c) the audit report with the external auditors. (d) the assistance given by the employees of the Company to the external auditor. (e) the adequacy of the scope, functions and resources of the internal audit functions and that it has the necessary authority to carry out its work. (f) the internal audit programme, processes, the results of the internal audit programme, processes or investigation undertaken and whether or not appropriate action is taken on the recommendations of the internal audit function. (g) the quarterly results and year end financial statements, prior to the approval by the board of directors, focusing particularly on:- (i) changes in or implementation of major accounting policy changes. (ii) significant and unusual events; and (iii) compliance with accounting standards and other legal requirements. (h) any related party transaction and conflict of interest situation that may arise within the company or group including any transaction, procedure or course of conduct that raises questions of management integrity. (i) any letter of resignation from the external auditors of the company; and (j) whether there is reason (supported by grounds) to believe that the company s external auditor is not suitable for re-appointment; and 2. to recommend the nomination of a person or persons as external auditors. Summary of Audit Committee Activities The Audit Committee held a total of five (5) meetings during the financial year ended 31 December The Senior Management and a representative of the external auditors normally attend the Committee meetings. Other Board members may attend meetings upon invitation of the Committee. The Minutes of the Audit Committee meeting have been extended to all members of the Board of Directors and significant issues discussed at the Board Meetings. The attendance of each Audit Committee member were as follows:- BANENG HOLDINGS BHD ( W) 21

24 AUDIT COMMITTEE REPORT B. Terms of Reference (Cont d) Summary of Audit Committee Activities (Cont d) Audit Committee Member Total no. of meetings held during the year Meetings Attended Keah Say Wan (resigned on 15 March 2004) 5 5 Ng Soon Lim 5 5 Lim Meng Hong 5 4 Chai Koh Wah (appointed on 25 April 2004) 5 - During the financial year, the activities undertaken by the Audit Committee include:- a. Review of the quarterly unaudited financial results of the Group prior making the recommendations to the Board of Directors for approval ; b. Review of inter-company transactions and/or any related party transactions or conflict of interest situations that arose within the Group or the Company; c. Discussion on the Company's Corporate Governance process and the application of the key principles and best practices of Corporate Governance and the compliance with the Listing Requirement of Bursa Malaysia Securities Berhad; d. Discussion and review of the semi annual returns pursuant to the Paragraph 8.02 of Chapter 8 of the Listing Requirements of the Bursa Malaysia Securities Berhad; e. Discussion and review of the proposed amendments to the Listing Requirements of Bursa Malaysia Securities Berhad; f. Review the annual audited financial statements of the Group and the Company for the financial year ended 31 December, 2003 and made recommendations to the Board of Directors for approval; g. Discussion and review on the external auditors reports in relation to audit and accounting issues arising from the audit; and h. Discussing and reviewing the external auditors scope of work. Relationship with External auditors The Audit Committee s terms of reference formalises the relationship with the External Auditors. Through the Audit Committee, the Company has maintained a formal and transparant relationship with its auditors in seeking professional advice and ensuring compliance with its auditors in seeking professional advice and ensuring compliance with the Malaysian Accounting Standard Board ( MASB ) standards of accounting policies and methods when the Group s financial statements are prepared. Non-audit fees The amount of non-audit fee paid to the external auditors by the Group and the Company for the financial year amounted to RM16,000 and RM9,000 respectively. Internal Control and Risk Managment The committee recognizes the importance of an independant and a well established internal audit function in obtaining the assurance it requires regarding the effectiveness of the internal control system. The Group believes that although it does not have a formal internal audit department and a risk management committee; informal identification of internal control system and evaluation of business risk carried out during management and departmental meetings are sufficient to safeguard shareholders investment and the Group s assets. The Group currently also relies on findings of the external auditors. Such internal control findings and business risks are discussed and addressed by the Audit Committee where appropriate. The corrective and preventive actions are implemented where necessary. The Audit Committee will review the need for setting up the internal Audit Department from time to time. 22 BANENG HOLDINGS BHD ( W)