2009 annual report - hexza review in fy 2009, the ... raw materials due to competitive forces, ......
TRANSCRIPT
Notice of Annual General Meeting 2 - 3
Corporate Information 4
Corporate Structure 5
Chairman’s Statement 6 - 7
Directors’ Profile 8 - 9
Audit Committee Report 10 - 13
Corporate Governance Statement 14 - 19
Statement of Internal Control 20 - 22
Corporate Social Responsibility Statement 23
Directors’ Report 24 - 29
Independent Auditors’ Report 30 - 31
Income Statements 32
Balance Sheets 33 - 34
Statements of Changes in Equity 35 - 36
Cash Flow Statements 37 - 40
Notes to the Financial Statements 41 - 84
Statement by Directors 85
Declaration by the Officer Primarily Responsible for the Financial Management of the Company
85
Statement of Shareholdings 86 - 87
Properties Owned by Hexza Corporation Berhad and its Subsidiaries
88
Proxy Form
CONTENTS
HEXZA CORPORATION BERHAD (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt2
notICe IS HeReBY GIVen that the Fortieth Annual General Meeting of Hexza Corporation Berhad will be held at Regency 5, Level 11, Tower Regency Hotel & Apartments, 6–8, Jalan Dato’ Seri Ahmad Said, Greentown, 30450 Ipoh, Perak Darul Ridzuan on Saturday, 21st November 2009 at 11.00 a.m. for the following purposes:-
A G e n D A
1. To receive and adopt the Audited Financial Statements for the financial year ended 30th June 2009 and the Reports of the Directors and Auditors thereon. (Resolution 1)
2. To approve the payment of a first and final dividend of 4% less tax plus 3% tax-exempt in respect of the financial year ended 30th June 2009. (Resolution 2)
3. To approve the payment of Directors’ fees of RM232,500 for the financial year ended 30th June 2009. (Resolution 3)
4. To re-elect Mr. Leong keng Yuen who retires in accordance with Article 78 of the Company’s Articles of Association and being eligible, offers himself for re-election. (Resolution 4)
5. To consider and if thought fit, to pass the following resolutions in accordance with Section 129(6) of the Companies Act, 1965:
(i) “That Dr. Foong Weng Cheong, retiring pursuant to Section 129(6) of the Companies Act, 1965, be and is hereby re-appointed a Director of the Company to hold office until the next Annual General Meeting.” (Resolution 5)
(ii) “That Dato’ Richard Ong Guan Seng, retiring pursuant to Section 129(6) of the Companies Act, 1965, be and is hereby re-appointed a Director of the Company to hold office until the next Annual General Meeting.” (Resolution 6)
(iii) “That Datuk Dr. Foong Weng Sum, retiring pursuant to Section 129(6) of the Companies Act, 1965, be and is hereby re-appointed a Director of the Company to hold office until the next Annual General Meeting.” (Resolution 7)
6. To re-appoint Messrs. Deloitte & Touche as Auditors and to authorise the Directors to fix their remuneration. (Resolution 8)
7. As Special Business, to consider and, if thought fit, to pass the following Ordinary Resolution:
Authority to issue shares pursuant to Section 132D of the Companies Act, 1965
“THAT pursuant to Section 132D of the Companies Act, 1965, the Directors be and are hereby empowered to issue shares of the Company at any time until the conclusion of the next Annual General Meeting of the Company 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 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 for the listing of and quotation for the additional shares so issued on Bursa Malaysia Securities Berhad.” (Resolution 9)
8. To transact any other business of which due notice shall have been given.
NOTICE Of ANNuAl gENERAl mEETINg
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 3
NOTICE Of ANNuAl gENERAl mEETINg
notICe oF DIVIDenD entItleMent AnD pAYMent
notICe IS AlSo HeReBY GIVen that subject to the approval of the shareholders at the Fortieth Annual General Meeting, a first and final dividend of 4% less tax plus 3% tax-exempt in respect of the financial year ended 30th
June 2009 will be paid on 11th December 2009 to members whose names appear in the Record of Depositors on 26th November 2009.
A depositor shall qualify for entitlement to the dividend only in respect of:
a. Shares transferred into the Depositor’s Securities Account before 4.00 p.m. on 26th November 2009 in respect of ordinary transfers; and
b. Shares bought on Bursa Malaysia Securities Berhad on a cum entitlement basis according to the Rules of Bursa Malaysia Securities Berhad.
By Order of the Board
CHONG YOkE SENGCompany Secretary
Ipoh28th October 2009
NOTES:
1. A proxy need not be a member of the Company.
2. An instrument appointing a proxy, in the case of an individual, shall be signed by the appointor or his attorney duly authorised in writing or in the case of a corporation, shall be either under its Common Seal or signed on its behalf by an attorney or officer of the corporation so authorised.
3. In order for the proxy to be valid, it must be lodged together with the power of attorney or other authority, if any, under which it is signed, or a notary certified copy of that power or authority at the registered office of the Company not less than forty-eight (48) hours before the time for holding the meeting or any adjournment thereof.
4. Explanatory Note on Special Business: The proposed Ordinary Resolution 9, if passed, will empower the Directors to issue shares in the Company up to an amount
not exceeding in total 10% of the issued share capital of the Company for the time being for such purposes as the Directors consider would be in the interests of the Company. This authority, unless revoked or varied at a general meeting, will expire at the conclusion of the next Annual General Meeting of the Company.
StAteMent ACCoMpAnYInG notICe oF AnnuAl GeneRAl MeetInG(Pursuant to Paragraph 8.27(2) of Bursa Malaysia Securities Berhad Main Market Listing Requirements)
• Details of individuals who are standing for election as Directors No individual is seeking election as a Director at the forthcoming Fortieth Annual General Meeting of the
Company.
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt4
CORPORATE INfORmATION
BoARD oF DIReCtoRSDatuk Dr. Foong Weng SumChairman & Group Chief Executive
Dr. Foong Weng CheongNon-Independent Non-Executive Director
Dato’ Richard Ong Guan SengIndependent Non-Executive Director
Mr. Leong keng YuenIndependent Non-Executive Director
Tuan Haji Mohd Jali @ Mohd Jalil Bin SanyIndependent Non-Executive Director
AuDIt CoMMItteeDato’ Richard Ong Guan SengChairman
Dr. Foong Weng CheongMr. Leong keng YuenTuan Haji Mohd Jali @ Mohd Jalil Bin Sany
ReMuneRAtIon CoMMItteeMr. Leong keng YuenChairman
Datuk Dr. Foong Weng SumDr. Foong Weng CheongDato’ Richard Ong Guan Seng
noMInAtInG CoMMItteeDato’ Richard Ong Guan SengChairman
Dr. Foong Weng CheongMr. Leong keng Yuen
CoMpAnY SeCRetARYMs. Chong Yoke Seng (MIA 3672)
ReGISteReD oFFICeLot 6 & 20, Persiaran Tasek, kawasan Perindustrian Tasek, 31400 Ipoh,Perak Darul Ridzuan.Tel : 05-2917823Fax : 05-2918546Email : [email protected] : http://www.hexza.com.my
ReGIStRARSSymphony Share Registrars Sdn. Bhd.No. 55 Medan Ipoh 1A,Medan Ipoh Bistari,31400 Ipoh, Perak Darul Ridzuan.Tel : 05-5474833Fax : 05-5474363
AuDItoRSDeloitte & ToucheChartered Accountants 87 Jalan Sultan Abdul Jalil, 30450 Ipoh, Perak Darul Ridzuan.Tel : 05-2531358Fax : 05-2530090
SolICItoRSAkramin San & LooiBenjamin DawsonChan & AssociatesShook Lin & Bok
pRInCIpAl BAnKeRSHong Leong Bank BerhadHSBC Bank Malaysia BerhadMalayan Banking BerhadOSk Investment Bank BerhadRHB Bank Berhad
StoCK eXCHAnGe lIStInGMain Market of Bursa Malaysia Securities BerhadStock Code: 3298Stock Short Name: hexza
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 5
Norsechem ResinsSdn. Bhd.
100%
Summit Development Corporation Sdn. Berhad
100%
Hexza-MatherSdn. Bhd.100%
Chemical Industries (Malaya) Sdn. Bhd.
99.91%
Hexzachem SarawakSdn. Bhd.
80%
Bio-Acetic Products Sdn. Bhd.100%
NorsechemMarketing Sdn. Bhd.100%
CORPORATE STRuCTuRE AS AT 30TH jUNE 2009
HeXzA CoRpoRAtIon BeRHAD AnD ItS opeRAtInG SuBSIDIARIeS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt6
CHAIRmAN’S STATEmENT
On behalf of the Board of Directors, I am pleased to present to you the Group’s Annual Report and Audited Financial Statements for the financial year ended 30th June, 2009 (FY 2009).
The 12 months comprising our Financial Year 2009, from 1st July, 2008 to 30th June, 2009 has definitely been a turbulent period for many companies around the world. This turbulence is especially exaggerated for the Group with heightened volatility of raw materials required by our Resins Division and substantially higher prices of molasses, the main raw material required by our Ethanol Division. However, I am pleased to report that the Group had remained profitable under these extremely trying economic conditions, producing a profit which will be more than able to fund our proposed dividend.
FInAnCIAl ReVIew
In FY 2009, the Group’s revenue decreased by 6% to RM166,433,115 as compared to RM177,064,396 recorded for the previous financial year. The decline in the Group’s revenue was mitigated by the higher selling prices of the Group’s products necessitated by the substantially higher raw material prices. Although selling prices were higher the margin was significantly reduced as we were unable to pass on the full value of the increased cost of raw materials due to competitive forces, as competitors were also fighting for volume within the depressed market caused by the world recession.
As a result, the Group registered a profit before tax of only RM7,936,511. Deducting tax expenses of RM773,897, the after tax profit amounted to RM7,162,614. The after tax profit attributable to shareholders amounted to RM6,986,042 after accounting RM176,572 for minority interest. Earnings before interest tax depreciation and amortization (EBITDA) stands at RM13,930,852. Cash, cash equivalents and bank balances added up to RM63,816,089.
Hexza Corporation Berhad (The Company) recorded a revenue of RM11,872,968 for FY 2009 compared to RM9,122,321 for FY 2008. Profit for FY 2009 amounted to RM13,359,621 compared to RM11,317,233 for FY 2008.
ReVIew oF opeRAtIonS
From an economic and financial viewpoint, the year under review was even more challenging than the previous financial year which was already described as most challenging. The first half of the previous year (FY 2008) was relatively stable and though the second half started trending downwards the curve was gentle and manageable.
For FY 2009, the months of July and August were relatively stable. Some raw material prices were surging to historical highs, for example urea, the imported price for which reached a peak in early September. Our Resins Division which usually carries an inventory of 6 weeks, imported a shipment at a price slightly lower than what was available in Malaysia which was experiencing a very tight market. Then on 15th September, 2008 Lehman Brothers collapsed, which turned out to be a watershed event for the whole world. Urea prices in tandem with prices of melamine and methanol collapsed and the Resins Division had to take a collective “write down” of RM3.2 million. This together with the severe drop in demand for timber panel products as a result of global recession resulted in the Resins Division incurring a loss. Hexzachem Sarawak made a reduced profit before tax of RM1,170,870 whilst Norsechem Resins incurred a loss of RM1,816,363.
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 7
CHAIRmAN’S STATEmENT
As a result of the relatively uncertain economic future, Hexzachem has shelved, at least for the foreseeable future, its move to Bintulu.
Chemical Industries (Malaya) Sdn. Bhd., contributed a substantial portion of this financial year’s consolidated group profit, although the profit is also lower than the previous year. Price of molasses has been trending steeply upwards, fueled by the continuous downward revisions of the Indian crop. It was quite clear from the start that output would be considerably lower this year, but the final sugar and molasses numbers were way below even the most pessimistic expectations. Consequently, ensuring the availability of molasses, even at significantly higher prices, will demand a great deal of senior management time. Our policy is to satisfy the requirements of our customers in terms of quality, quantity and timely deliveries at all costs. It is hoped that the recent recruitment of a senior manager experienced in procurement will enhance our purchasing efficiency.
Norsechem Marketing Sdn. Bhd., made a profit before tax of RM1,082,855 compared to RM767,884 in the previous year.
Bio-Acetic Products Sdn. Bhd., made a profit before tax of RM17,114 compared to a profit of RM20,277 in the previous year.
As part of Hexza Corporation Berhad’s corporate social responsibility, the Group has invested in the implementation of a multi-million effluent treatment plant. During recent factory shutdowns due to poor demand, no employee has been retrenched and there has been no reduction of basic pay. The Group continues to provide employees with opportunities to attend training courses to enhance their knowledge and skills even in the current tough economic climate.
The Board of Directors is recommending a first and final dividend for the current year of 4% less tax plus a tax exempt dividend of 3% which will total RM6,011,401. This proposed dividend rate is the same as in the previous year. The current year’s after tax profit of RM7,162,614 is sufficient to fund the dividend. EBITDA of RM13,930,852 provides further coverage and reassurance. The Group sits atop a cash and cash equivalent of RM63,816,089 which provides a protective umbrella.
The current financial year has started with signs of economic bottoming and recovery although improvements may be slow and tentative at times. The Company has made some investments in the Stock Market with some of its cash earlier in the year at lower prices. The Directors are cautiously confident that the Group will report higher profits for the FY 2010 compared to FY 2009.
On behalf of my fellow Directors, I would like to express our sincere appreciation and thanks to all our stakeholders – shareholders, business associates, suppliers, employees and our valued customers for their loyal support and understanding.
Last but not least, I wish to express my heartfelt thanks to my fellow Directors of the Company and its subsidiaries for their advice and guidance and the management and staff for their dedication, diligence and commitment to continuous improvement and problem solving resulting in profitable performance, albeit lower, under the most challenging conditions.
Datuk Dr. Foong Weng SumChairman & Group Chief Executive
1st October, 2009
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt8
DIRECTORS’ PROfIlE
DAtuK DR. FoonG wenG SuMChairman & Group Chief executive
Datuk Dr. Foong Weng Sum, aged 70, was appointed to the Board on 7th May 1982 as Vice Chairman. On 23rd
October 1986, he assumed the position of Group Chief Executive. He took over as Chairman of the Board on 1st
December 2000. He is also a member of the Remuneration Committee and ESOS Committee.
Datuk Dr. Foong Weng Sum is a graduate in medicine from the University of London. He has considerable business experience in various business sectors, including manufacturing, property development, financial management and investment.
DR. FoonG wenG CHeonGnon-Independent non-executive Director
Dr. Foong Weng Cheong, aged 76, was appointed to the Board on 7th May 1982. He is also a member of the Audit Committee, Remuneration Committee and Nominating Committee.
Dr. Foong Weng Cheong is a graduate in medicine from the University of Melbourne, Australia and is a Fellow of the Royal College of Surgeons of Edinburgh and also a Fellow of the Royal College of Surgeons of England. He was appointed Senior Lecturer (1971-1972), Associate Professor (1973-1980) and Professor & Head of Department of Surgery (1981-1988) at the National University of Singapore and Chief of University Department of Surgery at Singapore General Hospital and National University Hospital until he retired in 1988. Since 1988 he is a Consultant Surgeon at Mount Elizabeth Medical Centre, Singapore.
DAto’ RICHARD onG GuAn SenGIndependent non-executive Director
Dato’ Richard Ong Guan Seng, aged 71, was appointed to the Board on 25th March 1994. He is also the Chairman of the Audit Committee, Nominating Committee and ESOS Committee and a member of the Remuneration Committee.
Dato’ Richard Ong Guan Seng is a member of the Malaysian Institute of Accountants, the Malaysian Institute of Certified Public Accountants, the Institute of Chartered Accountants in Australia and the Institute of Chartered Secretaries and Administrators. He became a Partner of Peat Marwick (now known as kPMG), Malaysia in 1971 and was appointed Deputy Senior Partner in 1989 until he retired in 1993. He is also a Non-Executive Director of Malaysian Mosaics Berhad and Rock Chemical Industries (M) Berhad, companies listed on Bursa Malaysia.
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 9
DIRECTORS’ PROfIlE
MR. leonG KenG YuenIndependent non-executive Director
Mr. Leong keng Yuen, aged 59, was appointed to the Board on 15th September 2000. He is also the Chairman of the Remuneration Committee and a member of the Audit Committee, Nominating Committee and ESOS Committee.
Mr. Leong keng Yuen was a partner of Ernst & Young Malaysia before retiring at the end of 2005. He has over 30 years involvement in the accounting profession with initial emphasis on Company Law and Secretarial Practice and later covering also Tax and Audit. He is a member of the Malaysian Institute of Accountants and a Fellow of the Association of Chartered Certified Accountants. He also holds a Master of Science in Management from the Massachusetts Institute of Technology U.S.A. and a Bachelor of Engineering (First Class Honours) from University of Queensland, Australia. He is also a Non-Executive Director of Choo Bee Metal Industries Berhad and Pulai Springs Berhad, companies listed on Bursa Malaysia and OSk Investment Bank Berhad. He is also on the Board of The Perak Chinese Welfare Association and The Perak Chinese Maternity Association, both welfare organisations.
tuAn HAjI MoHD jAlI @ MoHD jAlIl BIn SAnYIndependent non-executive Director
Tuan Haji Mohd Jali @ Mohd Jalil Bin Sany, aged 62, was appointed to the Board on 20th November 2000. He is also a member of the Audit Committee and ESOS Committee.
Tuan Haji Mohd Jali @ Mohd Jalil Bin Sany is a member of the Malaysian Institute of Accountants and a Fellow of the Association of Chartered Certified Accountants. He has over 40 years of working experience in diversified industries which includes unit trust and investment holdings, properties and hotels, banking and insurance, plantation, film distribution and exhibition, commercial agriculture, animal husbandry and book publication and distribution. He has more than 20 years exposure in Sarawak and Sabah business operations. He is currently a Director of Hexzachem Sarawak Sdn. Bhd., an 80% owned subsidiary of the Company.
otHeR InFoRMAtIon
nationalityAll the Directors are Malaysians.
Family relationship with any Director and/or substantial shareholderDr. Foong Weng Cheong and Datuk Dr. Foong Weng Sum are brothers. Apart from this, none of the Directors has any family relationship with the other Directors or substantial shareholders of the Company.
ConflictofinterestSave as disclosed in Note 22 to the Financial Statements, none of the Directors has any conflict of interest with the Company.
Convictions for offencesNone of the Directors has been convicted of any offence within the past ten years.
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt10
The Board is pleased to present the Audit Committee Report for the financial year ended 30th June 2009.
The composition of the Audit Committee is as follows:
Dato’ Richard Ong Guan Seng (Chairman, Independent Non-Executive Director)Mr. Leong keng Yuen (Member, Independent Non-Executive Director)Tuan Haji Mohd Jali @ Mohd Jalil Bin Sany (Member, Independent Non-Executive Director)Dr. Foong Weng Cheong (Member, Non-Independent Non-Executive Director)
ConStItutIon
The Audit Committee (“the Committee”) was established on 6th April 1994 to serve as a Committee of the Board. The terms of reference is consistent with the Listing Requirements of Bursa Securities and the revised Code on corporate governance as set out below:
MeMBeRSHIp
(a) The Committee shall be appointed by the Board from amongst the non-executive Directors of the Company and shall consist of not less than three members of whom all the members must be non-executive directors, with a majority of them being Independent Directors. At least one member of the Committee must be a member of the Malaysian Institute of Accountants or eligible for membership.
(b) The members of the Committee shall select a Chairman from among their numbers who shall be an Independent Director.
(c) The term of office and performance of the Committee and each of its members should be reviewed by the Board at least once every three years to determine whether such Audit Committee and members have carried out their duties in accordance with their terms of reference.
AutHoRItY
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 the person(s) carrying out the internal audit function or activity;
(e) be able to obtain independent professional or other advice; and
(f) be able to convene meetings with the external auditors, internal auditors or both, excluding the attendance of other directors and employees of the Company, whenever deemed necessary.
AuDIT COmmITTEE REPORT
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 11
AuDIT COmmITTEE REPORT
ReSponSIBIlItIeS AnD DutIeS
The functions of the Audit Committee shall be to:-
(a) review with the external auditors, their audit plans;
(b) review with the external auditors, their evaluation of the system of internal controls;
(c) review with the external auditors, their audit reports;
(d) review the assistance given by the Company’s employees to the external auditors;
(e) review the adequacy of the scope, functions, competency and resources of the internal audit functions and that it has the necessary authority to carry out its work;
(f) review the scope and results of the internal audit procedures;
(g) review 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) review any related party transactions that may arise within the Company or Group;
(i) recommend the appointment of external auditors, audit fee and any question of resignation or dismissal;
(j) undertake such other functions as may be agreed to by the Audit Committee and Board of Directors; and
(k) report its findings to the Board of Directors.
MeetInGS
(a) The Audit Committee shall meet not less than four (4) times a year.
(b) The quorum of the Committee shall be at least two members; the majority of members present must be independent directors.
(c) The Secretary to the Committee shall be the Company Secretary.
RepoRtInG pRoCeDuReS
The Secretary shall circulate the minutes of meetings of the Committee to all members of the Board.
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt12
AttenDAnCe
During the financial year ended 30th June 2009, four (4) Audit Committee meetings were held and the details of the attendance were as follows:
no. of Meetings AttendedDato’ Richard Ong Guan Seng 4 out of 4Mr. Leong keng Yuen 4 out of 4Tuan Haji Mohd Jali @ Mohd Jalil Bin Sany 4 out of 4Dr. Foong Weng Cheong 3 out of 4
The Company Secretary attended all the meetings of the Audit Committee held during the financial year.
DoCuMentAtIon pRoCeDuReS
The Secretary shall be responsible, in conjunction with the Chairman, for drawing up the Agenda and the notice of meeting. The notice of meeting and the Agenda together with the relevant papers are circulated to the Committee members at least three (3) days prior to each meeting. The Secretary is responsible for keeping the minutes and communicating the decisions made at the meeting to the relevant parties.
SuMMARY oF ACtIVItIeS DuRInG tHe FInAnCIAl YeAR
During the financial year ended 30th June 2009, in line with the terms of reference, the Audit Committee carried out the following activities in discharge of its functions and duties:
(i) Reviewed the audit planning memorandum in respect of the financial year ended 30th June 2009 with the external auditors.
(ii) Reviewed the Groups’ quarterly results announcement before recommending them to the Board of Directors for approval.
(iii) Reviewed the audited financial statements of the Company and of the Group with the external auditors to ensure compliance with the provisions of the Companies Act, 1965 and the applicable accounting standards prior to submission to the Board of Directors for consideration and approval.
(iv) Reviewed and discussed the external auditors’ management letter to ensure the internal control issues highlighted are appropriately addressed by the management.
(v) Reviewed and approved the revised Internal Audit Charter.
(vi) Reviewed and approved the internal audit plan.
(vii) Reviewed and deliberated on the reports from the internal audit unit on the results of their internal audit visits, and management’s response to the recommendations.
(viii) Reviewed and deliberated on the risk assessment reports from the operating companies of the Group with request for further actions where appropriate.
(ix) Reported to the Board on significant issues discussed during the Audit Committee meetings and conveyed the Audit Committee’s recommendations, if any, to the Board. The minutes of the Audit Committee meetings were distributed to all Board members.
AuDIT COmmITTEE REPORT (continued)
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 13
(x) Met with the external auditors of the Company twice during the year without the presence of the Group Chief Executive and management.
(xi) Reviewed the adequacy of the internal audit functions in respect of the compliance with the Internal Audit Charter.
(xii) Reviewed the performance of the internal audit unit against the annual audit plan for the financial year ended 30th June 2009 and the cost incurred in connection with the performance of the audit.
InteRnAl AuDIt FunCtIon
The Company has an in-house Internal Audit Unit to assist the Audit Committee to undertake regular and systematic review of the adequacy, integrity and the effectiveness of the Group’s system of internal control. The internal audit unit reports directly to the Chairman of the Audit Committee. The functions and responsibilities of the internal audit unit are embodied in the Internal Audit Charter which has been revised and approved by the Board during the financial year.
During the financial year under review, the internal audit unit carried out internal audit reviews based on the internal audit plan approved by the Audit Committee. The total cost incurred by the internal audit unit during the financial year ended 30th June 2009 amounted to approximately RM131,000. The following were the activities carried out by the Internal audit unit:
(i) Reviewed and appraised the adequacy, effectiveness and efficiency of internal control in the Group.
(ii) Ascertained the extent to which the Group complies with established policies, procedures and statutory requirements.
(iii) Reviewed the effectiveness of the risk management system.
(iv) Recommended improvements to the existing internal control system.
(v) Identified opportunities for improvement in the operations of the Group.
AuDIT COmmITTEE REPORT
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt14
CORPORATE gOvERNANCE STATEmENT
The Board of Directors of Hexza Corporation Berhad (“the Board”) is committed to ensure that the Group’s Corporate Governance is in line with the principles and best practices of the Malaysian Code on Corporate Governance (“Code”) and the Listing Requirements of Bursa Malaysia Securities Berhad.
The Board is pleased to report on the extent to which the principles and practices of the Code were applied throughout the financial year ended 30th June 2009. This statement is made in accordance with a resolution of the Board of Directors dated 23rd September 2009.
A. BoARD oF DIReCtoRS
Composition of the Board
The Group is led by an effective and experienced Board of members with different backgrounds and specializations. The Board is responsible for the corporate governance practices of the Group. It guides and monitors the affairs of the Group on behalf of the shareholders and retains full and effective control over the Group. The key responsibilities include the primary responsibilities prescribed under the Code. These cover a review of the strategic direction for the Group, overseeing the business operations of the Group, and evaluating whether these are being properly and effectively managed.
Board Balance
The Board Composition remain the same as the previous financial year, which consists of five (5) members including three (3) independent non-executive directors, one (1) non-independent non-executive director and one (1) executive director. This complies with the Listing Requirements of Bursa Malaysia Securities Berhad that one third of its Board consists of independent directors.
The Board is of the view that its composition fairly reflects the composition of its shareholders. There is a balance of executive, non-executive and independent non-executive directors. The Board is satisfied that the current Board composition fairly reflects the investment of minority shareholders in the Company.
Duties and Responsibilities
The Group Chief Executive in particular is responsible for implementing the policies and decisions of the Board, overseeing the operations as well as coordinating the development and implementation of business and corporate strategies. The independent non-executive directors exercise independent view, advice and judgment in Board deliberations and provide an effective check and balance for the other directors. They do not participate in the day to day management of the Group but provide sufficient check and balance. The non-executive directors contribute significantly in areas such as policy and strategy, performance monitoring, allocation of resources as well as improving governance and controls. Together with Group Chief Executive who has an intimate knowledge of the business, the Board is constituted of individuals who are committed to business integrity and professionalism in all its activities.
A brief write-up of the background of the Board members as at the date of this statement is presented under Directors’ profile in the Annual Report.
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 15
CORPORATE gOvERNANCE STATEmENT
Board and Board Committee Meetings
The Board meets at least four (4) times a year at quarterly intervals, with additional meetings convened as necessary. There were four (4) meetings held during the financial year ended 30th June, 2009 and details of the attendance of the directors were as follows:
no. of Meetings AttendedDatuk Dr. Foong Weng Sum 4/4Dr. Foong Weng Cheong 3/4Dato’ Richard Ong Guan Seng 4/4Mr. Leong keng Yuen 4/4Tuan Haji Mohd Jali @ Mohd Jalil Bin Sany 4/4
At each Board Meeting, the Board considers the quarterly financial reports, the year to date financial performance of the Group, operations reports of the major business divisions, new business venture proposals and strategic issues affecting the Group’s business. The Chairman of the Audit Committee reports to the Board on the internal control issues based on the internal audit unit’s findings and the results of review of the risk assessment report.
The Board has also established the following Committees to assist the Board to discharge its fiduciary duties:• Audit Committee• Nominating Committee • Remuneration Committee• ESOS Committee
Supply of Information
The Board has unrestricted access to timely and accurate information, necessary in the furtherance of their duties. The Chairman ensures that all relevant issues requiring the Board’s deliberation and approval are on the agenda and senior management is invited to the Board meetings to present the relevant issues. The Agenda and a full set of Board papers are distributed at least three (3) days prior to the meeting to allow directors sufficient time to review the Board papers for effective deliberation at the meeting proper. All proceedings of Board meetings are minuted and signed by the Chairman. All directors have access to the advice and services of the Company Secretary and senior management in carrying out their duties.
Independent professional Advice
There is a formal procedure sanctioned by the Board for Directors, whereby the full board or the individual directors can take independent professional advice at the Group’s expense, where necessary and in furtherance of their duties.
Appointment to the Board
The Nominating Committee is responsible for establishing a formal and transparent selection process for the appointment of new directors to the Board. The Committee will review the required mix of skills and experience of the directors of the Board, and determine the appropriate Board balance and number of non-executive directors. The Committee has established the procedures and processes towards an annual assessment of the effectiveness of the Board as a whole, the committees of the Board and for assessing the contribution of each individual director. The Board is satisfied that the current composition of the Board brings the required mix of skills and experience required for the Board to function effectively.
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt16
Directors’ training
All the directors have successfully completed the Mandatory Accreditation Programmes. The Directors will continue to undergo training on an annual basis to further enhance their skills and knowledge so as to keep abreast with new regulatory developments and the Listing Requirements. The Board will discuss and determine the training needs of the directors and the directors are encouraged to attend various training on their own and submit the certificate of attendance to the Secretary for record.
During the financial year ended 30th June 2009, the training programme and seminars attended by the Directors included the following:
name of Directors training Attended
Datuk Dr. Foong Weng Sum 2009 Tax Budget Seminar ¾
Using the Appraisal Process to preview next year’s objectives ¾
Dr. Foong Weng Cheong Using the Appraisal Process to preview next year’s objectives ¾
Dato’ Richard Ong Guan Seng Corporate Governance Week 2009 Programme ¾
Mr. Leong keng Yuen Bankruptcy and Estate Planning ¾
Introduction to Islamic Banking ¾
Financial Instruments FRS 132, 139 and IFRS7 ¾
2009 Tax Budget Seminars ¾
Tuan Haji Mohd Jali @ Mohd Jalil Bin Sany
Corporate Governance Week 2009 Programme ¾
Re-election
In accordance with the Company’s Articles of Association, all newly appointed directors are subject to retirement and are entitled for re-election at the first annual general meeting after their appointment. The other directors are subject to retire on a rotational basis once every three years and are entitled to offer themselves for re-election at the Company’s annual general meeting. Directors over seventy years old are required to submit themselves for re-appointment annually in accordance to Section 129(6), Companies Act, 1965. Directors standing for re-election at the Fortieth Annual General Meeting are detailed in the Notice of the Fortieth Annual General Meeting.
B. DIReCtoRS’ ReMuneRAtIon
The Remuneration Committee is responsible for recommending the remuneration package for all Directors. The individual directors play no part in deciding their own remuneration.
The policy practised on directors’ remuneration by the Remuneration Committee is to provide the remuneration packages according to the skills, level of responsibilities, experience and performance of the directors in order to attract, retain and motivate directors of the quality required to lead and guide the business of the Company.
The remuneration of the non-executive directors is determined by the Board as a whole. In addition, non-executive directors are paid a meeting allowance for each meeting he attended.
CORPORATE gOvERNANCE STATEmENT (continued)
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 17
The details of the directors’ remuneration for the financial year ended 30th June 2009 are as follows:
executiveDirector
non-executiveDirectors total
RM’000 RM’000 RM’000Fees and allowances 71 234 305Salaries & other emoluments 1,089 44 1,133Estimated monetary value of Benefits-in-kind 22 – 22
The number of directors whose remuneration fall into the following bands are as follows:
Band executivenon-
executives
RM50,000 to RM100,000 – 4
RM1,150,000 to RM1,200,000 1 –
The fees payable to the directors will be recommended by the Board for approval by shareholders at the forthcoming Annual General Meeting.
There are no contracts of service between any director and the Company or its subsidiaries having an unexpired term of more than one year.
C. SHAReHolDeRS
Shareholders communication and investors relationship policy
The Annual General Meeting is the principal forum for dialogue and interaction with shareholders. All shareholders are welcome to attend the Company’s Annual General Meeting and to actively participate in the proceedings. They are encouraged to ask questions both about the resolutions being proposed or any issues pertaining to the Company and to give their views and suggestions for the benefit of the Company. Members of the Board and the external auditors of the Company are present to answer questions raised at the meeting. Where it is not possible to provide immediate answers, the Chairman will undertake to furnish the shareholder with a written answer after the AGM.
The annual reports and the quarterly announcements are the primary modes of communication to report on the Group’s business, activities and financial performance to all its shareholders. The Company has established a website, www.hexza.com.my to improve the channel of communication between its shareholders and interested public. Dato’ Richard Ong Guan Seng is the senior independent non-executive director who will attend to answer all queries relating to the affairs of the Group.
CORPORATE gOvERNANCE STATEmENT
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt18
D. ACCountABIlItY AnD AuDIt
Financial Reporting
The Board aims to present a balanced and meaningful assessment of the Group’s financial performance and prospects in presenting the annual financial statements and quarterly announcement of results to shareholders as well as the Chairman’s statement and review of operations in the annual report. The Board is assisted by the Audit Committee to oversee the Group’s financial reporting processes and the quality of its financial reporting.
Relationship with the Auditors
The Company has established a transparent and appropriate relationship with the Group’s internal and external auditors through the Audit Committee. The Audit Committee meets with the external auditors without the presence of any executives of the Group at least twice a year.
The role of the Audit Committee in relation to the external auditors is described in the Audit Committee Report. Internal Control
The Board is committed to maintaining a sound system of internal control to ensure that the Group is operating effectively and efficiently in accordance with its internal policies and procedures and complying to laws and regulations. The information on the Group’s internal control is presented in the Statement on Internal Control of this Annual Report.
e. CoMplIAnCe wItH tHe BeSt pRACtICeS
The Group has taken various steps to ensure compliance with the Best Practices of the Code during the financial year ended 30th June 2009 save as follows:
Division of Responsibilities
The roles of the Chairman and the Group Chief Executive are combined and are currently held by Datuk Dr. Foong Weng Sum. The Board is mindful of the combined roles but is of the view that there is sufficient balance of executive and independent non-executive directors on the Board. The independent non-executive directors are professionals of credibility and repute who demonstrate independence of judgment and objectivity in the Board’s deliberations and the necessary check and balance on the Board. All related party transactions, which arose in the normal course of business involving him, have been disclosed in the notes to the financial statements.
F. DIReCtoRS’ ReSponSIBIlItY StAteMent
The directors are responsible for the preparation of the Annual Audited Accounts and the Board always ensures that proper accounting records are kept and the accounts and other financial reports of the Group are prepared in accordance with the applicable approved accounting standards and complied with the provisions of the Companies Act, 1965.
The directors also have a general responsibility for taking such steps as are reasonably available to them to control and safeguard the assets of the Group and to prevent and detect fraud and other irregularities. In the opinion of the directors, the Group has applied the appropriate accounting policies and standards consistently in the preparation of the financial statements for the financial year ended 30th June 2009.
CORPORATE gOvERNANCE STATEmENT (continued)
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 19
G. otHeR InFoRMAtIon
utilisation of proceeds
No proceeds were raised by the Company from any corporate exercise during the financial year.
Share Buy-Back
There was no share buy-back during the financial year.
options, warrants or Convertible Securities
There was no issue of options, warrants or convertible securities during the financial year. The details of the ESOS exercised during the financial year are disclosed in Note 26 to the Financial Statements.
American Depository Receipt (ADR)/Global Depository Receipt (GDR) programmes
The Company did not sponsor any ADR or GDR programmes during the financial year.
Imposition of Sanctions / penalties
There were no sanctions and/or penalties imposed on the Company and its subsidiaries, directors or management by the regulatory bodies during the financial year.
non-Audit Fees
During the financial year ended 30th June 2009, the non-audit fees payable to the external auditors amounted to approximately RM3,000.
ProfitEstimate,ForecastorProjection
The Company did not release any profit estimate, forecast or projection for the financial year.
ProfitGuarantee
The Company did not make any arrangement during the financial year which requires profit guarantee.
Material Contracts and Contracts Relating to loans
There are no material contracts and contracts relating to loans entered into by the Company and its subsidiaries which involve the Directors and substantial shareholders entered into since the previous financial year.
Recurrent Related party transactions of Revenue nature
The details of related party transactions of revenue or trading nature undertaken by the Company during financial period are disclosed in Note 22 to the Financial Statements.
Revaluation policy on landed properties
The Group does not adopt a policy on regular revaluation of its landed properties.
CORPORATE gOvERNANCE STATEmENT
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt20
IntRoDuCtIon
The Board is committed to maintaining a sound system of internal control throughout the group to safeguard shareholders’ investments and the Group’s assets, and is pleased to provide the following Statement on Internal Control of the Group for the financial year ended 30th June 2009 pursuant to Paragraph 15.26(b) of the Listing Requirements of the Bursa Malaysia Securities Berhad (Bursa Securities) and the guidelines provided by Bursa Securities on Internal Control – Guidance for Directors of Public Listed Companies.
BoARD ReSponSIBIlItY
The Board recognizes the importance of good corporate governance and that it is responsible for the Group’s system of internal controls which includes not only financial controls but also operational and compliance controls as well as effective risk management. The Group’s existing system of internal control includes financial, operational and risk management procedures which are designed to meet the Group’s particular needs and to manage the risks to which it is exposed. Due to the limitations that are inherent in any system of internal control, the system is designed to manage, rather than eliminate, the risk of failure to achieve business objectives. The system can only provide reasonable, and not absolute assurance against material misstatement of management and financial information and records or against financial losses or fraud. The process of identifying, evaluating and managing the risks that matters is maintained throughout the financial year under review and the effectiveness, adequacy and integrity of the processes are reviewed by the Board regularly.
The Board’s primary objective and strategic direction in managing the Group’s business risks are to enhance its ability to achieve its business objectives.
The role of management is to implement the Board’s policies, procedures and guidelines on risk and control by identifying and evaluating the risks faced and implemented action plans and time frame to manage the risks identified.
enteRpRISe RISK MAnAGeMent FRAMewoRK
The Board believes that the development of the system of internal controls is an ongoing process and continues to take steps to improve the internal control system. The Board reviewed and monitored the significant risks that have an impact on the achievement of the Group’s business objectives through its assessment of the internal control system. Any material risks identified will be discussed and appropriate actions taken to address the risk identified to ensure the risk is properly monitored and managed to an acceptable level.
The Group continues to implement the methodologies in accordance with the enterprise risk management framework approved by the Board. All the operating companies within the Group follow the procedures laid down in the manual on the Group’s Risk Management Policy and Procedures. The operating companies maintain a risk register with detailed information on individual risk profiles which is updated periodically.
During the financial year under review, the Risk Management Units of the operating companies continued to identify principal risks of the business, assessing the likelihood and impact of the potential risk and evaluate and manage the risks by formulating action plans and time frame to mitigate those risks identified. The Risk assessment reports are submitted on a half yearly basis by the respective operating companies to the Audit Committee for review and comments.
STATEmENT ON INTERNAl CONTROl
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 21
InteRnAl AuDIt FunCtIon
The internal audit function has the primary objective of carrying out a review of the internal control system to determine if the internal control procedures have been complied with and to make recommendations to strengthen the internal control system.
During the financial period under review, the internal audit unit carried out regular and systematic reviews on major business operating units of the Group to assess the effectiveness and adequacy of internal control and highlights areas for improvement. The annual audit plan was reviewed and approved by the Audit Committee prior to the commencement of audit. Internal Audit reports are submitted to the Audit Committee for review on a quarterly basis. The internal audit report summarises the audit objectives, scope, audit findings and recommendations and management’s response to the recommendations of the internal audit unit.
The internal audit unit also checks to ensure that the risk management strategy, framework and methodology implemented are consistently applied by the major operating subsidiaries.
The Audit Committee ensures that control issues highlighted by both the internal audit unit and the external auditors are appropriately addressed by the respective management of the operating subsidiaries on a timely basis.
A number of minor internal control weaknesses were identified by the internal audit unit as well as the external auditors during the period, all of which have been, or are being addressed. None of the weaknesses have resulted in any material losses, contingencies or uncertainties that would require disclosure in this report.
The Board reviews the minutes of the Audit Committee meeting on a quarterly basis.
otHeR KeY ContRol pRoCeSSeS
Apart from the risk management and internal audit mentioned above, the other key control processes of the Group’s internal control include the following:
• There are proper organizational structures with well defined lines of responsibility and authority matrix.
• Standard operational procedures, policies, guidelines and limits of approving authorities are documented in the Group Manual which is subjected to review as and when necessary. The Group uses the same accounting system to ensure as far as possible, consistency in the financial management processes.
• The operating units hold regular management meetings to review the financial and operational performance and risk management issues.
• Annual business plan and budget are prepared by the operating units and submitted to the Board for approval. The actual performance is compared against budget on a monthly basis with explanation of variances. The Board reviewed the performance of the Group on a quarterly basis.
• Management reports, both financial and operational performance reviews which encompass review of key performance indicators, variance analysis and compliance to policies and guidelines are generated on a monthly basis and submitted to the Group Chief Executive on a monthly basis.
STATEmENT ON INTERNAl CONTROl
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt22
• The Group Chief Executive is responsible for implementing the policies and decisions of the Board, monitors and manages the Group’s operations by actively involved in the day to day operations of the Group.
• Centralised procurement of major raw materials at the Head Office.
• The Board meets at least on a quarterly basis and there is a formal agenda on matters for discussion at every meeting. The Group Chief Executive leads the presentation of board papers and provides comprehensive explanation of pertinent matters. The Board is updated on the performance of the operating units together with any significant matters by either the Group Chief Executive and/or the General Managers of the respective operating units at Board Meetings.
The Board is of the view that the system of internal controls mentioned above provides reasonable assurance that the system of internal control is adequate to achieve the Group’s business objectives. Nevertheless, the Board will strive to ensure that the system of internal control will be continuously improved.
ReVIew oF tHe StAteMent BY eXteRnAl AuDItoRS
The external auditors have reviewed this Statement on Internal Control in accordance with the Auditing Technical Release 5, Guidance for Auditors on the Review of Directors’ Statement on Internal Control pursuant to paragraph 15.23 of the Bursa Securities Listing Requirements and reported to the Board that the Statement appropriately reflects the process adopted by the Board in reviewing the adequacy and integrity of the system of internal controls.
This statement is reviewed and approved by the Board in accordance with a resolution of the Board of Directors dated 23rd September 2009.
STATEmENT ON INTERNAl CONTROl (continued)
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 23
CORPORATE SOCIAl RESPONSIBIlITy STATEmENT
The Group is conscious of its corporate social responsibility commitments to its various stakeholders and endeavors to operate ethically, profitably and contribute to the welfare of the community. The Group’s mission to enhance value for all stakeholders whilst taking into consideration our social obligations remains unchanged.
We continue to support the CSR framework for Public Listed Companies which guide us on the implementation of good CSR practices in the following areas:
enVIRonMent
The Group recognizes the impact that its businesses have on the environment and, as a minimum, comply with the environmental regulations and legislation. The Group continues to undertake various measures to preserve the environment through the control of effluent discharges, air emissions, scheduled waste disposal and noise.
The wastewater treatment plant project to treat the effluent from our ethanol division is still in progress. We always strive to improve our processes so as to reduce pollution and waste and operate our facilities in a responsible and sustainable manner.
tHe woRKplACe
It is our aim to provide a healthy, conducive and safe working environment for the well being of our employees. We ensure that our working conditions are fit for the intended business purpose and are in compliance with the requirement of the Occupational Safety and Health Act 1994 (OSHA). Our major operating subsidiaries have implemented Safety and Health policies to ensure that all employees work in a safe and healthy environment. The environment, health and safety considerations are integral to the operations of the operating subsidiary companies.
The Group provides opportunity for employees to upgrade their skills and improve their knowledge by promoting continual education programmes. We carried out training analysis for employees to identify the specific training needs of our employees. We provide in-house training to our employees besides sending the employees to attend various seminars. We also encourage employees to pursue for higher education to enhance their skills and ability.
We also support various activities organized by the employees to foster better relationship and understanding among the employees.
tHe CoMMunItY
Our Group is committed to being a responsible corporate citizen, contributing in meaningful ways from time to time. As part of its commitment to training and development within the business, the Group continues to accept internship and placements for undergraduates from various higher learning institutions to provide hands-on experience in their study related field during the financial year.
tHe MARKet plACe
We are committed to ensure the interests of our stakeholders are being taken care. We shall continue to conduct investor relations in line with its policy to disclose information to stakeholders fairly and in a timely manner.
In spite of the economic downturn, we have maintained the same rate of dividend in respect of the financial year ended 30th June 2009 and we shall maintain the aim for a stable dividend payment and steadily increase the quantum if the underlying performance of the Group permits.
All our major subsidiaries are accredited with ISO 9001:2000 Quality Management Systems, we are committed to continual improvement in technology and services to ensure superior quality products to our customers.
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt24
DIRECTORS’ REPORT
The directors of HEXZA CORPORATION BERHAD have pleasure in submitting their report and the audited financial statements of the Group and of the Company for the financial year ended June 30, 2009.
pRInCIpAl ACtIVItIeS
The Company is principally involved in investment holding.
The principal activities of the subsidiary companies are disclosed in Note 16 to the Financial Statements.
There have been no significant changes in the nature of the principal activities of the Company and its subsidiary companies during the financial year.
ReSultS oF opeRAtIonS
The results of operations of the Group and of the Company for the financial year are as follows:
the Group the CompanyRM RM
Profitbeforetax 7,936,511 15,631,801
tax expense (773,897) (2,272,180)
Profitaftertax 7,162,614 13,359,621
Attributable to:
equity holders of the Company 6,986,042 13,359,621
Minority interests 176,572 –
7,162,614 13,359,621
In the opinion of the directors, the results of operations of the Group and of the Company during the financial year have not been substantially affected by any item, transaction or event of a material and unusual nature.
DIVIDenDS
A first and final dividend of 4.0%, less 25% tax and a special dividend of 3%, tax-exempt, amounting to RM6,011,401 proposed in respect of 200,380,036 ordinary shares in the previous financial year and dealt with in the previous directors’ report were paid by the Company during the financial year.
The directors have proposed a first and final dividend of 4.0%, less tax and a tax-exempt dividend of 3.0% in respect of the current financial year. The proposed dividends are subject to approval by the shareholders at the forthcoming Annual General Meeting of the Company and have not been included as a liability in the financial statements.
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 25
DIRECTORS’ REPORT
ReSeRVeS AnD pRoVISIonS
There were no material transfers to or from reserves or provisions during the financial year other than those disclosed in the financial statements.
ISSue oF SHAReS AnD DeBentuReS
During the financial year, the issued and paid-up ordinary share capital of the Company was increased from RM66,000,845 to RM66,793,345 through the issue of 1,585,000 new ordinary shares of RM0.50 each pursuant to the exercise of options granted under the Executive Share Option Scheme (“ESOS”) of the Company at exercise prices of RM0.50 and RM0.55 per share.
The resulting premium arising from the shares issued under the ESOS of RM72,200 has been credited to the share premium account.
As approved by the shareholders at the Extraordinary General Meeting held on November 22, 2008, the issued and paid-up ordinary share capital of the Company was increased from RM66,793,345 to RM100,190,018 during the financial year by way of a bonus issue of 66,793,345 new ordinary shares of RM0.50 each through the capitalisation of RM33,396,673 from reserves on the basis of one (1) new bonus share for every two (2) existing shares held in the Company.
The new ordinary shares issued rank pari passu with the then existing ordinary shares of the Company.
The Company has not issued any debentures during the financial year.
eXeCutIVe SHARe optIon SCHeMe
Under the Company’s ESOS approved by shareholders at an Extraordinary General Meeting held on January 4, 1999 which became effective on February 19, 1999, options were granted to eligible executives and full-time executive directors of the Company and its subsidiary companies. The Company amended its ESOS Bye-Laws which were approved by the shareholders on June 21, 2003.
The salient features of the ESOS are as follows:
(a) Eligible employees including Executive Directors are those who have been confirmed as full time employees in a company not being a dormant company within the Group;
(b) At any one time during the duration of the ESOS, the number of shares to be offered under the ESOS shall not exceed 10% of the issued and paid-up share capital of the Company;
(c) The ESOS shall be in force for a period of ten (10) years from February 19, 1999;
(d) The option price shall be based on the five (5) day weighted average market price of the shares of the Company at the date of offer with a discount of not more than 10% if deemed appropriate or at the par value of the shares, whichever is the higher;
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt26
(e) The maximum allowable allotment shall be determined at the discretion of the committee as follows:
(i) not more than 50% of the shares under the options are to be allocated in aggregate to Executive Directors and senior management of the Group; and
(ii) not more than 10% of the shares under the options are to be allocated to any individual Executive Director or employee who, either singly or collectively through his/her associates, holds 20% or more in the issued and paid-up capital of the Company; and
(f) The new shares to be allotted upon any exercise of an option will upon issue and allotment rank pari passu in all respect with the then existing issued ordinary shares of the Company.
The movements in the options during the financial year are as follows:
number of options
As of July 1, 2008 4,300,000
Granted –Lapsed on expiry (2,715,000)
Exercised (1,585,000)
As of June 30, 2009 –
The options granted to these option holders expired on February 18, 2009.
otHeR FInAnCIAl InFoRMAtIon
Before the income statements and the balance sheets of the Group and of the Company were made out, the directors took reasonable steps:
(a) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of allowance for doubtful debts and have satisfied themselves that all known bad debts have been written off and that adequate allowance had been made for doubtful debts; and
(b) to ensure that any current assets which were unlikely to realise their book values in the ordinary course of business have been written down to their estimated realisable values.
DIRECTORS’ REPORT (continued)
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 27
At the date of this report, the directors are not aware of any circumstances:
(a) which would render the amount written off as bad debts or the amount of allowance for doubtful debts in the financial statements of the Group and of the Company inadequate to any substantial extent; or
(b) which would render the values attributed to current assets in the financial statements of the Group and of the Company misleading; or
(c) which have arisen which render adherence to the existing method of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate; or
(d) not otherwise dealt with in this report or financial statements which would render any amount stated in the financial statements of the Group and of the Company misleading.
At the date of this report, there does not exist:
(a) any charge on the assets of the Group and of the Company which has arisen since the end of the financial year and secures the liability of any other person; or
(b) any contingent liability of the Group and of the Company which has arisen since the end of the financial year.
No contingent or other liability has become enforceable, or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the directors, will or may substantially affect the ability of the Group and of the Company to meet their obligations as and when they fall due.
In the opinion of the directors, no item, transaction or event of a material and unusual nature has arisen in the interval between the end of the financial year and the date of this report which is likely to affect substantially the results of operations of the Group and of the Company for the financial year in which this report is made.
DIReCtoRS
The following directors served on the Board of the Company since the date of the last report: Datuk Dr. Foong Weng SumDr. Foong Weng CheongDato’ Richard Ong Guan Seng Mr. Leong keng Yuen Tuan Haji Mohd Jali @ Mohd Jalil Bin Sany
In accordance with Article 78 of the Company’s Articles of Association, Mr. Leong keng Yuen retires by rotation and, being eligible, offers himself for re-election.
In accordance with Section 129 (6) of the Companies Act, 1965, Datuk Dr. Foong Weng Sum, Dr. Foong Weng Cheong and Dato’ Richard Ong Guan Seng retire at the forthcoming Annual General Meeting and, being eligible, offer themselves for re-appointment.
DIRECTORS’ REPORT
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt28
DIReCtoRS’ InteReStS
The shareholdings in the Company of those who were directors at the end of the financial year, as recorded in the Register of Directors’ Shareholdings kept by the Company under Section 134 of the Companies Act, 1965, are as follows:
no. of ordinary shares of RM0.50 eachBalance as of
1.7.2008 BoughtBonusissue Sold
Balance as of30.6.2009
Shares in the Company
Registered in the name of directors
Datuk Dr. Foong Weng Sum 222,152 500,000 361,076 – 1,083,228
Dr. Foong Weng Cheong 1,775,000 – 887,500 – 2,662,500
Dato’ Richard Ong Guan Seng 100,000 50,000 50,000 – 200,000
Mr. Leong keng Yuen 150,000 – 75,000 – 225,000
Tuan Haji Mohd Jali @ Mohd Jalil Bin Sany 520,000 30,000 275,000 (216,700) 608,300
Indirect interest by virtue of shares held by a company in which the directors have interest
Datuk Dr. Foong Weng Sum 40,321,105 100,000 20,160,552 – 60,581,657
Dr. Foong Weng Cheong 40,321,105 100,000 20,160,552 – 60,581,657
no. of options over ordinary shares of RM0.50 each Balance as of
1.7.2008 Granted exercised Balance as of
30.6.2009
Datuk Dr. Foong Weng Sum 500,000 – (500,000) –
By virtue of their interests in the shares of the Company, Datuk Dr. Foong Weng Sum and Dr. Foong Weng Cheong are also deemed to have an interest in the shares of all the subsidiary companies to the extent that the Company has interest.
DIRECTORS’ REPORT (continued)
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 29
DIReCtoRS’ BeneFItS
Since the end of the previous financial year, none of the directors of the Company has received or become entitled to receive any benefit (other than the benefit included in the aggregate amount of emoluments received or due and receivable by directors as disclosed in the financial statements or the fixed salary of a full-time employee of the Company) by reason of a contract made by the Company or a related corporation with the director or with a firm of which he is a member, or with a company in which he has a substantial financial interest except for any benefit which may be deemed to have arisen by virtue of the transactions between the Company and certain companies in which certain directors of the Company are also directors and/or shareholders as disclosed in Note 22 to the Financial Statements.
During and at the end of the financial year, no arrangement subsisted to which the Company was a party whereby directors of the Company might acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate except for options granted to a director pursuant to the Company’s ESOS as disclosed above.
AuDItoRS
The auditors, Messrs. Deloitte & Touche, have indicated their willingness to continue in office.
Signed on behalf of the Boardin accordance with a resolution of the Directors,
DAtuk DR. Foong Weng SuM
DAto’ RiChARD ong guAn Seng
Ipoh,September 10, 2009
DIRECTORS’ REPORT
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt30
RepoRt on tHe FInAnCIAl StAteMentS
We have audited the financial statements of Hexza Corporation Berhad, which comprise the balance sheets of the Group and of the Company as of June 30, 2009 and the income statements, statements of changes in equity and cash flow statements of the Group and of the Company for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 32 to 84.
Directors’ Responsibility for the Financial Statements
The directors of the Company are responsible for the preparation and fair presentation of these financial statements in accordance with the Financial Reporting Standards in Malaysia and the Companies Act, 1965 in Malaysia. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit and to report our opinion to you, as a body, in accordance with Section 174 of the Companies Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility towards any other person for the contents of this report.
We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the Group’s and the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence that we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
opinion
In our opinion, the financial statements have been properly drawn up in accordance with the Financial Reporting Standards in Malaysia and the Companies Act, 1965 in Malaysia so as to give a true and fair view of the financial position of the Group and of the Company as of June 30, 2009 and of their financial performance and cash flows for the year then ended.
INDEPENDENT AuDITORS’ REPORT TO THE MEMBERS OF HEXZA CORPORATION BERHAD
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 31
RepoRt on otHeR leGAl AnD ReGulAtoRY RequIReMentS
In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report that:
(a) in our opinion, the accounting and other records and the registers required by the Companies Act, 1965 to be kept by the Company and its subsidiaries have been properly kept in accordance with the provisions of the Companies Act, 1965;
(b) we are satisfied that the financial statements of the subsidiary company that have been consolidated with the financial statements of the Company are in form and content appropriate and proper for the purposes of the preparation of the financial statements of the Group, and we have received satisfactory information and explanations as required by us for these purposes; and
(c) our auditors’ reports on the financial statements of the subsidiary companies were not subject to any qualification and did not include any comment made under sub-section (3) of Section 174 of the Companies Act, 1965.
DeLoitte & touCheAF 0834Chartered Accountants
Yeoh SieW MingPartner - 2421/05/11(J/PH)Chartered Accountant
September 10, 2009
INDEPENDENT AuDITORS’ REPORT TO THE MEMBERS OF HEXZA CORPORATION BERHAD INDEPENDENT AuDITORS’ REPORT TO THE MEMBERS OF HEXZA CORPORATION BERHAD
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt32
the Group the Company2009 2008 2009 2008
note RM RM RM RM
Revenue 4 166,433,115 177,064,396 11,872,968 9,122,321
Investment revenue 6 1,419,749 1,362,062 1,235,810 1,199,667
Other gains and losses 7 557,583 3,293,483 1,177,626 3,381,161
Other operating income 8 127,295 114,146 2,223,100 511,697
Changes in inventories of finished goods and work-in-progress (2,927,239) 1,687,986 – –
Raw materials and consumables used (101,248,817) (101,330,440) – –
Property development expenditure recognised (441,795) – – –
Carrying value of land held for sale – (1,556,300) – –
Directors’ remuneration 9 (1,438,430) (1,362,750) (266,750) (269,250)
Employee benefits expenses 10 (7,977,760) (7,633,248) (157,376) (148,528)
Depreciation of property, plant and equipment 14 (5,689,742) (5,590,332) (2,805) (4,484)
Amortisation of prepaid interest in leased land 15 (140,628) (140,352) (9,582) (9,581)
Share of profit in associated company 17 248,592 83,102 – –
Impairment loss on property, plant and equipment 14 (3,057,730) – – –
Finance costs 11 (163,971) (230,244) – –
Other expenses 8 (37,763,711) (37,882,141) (441,190) (173,934)
Profit before tax 7,936,511 27,879,368 15,631,801 13,609,069
Tax expense 12 (773,897) (4,717,041) (2,272,180) (2,291,836)
Profitfortheyear 7,162,614 23,162,327 13,359,621 11,317,233
Attributable to:
Equity holders of the Company 6,986,042 22,061,120 13,359,621 11,317,233
Minority interests 176,572 1,101,207 – –
7,162,614 23,162,327 13,359,621 11,317,233earnings per ordinary share of
RM0.50 each
Basic (sen) 13 3.5 11.1
Diluted (sen) 13 3.5 11.1
The comparative earnings per ordinary share has been restated to take into account the effect of the bonus issue.
INCOmE STATEmENTS FOR THE YEAR ENDED jUNE 30, 2009
The accompanying Notes form an integral part of the Financial Statements.
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 33
the Group the Company2009 2008 2009 2008
note RM RM RM RM
ASSetS
non-current assets
Property, plant and equipment 14 58,529,865 63,648,835 2,000 4,805
Prepaid interests in leased land 15 7,393,412 8,314,142 – 789,684
Investment in subsidiary companies 16 – – 65,835,945 65,315,282
Investment in associated company 17 5,583,937 5,531,345 2,561,936 2,757,936
Other investments 18 22,441,071 12,183,392 22,441,071 12,183,392
Goodwill arising on consolidation 19 2,129,365 2,129,365 – –
Deferred tax assets 12 1,628,000 1,133,000 – –
total non-current assets 97,705,650 92,940,079 90,840,952 81,051,099
Current assets
Inventories 20 15,215,517 18,698,853 – –Trade and other receivables 21 31,588,839 38,009,582 1,148,657 233,209
Current tax assets 12 304,980 83,018 95,354 71,005
Other assets 23 368,195 306,106 26,971 24,268
Cash, cash equivalents and bank balances 24 63,816,089 67,993,732 41,690,132 44,846,605
111,293,620 125,091,291 42,961,114 45,175,087
Non-current assets classified as held for sale 25 780,102 – 780,102 –
total current assets 112,073,722 125,091,291 43,741,216 45,175,087
total assets 209,779,372 218,031,370 134,582,168 126,226,186
BAlANCE SHEETS AS OF jUNE 30, 2009
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt34
the Group the Company2009 2008 2009 2008
note RM RM RM RM
equItY AnD lIABIlItIeS
Capital and reserves
Share capital 26 100,190,018 66,000,845 100,190,018 66,000,845
Share premium 27 – 15,141,559 – 15,141,559
Retained earnings 27 85,095,552 102,367,427 33,802,000 44,700,296
185,285,570 183,509,831 133,992,018 125,842,700
Minority interests 8,129,390 8,867,668 – –total equity 193,414,960 192,377,499 133,992,018 125,842,700
non-current liabilities
Deferred tax liabilities 12 7,737,662 9,635,950 – –
Current liabilities
Trade and other payables 30 4,946,278 10,900,173 86,759 89,596
Term loan 28 – 1,188,188 – –Current tax liabilities 12 776,587 1,282,137 – –
Other liabilities 31 2,903,885 2,647,423 503,391 293,890
total current liabilities 8,626,750 16,017,921 590,150 383,486
total liabilities 16,364,412 25,653,871 590,150 383,486
total equity and liabilities 209,779,372 218,031,370 134,582,168 126,226,186
net tangible assets per ordinary share 0.91 0.91
The comparative net tangible assets per share has been restated to take into account the effect of the bonus issue.
BAlANCE SHEETS AS OF jUNE 30, 2009 (continued)
The accompanying Notes form an integral part of the Financial Statements.
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 35
Attributable to equity Holders of the Company
Share Capital
non- Distributable
Reserve Share premium
Distributable Reserve Retained earnings Subtotal
Minority Interests total equity
the Group note RM RM RM RM RM RM
Balance as of July 1, 2007 65,200,345 15,085,548 84,306,793 164,592,686 8,248,349 172,841,035
total recognised income and expense:
Profit for the year – – 22,061,120 22,061,120 1,101,207 23,162,327
Dividend 32 – – (4,000,486) (4,000,486) (481,888) (4,482,374)
Issue of shares under Executive Share Option Scheme 26 800,500 56,400 – 856,900 – 856,900
Share issue expenses – (389) – (389) – (389)
Balance as of June 30, 2008 66,000,845 15,141,559 102,367,427 183,509,831 8,867,668 192,377,499
total recognised income and expense:
Profit for the year – – 6,986,042 6,986,042 176,572 7,162,614
Dividend 32 – – (6,011,401) (6,011,401) (914,850) (6,926,251)
Issue of shares under Executive Share Option Scheme 26 792,500 72,200 – 864,700 – 864,700
Share issue expenses – (510) – (510) – (510)
Bonus issue expenses – (63,092) – (63,092) – (63,092)
Capitalisation of bonus issue 33,396,673 (15,150,157) (18,246,516) – – –
Balance as of june 30, 2009 100,190,018 – 85,095,552 185,285,570 8,129,390 193,414,960
STATEmENT Of CHANgES IN EQuITy FOR THE YEAR ENDED jUNE 30, 2009
The accompanying Notes form an integral part of the Financial Statements.
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt36
Attributable to the equity Holders of the Company
Share Capital
non- Distributable
Reserve Share premium
Distributable Reserve Retained earnings total equity
the Company note RM RM RM RM
Balance as of July 1, 2007 65,200,345 15,085,548 37,383,549 117,669,442
total recognised income and expense:
Profit for the year – – 11,317,233 11,317,233
Dividend 32 – – (4,000,486) (4,000,486)
Issue of shares under Executive Share Option Scheme 26 800,500 56,400 – 856,900
Share issue expenses – (389) – (389)
Balance as of June 30, 2008 66,000,845 15,141,559 44,700,296 125,842,700
total recognised income and expense:
Profit for the year – – 13,359,621 13,359,621
Dividend 32 – – (6,011,401) (6,011,401)
Issue of shares under Executive Share Option Scheme 26 792,500 72,200 – 864,700
Share issue expenses – (510) – (510)
Bonus issue expenses – (63,092) – (63,092)
Capitalisation of bonus issue 33,396,673 (15,150,157) (18,246,516) –
Balance as of june 30, 2009 100,190,018 – 33,802,000 133,992,018
STATEmENT Of CHANgES IN EQuITy FOR THE YEAR ENDED jUNE 30, 2009 (continued)
The accompanying Notes form an integral part of the Financial Statements.
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 37
the Group2009 2008
note RM RM
CASH FlowS FRoM/(uSeD In) opeRAtInG ACtIVItIeS
Profit for the year 7,162,614 23,162,327
Adjustments for:
Depreciation of property, plant and equipment 14 5,689,742 5,590,332
Write down in inventories 3,205,904 –
Impairment loss on property, plant and equipment 3,057,730 –
Income tax expense 773,897 4,717,041
Inventories written off 208,888 327,567
Finance costs 163,971 230,244
Amortisation of prepaid interest in leased land 15 140,628 140,352
Property, plant and equipment written off 140,518 115,027
Interest income from investing activities (1,419,749) (1,362,062)
Gain on disposal of other investments (567,863) (2,966,543)
Share of profit in associated company (248,592) (83,102)
Dividend income (253,082) (2,093,321)
Gain on disposal of property, plant and equipment (13,014) (57,615)
Rental income (1,500) (1,800)
(Write back)/Write down of quoted investments to market value (90,000) 90,000
Bad debt written off – 12,981
Allowance for doubtful debts – 11,620
Reversal of provision for gratuity and retirement benefits – (156,446)
Interest income from operating activities – (2)
17,950,092 27,676,600
Movements in working capital:
Decrease/(Increase) in:
Inventories 68,544 782,971
Trade and other receivables 6,362,898 (434,404)
Other assets (62,089) 104,465
Increase/(Decrease) in:
Trade and other payables (5,953,895) (887,798)
Other liabilities 256,462 203,663
Cash Generated From Operations 18,622,012 27,445,497
CASH flOW STATEmENT FOR THE YEAR ENDED jUNE 30, 2009
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt38
the Group2009 2008
note RM RM
Dividends received from other investments 200,368 1,561,453
Interest received 1,476,041 1,294,217
Rental received 1,500 1,800
Gratuity and retirement benefits paid 29 – (667,460)
Interest paid (163,971) (230,244)
Income tax paid (3,841,983) (4,614,835)
Net Cash Generated From Operating Activities 16,293,967 24,790,428
CASH FlowS FRoM/(uSeD In) InVeStInG ACtIVItIeS
Proceeds from disposal of other investments 1,307,969 9,379,805
Capital distribution from associated company 196,000 –Proceeds from disposal of property, plant and equipment 13,015 93,900
Repayment from/(Advances to) associated company 1,553 (2,656)
Purchase of other investments (10,907,785) (113,083)
Purchase of property, plant and equipment and prepaid interests in leased land (3,769,021) (3,934,416)
Proceeds from disposal of non-current asset held for sale – 1,556,300
Net Cash (Used In)/Generated From Investing Activities (13,158,269) 6,979,850
CASH FlowS FRoM/(uSeD In) FInAnCInG ACtIVItIeS
Net proceeds from issuance of shares 801,098 856,511
Dividend paid on share capital 32 (6,011,401) (4,000,486)
Repayment of term loan (1,188,188) (600,000)
Dividend paid to minority interests (914,850) (481,888)
Net Cash Used In Financing Activities (7,313,341) (4,225,863)
net (DeCReASe)/InCReASe In CASH AnD CASH equIVAlentS (4,177,643) 27,544,415
CASH AnD CASH equIVAlentS At BeGInnInG oF YeAR 67,993,732 40,449,317
CASH AnD CASH equIVAlentS At enD oF YeAR 24 63,816,089 67,993,732
CASH flOW STATEmENT FOR THE YEAR ENDED jUNE 30, 2009 (continued)
The accompanying Notes form an integral part of the Financial Statements.
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 39
the Company2009 2008
note RM RM
CASH FlowS FRoM/(uSeD In) opeRAtInG ACtIVItIeS
Profit for the year 13,359,621 11,317,233
Adjustments for:
Income tax expense 2,272,180 2,291,836
Allowance for doubtful debts 244,752 –Amortisation of prepaid interest in leased land 15 9,582 9,581
Depreciation of property, plant and equipment 14 2,805 4,484
Dividend income 4 (11,872,968) (9,122,321)
Allowance for doubtful debts no longer required (2,100,000) (398,356)
Interest income from investing activities (1,235,810) (1,199,667)
Gain on disposal of other investments (567,863) (2,943,305)
Allowance for diminution in value of investment in subsidiary company no longer required (520,663) (527,856)
(Write back)/Write down of quoted investments to market value (90,000) 90,000
(498,364) (478,371)
Movements in working capital:
Decrease/(Increase) in:
Other receivables (1,745) 1,285,029
Other assets (2,703) (12,307)
Increase/(Decrease) in:
Other payables (1,507) 912
Other liabilities 209,501 (42,516)
Cash (Used In)/Generated From Operations (294,818) 752,747
Dividends received from subsidiary companies 9,608,039 5,396,460
Dividends received from other investments 200,368 1,561,453
Interest received 1,292,102 1,131,820
Income tax (paid)/refunded (231,968) 22,903
Real Property Gains Tax paid – (7,272)
Net Cash Generated From Operating Activities 10,573,723 8,858,111
CASH flOW STATEmENT FOR THE YEAR ENDED jUNE 30, 2009
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt40
the Company2009 2008
note RM RM
CASH FlowS FRoM/(uSeD In) InVeStInG ACtIVItIeS
Proceeds from disposal of other investments 1,307,969 9,379,805
Repayment of advances by subsidiary companies 883,700 967,445
Capital distribution from associated company 196,000 –Repayment from/(Advances to) associated company 1,553 (2,656)
Purchase of other investments (10,907,785) (113,083)
Purchase of property, plant and equipment 14 – (4,325)
Net Cash (Used In)/Generated From Investing Activities (8,518,563) 10,227,186
CASH FlowS FRoM/(uSeD In) FInAnCInG ACtIVItIeS
Net proceeds from issuance of shares 801,098 856,511
Dividend paid on share capital 32 (6,011,401) (4,000,486)
Repayment to a subsidiary company (1,330) (1,136)
Net Cash Used In Financing Activities (5,211,633) (3,145,111)
net (DeCReASe)/InCReASe In CASH AnD CASH equIVAlentS (3,156,473) 15,940,186
CASH AnD CASH equIVAlentS At BeGInnInG oF YeAR 44,846,605 28,906,419
CASH AnD CASH equIVAlentS At enD oF YeAR 24 41,690,132 44,846,605
CASH flOW STATEmENT FOR THE YEAR ENDED jUNE 30, 2009 (continued)
The accompanying Notes form an integral part of the Financial Statements.
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 41
1. GeneRAl InFoRMAtIon
The Company is a public limited company, incorporated and domiciled in Malaysia and listed on the Main Board of Bursa Malaysia Securities Berhad.
The Company is principally involved in investment holding.
The principal activities of the subsidiary companies are disclosed in Note 16.
There have been no significant changes in the nature of the principal activities of the Company and its subsidiary companies during the financial year.
The registered office and principal place of business of the Company are located at Lot 6 & 20, Persiaran Tasek, kawasan Perindustrian Tasek, 31400 Ipoh, Perak Darul Ridzuan.
The financial statements of the Group and of the Company were authorised for issue by the Board of Directors in accordance with a resolution of the directors on September 10, 2009.
2. BASIS oF pRepARAtIon oF tHe FInAnCIAl StAteMentS AnD ADoptIon oF new AnD ReVISeD FInAnCIAl RepoRtInG StAnDARDS (“FRS”)
The financial statements of the Group and of the Company have been prepared in accordance with the provisions of the Companies Act, 1965 and in compliance with the Financial Reporting Standards in Malaysia.
At the date of authorisation of these financial statements for issue, the following Standards and Interpretations were issued but were not yet adopted by the Group and the Company:
Standards/IC Interpretation (“Int.”) title
effective for annual periods beginning on or after
FRS 1 First-time Adoption of Financial Reporting Standards (Amendments relating to cost of an investment in a subsidiary, jointly controlled entity or associate)
January 1, 2010
FRS 2 Share-based Payment (Amendments relating to vesting conditions and cancellations)
January 1, 2010
FRS 4 Insurance Contracts January 1, 2010FRS 7 Financial Instruments: Disclosures January 1, 2010FRS 8 Operating Segments July 1, 2009FRS 123 Borrowing Costs (Revised) January 1, 2010FRS 127 Consolidated and Separate Financial Statements (Amendments
relating to cost of an investment in a subsidiary, jointly controlled entity or associate)
January 1, 2010
FRS 139 Financial Instruments: Recognition and Measurement January 1, 2010Int. 9 Reassessment of Embedded Derivatives January 1, 2010Int. 10 Interim Financial Reporting and Impairment January 1, 2010Int. 11 FRS 2 - Group and Treasury Share Transactions January 1, 2010Int. 13 Customer Loyalty Programmes January 1, 2010Int. 14 FRS 119 - The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and Their InteractionJanuary 1, 2010
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt42
Consequential amendments were also made to various FRSs as a result of these new/revised FRS.
FRS 1, FRS 2, FRS 4, FRS 8, FRS 127 and all IC interpretations are not expected to be relevant to the operations of the Group and of the Company. The Directors anticipate that the adoption of the applicable FRSs and IC Interpretations in future periods will have no material financial effect on the financial statements of the Group and the Company. The adoption of these new/revised FRS and amendments to FRS and IC Interpretations will have no material impact on the financial statements of the Group and the Company in the period of initial application except for the following:
FRS 7, Financial Instruments: Disclosures
FRS 7, which is applicable to all financial instruments held by the Group and the Company except those specified in paragraph 3 of FRS 7, requires the Group and the Company to provide disclosures in its financial statements that enable users to evaluate:
(a) the significance of financial instruments on the financial position and performance of the Group and of the Company; and
(b) the nature and extent of risks arising from financial instruments to which the Group and the Company are exposed during the period and at the end of the reporting period, and how the Group and the Company manage those risks.
However, the extent of disclosures required depends on the extent of the use of financial instruments of the Group and of the Company and of their exposure to risks.
FRS 123, Borrowing Costs (Revised)
FRS 123 (Revised) eliminates the option available under the previous version of FRS 123 to recognise all borrowing costs immediately as an expense. An entity shall capitalise borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. This principal change in the Standard has no impact on the financial statements of the Group and of the Company in the period of initial application as it has always been the Group’s and the Company’s accounting policy to capitalise borrowing costs incurred on qualifying assets.
FRS 139, Financial Instruments: Recognition and Measurement
This new standard establishes principles for recognising and measuring financial assets, financial liabilities and certain contracts to buy and sell non-financial items. Hedge accounting is permitted only under strict circumstances. The Group and the Company will apply this standard when it becomes effective.
The impact of applying FRS 7 and FRS 139 on the financial statements upon first adoption as required by paragraph 30(b) of FRS 108, Accounting Policies, Changes in Accounting Estimates and Errors is not disclosed by virtue of the exemptions given in the respective standards.
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 43
3. SIGnIFICAnt ACCountInG polICIeS
Basis of Accounting
The financial statements of the Group and of the Company have been prepared under the historical cost convention, unless stated otherwise, and modified to include the revaluation of prepaid interest in leased land and buildings.
Basis of Consolidation
The consolidated financial statements incorporate the financial statements of the Company and of the subsidiary companies controlled by the Company made up to June 30, 2009.
A subsidiary company is a company where the Group has control through the power to govern the financial and operating policies of the company so as to obtain benefits therefrom. Control is presumed to exist when the Group owns, directly or indirectly through subsidiary companies, more than one half of the voting rights of the said company.
Subsidiary companies are consolidated using the purchase method of accounting. Under the purchase method, the results of the subsidiary companies acquired or disposed of are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal.
On acquisition, the identifiable assets, liabilities and contingent liabilities of the relevant subsidiary companies that satisfy the recognition criteria of FRS 3 Business Combination are measured at their fair values at the date of acquisition, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with FRS 5 Non-current Assets Held for Sale and Discontinued Operations, which shall be recognised at fair value less costs to sell.
The financial statements of the parent and its subsidiary companies used in the preparation of the consolidated financial statements are prepared as of the same reporting date and are prepared using uniform accounting policies for like transactions and other events in similar circumstances. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with those used by other members of the Group.
All significant intragroup transactions and balances including income, expenses and dividends are eliminated in full on consolidation. Unrealised losses are eliminated on consolidation unless costs cannot be recovered.
Minority interests in the net assets of consolidated subsidiary companies are identified separately from the Group’s equity therein. The interest of minority shareholders is stated at the minority’s proportion of the fair values of the assets and liabilities recognised.
Minority interests consist of amount of those interests at the date of the original business combination stated at the minority’s proportion of the net fair value of the assets, liabilities and contingent liabilities recognised at that date and the minority’s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority’s interest in the subsidiary’s equity are allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses.
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt44
3. SIGnIFICAnt ACCountInG polICIeS (continued)
Associated Company
AnassociatedcompanyisanentityinwhichtheGrouportheCompanyhassignificantinfluenceandthatisneitherasubsidiarynoraninterestinajointventure.Significantinfluenceisthepowertoparticipateinthefinancialandoperatingpolicydecisionsoftheinvesteebutisnotcontrolorjointcontroloverthosepolicies.
TheGroup’sinvestmentinassociatedcompanyisaccountedforundertheequitymethodofaccountingbasedonthelatestmanagementfinancialstatementsoftheassociatedcompanymadeuptoJune30,2009, exceptwhen the investment is classifiedasheld for sale, inwhich case it is accounted for inaccordancewithFRS5Non-currentAssetsHeldforSaleandDiscontinuedOperations.Undertheequitymethod,investmentinassociateiscarriedintheconsolidatedbalancesheetatcostasadjustedforpostacquisitionchangesintheGroup’sshareofthenetassetsoftheassociate,lessanyimpairmentinthevalueofindividualinvestments.LossesofanassociateinexcessoftheGroup’sinterestinthatassociatearenotrecognised,unlesstheGrouphaslegalorconstructiveobligationsormadepaymentsonbehalfofthe associate.
AnyexcessofthecostofacquisitionovertheGroup’sshareofthenetfairvalueoftheidentifiableassets,liabilitiesandcontingent liabilitiesoftheassociaterecognisedatthedateofacquisition isrecognisedas goodwill. The goodwill is included within the carrying amount of the investment and is assessedfor impairmentaspartof the investment.Anyexcessof theGroup’sshareof thenet fairvalueof theidentifiableassets,liabilitiesandcontingentliabilitiesoverthecostofacquisition,afterreassessment,isrecognised immediately in income statement.
UnrealisedgainsandlossesarisingontransactionsbetweentheGroupanditsassociatedcompanyareeliminatedtotheextentoftheGroup’sequityinterestintheassociatedcompany.
Revenue Recognition
Salesofgoodsarerecognisedupondeliveryofproductsandwhentherisksandrewardsofownershiphavepassedtothecustomers.Salesismeasuredatthefairvalueoftheconsiderationreceivedorreceivableandrepresentsgrossinvoicedvalueofgoodssoldnetofsalestax,tradediscountsandallowances.
Income relating to property development projects is recognised upon signing of the individual saleand purchase agreements, commencement of development and when the financial outcome of thedevelopment activities can be reliably estimated.
Dividendincomerepresentsgrossdividendsfromsubsidiarycompaniesandfromquotedandunquotedinvestments and is recognised when the shareholders’ right to receive payment is established.
Interestincomeisaccruedonatimebasis,byreferencetotheprincipaloutstandingandattheeffectiveinterest rates applicable.
Rentalincomeisaccruedbyreferencetotheagreementsenteredinto.
NOTES TO THE FINANCIAL STATEMENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 45
Foreign Currencies
The individual financial statements of each group entity are presented in Ringgit Malaysia, the currency of the primary economic environment in which the entity operates. For the purpose of the consolidated financial statements, the results and financial position of each entity are expressed in Ringgit Malaysia, which is the functional currency of the Group and of the Company, and also the presentation currency for the consolidated financial statements.
In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency are recorded in Ringgit Malaysia at the rates of exchange prevailing on the date of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated into Ringgit Malaysia at the exchange rates prevailing at the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on retranslation of monetary items, are included in income statement in the period in which they arise.
The closing rates per unit of Ringgit Malaysia used in the translation of foreign monetary items are as follows:
Currency 2009 2008
Singapore Dollar 0.4167 0.4368US Dollar 0.2817 0.3093
EmployeeBenefits
Short-termemployeebenefits
Wages, salaries, bonuses and social security contributions are recognised as an expense in the year in which the associated services are rendered by employees of the Group and of the Company. Short-term accumulating compensated absences such as paid annual leave are recognised when services are rendered by employees that increase their entitlement to future compensated absences, and short-term non-accumulating compensated absences such as sick leave are recognised when the absences occur.
Definedcontributionplan
The Group and the Company are required by law to make monthly contributions to the Employees’ Provident Fund (“EPF”), a statutory defined contribution plan for all their eligible employees based on certain prescribed rates of the employees’ salaries. The Group’s and the Company’s contributions to the EPF are disclosed separately. The employees’ contributions to the EPF are included in salaries and wages.
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt46
3. SIGnIFICAnt ACCountInG polICIeS (continued)
EmployeeBenefits(continued)
Retirementbenefits
The Group operated a non-contributory unfunded retirement benefits scheme for eligible employees. Provision is made in the financial statements for retirement benefits of eligible employees who have completed the minimum qualifying period of ten years of continuous service and is computed after taking into consideration the length of service and basic salary earnings of the eligible employees upon reaching the age of retirement.
The provision was charged to the income statements on a systematic basis over the expected remaining working lives of the employees covered by the retirement benefits scheme. Should an employee leave after completing the qualifying period of service but before attaining the retirement age, the provision made for the employee is written back. No actuarial valuation had been conducted on the retirement benefits provision, as the directors considered the amount to be insignificant to the Group.
The retirement benefits scheme has, however, been terminated as of the last financial year.
taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statements because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s and the Company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax
Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner which the Group and the Company expect, at the reporting date, to recover or settle the carrying amount of their assets and liabilities.
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 47
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group and the Company intend to settle their current tax assets and liabilities on a net basis.
Current and deferred tax for the year
Current and deferred tax are recognised as an expense or income in income statement, except when they relate to items credited or debited directly to equity, in which case the tax is also recognised directly in equity, or where they arise from the initial accounting for a business combination. In the case of a business combination, the tax effect is taken into account in calculating goodwill or determining the excess of the acquirer’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over cost.
property, plant and equipment
Property, plant and equipment are stated at cost or valuation less accumulated depreciation and accumulated impairment losses.
Depreciation is charged so as to write off the cost or valuation of property, plant and equipment, other than freehold land, properties under construction and other capital work-in-progress, over their estimated useful lives, after taking into account their estimated residual value, using the straight-line method. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease.
Capital work-in-progress including properties in the course of construction for production, rental or administrative purposes, or for purposes not yet determined, are carried at cost, less any recognised impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the Group’s accounting policy. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.
Freehold land is not depreciated. Other property, plant and equipment are depreciated on the straight-line method at the rates based on the estimated useful lives of the various assets.
The annual depreciation rates are as follows:
Buildings and improvements 2% to 5%
Plant, machinery and equipment 5% to 20%
Furniture, fixtures and office equipment 10% to 33¹⁄3%
Motor vehicles and forklifts 20%
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt48
3. SIGnIFICAnt ACCountInG polICIeS (continued)
property, plant and equipment (continued)
The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in income statement.
The Group does not have a policy on revaluation of property, plant and equipment at regular intervals. The land under long-term lease and buildings of the Group have not been revalued since they were first revalued in 1988 based on a revaluation carried out in 1985 by a firm of professional valuers. As permitted under the transitional provisions of International Accounting Standard (“IAS”) 16 (Revised): Property, Plant and Equipment adopted by the Malaysian Accounting Standards Board (“MASB”) before the coming into effect of Financial Reporting Standard (“FRS”) 116: Property, Plant and Equipment, these assets continue to be stated at their 1988 valuation less accumulated depreciation.
prepaid Interests In leased land
Leasehold land that normally has a definite economic life and where the title is not expected to pass to the lessee by the end of the lease term is treated as an operating lease. Payments made on entering into or acquiring leasehold land are accounted as prepaid interests in leased land and amortised evenly over the lease terms of the land.
Land under long-term lease is amortised evenly over the related lease periods ranging from 57½ to 97 years. The years of commencement of the amortisation range from 1985 to 2006.
Short-term prepaid interests in leased land are amortised evenly over the lease period of 58½ years commencing from 1994.
Investments
Investment in subsidiary companies and investment in an associated company are stated at cost less accumulated impairment losses.
Other investment in quoted shares are stated at the lower of cost and market value on an aggregate basis.
Other investment in unquoted shares are stated at cost less allowance for diminution in value of investment to recognise any decline, other than a temporary decline, in the value of the investments.
non-current assets held for sale
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.
Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell.
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 49
Goodwill/Reserve on Consolidation
Goodwill acquired in a business combination is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill arising on consolidation represents the excess of cost of acquisition over the Group’s interest in the net fair values of the identifiable assets, liabilities and contingent liabilities of a subsidiary company at the date of acquisition.
For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.
On disposal of a subsidiary company or a jointly controlled entity, the attributable amount of goodwill is included in the determination of the gain or loss on disposal.
Impairment of tangible and Intangible Assets excluding Goodwill
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine if there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units for which a reasonable and consistent allocation basis can be identified.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in income statement, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
An impairment loss is reversed if there has been a change in the estimate used to determine the recoverable amount. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in income statement, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation increase.
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt50
3. SIGnIFICAnt ACCountInG polICIeS (continued)
Inventories
Inventories are valued at the lower of cost and net realisable value. Cost is determined on the weighted average method. The cost of raw materials comprises the original purchase price plus cost incurred in bringing the inventories to their present location. The cost of finished goods comprises the cost of raw materials, direct labour and a proportion of the production overheads. Net realisable value represents the estimated selling price in the ordinary course of business less selling and distribution costs and all other estimated costs to completion.
Receivables
Receivables are reduced by the appropriate allowances for estimated irrecoverable amounts. Allowance for doubtful debts is made based on estimates of possible losses which may arise from non-collection of certain receivable accounts.
Borrowing Costs
Borrowing costs directly attributable to construction of assets which require a substantial period of time to get them ready for their intended use are capitalised and included as part of the related assets. Capitalisation of borrowing costs will cease when the assets are ready for their intended use.
All other borrowing costs are recognised as an expense in the year in which they are incurred.
provisions
Provisions for liabilities are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and when a reliable estimate of the amount can be made. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.
Cash Flow Statements
The Group and the Company adopt the indirect method in the preparation of the cash flow statements.
Cash equivalents are short-term, highly liquid investments with maturities of three months or less from the date of acquisition and are readily convertible to cash with insignificant risks of changes in value.
Criticalaccountingjudgementsandkeysourcesofestimationuncertainty
Estimates and judgements are continually evaluated by the Directors and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
CriticaljudgementsinapplyingtheGroup’saccountingpolicies
In the process of applying the Group’s accounting policies, which are described above, management is of the opinion that there are no instances of application of judgement which are expected to have a significant effect on the amounts recognised in the financial statements.
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 51
Key sources of estimation uncertainty
Management believes that there are no key assumptions made concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, other than the following:
(a) Impairment of Goodwill
The Group tests goodwill for impairment annually in accordance with its accounting policy. More regular reviews are performed if events indicate that this is necessary.
For the purpose of assessing impairment, goodwill is allocated to cash-generating units that are expected to benefit from the synergies of the business combination in which the goodwill arose.
Significant judgement is required in the estimation of the present value of future cash flows generated by the cash-generating units, which involve uncertainties and are significantly affected by assumptions used and judgement made regarding estimates of future cash flows and discount rates. Changes in assumptions could significantly affect the results of the Group’s tests for impairment of goodwill. The assumptions used, results and conclusion of the impairment assessment are stated in Note 19 to these financial statements.
(b) Impairment of property, plant and equipment
The Group assesses impairment of assets whenever the events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable i.e. the carrying amount of the asset is more than the recoverable amount.
Recoverable amount is measured at the higher of the fair value less cost to sell for that asset and its value-in-use. The value-in-use is the net present value of the projected future cash flow derived from that asset discounted at an appropriate discount rate. Projected future cash flows are based on Group’s estimates calculated based on historical, sector and industry trends, general market and economic conditions, changes in technology and other available information.
(c) Deferred tax assets
Deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. This involves judgement regarding the future financial performance of the particular entity in which the deferred tax asset has been recognised.
(d) estimated useful lives of property, plant and equipment
The Group regularly reviews the estimated useful lives of property, plant and equipment based on factors such as business plan and strategies, expected level of usage and future technological developments. Future results of operations could be materially affected by changes in these estimates brought about by changes in the factors mentioned above. A reduction in the estimated useful lives of property, plant and equipment would increase the recorded depreciation and decrease the value of property, plant and equipment.
(e) Allowance for Receivables
The allowance is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original term of receivables. This is determined based on ageing profiles and collection patterns.
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt52
4. ReVenue
the Group the Company2009 2008 2009 2008RM RM RM RM
Manufacturing and trading 165,674,033 173,414,775 – –Sales of development properties 506,000 – – –Dividend income:
Subsidiary companies – – 11,619,886 7,029,000
Shares quoted in Malaysia 251,302 732,794 251,302 732,794
Shares quoted outside Malaysia 1,780 2,247 1,780 2,247
Unquoted shares – 1,358,280 – 1,358,280
Proceeds from disposal of land held for sale – 1,556,300 – –
166,433,115 177,064,396 11,872,968 9,122,321
5. SeGMent RepoRtInG
Business Segments
For management purposes, the Group is organised into the following operating divisions:
– Investment holding
– Manufacture and sales of formaldehyde based adhesives and resins for timber related industries, ethyl alcohol, natural vinegar, cooler, liquefied carbon dioxide and kaoliang wine
– Others (trading, property development, dormant and pre-operating companies)
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 53
the GroupInvestment
holding Manufacturing others eliminations ConsolidatedYear ended 30.6.2009 RM RM RM RM RM
Revenue
External sales 253,082 160,483,877 5,696,156 – 166,433,115
Inter-segment sales 11,619,886 3,522,639 – (15,142,525) –
11,872,968 164,006,516 5,696,156 (15,142,525) 166,433,115
Results
Segment results 14,644,583 4,923,806 1,108,141 (13,995,797) 6,680,733
Finance costs (163,971)
Interest income 1,419,749
Profit before tax 7,936,511
Tax expense (773,897)
Profit after tax 7,162,614
other information
Capital additions – 3,613,701 155,320 – 3,769,021
Depreciation of property, plant and equipment 2,805 5,681,087 5,850 – 5,689,742
Amortisation of prepaid interests in leased land 9,582 131,046 – – 140,628
Non-cash expenses other than depreciation 245,652 6,613,039 1 (244,752) 6,613,940
Consolidated Balance Sheet
Assets
Segment assets 70,554,284 133,039,880 4,252,228 – 207,846,392
Unallocated corporate assets 1,932,980
Consolidated total assets 209,779,372
liabilities
Segment liabilities 511,473 7,058,622 280,068 – 7,850,163
Unallocated corporate liabilities 8,514,249
Consolidated total liabilities 16,364,412
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt54
5. SeGMent RepoRtInG (continued)
the GroupInvestment
holding Manufacturing others eliminations ConsolidatedYear ended 30.6.2008 RM RM RM RM RM
RevenueExternal sales 2,093,321 168,676,811 6,294,264 – 177,064,396Inter-segment sales 7,029,000 3,424,131 – (10,453,131) –
9,122,321 172,100,942 6,294,264 (10,453,131) 177,064,396ResultsSegment results 12,409,402 21,660,694 827,033 (8,149,579) 26,747,550Finance costs (230,244)Interest income 1,362,062Profit before tax 27,879,368Tax expense (4,717,041)Profit after tax 23,162,327
other informationCapital additions 4,325 3,889,691 2,400 – 3,896,416Additional prepaid
interests in leased land – 38,000 – – 38,000
Depreciation of property, plant and equipment 4,484 5,579,642 6,206 – 5,590,332
Amortisation of prepaid interests in leased land 9,581 130,771 – – 140,352
Non-cash expenses other than depreciation 90,000 464,374 2,821 – 557,195
Consolidated Balance Sheet
AssetsSegment assets 63,466,270 148,719,181 4,629,901 – 216,815,352Unallocated corporate
assets 1,216,018Consolidated total
assets 218,031,370liabilitiesSegment liabilities 303,479 14,162,384 269,921 – 14,735,784Unallocated
corporate liabilities 10,918,087Consolidated total
liabilities 25,653,871
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 55
Information on the Group’s operations by geographical segment has not been provided as the Group operates predominantly in Malaysia.
The directors are of the opinion that all inter-segment transactions have been entered into in the normal course of business and have been established on terms and conditions that are not materially different from that obtainable in transactions with unrelated parties.
6. InVeStMent ReVenue
the Group the Company2009 2008 2009 2008RM RM RM RM
Interest received from:
Investment fund 61,726 353,683 61,726 353,683
Fixed and short-term deposits 1,358,023 1,008,379 1,122,897 761,960
Subsidiary companies – – 51,187 84,024
1,419,749 1,362,062 1,235,810 1,199,667
7. otHeR GAInS AnD loSSeS
Included in other gains and losses are the following:
the Group the Company2009 2008 2009 2008RM RM RM RM
Gain on disposal of other investments 567,863 2,966,543 567,863 2,943,305
Realised gain on foreign exchange 28,124 474,352 – –Gain on disposal of property, plant
and equipment 13,014 57,615 – –Allowance for diminution in value
of investment in subsidiary company no longer required – – 520,663 527,856
Property, plant and equipment written off (140,518) (115,027) – –
Investment in quoted shares written off (900) – (900) –
Write back/(Write down) of quoted investments to market value 90,000 (90,000) 90,000 (90,000)
557,583 3,293,483 1,177,626 3,381,161
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt56
8. otHeR opeRAtInG InCoMe/(eXpenSeS)
Included in other operating income/(expenses) are the following:
the Group the Company2009 2008 2009 2008RM RM RM RM
Rental income 1,500 1,800 – –Bad debt recovered 8 – – –Reversal of provision for gratuity
and retirement benefits – 156,446 – –Write down in inventories
no longer required – 14,934 – –Interest received on:
Overdue accounts – 43 – – Others – 2 – –Allowance for doubtful debts no
longer required – – 2,100,000 398,356
Fees paid/payable to external auditors:
Statutory audit (113,800) (113,800) (22,000) (22,000)
Non-audit services (3,000) (3,000) (3,000) (3,000)
Rental of equipment (4,981) (5,398) – –Inventories of packing materials
written off (503) (3,260) – –Bad debts written off – (12,981) – –
Allowance for doubtful debts – (11,620) (244,752) –
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 57
9. DIReCtoRS’ ReMuneRAtIon
the Group the Company2009 2008 2009 2008RM RM RM RM
Directors of the Company
Executive director:
Fees 70,500 72,500 52,500 52,500
Other emoluments 1,089,680 1,015,500 – –1,160,180 1,088,000 52,500 52,500
Non-executive directors:
Fees 234,500 233,500 180,000 180,000
Other emoluments 43,750 41,250 34,250 36,750
278,250 274,750 214,250 216,750
1,438,430 1,362,750 266,750 269,250
The estimated monetary value of benefits-in-kind received and receivable by a director otherwise than in cash from the Group and the Company amounted to RM22,279 (2008: RM17,700).
10. eMploYee BeneFItS eXpenSeS
Employee benefits expenses include contributions made by the Group and by the Company to the EPF of RM676,284 (2008: RM709,453) and RM16,288 (2008: RM15,496) respectively.
11. FInAnCe CoStS
the Group 2009 2008RM RM
Interest on:
Bankers’ acceptances 69,622 – Term loan 44,599 120,874
Bank overdrafts 1,993 1,352
Bank charges 47,757 108,018
163,971 230,244
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt58
12. tAX eXpenSe
the Group the Company2009 2008 2009 2008RM RM RM RM
Taxexpensecomprises:
Currentincometaxexpense 3,196,053 5,178,024 2,270,000 2,287,000
Deferredtaxincomerelatingto:
Originationandreversaloftemporarydifferences (1,231,761) (393,137) – –
Revaluationofproperty,plantandequipment (11,843) (11,957) – –
Recognitionofdeferred taxasset (768,000) – – –
(2,011,604) (405,094) – –Under/(Over)provision
inprioryears:
Incometax (28,868) 71,834 2,180 (2,436)
Deferredtax (381,684) (134,995) – –
RealPropertyGainsTax – 7,272 – 7,272
773,897 4,717,041 2,272,180 2,291,836
NOTES TO THE FINANCIAL STATEMENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 59
A numerical reconciliation of income tax expense at the applicable income tax rate to income tax expense at the effective income tax rate is as follows:
the Group the Company2009 2008 2009 2008RM RM RM RM
Profit before tax 7,936,511 27,879,368 15,631,801 13,609,069Tax at the applicable tax rates
of 25% (2008: 20% / 26%) 1,984,000 7,249,000 3,908,000 3,538,000
Tax effects of:
Expenses that are not deductible in determining taxable profit 280,987 371,369 103,000 55,000
Unutilised tax losses and unabsorbed capital allowances not recognised as deferred tax asset 19,500 24,000 – –
Income that is not taxable in determining taxable profit (315,638) (921,000) (1,741,000) (1,306,000)
Recognition of deferred tax asset in current year (768,000) (393,000) – –
Reduction in statutory income tax rate on opening deferred tax liability – (602,439) – –
Utilisation of brought forward unabsorbed capital allowances and unutilised tax losses previously not recognised (16,400) (6,000) – –
Utilisation of unabsorbed reinvestment allowances – (784,000) – –
Current year reinvestment allowances claimed – (165,000) – –
1,184,449 4,772,930 2,270,000 2,287,000
Under/(Over)provision in prior years:
Income tax (28,868) 71,834 2,180 (2,436)
Deferred tax (381,684) (134,995) – –
Real Property Gains Tax – 7,272 – 7,272
Tax expense 773,897 4,717,041 2,272,180 2,291,836
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt60
12. tAX eXpenSe (continued)
Certain subsidiary companies with a paid-up capital of RM2,500,000 and below were taxed at 20% for the first RM500,000 of chargeable income, with the balance being taxed at 25%. However, with effect from year of assessment 2009, companies that control or are being controlled directly or indirectly by or are related to a company which has a paid-up ordinary share capital of more than RM2,500,000 will not be entitled to the above preferential tax rate. As such, these subsidiary companies’ income tax rate has been revised to 25% by virtue of it being a subsidiary of the Company, which has a paid-up capital of more than RM2,500,000.
With effect from the beginning of the basis year for the year of assessment 2009, the statutory income tax rate for companies with a paid-up capital of above RM2,500,000 is reduced from 26% to 25%. As a result, the Group’s and the Company’s income tax rates have also been revised accordingly.
As of June 30, 2009, the Company has a tax-exempt account arising from tax-exempt dividend received and a special tax-exempt account arising from chargeable income waived in 1999 in accordance with the Income Tax (Amendment) Act, 1999 of approximately RM31,471,000 (2008: RM33,746,000) and RM1,142,000 (2008: RM1,142,000) respectively. These tax-exempt accounts are available for distribution as tax-exempt dividends to the equity holders of the Company.
As of June 30, 2009, certain subsidiary companies have tax-exempt accounts arising from reinvestment allowances claimed under Schedule 7A of the Income Tax Act, 1967 and a special tax-exempt account arising from waiver of chargeable income in 1999 of approximately RM19,569,000 (2008: RM18,518,000).
As of June 30, 2009, certain subsidiary companies also have unutilised investment tax allowance, unutilised tax losses and unabsorbed capital allowances amounting to RM910,000 (2008: RM910,000) and RM25,230,000 (2008: RM24,482,000) respectively, which, subject to agreement by the tax authorities, are available for set-off against future taxable profit.
These tax-exempt accounts and balances of reinvestment and investment tax allowances are subject to approval by the tax authorities.
Current tax assets and liabilities
the Group the Company2009 2008 2009 2008RM RM RM RM
Current tax assets
Tax refund receivable 304,980 83,018 95,354 71,005
Current tax liabilities
Income tax payable 776,587 1,282,137 – –
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 61
Deferred tax balances
the Group2009 2008RM RM
Deferred tax liabilities
At beginning of year (9,635,950) (10,061,039)
Transfers to income statements 1,898,288 425,089
At end of year (7,737,662) (9,635,950)
The deferred tax liabilities are in respect of the following:the Group
2009 2008RM RM
Tax effects of:
Temporary differences arising from:
Property, plant and equipment (7,571,664) (9,071,681)
Revaluation surplus on long-term leasehold land and building (637,598) (655,869)
Unabsorbed capital allowances and unutilised tax losses 447,000 67,000
Receivables 24,600 24,600
(7,737,662) (9,635,950)
the Group2009 2008RM RM
Deferred tax assets
At beginning of year 1,133,000 1,018,000
Transfers to income statements 495,000 115,000
At end of year 1,628,000 1,133,000
The deferred tax assets are in respect of the following:the Group
2009 2008RM RM
Tax effects of:
Temporary differences arising from:
Property, plant and equipment (32,000) (36,000)
Unabsorbed capital allowances and unutilised tax losses 1,660,000 1,169,000
1,628,000 1,133,000
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt62
12. tAX eXpenSe (continued)
unrecognised deferred tax assets At balance sheet date, deferred tax assets have not been recognised in respect of the following items:
the Group2009 2008RM RM
Unabsorbed capital allowances and unutilised tax losses 4,199,000 4,190,000
13. eARnInGS peR oRDInARY SHARe oF RM0.50 eACH – GRoup
The basic and diluted earnings per ordinary share of RM0.50 each are calculated as follows:
2009 2008Basic
Profit for the year attributable to equity holders of the Company RM6,986,042 RM22,061,120
Number of ordinary shares in issue as of July 1 132,001,691 130,400,691
Effect of exercise of ESOS 1,080,831 1,116,167
Effect of bonus issue 66,463,137 66,793,345
Weighted average number of ordinary shares of RM0.50 each in issue 199,545,659 198,310,203
Basic earnings per ordinary share of RM0.50 each (sen) 3.5 11.1
Diluted
Profit for the year attributable to equity holders of the Company RM6,986,042 RM22,061,120
Weighted average number of ordinary shares of basic earnings per share 199,545,659 198,310,203
Adjustments for ESOS:
Number of unissued shares 820,335 4,699,833
Number of shares that would have been issued at fair value (684,849) (3,858,450)
135,486 841,383
Weighted average number of ordinary shares of diluted earnings per share 199,681,145 199,151,586
Diluted earnings per ordinary share (sen) 3.5 11.1
The comparative net tangible assets per share as reported in the balance sheet of the Group has also been restated to take into account the effect of the bonus issue.
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 63
14. pRopeRtY, plAnt AnD equIpMent
land and buildings
plant, machinery and
equipment
Furniture, fixturesandofficeequipment
Motor vehicles and forklifts
Capital work-in-progress total
the Group RM RM RM RM RM RM
As of june 30, 2009
Cost or valuation
As of July 1, 2008 25,112,924 95,991,234 1,913,232 1,675,041 3,419,601 128,112,032
Additions 36,150 199,393 93,510 223,125 3,216,843 3,769,021
Disposals – – (1,250) (114,901) – (116,151)
Write offs – (428,217) (51,481) (22,100) – (501,798)
Reclassifications (305) 778,549 – – (778,244) –
As of June 30, 2009 25,148,769 96,540,959 1,954,011 1,761,165 5,858,200 131,263,104
Accumulated depreciation
As of July 1, 2008 7,447,308 54,455,296 1,400,984 1,159,609 – 64,463,197
Depreciation charge for the year 560,370 4,768,331 146,638 214,403 – 5,689,742
Disposals – – (1,250) (114,900) – (116,150)
Write offs – (289,761) (49,419) (22,100) – (361,280)
Reclassifications (187) 187 – – – –
As of June 30, 2009 8,007,491 58,934,053 1,496,953 1,237,012 – 69,675,509
Accumulated impairment loss
As of July 1, 2008 – – – – – –
Charge for the year – 3,057,730 – – – 3,057,730
As of June 30, 2009 – 3,057,730 – – – 3,057,730
Carrying amount
As of June 30, 2009 17,141,278 34,549,176 457,058 524,153 5,858,200 58,529,865
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt64
14. pRopeRtY, plAnt AnD equIpMent (continued)
land and buildings
plant, machinery and
equipment
Furniture, fixturesandofficeequipment
Motor vehicles and forklifts
Capital work-in-progress total
the Group RM RM RM RM RM RM
As of june 30, 2008
Cost or valuation
As of July 1, 2007 25,112,924 94,727,225 2,225,546 1,985,619 1,447,176 125,498,490
Additions 5,900 675,014 56,066 130,735 3,028,701 3,896,416
Disposals – – (16,000) (296,624) – (312,624)
Write offs (5,900) (611,970) (352,380) – – (970,250)
Reclassifications – 1,200,965 – (144,689) (1,056,276) –
As of June 30, 2008 25,112,924 95,991,234 1,913,232 1,675,041 3,419,601 128,112,032
Accumulated depreciation
As of July 1, 2007 6,887,548 50,137,576 1,608,940 1,370,363 – 60,004,427
Depreciation charge for the year 559,924 4,677,741 158,663 194,004 – 5,590,332
Disposals – – (16,000) (260,339) – (276,339)
Write offs (164) (504,440) (350,619) – – (855,223)
Reclassifications – 144,419 – (144,419) – –
As of June 30, 2008 7,447,308 54,455,296 1,400,984 1,159,609 – 64,463,197
Carrying amount
As of June 30, 2008 17,665,616 41,535,938 512,248 515,432 3,419,601 63,648,835
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 65
Land and Buildings of the Group consist of:
Freehold land (At Cost)
Buildings and improvements
(At 1988 Valuation)
Buildings and improvements
(At Cost) totalthe Group RM RM RM RM
As of june 30, 2009
Cost or valuation
As of July 1, 2008 15,385 1,342,653 23,754,886 25,112,924
Additions – – 36,150 36,150
Reclassification – – (305) (305)
As of June 30, 2009 15,385 1,342,653 23,790,731 25,148,769
Accumulated depreciation
As of July 1, 2008 – 743,968 6,703,340 7,447,308
Depreciation charge for the year – 23,174 537,196 560,370
Reclassification – – (187) (187)
As of June 30, 2009 – 767,142 7,240,349 8,007,491
Carrying amount
As of June 30, 2009 15,385 575,511 16,550,382 17,141,278
As of june 30, 2008
Cost or valuation
As of July 1, 2007 15,385 1,342,653 23,754,886 25,112,924
Additions – – 5,900 5,900
Write offs – – (5,900) (5,900)
As of June 30, 2008 15,385 1,342,653 23,754,886 25,112,924
Accumulated depreciation
As of July 1, 2007 – 720,793 6,166,755 6,887,548
Depreciation charge for the year – 23,175 536,749 559,924
Write offs – – (164) (164)
As of June 30, 2008 – 743,968 6,703,340 7,447,308
Carrying amount
As of June 30, 2008 15,385 598,685 17,051,546 17,665,616
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt66
14. pRopeRtY, plAnt AnD equIpMent (continued)
Furniture, fixturesandofficeequipment
the Company RM
As of june 30, 2009
Cost
As of July 1, 2008 39,670
Additions –
Disposals –
Write offs –
As of June 30, 2009 39,670
Accumulated depreciation
As of July 1, 2008 34,865
Depreciation charge for the year 2,805
Disposals –
Write offs –
As of June 30, 2009 37,670
Carrying amount
As of June 30, 2009 2,000
As of june 30, 2008
Cost
As of July 1, 2007 69,573
Additions 4,325
Disposals –
Write offs (34,228)
As of June 30, 2008 39,670
Accumulated depreciation
As of July 1, 2007 64,609
Depreciation charge for the year 4,484
Disposals –
Write offs (34,228)
As of June 30, 2008 34,865
Carrying amount
As of June 30, 2008 4,805
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 67
The long-term leasehold land and buildings of the Group were revalued by the directors in 1988 based on a valuation carried out in 1985 by a firm of professional valuers. The revalued amounts were based on open market values.
The historical costs and carrying values of the buildings are as follows:
the Group2009 2008 RM RM
Cost 696,395 696,395
Accumulated Depreciation (518,868) (504,940)
Carrying value at end of year 177,527 191,455
Buildings of the Group with a carrying value of RM4,348,694 (2008: RM4,552,197) has been charged to a licensed bank to secure the banking facilities of a subsidiary company as disclosed in Note 28.
Property, plant and equipment of the Group and of the Company include fully depreciated assets which are still in use, with costs of approximately RM9,551,634 (2008: RM9,488,308) and RM35,345 (2008: RM30,435) respectively.
An impairment loss of RM3,057,730 (2008: Nil) which represents the entire carrying amount of a subsidiary company’s old ethanol, distillery and effluent plant, has been recognised in the income statements during the financial year, as the subsidiary company does not foresee frequent usage of these assets in the future.
During the financial year, the Group also carried out a review of the recoverable amounts of its manufacturing plant used in the production of alcoholic and non-alcoholic beverages and vinegar. The recoverable amounts of the relevant assets have been determined on the basis of their value in use, and the discount rate used in measuring value in use was 3.0% per annum. No impairment loss was recognised in respect of these plants, as the recoverable amounts of the assets exceed their carrying amounts.
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt68
15. pRepAID InteReStS In leASeD lAnD
the Group the Company2009 2008 2009 2008RM RM RM RM
At cost/valuation:At beginning of year 10,124,440 10,086,440 871,052 871,052Additions – 38,000 – –Disposal – – – –Reclassified to non-current
asset held for sale (Note 25) (871,052) – (871,052) –At end of year 9,253,388 10,124,440 – 871,052
Less: Amortisation At beginning of year 1,810,298 1,669,946 81,368 71,787Charge for the year 140,628 140,352 9,582 9,581Disposal – – – –Reclassified to non-current
asset held for sale (Note 25) (90,950) – (90,950) –At end of year 1,859,976 1,810,298 – 81,368
Net 7,393,412 8,314,142 – 789,684
Prepaid interests in leased land of the Group and of the Company consist of:
the Group the Company2009 2008 2009 2008RM RM RM RM
Long-term lease 7,054,188 7,964,519 – 789,684Short-term lease 339,224 349,623 – –
7,393,412 8,314,142 – 789,684
The long-term leasehold land of the Group was revalued by the directors in 1988 based on a valuation carried out in 1985 by a firm of professional valuers. The revalued amounts were based on open market value.
The historical costs and carrying values of the revalued long-term leasehold land had they been carried at historical costs in the financial statements would be as follows:
the Group2009 2008RM RM
Cost 320,711 320,711Accumulated amortisation (147,970) (144,730)Carrying value at end of year 172,741 175,981
Long-term leasehold land of the Group with carrying values of RM3,544,235 (2008: RM3,600,488) have been charged to licensed banks to secure the banking facilities of the subsidiary companies as disclosed in Note 28.
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 69
16. InVeStMent In SuBSIDIARY CoMpAnIeS
the Company 2009 2008RM RM
Unquoted shares – at cost 84,659,442 84,659,442
Less: Allowance for diminution in value (18,823,497) (19,344,160)
65,835,945 65,315,282
The subsidiary companies, all of which are incorporated in Malaysia are as follows:
effective equity Interest
2009 2008name of Company % % principal Activities
Bio-Acetic Products Sdn. Bhd. #99.91 #99.91 Manufacture of natural vinegar.
Chemical Industries (Malaya) Sdn. Bhd.
99.91 99.91 Manufacture and sale of ethyl alcohol, liquefied carbon dioxide and kaoliang wine.
Hexza-Mather Sdn. Bhd. 100.00 100.00 Manufacture of alcoholic and non-alcoholic beverages.
Hexzachem Sarawak Sdn. Bhd. 80.00 80.00 Manufacture and sale of formaldehyde and formaldehyde based adhesive and resins for timber related industries.
Norsechem Marketing Sdn. Bhd.
100.00 100.00 Marketing and distribution of consumer products and industrial chemicals.
Norsechem Resins Sdn. Bhd. 100.00 100.00 Manufacture and sale of formaldehyde and formaldehyde based adhesive and resins for timber related industries.
Summit Development Corporation Sdn. Berhad
100.00 100.00 Property development.
Synthetic Bakelites (Malaysia) Sdn. Bhd.
96.92 96.92 Dormant.
Trizenith Sdn. Bhd. 100.00 100.00 Dormant.
Hexza World Trade Sdn. Bhd. 70.00 70.00 Dormant.
NC Management Services Sdn. Bhd.
100.00 100.00 Pre-operating.
Norse-Med Devices Sdn. Bhd. 100.00 100.00 Pre-operating.
Norsechem Polymer Sdn. Bhd. 100.00 100.00 Pre-operating.
# Indirect interest via the Company’s investment in Chemical Industries (Malaya) Sdn. Bhd.
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt70
17. InVeStMent In ASSoCIAteD CoMpAnY
the Group the Company2009 2008 2009 2008RM RM RM RM
Unquoted shares – at cost 2,757,936 3,394,936 2,757,936 3,394,936
Less: Capital distribution (196,000) (637,000) (196,000) (637,000)
2,561,936 2,757,936 2,561,936 2,757,936
Share of post acquisition results, net of dividends received and tax 3,022,001 2,773,409 – –
5,583,937 5,531,345 2,561,936 2,757,936
The summarised financial information of the associated company is as follows:
2009 2008RM RM
Total assets 11,806,994 11,791,015
Total liabilities (411,203) (502,555)
Net assets 11,395,791 11,288,460
Group’s share of associated company’s net assets 5,583,937 5,531,345
2009 2008RM RM
Rental and other income 801,528 217,070
Total profit for the year 507,331 169,596
Share of associated company’s profit for the year 248,592 83,102
The associated company is Summit Imaging Technologies Sdn. Bhd., a company incorporated in Malaysia, in which the Company has an equity interest of 49.00% (2008: 49.00%). The associated company was principally involved in the manufacture of imaging products and its financial year end was October 31.
On February 24, 2006, the associated company was placed under Members’ Voluntary Liquidation. The investment has still been equity accounted for as the Company retains significant influence over the associated company.
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 71
18. otHeR InVeStMentS
the Group the Company2009 2008 2009 2008RM RM RM RM
At cost:
Shares quoted in Malaysia 18,554,946 8,386,367 18,554,946 8,386,367
Warrants, loan stocks, bonds quoted in Malaysia 600 1,500 600 1,500
Shares quoted outside Malaysia 4,725 4,725 4,725 4,725
18,560,271 8,392,592 18,560,271 8,392,592
Write down to market value – (90,000) – (90,000)
Net 18,560,271 8,302,592 18,560,271 8,302,592
Unquoted shares, at cost 3,880,800 3,880,800 3,880,800 3,880,800
22,441,071 12,183,392 22,441,071 12,183,392
Market value of quoted investments:
Within Malaysia 19,374,688 8,271,114 19,374,688 8,271,114
Outside Malaysia 23,996 31,902 23,996 31,902
19,398,684 8,303,016 19,398,684 8,303,016
19. GooDwIll ARISInG on ConSolIDAtIon
the Group2009 2008 RM RM
Goodwill arising on consolidation 2,129,365 2,129,365
Impairment tests for cash-generating units (“CGu”) containing goodwill
The carrying amount of goodwill is allocated to the manufacturing and related sales functions of Chemical Industries (Malaya) Sdn. Bhd. and Hexzachem Sarawak Sdn. Bhd.
During the year, the Group carried out a review of the recoverable amount of its goodwill. The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations use cash flow projections based on a financial forecast, approved by management, covering a period of five years from the financial years 2010 to 2014. The following key assumptions were used to generate the financial forecast:
Sales volume growth rate 5.0% per annumInflation rate 5.0% per annumDiscount rate 3.0%
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt72
19. GooDwIll ARISInG on ConSolIDAtIon (continued)
Receivables and payables turnover periods were estimated to be consistent with the current financial year.
The above key assumptions were determined based on past business performances and management’s expectations of future market development.
No impairment loss was recognised during the financial year as the recoverable amounts of the CGUs exceed their carrying amounts.
20. InVentoRIeS
the Group2009 2008 RM RM
At cost:
Raw materials and consumables 8,802,233 10,944,718
Finished goods 3,104,226 6,027,447
Completed development units for sale 1,277,624 1,712,179
Work-in-progress 10,491 14,509
Goods-in-transit 2,020,943 –
15,215,517 18,698,853
The cost of inventories recognised as an expense during the year for the Group was RM138,984,779 (2008: RM133,944,247).
the Group2009 2008 RM RM
Changes in inventories of finished goods and work-in-progress include:
Inventories written off 150,570 45,891
Inventories write down 210,029 –Raw materials and consumables used include:
Inventories written off 57,815 278,416
Inventories write down 2,995,875 –
NOTES TO THE fINANCIAl STATEmENT
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 73
21. tRADe AnD otHeR ReCeIVABleS
the Group the Company2009 2008 2009 2008 RM RM RM RM
Trade receivables 33,208,720 40,185,727 – –Less: Allowance for doubtful
debts (1,744,242) (2,306,568) – –Net receivables from third
parties 31,464,478 37,879,159 – –Other receivables 122,809 127,318 28,519 83,066
Amount owing by subsidiary companies (Note 22) – – 1,118,586 147,038
Amount owing by associated company (Note 22) 1,552 3,105 1,552 3,105
31,588,839 38,009,582 1,148,657 233,209
Trade receivables comprise amounts receivable for sales of goods. The credit periods granted on sales of goods ranged from 15 to 90 days (2008: 15 to 90 days). Allowances have been made for estimated irrecoverable amounts from the sales of goods of the Group of RM1,744,242 (2008: RM2,306,568), and have been determined by reference to past default experience.
The currency profile of trade receivables is as follows:
the Group2009 2008 RM RM
Ringgit Malaysia 32,046,628 39,754,768
Singapore Dollar 1,162,092 430,959
33,208,720 40,185,727
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt74
22. RelAteD CoMpAnIeS AnD RelAteD pARtY tRAnSACtIonS
Subsidiary companiesthe Company
2009 2008 RM RM
Amount owing by subsidiary companies (Note 21) consist of:
Current accounts 10,788,108 11,664,581
Loan accounts – 7,227
10,788,108 11,671,808
Allowance for doubtful debts (9,669,522) (11,524,770)
1,118,586 147,038Amount owing to a subsidiary company (Note 30) consists of:
Current account 78,677 80,007
The amounts owing by/(to) subsidiary companies classified under current accounts arose mainly from expenses paid on behalf and advances which are unsecured, interest-free and repayable on demand.
The amount owing by subsidiary companies under loan accounts which have been fully repaid as of the financial year end, bears interest at a rate of 6.75% (2008: 6.75%) per annum.
During the financial year, transactions undertaken by the Company with its subsidiary companies are as follows:
the Company2009 2008 RM RM
Dividends (gross) received/receivable 11,619,886 7,029,000
Loan advance 8,590,000 –Professional services rendered 97,600 96,840
Interest received 51,187 84,024
Purchases 1,050 –
The transactions with subsidiary companies are aggregated as these transactions are similar in nature and also no single transaction is significant enough to be disclosed separately in the financial statements.
Associated company
The amount owing by associated company arose mainly from expenses paid on behalf.
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 75
Related party transactions
Other than as disclosed elsewhere in the financial statements, the related parties and their relationship with the Company and its subsidiary companies are as follows:
names of related parties Relationship
Summit Holdings Sdn. Bhd. )))
A company in which Datuk Dr. Foong Weng Sum and Dr. Foong Weng Cheong, directors of the Company, have substantial financial interests.
Sumivest Holdings Sdn. Bhd. )))
A company in which Datuk Dr. Foong Weng Sum, a director of the Company, is also a director and has substantial financial interest.
SP&G Insurance Brokers Sdn. Bhd. )))
A company in which Datuk Dr. Foong Weng Sum and Dr. Foong Weng Cheong have substantial financial interests, and where Datuk Dr. Foong Weng Sum is a director.
Enchante Uk Ltd. ))
A company in which Mr. Foong Leon Sing, son of Datuk Dr. Foong Weng Sum, has substantial financial interest.
During the financial year, related party transactions are as follows:
the Group the Company2009 2008 2009 2008 RM RM RM RM
Insurance premium paid/payable
SP&G Insurance Brokers Sdn. Bhd. 965,136 686,160 3,049 2,938
trade sales
Enchante Uk Ltd. – 14,449 – –promotional expenses
Enchante Uk Ltd. – 99,088 – –purchase of motor vehicle
Sumivest Holdings Sdn. Bhd. – 87,000 – –
Outstanding balances arising from the above transactions at the end of the financial year are as follows:
the Group2009 2008 RM RM
payables
Other payables 3,331 6,550
Directors’ remuneration are as disclosed in Note 9.
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt76
22. RelAteD CoMpAnIeS AnD RelAteD pARtY tRAnSACtIonS (continued)
Compensation of key management personnel
The remuneration of the management personnel other than the executive director are as follows:
the Group2009 2008 RM RM
Short-term employee benefits 1,121,403 1,041,101
The estimated monetary value of benefits-in-kind received and receivable by the key management personnel otherwise than in cash from the Group amounted to RM45,032 (2008: RM24,175).
23. otHeR ASSetS
Other assets consist of:the Group the Company
2009 2008 2009 2008 RM RM RM RM
Refundable deposits 129,220 131,630 3,780 3,780
Prepaid expenses 239,975 174,476 23,191 20,488
368,195 306,106 26,971 24,268
24. CASH, CASH equIVAlentS AnD BAnK BAlAnCeS
the Group the Company2009 2008 2009 2008 RM RM RM RM
Investment fund – 11,075,252 – 11,075,252
Fixed and short-term deposits with licensed banks 54,170,896 47,527,018 41,220,101 33,368,115
Cash and bank balances 9,645,193 9,391,462 470,031 403,238
63,816,089 67,993,732 41,690,132 44,846,605
The above balances represent cash and cash equivalents of the Group and of the Company.
The interest rates are as follows: the Group the Company
2009 2008 2009 2008% % % %
Fixed deposits 1.60 – 3.60 2.60 – 3.80 1.60 – 3.60 3.00 – 3.60
Investment fund 2.37 – 3.23 2.40 – 3.07 2.37 – 3.23 2.40 – 3.07
The maturity periods of the deposits of the Group and of the Company range from 30 to 180 days (2008: 30 to 365 days).
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 77
25. non-CuRRent ASSetS ClASSIFIeD AS HelD FoR SAle
the Group and the Company2009 2008 RM RM
Reclassified from prepaid interests in leased land (Note 15) 780,102 –
The prepaid interests in leased land of the Company were reclassified as non-current assets classified as held for sale in the current financial year following the commitment of the Company’s management to sell to third parties.
26. SHARe CApItAl
the Group and the Company 2009 2008 2009 2008
number of shares
number of shares RM RM
Authorised:
Ordinary shares of RM0.50 each 400,000,000 400,000,000 200,000,000 200,000,000
Issued and fully paid:
Ordinary shares of RM0.50 each:
At beginning of year 132,001,691 130,400,691 66,000,845 65,200,345
Issued pursuant to:
ESOS 1,585,000 1,601,000 792,500 800,500
Bonus shares 66,793,345 – 33,396,673 –
At end of year 200,380,036 132,001,691 100,190,018 66,000,845
The salient features and movements of the ESOS are as disclosed in the directors’ report.
The resulting premium arising from the shares issued under the ESOS of RM72,200 has been credited to the share premium account.
As approved by the shareholders at the Extraordinary General Meeting held on November 22, 2008, the issued and paid-up ordinary share capital of the Company was increased from RM66,793,345 to RM100,190,018 during the financial year by way of a bonus issue of 66,793,345 new ordinary shares of RM0.50 each through capitalisation of RM33,396,673 from reserves on the basis of one (1) new bonus share for every two (2) existing shares held in the Company.
The new ordinary shares issued rank pari passu with the then existing ordinary shares of the Company.
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt78
26. SHARe CApItAl (continued)
Share option plan
The Group offers vested share options to eligible employees, including Executive Directors, who are confirmed full time employees in a company within the Group. The Options expired on February 18, 2009. Movements in the number of share options held by employees are as follows:
2009 2008
Outstanding at July 1 4,300,000 3,836,000
Granted – 2,223,000
Lapsed (2,715,000) (158,000)
Exercised (1,585,000) (1,601,000)
Outstanding at June 30 – 4,300,000
Details of share options granted during the year:
Expiry date – 18.2.2009
Exercise price per share (RM) – 0.70
Aggregate proceeds if shares are issued (RM) – 1,556,100
Details of share options held by the Company’s directors and the Group’s key management personnel during the year are as follows:
2009 2008
At July 1 1,739,000 1,909,000
Granted during the year – 650,000
Exercised during the year (989,000) (820,000)
Lapsed during the year (750,000) –
At June 30 – 1,739,000
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 79
27. ReSeRVeS
the Group the Company2009 2008 2009 2008 RM RM RM RM
Non-distributable reserve:
Share premium – 15,141,559 – 15,141,559
Distributable reserve:
Retained earnings 85,095,552 102,367,427 33,802,000 44,700,296
85,095,552 117,508,986 33,802,000 59,841,855
Share premium
Share premium represents the excess of issue prices over the par value of the ordinary shares of the Company at the dates of allotment.
Retained earnings
In accordance with the Finance Act, 2007, the single tier income tax system became effective from the year of assessment 2008. Under this system, tax on a company’s profit is a final tax, and dividends paid are exempted from tax in the hands of the shareholders. Unlike the previous imputation system, the recipient of the dividend would no longer be able to claim any tax credit.
Companies without Section 108 tax credit balance will automatically move to the single tier tax system on January 1, 2008. However, companies with such tax credits are given an irrevocable option to elect for the single tier tax system and disregard the tax credit or continue to use the tax credits under Section 108 account to frank the payment of cash dividends on ordinary shares for a period of 6 years ending December 31, 2013 or until the tax credits are fully utilised, whichever comes first. During the transitional period, any tax paid will not be added to the Section 108 account and any tax credits utilised will reduce the tax credit balance. All companies will be in the new system on January 1, 2014.
As of the balance sheet date, the Company has not elected for the irrevocable option to disregard the Section 108 tax credits. Accordingly, subject to the agreement of the Inland Revenue Board and based on the prevailing tax rate applicable to dividend, the Company has sufficient Section 108 tax credit and tax exempt income to frank dividends out of its entire retained earnings as of June 30, 2009.
28. teRM loAn AnD CReDIt FACIlItIeS
the Group2009 2008 RM RM
Secured:
Term loan – 1,188,188
Less: Amount due within 12 months (shown under current liabilities) – (1,188,188)
Non-current portion – –
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt80
28. teRM loAn AnD CReDIt FACIlItIeS (continued)
The above term loan of RM1,788,188 from a local licensed bank was repayable by 17 equal monthly instalments of RM100,000 (excluding interest), and a final instalment for the balance of RM88,188, with the first instalment commencing on January 2008 and was secured by a corporate guarantee from the Company. The term loan bore interest at a rate of 6.05% (2008: 7.25%) per annum. During the financial year, the term loan was fully repaid.
Certain subsidiary companies have bank overdraft and other credit facilities obtained from licensed banks to the extent of RM34,700,000 (2008: RM31,761,000) which are secured over the leasehold land and buildings of the Group as disclosed in Notes 14 and 15 respectively, a negative pledge on the assets of the subsidiary companies and guaranteed by the Company. The bank overdraft facilities bear interest at rates ranging from 6.55% to 6.80% (2008: 7.75% to 8.75%) per annum. The other credit facilities bear interest at rates ranging from 3.18% to 4.62% (2008: 3.91% to 4.78%) per annum.
29. GRAtuItY AnD RetIReMent BeneFItS
the Group2009 2008 RM RM
Provision:
At beginning of year – 823,906
Reversal – (156,446)
Paid – (667,460)
At end of year – –
The retirement benefits scheme has been terminated in 2008.
30. tRADe AnD otHeR pAYABleS
Trade and other payables comprise amounts outstanding for trade purchases and ongoing costs. The credit periods granted to the Group for trade purchases ranged from 1 to 90 days (2008: 14 to 90 days).
the Group the Company2009 2008 2009 2008 RM RM RM RM
Trade payables 3,436,434 9,547,516 – –Other payables 1,509,844 1,352,657 8,082 9,589
Amount owing to a subsidiary company (Note 22) – – 78,677 80,007
4,946,278 10,900,173 86,759 89,596
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 81
The currency profile of trade payables is as follows:
the Group2009 2008 RM RM
US Dollar 3,000,839 8,629,394
Ringgit Malaysia 435,595 918,122
3,436,434 9,547,516
The currency profile of other payables is as follows:
the Group the Company2009 2008 2009 2008 RM RM RM RM
Ringgit Malaysia 1,506,244 1,352,657 8,082 9,589
Singapore Dollar 3,600 – – –
1,509,844 1,352,657 8,082 9,589
Transactions with related parties are as disclosed in Note 22.
31. otHeR lIABIlItIeS
Other liabilities consist of:
the Group the Company2009 2008 2008 2007 RM RM RM RM
Deposit received 265,589 36,289 236,100 –
Accrued expenses 2,638,296 2,611,134 267,291 293,890
2,903,885 2,647,423 503,391 293,890
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt82
32. DIVIDenDS
the Group and the Company2009 2008 RM RM
Recognised during the year:
First and final dividend paid:
4.0% less tax and 3.0% tax-exempt for 2008 (5.5% less tax and 2.0% tax-exempt for 2007) 6,011,401 4,000,486
The directors have proposed a first and final dividend of 4.0%, less tax and a tax-exempt dividend of 3.0% in respect of the current financial year. The proposed dividends are subject to approval by the shareholders at the forthcoming Annual General Meeting of the Company and have not been included as a liability in the financial statements. Proposed dividend per share is 3.0 sen (2008: 3.0 sen).
33. MAteRIAl lItIGAtIon
As of June 30, 2009, a subsidiary company had filed a claim against a trade debtor for the principal sum of RM1,679,893 and all interest accruing thereon being balance of purchase price for goods sold and delivered.
34. CApItAl CoMMItMent
As of June 30, 2009, the Group has the following capital expenditure in respect of property, plant and equipment:
the Group2009 2008RM RM
Contracted but not provided for 2,363,000 5,338,000
35. FInAnCIAl InStRuMentS
Financial instruments are contracts that give rise to both a financial asset of one enterprise and a financial liability or equity instrument of another enterprise.
FinancialRiskManagementObjectivesandPolicies
The operations of the Group are subject to a variety of financial risks, including foreign exchange risk, market risk, liquidity risk and cash flow risk. The Group has formulated a financial risk management framework whose principal objective is to minimise the Group’s exposure to risks and/or costs associated with the financing, investing and operating activities of the Group.
Various risk management policies are made and approved by the Board for observation in the day-to-day operations for the controlling and management of the risks associated with financial instruments.
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 83
Foreign currency exchange risk
The Group enters into foreign currency forward contracts in the normal course of business to manage its exposure against foreign exchange fluctuations on purchases and capital goods transactions denominated in foreign currencies. There were no outstanding forward contracts as at the end of the financial year.
Market risk
The Group has in place policies to manage the Group’s exposure to fluctuations in prices of key raw materials used in operations. For marketable securities, the Group uses an investment committee to monitor fluctuations in market prices and to establish suitable cut loss procedures.
Credit risk
The Group is exposed to credit risk mainly from trade receivables. The Group extends credit to its customers based upon careful evaluation of the customer’s financial condition and credit history. The Group also ensures a large number of customers so as to limit high credit concentration in a customer or customers from a particular market. The directors are of the opinion that the risk of incurring material losses related to its credit risk is remote.
liquidity risk
The Group practises prudent liquidity risk management to minimise the mismatch of financial assets and liabilities and to maintain sufficient credit facilities for contingent funding requirement of working capital.
Cashflowrisk
The Group reviews its cash flow position regularly to manage its exposure to fluctuations in future cash flows associated with its monetary financial instruments.
Financial Assets
The Group’s and the Company’s principal financial assets are fixed deposits, cash and bank balances, trade and other receivables and equity investments.
The accounting policies applicable to the major financial assets are as disclosed in Note 3.
Financial liabilities and equity Instruments
Significant financial liabilities of the Group and of the Company include trade and other payables and term loans.
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt84
35. FInAnCIAl InStRuMentS (continued)
Fair Values
The carrying amounts and the estimated fair values of the Group’s and of the Company’s financial instruments are as follows:
the Group the CompanyCarrying Amount Fair Value
Carrying Amount Fair Value
note RM RM RM RM
As of june 30, 2009
Financial Assets
Other investments
– unquoted shares 18 3,880,800 * 3,880,800 *
– quoted shares 18 18,560,271 19,398,684 18,560,271 19,398,684
As of june 30, 2008
Financial Assets
Other investments
– unquoted shares 18 3,880,800 * 3,880,800 *
– quoted shares 18 8,302,592 8,303,016 8,302,592 8,303,016
Financial liability
Term loans 28 1,188,188 963,149 – –
The market values of quoted shares as of balance sheet date approximate their fair values.
* It is not practical to estimate the fair values of unquoted investments. As of year end, based on the management financial statements, the Group’s and the Company’s share of the net tangible assets of the unquoted investments amounted to approximately RM3,982,000 (2008: RM4,682,000).
The carrying amounts of the short-term financial assets and liabilities such as cash and cash equivalents, trade and other receivables and trade and other payables approximate their fair values due to the short-term maturity of these instruments.
The fair value of the long-term loan is estimated using discounted cash flow analysis based on current borrowing rates for similar types of borrowing arrangements.
NOTES TO THE fINANCIAl STATEmENTS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 85
The directors of heXZA CoRPoRAtion BeRhAD state that, in their opinion, the accompanying balance sheets and the related statements of income, changes in equity and cash flows are drawn up in accordance with the provisions of the Companies Act, 1965 and the Financial Reporting Standards in Malaysia so as to give a true and fair view of the state of affairs of the Group and of the Company as of June 30, 2009 and of the results of their businesses and the cash flows of the Group and of the Company for the year ended on that date.
Signed in accordance with a resolution of the Directors,
DAtuk DR. Foong Weng SuM
DAto’ RiChARD ong guAn Seng
Ipoh,September 10, 2009
DEClARATION By THE OffICER PRImARIly RESPONSIBlE fOR THE fINANCIAl mANAgEmENT Of THE COmPANy
I, CHONG YOKE SENG, the officer primarily responsible for the financial management of heXZA CoRPoRAtion BeRhAD, do solemnly and sincerely declare that the accompanying balance sheets and the related statements of income, changes in equity and cash flows are, in my opinion, correct and I make this solemn declaration conscientiously believing the same to be true, and by virtue of the provisions of the Statutory Declarations Act, 1960.
Chong Yoke Seng
Subscribed and solemnly declared by the abovenamedChong Yoke Seng at iPoh this 10th day of September, 2009.
Before me,
ChoW Min YeeCoMMiSSioneR FoR oAthS Ipoh
STATEmENT By DIRECTORS
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt86
STATEmENT Of SHAREHOlDINgS AS AT 28TH SEPTEMBER 2009
1. Authorised Capital : RM200,000,000 Issued & Fully Paid-Up Capital : RM100,190,018 Class of Shares : Ordinary Shares of 50 sen each Voting Rights : One vote per Ordinary Share
2. Distribution of Shareholdings
Range of Shareholdingsno. of
Holders% of
Holdersno. of 50 Sen
Shares% of Issued
Capital
Less than 100 90 0.88 4,553 0.00100 – 1,000 307 3.02 166,487 0.081,001 – 10,000 7,410 72.86 29,288,504 14.6210,001 – 100,000 2,180 21.44 57,730,691 28.81100,001 – 10,019,000 181 1.78 52,608,144 26.2610,019,001 and above 2 0.02 60,581,657 30.23TOTAL 10,170 100.00 200,380,036 100.00
3. Substantial Shareholders as per the Register of Substantial Shareholders
Direct Interest Deemed Interest
Substantial Shareholdersno. of
Shares Held% of Issued
Capitalno. of
Shares Held% of Issued
Capital
Summit Holdings Sdn. Bhd. 60,581,657 30.23 – –Dr. Foong Weng Cheong 2,662,500 1.33 60,581,657 30.23Datuk Dr. Foong Weng Sum 1,083,228 0.54 60,581,657 30.23
4. Directors’ Shareholdings as per the Register of Directors’ Shareholdings
Direct Interest Deemed Interest
Directorsno. of
Shares Held% of Issued
Capitalno. of
Shares Held% of Issued
Capital
Datuk Dr. Foong Weng Sum 1,083,228 0.54 60,581,657 30.23Dr. Foong Weng Cheong 2,662,500 1.33 60,581,657 30.23Dato’ Richard Ong Guan Seng 200,000 0.10 – –Mr. Leong keng Yuen 225,000 0.11 – –Tuan Haji Mohd Jali
@ Mohd Jalil Bin Sany608,300 0.30
– –
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt 87
STATEmENT Of SHAREHOlDINgS AS AT 28TH SEPTEmBER 2009
5. Thirty Largest Shareholders as per the Record of Depositors
Shareholders no. of Shares% of Issued
Capital
1. Summit Holdings Sdn. Bhd. 60,581,657 30.232. Citigroup Nominees (Asing) Sdn. Bhd.
Exempt An for OCBC Securities Private Limited3,345,500 1.67
3. Dr. Foong Weng Cheong 2,662,500 1.334. HLB Nominees (Tempatan) Sdn. Bhd.
Pledged Securities Account for Chee Sai Mun1,969,000 0.98
5. Lim Tai Soon 1,910,450 0.956. Lim Shiu Ho 1,612,800 0.807. Lim Seng Chee 1,608,000 0.808. Cimsec Nominees (Asing) Sdn. Bhd.
Exempt An for CIMB-GK Securities Pte. Ltd.1,606,380 0.80
9. Datuk Dr. Foong Weng Sum 1,083,228 0.5410. Mayban Nominees (Tempatan) Sdn. Bhd.
Pledged Securities Account for Yeong Sin Khong 675,000 0.34
11. Goh kok Yong 675,000 0.3412. Yap Shing @ Yap Sue kim 630,000 0.3113. Tuan Haji Mohd Jali @ Mohd Jalil bin Sany 608,300 0.3014. Chong Yoke Seng 590,000 0.2915. HLG Nominee (Asing) Sdn. Bhd.
Exempt An for UOB Kay Hian Pte. Ltd. 584,250 0.29
16. RHB Capital Nominees (Tempatan) Sdn. Bhd.Pledged Securities Account for Teh Kian Lang
556,700 0.28
17. Tay kak Chok 554,250 0.2818. Ooi Say Hup 531,600 0.2719. Chai Beng Hwa 525,000 0.2620. Xiang Ling Capital Sendirian Berhad 525,000 0.2621. Lim Hong Liang 509,000 0.2522. Alliancegroup Nominees (Tempatan) Sdn. Bhd.
Pledged Securities Account for Pong Ching Keong500,000 0.25
23. Chin Ah Fook 500,000 0.2524. Nyiew Teng Sia @ Yang Tig Chern 496,050 0.2525. Sia Siw Gack 453,000 0.2326. On Thiam Chai 450,000 0.2227. Sing kong Hum 415,500 0.2128. kenanga Nominees (Tempatan) Sdn. Bhd.
Pledged Securities Account for Timber World Agencies Sdn. Bhd.
410,000 0.20
29. Tan Hai khoon 400,000 0.2030. Inter-Pacific Equity Nominees (Asing) Sdn. Bhd.
Kim Eng Securities Pte. Ltd. for Tan Ban Kau 392,250 0.20
H E X Z A C O R P O R AT I O N B E R H A D (8705-k) (Incorporated in Malaysia)
2009 AnnuAl RepoRt88
PROPERTIES OWNED By HEXZA CORPORATION BERHAD & ITS SUBSIDIARIES AS AT 30TH jUNE 2009
location tenure
Approximate Area in
sq. meter
Approximate Age of
Buildings in years
Carrying Amount
30.6.2009 RM'000
Year of Acquisition(A)/ Completion(C)/
last Revaluation(R)
existing usage
Lot 6, Tasek Industrial Estate, Tasek Drive, Ipoh, Perak Darul Ridzuan.
Leasehold Expiry 2062
28,328 49 3,801 R:1988 Factory
6 2,318 C:2004 Office
4 1,893 C:2006 Factory
Lot 20, Tasek Industrial Estate, Tasek Drive, Ipoh, Perak Darul Ridzuan.
Leasehold Expiry 2064
12,141 – 677 R:1988 Factory
Lot 1017, Tasek Industrial Estate, Tasek Drive, Ipoh, Perak Darul Ridzuan.
Leasehold Expiry 2069
12,141 – 1,221 A:2004 Vacant industrial
land
Lot 5, North klang Straits Industrial Area, Port klang, Selangor Darul Ehsan.
Leasehold Expiry 2086
28,317 15 5,968 C:1993 Factory
Lot 799, Block 7, Sejingkat Industrial Estate, Muara Tebas Land District, kuching, Sarawak.
Leasehold Expiry 2052
38,970 15 6,666 C:1993 Factory
Lot 181630 & 181641, IGB International Industrial Park, Jalan kuala kangsar, Ipoh, Perak Darul Ridzuan.
Leasehold Expiry 2089
16,859 – 742 A:1993 Vacant industrial
land
Lot 3057, Block 26, kemena Land District, Bintulu, Sarawak.
Leasehold Expiry 2063
20,235 – 2,014 A:2006 Vacant industrial
land
I/We ..................................................................................................................................................................................................................................................................................................................
(Full Name in Block Capitals)
NRIC No. .................................................................................................................................................................. of ..........................................................................................................................
being a member/members of HeXzA CoRpoRAtIon BeRHAD, hereby appoint ……………….. ....................................................................
...............................................................................................................of .............................................................................................................................................................................................................
or failing him ...........................................................................................................................................................................................................................................................................................
of ..........................................................................................................................................................................................................................................................................................................................
or failing him, the CHAIRMAN OF THE MEETING as my/our proxy to vote for me/us on my/our behalf at the Fortieth Annual General Meeting of the Company to be held at Regency 5, Level 11, Tower Regency Hotel & Apartments, 6–8, Jalan Dato’ Seri Ahmad Said, Greentown, 30450 Ipoh, Perak Darul Ridzuan on Saturday, 21st November 2009 at 11.00 a.m. and at any adjournment thereof. My/Our proxy is to vote as indicated below:
For Against
Resolution 1
Resolution 2
Resolution 3
Resolution 4
Resolution 5
Resolution 6
Resolution 7
Resolution 8
Resolution 9
(Please indicate with an ‘X’ in the spaces provided how you wish your vote to be cast. In the absence of specific directions, your proxy will vote or abstain from voting at his discretion.)
Date: ......................................................................... No. ofShares held
Signature/Seal: .......................................................
NOTES:1. A proxy need not be a member of the Company.2. An instrument appointing a proxy, in the case of an individual, shall be signed by the appointor or his attorney duly authorised
in writing or in the case of a corporation, shall be either under its Common Seal or signed on its behalf by an attorney or officer of the corporation so authorised.
3. In order for the proxy to be valid, it must be lodged together with the power of attorney or other authority, if any, under which it is signed, or a notary certified copy of that power or authority at the registered office of the Company not less than forty-eight (48) hours before the time for holding the meeting or any adjournment thereof.
P R o x y F o R M
HExZA CoRPoRATIoN BERHAD (Incorporated in Malaysia)
(8705-k)
THE COMPANY SECRETARYHeXzA CoRpoRAtIon BeRHADLot 6 & 20, Persiaran Tasek, kawasan Perindustrian Tasek, 31400 Ipoh, Perak Darul Ridzuan, Malaysia.
AffixStamp
fold here
fold here