Download - 2020 Annual Report - Hexza

Annual Report2020

196901000339 (8705-K)

HEXZA CORPORATION BERHAD 196901000339 (8705-K)(Incorporated in Malaysia)

ANNUAL REPORT 2020

CONTENTS

Notice of Annual General Meeting

Corporate Structure

Corporate Information

Chairman’s Statement

Five-Year Group Financial Summary

Management Discussion and Analysis

Sustainability Statement 2020

Directors’ Profile

Key Management Personnel of the Group and its Subsidiary Companies

Audit Committee Report

Corporate Governance Overview Statement

Additional Compliance Information

Statement on Risk Management and Internal Control

Directors’ Report

Independent Auditors’ Report

Statements of Profit or Lossand Other Comprehensive Income

Statements of Financial Position

Statements of Changes in Equity

Statements of Cash Flows

Notes to the Financial Statements

Statement by Directors

Declaration by the Officer Primarily Responsible for the Financial Management of the Company

Statement of Shareholdings

Properties Owned by Hexza Corporation Berhad & its Subsidiary Companies

Proxy Form

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Annual Report 20202

NOTICE IS HEREBY GIVEN that the Fifty-First (51st) Annual General Meeting (“AGM”) of Hexza Corporation Berhad will be held at the Impiana Ballroom, Impiana Hotel, 18, Jalan Sultan Nazrin Shah, 30250 Ipoh, Perak Darul Ridzuan on Saturday, 28 November 2020 at 11.00 a.m.

A G E N D A

As ORDINARY BUSINESS: ORDINARYRESOLUTION

1. To receive the Audited Financial Statements for the financial year ended 30 June 2020, together with the Directors’ and Auditors’ Reports thereon.

(Please refer to Note 2)

2. To approve the payment of a final single-tier dividend of 5 sen per ordinary share and a special dividend of 2.5 sen per ordinary share in respect of the financial year ended 30 June 2020.

1

3. To approve the payment of Directors’ fees of RM316,460 for the financial year ended 30 June 2020.

2

4. To approve the payment of Director's fee to Tuan Haji Mohd Jali @ Mohd Jalil Bin Sany, deceased amounting to RM8,750 from 1 July 2020 to 3 September 2020 (date of death) for the financial year ending 30 June 2021.

3

5. To approve the payment of Directors’ Benefits to Non-Executive Directors up to an amount of RM330,000 from 29 November 2020 until the next AGM of the Company.

4

6. To re-elect the following Directors retiring in accordance with Rule 131.1 of the Company’s Constitution and being eligible, offer themselves for re-election:

6.1 Datuk Dr. Foong Weng Sum 5

6.2 Dr. Foong Weng Cheong 6

6.3 Mr. Ooi Ying Hong 7

7. To re-elect the following Directors who were appointed during the year and retire in accordance with Rule 116 of the Company’s Constitution and being eligible, offer themselves for re-election:

7.1 Ms. Foong Leon Ie 8

7.2 Ms. Navit Kaur Randhawa A/P Hira Singh 9

8. To re-appoint Messrs Deloitte PLT as Auditors of the Company to hold office until the conclusion of the next AGM and to authorise the Directors to fix their remuneration.

10

As SPECIAL BUSINESS, to consider and, if thought fit, pass the following resolutions:

9. Retention of Independent Non-Executive Director until the conclusion of the next AGM in accordance with the Malaysian Code of Corporate Governance (“MCCG”)

That subject to his re-election as a Director of the Company under Ordinary Resolution 7, approval be and is hereby given to Mr. Ooi Ying Hong who has served as an Independent Non-Executive Director of the Company for a cumulative term of more than nine (9) years to continue to act as an Independent Non-Executive Director of the Company.

11

NOTICE OF ANNUAL GENERAL MEETING


Annual Report 2020 3

10. Proposed Authority to Allot and Issue Shares pursuant to Section 76 of the Companies Act, 2016

“THAT pursuant to Section 76 of the Companies Act, 2016, the Directors be and are hereby authorised to allot and issue shares in the Company at any time and from time to time until the conclusion of the next Annual General Meeting upon such terms and conditions and for such purposes as the Directors may, in their absolute discretion, deem fit provided the aggregate number of shares to be issued does not exceed ten per centum (10%) of the total number of issued shares of the Company for the time being, subject always to the approval of all relevant regulatory bodies being obtained for such allotment and issuance AND THAT the Directors of the Company be and are also empowered to obtain the approval for the listing of and quotation for the additional shares so issued on Bursa Malaysia Securities Berhad AND FURTHER THAT such authority shall commence immediately upon the passing of this Resolution and continue to be in force until the conclusion of the next Annual General Meeting of the Company.”.

12

11. To transact any other business of which due notice shall have been given in accordance with the Companies Act, 2016.

NOTICE OF DIVIDEND ENTITLEMENT AND PAYMENT DATE

NOTICE IS ALSO HEREBY GIVEN that the final dividend of 5 sen per ordinary share and a special dividend of 2.5 sen per ordinary share in respect of the financial year ended 30 June 2020, if approved by the shareholders, will be paid on 18 December 2020 to depositors who are registered in the Record of Depositors and Register of Members at the close of business on 3 December 2020.

A Depositor shall qualify for entitlement to the dividend only in respect of:

(a) Shares transferred into the Depositor’s Securities Account before 4.30 p.m. on 3 December 2020 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 BoardCHAN EOI LENG(SSM PC No. 202008003055)(MAICSA 7030866)

Chartered Secretary

Ipoh, Perak Darul Ridzuan, Malaysia28 October 2020

NOTICE OF ANNUAL GENERAL MEETING NOTICE OF ANNUAL GENERAL MEETING


Annual Report 20204

NOTICE OF ANNUAL GENERAL MEETING (continued)

Notes:1. PROXY

Only members whose names appear on the Record of Depositors as at 18 November 2020 shall be entitled to attend the AGM or appoint proxies in his/her stead or in the case of a corporation, a duly authorised representative to attend and to vote in his/her stead. A proxy must be 18 years and above and may but need not be a member of the Company.

A member, other than an exempt authorised nominee is entitled to appoint one (1) or two (2) proxies to attend and vote instead of him/her. Where a member appoints two (2) proxies, the appointments shall be invalid unless he/she specifies the proportions of his/her holdings to be represented by each proxy.

Where a member of the Company is an Exempt Authorised Nominee which holds ordinary shares in the Company in an Omnibus Account, there is no limit to the number of proxies which the Exempt Authorised Nominee may appoint in respect of each Omnibus Account it holds but the proportion of holdings to be represented by each proxy must be specified.

The instrument appointing a proxy shall be in writing under the hand of the appointer or his/her attorney duly authorised in writing or if the appointer is a corporation, either under the corporation’s seal or under the hand of an officer or attorney duly authorised. If under the hand of attorney/authorised officer, the Power of Attorney or Letter of Authorisation must be attached.

The instrument appointing a proxy or proxies must be deposited at Boardroom Share Registrars Sdn Bhd, 11th Floor, Menara Symphony, No. 5, Jalan Prof. Khoo Kay Kim, Seksyen 13, 46200 Petaling Jaya, Selangor Darul Ehsan not less than 48 hours before the holding of the meeting or any adjournment thereof either by hand, post, courier or electronic mail to [email protected] before the Form of Proxy lodgement cut-off time as mentioned above.

2. TO RECEIVE AUDITED FINANCIAL STATEMENTS

Agenda 1 is meant for discussion only as Section 340(1) of the Companies Act, 2016 only requires the Audited Financial Statements to be laid before the Company at the AGM and do not require shareholders’ approval. Hence, Agenda will not be put forward for voting.

3. FINAL DIVIDEND

Section 131 of the Companies Act, 2016 states that a company may only make a distribution to the shareholders out of profits of the company available if the company is solvent. The Board of Directors having considered the available profits has decided to recommend the proposed final dividend for the shareholders’ approval.

The Board of Directors is satisfied that the Company will be solvent as it will be able to pay its debts as and when the debts become due within twelve (12) months immediately after the distribution is made.

4. DIRECTORS’FEESANDBENEFITS

Section 230(1) of the Companies Act, 2016 provides amongst others, that “fees” of the Directors and “any benefits” payable to Directors of a listed company and its subsidiaries shall be approved at a general meeting. Pursuant thereto, shareholders’ approval is sought for these payments in three (3) separate resolutions as follows:

Ordinary Resolution 2 : Payment of Directors’ fees in respect of the financial year ended 30 June 2020.

Ordinary Resolution 3 : Payment of Director's fee to Tuan Haji Mohd Jali @ Mohd Jalil Bin Sany, deceased amounting to RM8,750 from 1 July 2020 to 3 September 2020 (date of death) for the financial year ending 30 June 2021.

Ordinary Resolution 4 : Payment of Directors’ benefits for the period from 29 November 2020 until the next AGM.

The Directors’ benefits payable to the Non-Executive Directors for the period from 29 November 2020 until the next AGM of the Company are calculated based on the current composition of the Board and Board Committees and the number of meetings scheduled for the Board and Board Committees.



NOTICE OF ANNUAL GENERAL MEETING (continued) NOTICE OF ANNUAL GENERAL MEETING

5. RETENTION OF INDEPENDENT NON-EXECUTIVE DIRECTOR

The proposed Resolution 11, if passed, will enable the named Director to continue to hold office as Independent Non-Executive Director notwithstanding that he has served a cumulative term of more than nine (9) years.

In line with the Malaysian Code on Corporate Governance, the Board on the recommendation of the Nominating Committee who has carried out an assessment of the Director has recommended that Mr. Ooi Ying Hong who has served as Director of the Company for a cumulative term of more than 9 years, be retained as Independent Non-Executive Director of the Company based on the following justifications:

(i) He has fulfilled the criteria under the definition of Independent Director pursuant to the Main Market Listing Requirements of Bursa Malaysia Securities Berhad.

(ii) He remains independent and actively participate in board discussions and provide an independent and objective voice on the Board.

(iii) He has in-depth knowledge of the Company’s business operations and he is committed to devote sufficient time and attention to the Company.

(iv) He acts in the best interest of all shareholders and will provide the check and balance to the Board.

6. PROPOSED AUTHORITY TO ALLOT AND ISSUE SHARES PURSUANT TO SECTION 76 OF THE COMPANIES ACT, 2016

The proposed Resolution 12, if passed, will empower the Directors of the Company, from the date of the above AGM until the next AGM to allot and issue shares in the Company up to an amount not exceeding in total ten per centum (10%) of the total issued shares 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 by the Company in a general meeting, will expire at the conclusion of the next AGM of the Company.

The general mandate sought for allotment and issue of shares is a renewal of the general mandate sought in the preceding year. As at the date of Notice, no new shares in the Company were issued pursuant to the mandate granted to the Directors at the Fiftieth (50th) AGM held on 16 November 2019 and hence no proceeds were raised therefrom. The general mandate will provide flexibility to the Company for any possible fundraising activities, including but not limited to further placing of shares for purpose of funding future investment project(s), working capital and/or acquisitions.

ANNUAL REPORT 2020, CORPORATE GOVERNANCE REPORT 2020

The Annual Report 2020 and Corporate Governance Report 2020 may be downloaded at www.hexza.com.my.


Annual Report 20206

CORPORATE STRUCTURE AS AT 30 JUNE 2020

HEXZACHEMSARAWAKSDN. BHD.

80%SUMMITDEVELOPMENTCORPORATION SDN. BHD.

100%

NORSECHEMMARKETINGSDN. BHD.

100%CHEMICALINDUSTRIES(MALAYA) SDN. BHD.

100%

BIO-ACETICPRODUCTSSDN. BHD.

100%

Hexza Corporation Berhad and its operating subsidiaries



CORPORATE INFORMATION

BOARD OF DIRECTORS

Datuk Dr. Foong Weng SumExecutive Chairman

Mr. Leong Keng Yuen Deputy Chairman/Independent Non-Executive Director

Dr. Foong Weng Cheong Non-Independent Non-Executive Director

Ms. Foong Leon Ie Non-Independent Non-Executive Director

Mr. Ooi Ying Hong Independent Non-Executive Director

Ms. Chong Yoke Seng Independent Non-Executive Director

Ms. Navit Kaur Randhawa A/P Hira Singh Independent Non-Executive Director

AUDIT COMMITTEE

Mr. Leong Keng Yuen Chairman

Dr. Foong Weng CheongMr. Ooi Ying HongMs. Chong Yoke Seng

REMUNERATION COMMITTEE

Mr. Leong Keng Yuen Chairman

Datuk Dr. Foong Weng SumDr. Foong Weng CheongMs. Chong Yoke Seng (appointed on 25 August 2020)

NOMINATING COMMITTEE

Ms. Chong Yoke SengChairman

Dr. Foong Weng CheongMr. Leong Keng Yuen

COMPANY SECRETARY

Chan Eoi Leng (SSM PC No. 202008003055) (MAICSA 7030866)

PRINCIPAL BANKERS

Hong Leong Bank Berhad HSBC Bank Malaysia Berhad Malayan Banking Berhad RHB Bank BerhadUnited Overseas Bank (Malaysia) Bhd. CIMB Bank Berhad

REGISTERED OFFICE /PRINCIPAL PLACE OF BUSINESS

Lot 6 & 20, Persiaran Tasek,Kawasan Perindustrian Tasek,31400 Ipoh,Perak Darul Ridzuan.Tel : 605-291 7823Fax : 605-291 8546Email : [email protected] : http://www.hexza.com.my

SHARE REGISTRAR

Boardroom Share Registrars Sdn. Bhd.11th Floor, Menara Symphony,No. 5, Jalan Prof Khoo Kay Kim, Seksyen 13,46200 Petaling Jaya, Selangor Darul Ehsan.Tel : 603-78904700Fax : 603-78904670

AUDITORS

Deloitte PLTChartered AccountantsLevel 2, Weil Hotel,292, Jalan Sultan Idris Shah,30000 Ipoh, Perak Darul Ridzuan.Tel : 605-254 0288Fax : 605-254 7288

STOCK EXCHANGE LISTING

Main Market of Bursa Malaysia Securities BerhadStock Code : 3298Stock Short Name : HEXZA


Annual Report 20208

CHAIRMAN'S STATEMENT

On behalf of the Board of Directors (“Board”), I am pleased to present to you the Annual Report and Audited Financial Statements of Hexza Corporation Berhad (“Hexza”) for the financial year ended 30 June 2020 (“FY2020”).

FY2020 has been a most challenging year. From the increasingly tenuous relationship between China and the United States to the devastating global impact of the Covid-19 pandemic, there has rarely been a time when the world has faced such uncertain conditions. Malaysia has not been spared as life evolved to a new normal of movement control orders ("MCO"), physical distancing, mask wearing and the use of hand sanitizers.

At Hexza, I am happy to say that there has been a ray of light in the gloom. The ethanol division, under Chemical Industries (Malaya) Sdn. Bhd. ("CIM"), had a particularly strong FY2020, with revenue rising 45.6% year-on-year to RM39.21 million while profit before tax increased 137.3% to RM11.07 million. The increases were primarily due to higher sales volumes to our industrial customers especially in the second half of FY2020. Additionally, CIM was able to lower production costs which provided an extra boost to profits. Because CIM was deemed an essential services provider, we were given permission to operate our facility during the initial phase of the MCO. Although there were brief periods when production was interrupted due to insufficient fuel for our boiler, we were able to produce through much of the MCO.

The resin division, under Hexzachem Sarawak Sdn. Bhd. ("HCS"), did not perform as well, however. Revenue decreased 35.7% from FY2019 to RM48.92 million while profit before tax declined 26.4% to RM3.81 million. Timber related businesses, including resins, in Sarawak have been under pressure as the local government continues to tighten regulations on the logging industry. To counteract the situation, the Board has approved a strategic move to produce a new product, powder resins. Unlike liquid resins, powder resins can be exported, which will open up new markets for HCS. We believe that powder resins will over time be a solid contributor to both revenue and profit, and this will act as a buffer to the challenging conditions faced by liquid resins in Sarawak.

At the Group level, revenue was RM90.51 million, a 14.8% reduction from FY2019. However, Group profit saw a significant increase, with profit before tax rising 80.1% to RM19.69 million while net profit attributable to owners of the Company was RM15.45 million, 98.3% higher than FY2019. Earnings per share was 7.7 sen versus 3.9 sen last financial year.

The Group’s investments in quoted shares as of 30 June 2020 was RM93.78 million compared to RM111.09 million last financial year. During the current financial year, there were share disposals amounting to RM47.59 million of which the gain over original cost amounted to RM11.58 million. Total net fair value gain recorded was RM29.87 million through other comprehensive income.

DIVIDEND

The Board has recommended a final dividend of 5 sen per share plus a special dividend of 2.5 sen per share for FY2020, subject to approval of the shareholders at the forthcoming Annual General Meeting.

OUTLOOK AND PROSPECTS

The ongoing Covid-19 pandemic remains the most pressing issue for governments around the world. Although the search for a vaccine is progressing and several are in the final stages of testing, when one is eventually discovered, widespread availability and adoption will take time. Until then, global uncertainty and volatility will likely persist.



CHAIRMAN'S STATEMENT

However, we are confident that Hexza has the financial strength to withstand any challenges that may emerge as a result of this crisis. The Group has a healthy balance sheet with sizeable cash holdings and no debt. We believe both divisions will continue to be profitable and, while conditions at HCS have been difficult, the introduction of powder resins should provide an additional source of revenue and profit to that business.

We continue to search for new opportunities to expand our business. With the increasing emphasis on environmental issues globally, we believe an area of opportunity will be in green, eco-friendly projects. As governments around the world, including Malaysia, tighten regulations on environmental protection, it has become imperative for companies to integrate clean, sustainable ventures into their businesses.

APPRECIATION

I would like to express our sincere appreciation to all our stakeholders, including shareholders, employees, government agencies, business associates, customers and suppliers for their loyal support.

I take this opportunity to welcome two new Directors, Ms. Foong Leon Ie and Ms. Navit Kaur Randhawa A/P Hira Singh. Both bring extensive experience in their respective fields of finance and law which will be an invaluable asset to our Board.

However, it is with deep sadness that I announce the passing of Tuan Haji Mohd Jali @ Mohd Jalil Bin Sany on 3 September 2020, a board member for 20 years. He will be greatly missed by everyone at Hexza who had the opportunity to know him.

Finally, I wish to express my heartfelt gratitude to my other fellow Directors for their continued advice and guidance.

Datuk Dr. Foong Weng Sum P.G.D.KExecutive Chairman

8 October 2020


Annual Report 202010

FIVE-YEAR GROUP FINANCIAL SUMMARY

Year Ended 30 June 2020RM'000

2019RM'000

2018RM'000

2017RM'000

2016RM'000

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Revenue 90,507 106,255 100,144 112,777 141,432 Profit/(Loss) before tax 19,690 10,934 (16,768) 25,422 20,700 Income tax (3,665) (2,352) (2,401) (2,260) (3,422)Profit/(Loss) after tax 16,025 8,582 (19,169) 23,162 17,278 Profit/(Loss) after tax attributable to

shareholders of the Company 15,453 7,794 (19,962) 22,228 15,998 Total comprehensive income/(loss) 45,897 (1,804) (9,199) 31,479 12,272 Total comprehensive income/(loss)

attributable to shareholders of the Company 45,326 (2,593) (9,992) 30,545 10,992

STATEMENT OF FINANCIAL POSITION

Total non-current assets 131,782 150,822 182,426 140,283 135,137 Total current assets 132,125 77,662 58,828 123,232 109,725 Total assets 263,907 228,484 241,254 263,515 244,862 Total equity attributable to equity shareholders of listed issuer 244,221 208,914 221,525 241,537 220,009 Total non-current liabilities 4,945 5,329 5,838 6,282 7,759 Total current liabilities 8,438 7,295 7,731 9,116 10,232

SHARE INFORMATION Per Ordinary Share

Earnings/(Loss) per share (sen) 7.7 3.9 (10.0) 11.1 8.0 Gross dividend (sen)* 7.5 5.0 5.0 5.0 4.5 Net assets (RM) 1.2 1.0 1.1 1.2 1.1

FINANCIAL RATIO

Return/(Loss) on shareholders' funds (%) 6.3 3.7 (9.0) 9.2 7.3

* The proposed final dividend and special dividend for the financial year ended 30 June 2020 is subject to approval by the shareholders at the forthcoming Annual General Meeting of the Company.



FIVE-YEAR GROUP FINANCIAL SUMMARY

190

200

210

220

230

250

240

2016 2017 2018 2019 2020

RM

(mill

ion)

Year

220

242

222

209

244

Total equity attributable to equity shareholders of listed issuer

0

40

60

20

80

100

120

140

160

2016 2017 2018 2019 2020

RM

(mill

ion)

Year

141

113 100 106 91

Revenue

-15

-10

-5

0

5

10

15

2016 2017 2018 2019 2020

sen

Year

8.0 11.1

-10.0

3.9

7.7

Earnings/(Loss) Per Share (sen)

0

2

3

1

4

5

6

8

7

2016 2017 2018 2019 2020

sen

Year

5.0 5.04.5

5.0

7.5

Gross Dividend Per Share (sen)

-20-15-10

-5

1015

05

2530

2016 2017 2018 2019 2020

RM

(mill

ion)

Year

20 2125

-17

11

20

Profit/(Loss) Before Tax

210

220

230

240

250

270

2016 2017 2018 2019 2020

RM

(mill

ion)

Year

260

245

264

241

228

264

Total Assets



It gives me great pleasure to present the Management Discussion and Analysis ("MD&A") for the financial year ended 30 June 2020 ("FY2020"). The MD&A is to be read in conjunction with the financial statements and notes to the financial statements contained in this annual report.

GROUP BUSINESS OVERVIEw

Hexza Corporation Berhad and its subsidiary companies ("the Group") is involved in two principal businesses: (i) the production and sale of ethanol for industrial and potable purposes and (ii) the manufacture and sale of formaldehyde based liquid adhesive resins to wood related industries in Sarawak.

The ethanol division, under Chemical Industries (Malaya) Sdn. Bhd. ("CIM"), produces and sells pharmaceutical, industrial and potable grades of ethanol. CIM is the largest producer of ethanol in Malaysia and our customers include companies in a wide range of industries throughout the country. CIM’s ethanol is made from organic materials, is of high quality and has low levels of impurities, qualities which are valued by our customers.

The resins division, under Hexzachem Sarawak Sdn. Bhd. ("HCS"), manufactures and sells formaldehyde based liquid adhesive resins to plywood and medium density fiber ("MDF") board producers in Sarawak. HCS is one of the largest producers of resins in East Malaysia, with customers comprising local and international companies located in the state of Sarawak.

Additionally, the Group derives income from its investments in quoted shares in local and foreign equity markets, which has provided a steady stream of dividends to the Group. We believe these quoted shares are a more effective way to invest the Group’s cash compared to fixed deposits and money market funds.

FINANCIAL AND OPERATIONAL REVIEw

FY2020 Group revenue was RM90.51 million, a decrease of 14.8% from the previous financial year. The decline was driven primarily by the resins division as lower revenue there negated the increase seen in the ethanol business. However, Group profit increased substantially in FY2020 driven predominantly by the ethanol segment which benefited from higher volume sales and lower production costs. Profit before tax for the Group rose to RM19.69 million, 80.1% higher than the previous year while net profit attributable to shareholders was RM15.45 million, a 98.3% increase. Earnings per share (EPS) was 7.7 sen compared to 3.9 sen in the previous year.

At the Group level, dividend income of RM1.77 million was received from our investments in quoted shares.

Additionally, the Group reflects all fair value gains and losses as well as profits or losses from disposal of our investments through other comprehensive income in accordance with MFRS 9. In FY2020, the Group recorded a net fair value gain in equity instruments of RM29.87 million through other comprehensive income. During the current financial year, the Group sold some shares of which the gain versus original cost was RM11.58 million.

The Group’s cash and cash equivalents amounted to RM97.07 million as at the end of the financial year as compared to RM31.47 million in the previous financial year. A large portion of the increase came from proceeds of quoted share disposals of RM47.59 million during the financial year under review. Investments in quoted shares as of 30 June 2020 was RM93.78 million versus RM111.09 million last financial year.

Equity attributable to shareholders was RM244.22 million as of 30 June 2020 as compared to RM208.91 million last financial year.

MANAGEMENT DISCUSSION AND ANALYSIS



MANAGEMENT DISCUSSION AND ANALYSIS

Revenue at HCS, the resins division, declined 35.7% from FY2019 to RM48.92 million while profit before tax was RM3.81 million, a decrease of 26.4%. Operating conditions remain challenging as the Sarawak government continues to tighten regulations in the logging industry, which has had a knock-on effect on all wood related businesses, including resins. Moreover, the onset of Covid-19 and the subsequent slowdown in economies globally, further impacted demand for our customers’ products, particularly from their main market, Japan. Consequently, several of our customers have cut production capacity, leading to lower resins requirements. However, one positive has been a decline in HCS’s raw material costs, a result of the global slowdown and subsequent weak industrial demand. This has helped raise profit margins compared to the previous year.

In an effort to diversify, HCS has made the decision to add a new product, powder resins. Unlike the liquid form, powder resins have a much longer shelf life, which allows the product to be exported. Given the increasingly difficult environment in Sarawak, the ability to penetrate new markets via exports makes good strategic sense. Powder resins is eventually expected to be a solid contributor to both revenue and profit at HCS, and act as a cushion to liquid resins.

The ethanol division, under CIM, reported an increase in revenues of 45.6%, to RM39.21 million in FY2020, from RM26.30 million in FY2019. Profit before tax rose to RM11.07 million, an increase of 137.3% year-on-year. Higher revenue and profit were due to several factors:

- sales volume rose to 5.81 million liters from 3.98 million liters in FY2019 due primarily to increased orders of ethanol from CIM’s industrial customers during the second half of FY2020;

- a decrease in unit production costs, mostly as a result of increased production volumes and lower raw material costs; and

- an increase in production yields due to the use of higher quality molasses compared to FY2019.

In terms of the impact of Covid-19 and the movement control orders ("MCO") on CIM’s operations, there were both positive and negative effects. On the positive side, CIM received permission from the Ministry of International Trade and Industry ("MITI") to operate its plant as an essential services provider during the initial phases of the MCO. Additionally, there was an increase in orders from many of CIM’s industrial customers, particularly sanitizer manufacturers. As a result, CIM was able to raise the average selling prices of many grades of industrial ethanol. On the negative side though, CIM experienced shortages of wood chips used as fuel for its boiler. During the initial phases of the MCO, plywood manufacturers were not permitted to operate their mills, leading to insufficient supply of wood chips. The shortage of wood meant CIM was unable to operate its plant for brief periods during the MCO. However, CIM has subsequently invested in a dual fuel diesel/liquefied natural gas ("LNG") boiler to be used as a spare in case of future wood shortages, which should prevent other similar plant disruptions.



PROSPECTS AND STRATEGY

The Covid-19 pandemic has inflicted significant economic pain around the world to the point where many countries are presently suffering through deep recessions. The international Monetary Fund ("IMF")estimates global economic activity to contract by 4.9% in 2020 as hopes of an early recovery start to fade. Malaysia has been no exception. The IMF recently revised its economic growth forecast for Malaysia down to -3.8% in 2020, from -1.7% previously.

Despite the challenging conditions, we believe the Group should perform well in the coming year. Although we do not anticipate ethanol sales to equal the elevated levels seen earlier in the year, we believe the division should continue to be a solid contributor to revenue and profit. We have hired a new sales person to be in charge of Northern Peninsular Malaysia to help us identify new customers as well as to better serve our existing ones.

Although conditions in the existing liquid resins business are expected to remain difficult, we believe the introduction of powder resins should help cushion these challenges. Exporting powder resins outside of Sarawak will open new markets and create additional sources of revenue and profit for that business.

As the world moves towards a cleaner and greener future, environmental issues have become an important part of many companies’ strategic plans around the world. We at Hexza want to participate in this movement and will endeavor to include eco-friendly, sustainable ventures into our business.

Aureole Foong Leong WeiChief Executive Officer

8 October 2020

MANAGEMENT DISCUSSION AND ANALYSIS (continued)



SUSTAINAbILITY STATEMENT 2020

OUR APPROACH TO SUSTAINABILITY

This Sustainability Statement, which is prepared in accordance with the Sustainability Reporting Guide issued by Bursa Malaysia Securities Berhad, covers the management of material economic, environmental, social and governance matters of our Group for FY2020.

Hexza was established in 1969 under the name Norsechem (M) Sdn. Bhd. as a manufacturer of formaldehyde based resins. In 1985, we expanded our resins operations to Sabah via our minority stake in Norsechem (Sabah) Sdn. Bhd.. In 1986, we acquired Chemical Industries (Malaya) Sdn. Bhd., which is Malaysia’s first ethanol manufacturer established since 1960. In 1993, we started our resins operations in Sarawak via Norsechem Sarawak Sdn. Bhd., which is now known as Hexzachem Sarawak Sdn. Bhd. Since its establishment, Hexza has progressed together with Malaysia and our corporate social responsibility has been deeply rooted in our company culture throughout the years.

The Board of Directors is deeply aware of its corporate social responsibilities to its various stakeholders and endeavors always to operate ethically. Our sustainability efforts pay attention to economic, environmental and social aspects on top of corporate governance considerations, which are covered in detail under our Corporate Governance Overview Statement and Corporate Governance Report. Our Group’s mission is to enhance value for all stakeholders whilst taking into consideration our continued social obligations.

We recognise that without being socially and environmentally responsible, it is impossible to have economically sustainable operations in the long term. Corporate Social Responsibility and Sustainability are important components of long term business success. For our Group, Corporate Social Responsibility is about conducting business with a conscience, caring for employees, the community, the environment, customers, shareholders and all stakeholders. Our Corporate Social Responsibility mission is for all our Directors, senior executives, management and staff to be community players in the promotion of a caring and civil society.

SCOPE

This Sustainability Statement covers our holding company, Hexza Corporation Berhad, in Ipoh, Perak as well as our main operating businesses, comprising the ethanol division in Ipoh, Perak and our resins division in Kuching, Sarawak. The period covered is for the financial year commencing 1 July 2019 to 30 June 2020.

GOVERNANCE STRUCTURE

Our Group’s Board of Directors is the ultimate authority accountable for the Group’s sustainability and performance. Our Board is responsible for reviewing sustainability matters, namely economic, environmental and social as well as governance matters that are considered material to the Group’s business and stakeholders. Our Chief Executive Officer is responsible for developing our Group’s sustainability strategy and overseeing the implementation of this strategy.

Our Group’s senior management and their respective business units support the Chief Executive Officer in the execution of our Group’s sustainability strategy, stakeholder engagement process, materiality assessment, management of material sustainability matters and preparation of sustainability disclosures.

STAKEHOLDER ENGAGEMENT

Our Group recognises the importance of various stakeholders’ concerns on sustainability matters, especially in the process of identifying what is deemed material to our Group. In determining and prioritising sustainability matters that are material to our Group and our stakeholders, we take into consideration the perspective of internal and external stakeholders.



The following table summarises some of our Group’s stakeholders and how we have engaged with them:

Stakeholder Group Engagement ApproachShareholders/Investors Annual General Meetings

Employees

Management meetings; Business unit meetings;Discussions with trade union;Open door policy;In-house communication;Whistle-blowing channels

Board of Directors

Directors’ meetings;Board committee meetings;Updates and feedbacks via various communication channels

CustomersCustomer feedback;Business meetings;Site visits

Suppliers Supplier feedback;Business meetings

Government

Feedback from regulatory bodies;On-site inspections;Meetings with government agencies; Discussions with compliance officers

Communities Engagement with non-government organisations;Engagement with local charities

MATERIALITY ASSESSMENT

We have identified key sustainability matters important to our Group and categorised them into larger themes, namely environmental management, product responsibility, employee wellbeing, community service and economic impact.

Theme Sustainability Issues

Environmental management

EmissionWaste managementCompliance with environmental standards

Product responsibilityEnsuring our products meet international standards and certifications, e.g. compliance with certain ISO standards and Halal certification

Employee wellbeing

Competitive employment compensation and benefitsEmployee health and welfareEmployee work-life balanceOccupational safety and healthHuman capital developmentWorkforce diversity

Community service Corporate social responsibility

Economic impactRewarding shareholders through dividendsProviding job opportunities for local workersEnriching the national economy

SUSTAINAbILITY STATEMENT 2020 (continued)



MANAGING SUSTAINABILITY MATTERS

Environmental management

As with any manufacturing company, emission and waste management are important considerations and key issues to deal with. It is within our culture to uphold environmental integrity and focus on efforts towards conservation and preservation of the environment for future generations. We ensure that we follow proper procedures and environmental friendly methods when dealing with our emission and effluent.

As the effluent from our manufacturing process contains many minerals essential for agriculture, we send it to plantations to use as fertilizer. We are also exploring other ways to utilize our effluent which benefits the environment.

We are subject to the standards set by the Department of Environment (“DOE”) and any infringement of the regulations set by the DOE would result in major reputational and monetary risks. Over the past years, we have been committed to following the regulations set by the DOE, particularly on emission standards and effluent management. We also ensure that we follow proper procedures and seek the necessary approvals from the relevant authorities when using our effluent at agricultural sites.

Product responsibility

In terms of product mix for our resins division, we are also working towards producing a higher mix of environmentally friendly products, i.e. higher proportion of zero formaldehyde emissions resins or also known as E0 resins. E0 is a European standard requiring formaldehyde emissions to be equal to or less than 0.07 parts per million (ppm). Meanwhile, we are also producing super E0 resins, which have an emission level of below 0.04ppm. E0 and super E0 resins currently make up about 60% of our total resins sales volumes. Many of our clients sell their wood products to advanced economies such as Japan and Europe which have more stringent formaldehyde emission standards.

Employee wellbeing

Hexza aspires to be the employer of choice in the cities that we operate in. As a caring employer, we offer competitive compensation and benefits, which we elaborate in the economic impact section of this statement. We provide employees with generous health and insurance benefits, grant employees with annual leave and paid public holidays that are higher than the statutory minimum, extend the employment of some employees beyond retirement age, prioritise workplace health and safety of employees, support human capital development through various training and workshops and promote workplace diversity free from any discrimination.

The health and welfare of employees are very important to our Group as we recognise their contributions to our Group and they form the building blocks of our Group, without which we cannot function efficiently. One of the many ways we show appreciation to our employees is to provide them with sufficient medical, hospitalisation, surgical and personal accident insurance benefits. Employees of a certain level will also have their immediate family’s medical expenses covered by our Group.

In 2016, we switched from a six-day work week to effectively a five-day work week for our non-production employees in order to provide them with a better work-life balance, more quality time to spend with their family and more flexibility for their recreational activities. On top of the statutory minimum annual leave of 8 days, our employees are given between 9 and up to 24 days of annual leave depending on seniority and length of service with our Group.

While the statutory entitlement for paid public holidays is 11 days for Peninsular Malaysia and 16 days for Sarawak, we observe 16 days of public holidays in Peninsular Malaysia and 18 days of public holidays in Sarawak for the benefit of the employees.




As life expectancy has improved in this day and age, we reemploy some of our employees who have reached the statutory retirement age so as to continue providing them with a source of income.

We place high importance on occupational health and safety standards and view the prevention of occupational health and safety issues as a top priority. We are committed to promoting and maintaining a healthy and safe workplace for our employees. We currently comply with the relevant laws and regulations set by the Department of Occupational Safety and Health and will continuously identify and improve on health and safety areas.

Providing sustainable job opportunities and supporting people development through various trainings and workshops form an integral part of our culture. We encourage and sponsor our employees to improve their skills and intellectual development through courses and other trainings programs. We also support our employees who are pursuing professional qualifications by paying for their tuition and examination fees.

In our efforts to create an inclusive environment, we strive to maintain a diverse workforce in terms of gender, age group and ethnicity. We are supportive of equal opportunities with regards to employment and are opposed to any form of discrimination. We evaluate candidates by their suitability, capability, skills and experience. Our workforce is slightly skewed towards a higher number of males as we operate in labour intensive manufacturing industries. Our Group maintains a diverse workforce by ethnicity in promotion of the spirit of unity and harmony among the different races. Our Group’s age diversity provides us with benefits such as a mix of skills and abilities, a wide range of knowledge and experience, as well as a platform for talent development and succession planning.

Employees by Ethnicity Employees by Age Group

Community service

We strive to enrich society by offering internship opportunities for students from local universities, with the goal of contributing to the betterment of local university graduates through practical exposure.

Economic impact

We always strive to distribute high dividends to our shareholders. We reward our shareholders for their support by ensuring a dividend yield that is generally higher than the fixed deposit rate. Distributing a portion of our cash generated back to shareholders will enable them to make other investments and pay for other commitments.

36 to 5963%

60 &above

6% 35 &below31%

Malay30%

Chinese26%

OtherBumiputeras

26%

Indian18%

SUSTAINAbILITY STATEMENT 2020 (continued)



Note: Dividend yield is calculated based on Hexza’s closing share price on the date of announcement of dividend entitlement for the respective financial years.

With a healthy cash level ready to be deployed for investment purposes, we continuously seek the best investment and opportunities for our shareholders either through mergers and acquisitions or venturing into new businesses to diversify our earnings base.

Hexza believes in contributing to the economy of Malaysia by providing job opportunities to Malaysians and keeping wages within the local economy. We believe in paying a living wage appropriate for the cities that we operate in so as to provide our employees and their families with a decent standard of living. Since the onset of Covid-19, we have not retrenched any employees nor reduced any salaries. As at 30 June 2020, a large majority of our employees are paid above the minimum wage in West and East Malaysia.

As a responsible corporate citizen, we have also been contributing to the country via the payment of taxes. On an annual basis, we contribute significantly to government revenues, directly in the form of corporate tax and sales and services tax, as well as indirectly through our customers’ payments of excise duty through sales of our ethanol products. Our businesses will continue to contribute not only to the economy of Malaysia but to Malaysians as well.


Dividend per Share

4.2 sen

4.3 sen

4.4 sen

4.5 sen

4.6 sen

4.7 sen

4.8 sen

4.9 sen

5.0 sen

5.1 sen

Dividend Yield

9.0%

8.0%

7.0%

6.0%

5.0%

4.0%

3.0%

2.0%

1.0%

0.0%

HEXZA’S DIVIDEND PER SHARE AND DIVIDEND YIELD

4.5 sen

4.9%

4.5 sen

4.7%

5.0 sen 5.0 sen 5.0 sen

5.2% 7.0% 6.6%



DIRECTORS’ PROFILE

DATUK DR. FOONG wENG SUMExecutive Chairman Male, Malaysian, aged 81

Datuk Dr. Foong Weng Sum was appointed to the Board on 7 May 1982 as Vice Chairman. On 23 October 1986, he also assumed the position of Group Chief Executive. He took over as Chairman of the Board on 1 December 2000. He is also a member of the Remuneration Committee. On 1 November 2016, he relinquished his position as Group Chief Executive and he was re-designated as Executive Chairman.

Datuk Dr. Foong Weng Sum is a graduate in medicine from the University of London’s Guy’s Hospital Medical School. He has considerable business experience in various business sectors, including manufacturing, property development, financial management and investment.

MR. LEONG KENG YUENDeputy Chairman/Independent Non-Executive DirectorMale, Malaysian, aged 70

Mr. Leong Keng Yuen was appointed to the Board on 15 September 2000 and was appointed as the Deputy Chairman of the Board and Chairman of the Audit Committee on 1 July 2018. He is also the Chairman of the Remuneration Committee and a member of the Nominating Committee.

Mr. Leong Keng Yuen was a partner of Ernst & Young Malaysia before retiring at the end of 2005 and has over 30 years of involvement in the accounting profession. He is a member of the Malaysian Institute of 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 the Non-Executive Chairman of OSK Ventures International Berhad and a Non-Executive Director of OSK Holdings Berhad, companies listed on Bursa Malaysia. He is also on the Board of Datin Seri Ting Sui Ngit Foundation and The Perak Chinese Welfare Association.

DR. FOONG wENG CHEONGNon-Independent Non-Executive DirectorMale, Malaysian, aged 87

Dr. Foong Weng Cheong was appointed to the Board on 7 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 and Associate Professor (1965-1970) at the Department of Surgery, University of Malaya followed by appointment as 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.



MR. OOI YING HONGIndependent Non-Executive DirectorMale, Malaysian, aged 54

Mr. Ooi Ying Hong was appointed to the Board on 12 July 2011. He is also a member of the Audit Committee. He holds a Bachelor of Business (Accounting) degree from University of Southern Queensland, Australia.

Mr. Ooi Ying Hong started his career in auditing with KPMG and subsequently joined Matsushita Television Co. (M) Sdn. Bhd.. He has many years of experience in various industries, including logistics, international trading, information technology, service and automotive. He also sits on the Board of Directors of various private limited companies.

MS. CHONG YOKE SENGIndependent Non-Executive DirectorFemale, Malaysian, aged 62

Ms. Chong Yoke Seng was appointed to the Board as a Non-Independent Non-Executive Director on 1 March 2016 and was appointed as a member of the Audit Committee on the same day. She was re-designated as Independent Non-Executive Director on 1 March 2018. She was appointed as the Chairman of the Nominating Committee on 16 November 2019 and as a member of the Remuneration Committee on 25 August 2020.

She is a member of the Malaysian Institute of Accountants, a Fellow of the Association of Chartered Certified Accountants and a member of the Malaysian Institute of Certified Public Accountants.

She has over 33 years of working experience. She began her career in the field of auditing for about 7 years. She then joined a management services company for about a year before she joined Hexza in 1990. She was the Chief Financial Officer and Company Secretary of Hexza for more than 26 years until she retired in February 2016. She holds directorships in several private limited companies.

MS. FOONG LEON IENon-Independent Non-Executive DirectorFemale, Malaysian, aged 42

Ms. Foong Leon Ie (“Leonie”) was appointed to the Board on 1 January 2020.

Leonie is a Partner and Investment Committee Member at Overlook Investments Limited based in Hong Kong. She has over 18 years of investing experience spanning private equity and global public markets. Prior to joining Overlook Investments, Leonie worked at various public and private equity funds globally including The Carlyle Group, Scion Capital (Michael Burry), Lone Pine Capital and Janchor Partners. She started her career in Investment Banking at Goldman Sachs in 1999 and assisted a variety of companies across Asia with their financing and mergers and acquisitions strategies.

Leonie graduated from Oxford University with a First Class Honors degree (and ranked top of her year) in Engineering, Economics and Management. She completed her Master of Business Administration (MBA) at Harvard Business School (with Honors) and is a Fulbright Scholar.

DIRECTORS’ PROFILE



MS. NAVIT KAUR RANDHAwA A/P HIRA SINGHIndependent Non-Executive DirectorFemale, Malaysian, aged 42

Ms. Navit Kaur Randhawa A/P Hira Singh (“Navit”) was appointed to the Board on 24 February 2020.

Navit graduated with a law degree from the University of Bristol and was admitted to the English Bar in 2000. She was admitted as an Advocate and Solicitor of the High Court of Malaya in 2001 and remains in active practice todate with Asbir, Hira Singh & Co where she is a partner since 2006. She is a qualified Mediator since October 2004 and an Arbitrator ("FCiArb") since February 2019.

OTHER INFORMATION

Family relationship with any Director and/or major shareholder

Dr. Foong Weng Cheong and Datuk Dr. Foong Weng Sum are brothers and they are the major shareholders of the Company. Datuk Dr. Foong Weng Sum is the father of Ms. Foong Leon Ie. Apart from this, none of the Directors has any family relationship with the other Directors or major shareholders of the Company.

Conflict of interest

None of the Directors has any conflict of interest with the Company.

Convictions for Offences

None of the Directors has been convicted of any offence within the past five years and there were no public sanctions or penalties imposed by the relevant regulatory bodies during the financial year ended 30 June 2020.

DIRECTORS’ PROFILE (continued)



KEY MANAGEMENT PERSONNEL OF THE GROUP AND ITS SUbSIDIARY COMPANIES

DATUK DR. FOONG wENG SUMExecutive ChairmanMale, Malaysian, aged 81

The detailed profile of Datuk Dr. Foong Weng Sum is shown in the Directors’ Profile.

MR. AUREOLE FOONG LEONG wEIChief Executive Officer Male, Malaysian, aged 58

Mr. Aureole Foong Leong Wei (“Aureole Foong”) was appointed as the Chief Executive Officer on 1 November 2019.

Prior to joining Hexza Corporation Berhad, Aureole Foong was a portfolio manager for 28 years, specializing in global emerging market equity funds. He started his career with Morgan Stanley Inc., in the US and Hong Kong, before moving to Unifund SA, a Geneva based family office. He subsequently joined Peregrine Asset Management in Hong Kong, where he was head of the company’s Asia ex-Japan equity investments. After Peregrine, he joined Hansberger Global Investors ("HGI"), a company started by Tom Hansberger who was one of the founding partners of the Templeton organization. Aureole Foong was with HGI for 15 years where he was Managing Director of Asia based in Hong Kong. He subsequently co-founded Q-Emerging Markets Corp, with several partners, where he spent 6 years managing funds for US based institutional investors.

Aureole Foong graduated with an Master of Business Administration (MBA) in Finance and a Bachelor of Science in Computer Science, both from the University of Southern California in Los Angeles. He does not has any interest in securities of the Company or its subsidiary companies.

DR. BEH SENG KEE (resigned on 15 September 2020)Director/General Manager of Chemical Industries (Malaya) Sdn. Bhd.Male, Malaysian, aged 60

Dr. Beh Seng Kee was appointed as a Director/General Manager of Chemical Industries (Malaya) Sdn. Bhd. in August 2017. Dr. Beh Seng Kee obtained his Bachelor of Science degree with Honours in 1983 from the University of Wales, Institute of Science and Technology. Thereafter, he obtained his degree of Doctor of Philosophy from the University of Wales, College of Cardiff in 1991.

In 1999, he joined Chemical Industries (Malaya) Sdn. Bhd. as General Manager and Director of the company, where he was involved in the management of the company until 2005. From 2005 to 2007, he was the General Manager and Director of Norsechem Resins Sdn. Berhad, where he was involved in overseeing the operations of the company. After leaving the Group, he joined QL Palm Pellet Sdn. Bhd. in July 2008 as Executive Director and was responsible for overseeing the operations as well as formulating and executing the business strategies and policies of the company. Subsequently, he was engaged as the project director of Scomi Platinum Sdn. Bhd. prior to re-joining Chemical Industries (Malaya) Sdn. Bhd. as Director/General Manager.



KEY MANAGEMENT PERSONNEL OF THE GROUP AND ITS SUbSIDIARY COMPANIES (continued)

MR. JIMMY LEU MOH SINGDirector/General Manager of Hexzachem Sarawak Sdn. Bhd.Male, Malaysian, aged 54

Mr. Jimmy Leu Moh Sing was appointed as Director/General Manager of Hexzachem Sarawak Sdn. Bhd. in July 2003.

Mr. Jimmy Leu Moh Sing, a BSc (Hons) graduate from University Science Malaysia started his career as a Business Representative with IBM Business Partner, Comserv Sarawak Sdn. Bhd. selling the IBM Minicomputer (AS/400). He has extensive sales and sales management experiences with a few other companies notably with Roche Malaysia and National Starch & Chemical (M) Sdn. Bhd. (subsidiary of Unilever and later ICI, UK) before joining Hexza Group as General Manager of Norsechem Resins Sdn. Berhad and later being appointed as Director/General Manager of Hexzachem Sarawak Sdn. Bhd..

MR. LIM YOONG CHONG (retired on 9 December 2019)Operations Manager of Summit Development Corporation Sdn. BerhadMale, Malaysian, aged 61

Mr. Lim Yoong Chong was appointed as Operations Manager of Summit Development Corporation Sdn. Berhad on 1 September 2011 and has served as a director of several subsidiaries of Hezxa Group.

He holds a postgraduate diploma in Civil Engineering from North East London Polytechnic, England. He has over 25 years of working experience in the property industry managing multi-disciplinary residential and commercial development projects.

MS. CHIN MUN YONGGroup Chief Accountant and Administration Manager of Hexza Corporation BerhadFemale, Malaysian, aged 49

Ms. Chin Mun Yong joined Hexza Corporation Berhad in 2014 and was promoted to Group Accountant in 2016 and was subsequently re-designated as Group Chief Accountant in 2018. She is also currently serving as a director of several subsidiaries of the Group.

Ms. Chin Mun Yong is a member of the Malaysian Institute of Accountants and a Fellow of the Association of Chartered Certified Accountants. She started her career in auditing with a local public accounting firm after which she moved on to financial and accounting related positions in various industries which included construction and manufacturing.

OTHER INFORMATION

Family relationship with any Director and/or major shareholder

Mr. Aureole Foong is the nephew of Datuk Dr. Foong Weng Sum and son of Dr. Foong Weng Cheong. He and Ms. Foong Leon Ie are cousins. Other than Datuk Dr. Foong Weng Sum and Mr. Aureole Foong, none of the Key Management Personnel has any family relationship with the Directors and major shareholders of the Company.

Conflict of Interest

None of the Key Management Personnel has any conflict of interest with the Company.

Convictions for Offences

None of the Key Management Personnel has been convicted of any offence within the past five years and there were no public sanctions or penalties imposed by the relevant regulatory bodies during the financial year ended 30 June 2020.

Directorship in Public Companies and Listed Issuers

None of the Key Management Personnel has any directorship in public companies and listed issuers.



KEY MANAGEMENT PERSONNEL OF THE GROUP AND ITS SUbSIDIARY COMPANIES (continued)

AUDIT COMMITTEE REPORT

The Board of Directors of Hexza Corporation Berhad (“the Board”) is pleased to present the report of the Audit Committee (“AC”) for the financial year ended 30 June 2020 in compliance with Paragraph 15.15 of the Main Market Listing Requirement (“MMLR”) of Bursa Malaysia Securities Berhard ("Bursa Malaysia").

The AC and its members have discharged their functions, duties and responsibilities in accordance with its Board Charter and Terms of Reference (“TOR”) which are available on the Company’s website at www.hexza.com.my, to support the Board in ensuring the Group upholds appropriate Corporate Governance Standards.

COMPOSITION AND MEETINGS

The AC comprises four (4) members, three (3) Independent Non-Executive Directors and one (1) Non-Independent Non-Executive Director which complies with Paragraph 15.09(1) of the MMLR of Bursa Malaysia. The Chairman of the AC, Mr. Leong Keng Yuen is a member of the Malaysian Institute of Accountants and is not the Chairman of the Board, hence this complies with Paragraph 15.09(1)(c)(i) of the MMLR of Bursa Malaysia and is in line with Practice 8.1 under the Malaysian Code on Corporate Governance (“the Code”).

During the financial year ended 30 June 2020, four (4) AC meetings were held and the details of the attendance were as follows:

No. of Meetings Attended

Mr. Leong Keng Yuen(Chairman, Independent Non-Executive Director)

4/4

Dr. Foong Weng Cheong(Member, Non-Independent Non-Executive Director)

4/4

Mr. Ooi Ying Hong(Member, Independent Non-Executive Director)

4/4

Ms. Chong Yoke Seng(Member, Independent Non-Executive Director)

4/4

Dato’ Richard Ong Guan Seng (retired on 16 November 2019)(Member, Senior Independent Non-Executive Director)

2/2

The Company Secretary attended all the meetings of the AC held during the financial year and is responsible for arranging for the meetings and keeping the minutes. Minutes of each meeting were recorded and tabled for confirmation at the next AC meeting and subsequently presented to the Board for notation. Other members of the Board, CEO, Group Chief Accountant, Heads of Division, Internal Auditor and also External Auditors, if required also attended the meetings upon the invitation of the Committee. The Chairman of the AC reports on the main findings and deliberations of the AC meeting to the Board.

The detailed profiles of all the members of the AC are shown in the Directors’ Profile.

SUMMARY OF ACTIVITIES PERFORMED BY THE AUDIT COMMITTEE DURING THE FINANCIAL YEAR

The key activities carried out by the AC in line with its terms of reference during the financial year ended 30 June 2020 comprised the following:

(a) Financial Reporting

Reviewed the Group’s quarterly results and annual audited financial statements of the Company and ensured the financial reporting and disclosure requirements had been complied with prior to recommending them to the Board for consideration, approval and public release focusing particularly on:

• changes in or implementation of major accounting policies and practices; • significant matters highlighted including financial reporting issues, significant judgements made by

management, significant and unusual events or transactions, and how these matters were addressed; • compliance with accounting standards and other legal requirements; and • going concern assumptions.

(b) External Audit

(i) Reviewed the scope of work and the audit plan of the External Auditors in respect of the audit for financial year ended 30 June 2020.



AUDIT COMMITTEE REPORT (continued)

(ii) Reviewed with the External Auditors the results of the audit and management’s responses to their audit findings, including corrective actions taken by the management on outstanding audit issues highlighted in the previous audit.

(iii) Reviewed the audit fee for the financial year and recommended the audit fee to the Board for approval. (iv) Met with the External Auditors without the presence of management including the Executive Chairman and

Chief Executive Officer on 21 August 2019 and 26 June 2020. (v) Reviewed and evaluated the performance of the External Auditors, including their capabilities, objectivity

and independence on an annual basis and made recommendations to the Board on their re-appointment.

(c) Internal Audit

(i) Reviewed and approved the internal audit plan, including the scope and audit approach. (ii) Reviewed and deliberated on the internal audit reports from the Internal Audit Unit and management’s

response to the recommendations and reported to the Board. (iii) Reviewed the performance of the Internal Audit Unit against the annual audit plan for the financial year

ended 30 June 2020 and the costs incurred in connection with the performance of the audits during the year. The Internal Audit Unit has applied International Internal Auditing (“IIA”) Standards and the Committee of Sponsoring Organisation (“COSO”) framework approach on the overall internal auditing activities carried out within the Group.

(d) Risk Management and Internal Control

(i) Reviewed and deliberated on the risk assessment reports on a half yearly basis with deliberation on key risks from operating companies of the Group with requests for further actions where appropriate.

(ii) The AC stressed that management must ensure that the existing risk control measures in place are effective and there are business continuity plans as far as practicable.

(e) Compliance

(i) Reviewed the Report of the AC and the Statement on Risk Management and Internal Control prior to their inclusion into the Company’s Annual Report.

(ii) Reviewed the Policy on Anti-Bribery and Anti-Corruption incorporating S17A of the Malaysian Anti-Corruption Commission Act 2009 to ensure business activities are conducted with integrity and to promote good governance practices within the Group.

INTERNAL AUDIT FUNCTION

The Company has an in-house Internal Audit Unit which provides support to the AC in discharging its duties and responsibilities. The functions and responsibilities of the Internal Audit Unit are embodied in the Internal Audit Charter. The main role of the Internal Audit Unit is to undertake independent assessments of the adequacy and effectiveness of the Group’s system of internal control, compliance with operational procedures and risk management procedures. The Internal Audit Unit reports directly to the AC.

During the financial year under review, the Internal Audit Unit conducted audits on business entities of the Group based on the internal audit plan approved by the AC. The total cost incurred by the Internal Audit Unit during the financial year ended 30 June 2020 amounted to approximately RM81,500.

PERFORMANCE OF THE COMMITTEE

The performance of the AC was assessed annually through self-evaluation and the Nomination Committee reviewed the results of such assessments. During the financial year ended 30 June 2020, the Board is satisfied that the AC has discharged its statutory duties and responsibilities in accordance with the TOR of the AC.



CORPORATE GOVERNANCE OVERVIEW STATEMENT

The Board of Directors (“the Board”) of Hexza Corporation Berhad values the importance of good corporate governance. The Board is committed to ensure that the principles and practices of the Malaysian Code on Corporate Governance (“the Code”) are applied throughout the Company and its subsidiary companies (“the Group”) as a fundamental part of discharging its responsibilities to protect and enhance long term shareholder value and the financial performance of the Group, whilst considering the interests of other stakeholders.

This statement is prepared with a resolution of the Board dated 8 October 2020 and in accordance with Bursa Malaysia Securities Berhad’s (“Bursa Malaysia”) Main Market Listing Requirements (“MMLR”) and it is to be read in conjunction with our Corporate Governance Report (“CG Report”) which is published on Bursa Malaysia’s website and also Company’s website at www.hexza.com.my.

PRINCIPLE A: BOARD LEADERSHIP AND EFFECTIVENESS

1. BOARD RESPONSIBILITIES

Principal Roles

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 recommended by the Code. These cover a review of the strategic direction for the Group, setting out short term and long term plans, overseeing the business operations of the Group, and evaluating whether these are being properly and effectively managed.

Roles and Responsibilities

The Board supports the principle that the positions of Chairman and Chief Executive Officer (“CEO”) should be held by different individuals for the effective functioning of the Board and facilitates a good check and balance mechanism.

With that, the positions of the Chairman and CEO of the Group and Company are held by two (2) different individuals. The roles of the Executive Chairman and CEO are distinct and separated with a clear division of responsibilities to ensure a balance of power and authority as set out in the Board Charter.

The Executive Chairman leads the Board in setting the Group’s policies and strategic plans and ensures that the Board fulfils its obligations under the Board Charter and the relevant regulations. The CEO ensures effective implementation of the Board’s policies and strategic plans, addresses performance targets and manages relationship with all stakeholders.

The Non-Executive Directors contribute significantly in areas such as policy and strategy, performance monitoring, as well as improving governance and controls.

The Board of Directors is responsible for oversight and overall management of the Group and regularly reviews the strategic direction of the Company and the progress of the Group’s operations taking into account the changes in business environment and risk factors.

Company Secretary

The Board is supported by a qualified Company Secretary and all Directors have unlimited direct access to the professional advice and services of the Company Secretary as well as access to all information within the Company whether as a full board or in their individual capacity.

The roles and responsibilities of the Company Secretary are as follows:

(i) attend and ensure that all meetings are properly convened and the proceedings of all meetings including pertinent issues, substance of inquiries and responses, suggestions and proposals are duly recorded and minuted;

(ii) provides support to the Executive Chairman to ensure the effective functioning of the Board and assists the Executive Chairman in preparation of conduct of meetings;



CORPORATE GOVERNANCE OVERVIEW STATEMENT (continued)

(iii) update and advise the Board on Board procedures and ensure that the applicable rules and regulations for the conduct of the affairs of the Board are complied with and all matters associated with the maintenance of the Board or otherwise required for its efficient operation;

(iv) ensure proper upkeep of statutory registers and records of the Company; and(v) advise the Board on compliance of statutory and regulatory requirements.

Supply of Information

The Board has unrestricted access to timely and accurate information, necessary in the furtherance of their duties. The Executive 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 five (5) working days prior to the Board meeting to allow sufficient time for the Directors to review the Board papers for effective deliberation at the meeting. All proceedings of Board meetings are minuted and signed by the Executive Chairman.

All the Directors can request for information, explanations or updates on the Group’s operations or business from management. There is also a formal procedure sanctioned by the Board of Directors, whether as a full Board or in their individual capacity, to take independent professional advice at the Group’s expense, where necessary in furtherance of their duties.

Board Charter and Code of Ethics and Business Conduct

The Board has a Board Charter which sets out the role, functions, composition, operations and processes of the Board. The Charter provides guidance to the Board in relation to the Board’s role, duties and responsibilities and authority.

The Directors have also approved a Code of Ethics and Business Conduct which governs the standards of ethics and good conduct expected of Directors and employees. The Code of Ethics and Business Conduct includes principles relating to fair dealings, confidentiality of information, conflict of interest, compliance with laws and regulations and sexual harassment. In addition, the Group’s Whistle-Blowing Policy and Procedures provide an avenue for stakeholders to report concerns about malpractices, unethical behaviour, misconduct or failure to comply with regulatory requirements without fear of reprisal.

The Board will review the Board Charter, the Code of Ethics and Business Conduct and the Whistle-Blowing Policy periodically to update them and ensure they remain consistent with the Board’s objectives and responsibilities.

The Board has approved the adoption of an Anti-Bribery and Anti-Corruption Policy to be implemented accross the Group at all levels.

The Board Charter, the Code of Ethics and Business Conduct, the Whistle-Blowing Policy as well as Anti-Bribery and Anti-Corruption Policy are available on the Company’s website at www.hexza.com.my.

2. BOARD COMPOSITION

Board Composition and Balance

The Board has eight (8) members, comprising five (5) Independent Non-Executive Directors, two (2) Non-Independent Non-Executive Directors and one (1) Executive Chairman. This complies with the MMLR of Bursa Malaysia to have at least one third (1/3) of the Board consisting of Independent Directors. The Board is appropriately balanced to reflect the interests of the substantial shareholders and at the same time fairly represents and protects the interests of the minority shareholders of the Company. The presence of four (4) Independent Directors fulfils an important role in corporate accountability. The role of the Independent Directors is particularly important as they provide independent and unbiased views, advice and judgment.

5Independent

Non-ExecutiveDirectors

2Non-

IndepedentNon-

ExecutiveDirectors

1ExecutiveDirector




The Board comprises a mixture of businessmen and professionals with wide financial and commercial experience. The composition of the Board brings the required mix of skills and experience required for Board to function effectively. A brief write-up of the background of the Board members as at the date of this statement is set out in the Directors' Profile section of this Annual Report except for Dato' Richard Ong Guan Seng who retired on 16 November 2020, Mr. Foong Leon Chiew who resigned on 1 August 2020 and Tuan Haji Mohd Jali @ Mohd Jalil Bin Sany who passed away on 3 September 2020.

Board Gender Diversity

The Board is supportive of gender diversity in the boardroom as recommended by the Code but has not implemented a gender diversity policy as the Board is of the view that all appointments to the Board should be based on the suitability, capability, skills and experience of the candidate regardless of gender or ethnicity.

The Board has appointed Ms. Chong Yoke Seng as Non-Independent Non-Executive Director on 1 March 2016. Subsequently, she was re-designated as Independent Non-Executive Director on 1 March 2018. The Board subsequently appointed Ms. Foong Leon Ie as Non-Independent Non-Executive Director and Ms. Navit Kaur Randhawa A/P Hira Singh as Independent Non-Executive Director on 1 January 2020 and 24 February 2020 respectively.

The Board recognizes the value of female members of the Board and the female directors presently form 37.5% of the Board.

Foster Commitment

Each Director does not hold more than five (5) directorships in public listed companies to ensure that they have sufficient time to focus and discharge their duties and responsibilities. The Board is satisfied with the level of the time commitment given by the Non-Executive Directors toward fulfilling their roles and responsibilities as Directors of the Company during FY2020.

Board Meetings

The Board Committees operate within clearly defined TOR, which sets out matters relevant to the composition, responsibilities and administration of these committees. The Board regularly reviews the TORs of the Board Committees to ensure they are consistent with the rules and regulations prescribed under the Listing Requirements and the Code.

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 FY2020 and details of the attendance of the Directors were as follows:

No Name of Directors No. of Meetings Attended1 Datuk Dr. Foong Weng Sum 4/42 Dr. Foong Weng Cheong 4/43 Mr. Leong Keng Yuen 4/44 Tuan Haji Mohd Jali @ Mohd Jalil Bin Sany

(Demised on 3 September 2020)4/4

5 Mr. Ooi Ying Hong 4/46 Ms. Chong Yoke Seng 4/47 Ms. Foong Leon Ie

(Appointed on 1 January 2020)2/2

8 Ms. Navit Kaur Randhawa A/P Hira Singh(Appointed on 24 February 2020)

1/1

9 Dato’ Richard Ong Guan Seng (Retired on 16 November 2019)

2/2

10 Mr. Foong Leon Chiew* (Alternate Director to Ms. Foong Leon le)(Resigned on 1 August 2020)

-




* The Board received the resignation of the Alternate Director, Mr. Foong Leon Chiew, effective from 1 August 2020 due to a change of his role and responsibilities at his present employment which did not allow him to serve on the Board of the Company.

Appointment to the Board

The Board has established a Nominating Committee, consisting of three (3) Non-Executive Directors. The Committee is responsible for the appointment of new Directors to the Board. The Committee reviews the required mix of skills and experience of the Directors of the Board and determines 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 and the contribution of each individual Director.

Re-appointment and Re-election of Directors

In accordance with the Company’s Constitution, all Directors who were appointed by the Board are subject to re-election at the first opportunity after their appointment and at least one third of the remaining directors are subject to re-election by rotation at each Annual General Meeting ("AGM"). All directors shall retire from office at least once in every three years in accordance with Bursa Malaysia MMLR.

The Directors who are due for re-election at the AGM are assessed by the Nominating Committee and then recommendation made to the Board for endorsement to seek shareholders’ approval for the re-election as Directors of the Company.

Datuk Dr. Foong Weng Sum, Dr. Foong Weng Cheong and Mr. Ooi Ying Hong will be retiring by rotation whereas Ms. Foong Leon Ie and Ms. Navit Kaur Randhawa A/P Hira Singh who were appointed during the year will be retiring at the forthcoming AGM to be held on 28 November 2020.

The Nomination Committee has at its meeting held on 24 August 2020 evaluated the performance and recommended the re-election for all the retiring Directors at the forthcoming AGM.

Directors’ Training

The Directors 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 MMLR. The Nominating Committee will review and determine the training needs of the Directors. The Directors are also encouraged to attend various trainings on their own and submit the certificates of attendances to the Secretary for record.

The following were the details of training attended by the Directors during FY2020:

Name of Directors Training AttendedDatuk Dr. Foong Weng Sum Project Management Essentials

Dr. Foong Weng Cheong Project Management Essentials

Mr. Leong Keng Yuen Project Management Essentials Demystifying the Diversity Conundrum: The Road to Business Excellence Latest Updates on Practical Tax Issues Case Study Workshop for Independent Directors Budget 2020: Key Updates and Changes for Corporate Accountants Stakeholder Primacy: Increased Emphasis on ESG Review Competitive Strategies Using AI: A Board’s Perspective Cybersecurity Considerations Amid A Global Pandemic Leadership in Times of Distress Rising Corporate Risks of Weaponised Fake News The New Normal of the Workforce Covid-19 Impact on Accounting, Reporting and Internal Control Section 17A, MACC (Amendment) Act 2018 & Adequate Procedures




Name of Directors Training AttendedMr. Leong Keng Yuen(Continued)

Data Driven Decision for Finance and Accounting Professionals Tax Implications for Debt Restructuring Integrated Reporting and Impact of Covid-19 on Value Creation

Tuan Haji Mohd Jali @ Mohd Jalil Bin Sany

(Demised on 3 September 2020)

Project Management Essentials Internal Audit for Board and Audit Committee

Mr. Ooi Ying Hong Project Management Essentials

Ms. Chong Yoke Seng Demystifying the Diversity Conundrum: The Road to Business Excellence by Securities Commission

Project Management Essentials Modern Analytics in A Nutshell Cybersecurity in the Age of Covid-19 Managing Cashflow During A Period of Crisis Tax Implications for Restructuring Fixed Income Outlook Navigating the Challenges Penjana Economic Recovery Plan

Ms. Foong Leon Ie Mandatory Accreditation Programme (MAP) for Directors of Public Listed Companies

China’s Economic Policy Response to COVID-19 The Changing Face of Healthcare Delivery in China Asset Allocation Panel Mainland China, Hong Kong and the Future of Financial Integration East vs West – Post COVID-19 Era A-Share Market Investment Strategy China’s Debt Levels and the NPL Cycle China’s Recovery: Opportunities & Risks ESG: Company Reporting and Sustainable Investing

Ms. Navit Kaur Randhawa A/P Hira Singh

Mandatory Accreditation Programme (MAP) for Directors of Public Listed Companies

Prihatin Plus Stimulus Package Webinar Practical Solutions to COVID-19 Legal Challenges An AIAC Webinar Series – The Elephant in the Room: What is a Good

Arbitral Award? An AIAC Webinar Series – Keeping Confidentiality: How to Safeguard

Your Privacy in ODR An AIAC Webinar Series – Post COVID-19 and Dispute Resolution: The

New Normal for Arbitration and Litigation

Dato' Richard Ong Guan Seng(Retired on 16 November 2019)

Project Management Essentials

Mr. Foong Leon Chiew(Resigned on 1 August 2020)

Mandatory Accreditation Programme (MAP) for Directors of Public Listed Companies

The Company Secretary circulated from time to time the relevant guidelines on statutory and regulatory requirements to the Directors. The External Auditors also highlighted changes to the Malaysian Financial Reporting Standards and legislation that affect the Company’s financial statements during the financial year.




Board Committees The Company strives to have a balanced Board which comprises members with suitable qualifications, skills, expertise and exposures. The Board has established the following Committees to assist the Board to discharge its fiduciary duties:

(a) Audit Committee The Audit Committee comprises a majority of Independent Non-Executive Directors as follows:

1. Mr. Leong Keng Yuen, Chairman (Independent Non-Executive Director)2. Dr. Foong Weng Cheong, member (Non-Independent Non-Executive Director)3. Mr. Ooi Ying Hong, member (Independent Non-Executive Director)4. Ms. Chong Yoke Seng, member (Independent Non-Executive Director)5. Dato’ Richard Ong Guan Seng

(Retired on 16 November 2019)(Senior Independent Non-Executive Director)

A full report of the Audit Committee with details of its membership and a summary of the work performed during the financial year are set out in the Audit Committee Report of this annual report.

(b) Nominating Committee The Nominating Committee comprises exclusively Non-Executive Directors as follows:

1. Ms. Chong Yoke Seng, Chairman (Independent Non-Executive Director)2. Mr. Leong Keng Yuen, member (Independent Non-Executive Director)3. Dr. Foong Weng Cheong, member (Non-Independent Non-Executive Director)4. Dato’ Richard Ong Guan Seng

(Retired on 16 November 2019)(Senior Independent Non-Executive Director)

The role of the Nominating Committee is set out in its TOR and available for reference on the Company’s website

at www.hexza.com.my.

The Nominating Committee had two (2) meetings in the financial year under review and all the members attended the meetings and undertook the following activities during the financial year ended 30 June 2020:

(i) Discussed and recommended the appointment of New Group CEO;

(ii) Reviewed the performance of the Directors who will be retiring at the forthcoming AGM in Year 2020 prior to recommending them for Board’s approval;

(iii) Reviewed and assessed the Board balance and composition of the Directors, the Directors’ contribution and the effectiveness of the Board as a whole;

(iv) Reviewed the performance of the Audit Committee and each of its members, the Nominating Committee and the Remuneration Committee;

(v) Reviewed the training attended by the Directors;

(vi) Assessed the independence of the Independent Directors; and

(vii) Assessed, justified and made recommendation to the Board for the retention of Independent Directors who have exceeded a cumulative term of nine (9) and twelve (12) years.

All assessments and evaluations carried out by the Nominating Committee in discharging its functions have been properly documented.




(c) Remuneration Committee The Remuneration Committee comprises a majority of Non-Executive Directors as follows:

1. Mr. Leong Keng Yuen, Chairman (Independent Non-Executive Director)2. Datuk Dr. Foong Weng Sum, member (Executive Director)3. Dr. Foong Weng Cheong, member (Non-Independent Non-Executive Director)

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 direction 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 attended.

The Remuneration Committee had two (2) meetings during the financial year under review and all the committee members attended the meeting.

The TOR of the Remuneration Committee are posted on the Company’s website, www.hexza.com.my.

3. REMUNERATION

Directors’ Remuneration

The details of the Directors’ remuneration (including benefits-in-kind) from the Group and the Company for FY2020 are as follows:

The Group

RM’000 Salary Fees BonusOther

EmolumentsBenefits-in-kind Total

Executive Directors

Datuk Dr. Foong Weng Sum 1,020 3 40 2 13 1,078Mr. Gary Goh Soo Liang (resigned on 31 October 2019) 200 - - 24 4 228

Non-Executive Directors

Dr. Foong Weng Cheong - 70 - 28 - 98Dato’ Richard Ong Guan Seng (retired on 16 November 2019) - 20 - 12 - 32

Mr. Leong Keng Yuen - 77 - 32 - 109Tuan Haji Mohd Jali @ Mohd Jalil Bin Sany (demised on 3 September 2020) - 52 - 8 - 60

Mr. Ooi Ying Hong - 50 - 17 - 67Ms. Chong Yoke Seng - 70 - 21 - 91Ms. Foong Leon Ie (appointed on 1 January 2020) - 25 - 4 - 29Ms. Navit Kaur Randhawa A/P Hira Singh (appointed on 24 February 2020) - 18 - 2 - 20Mr. Foong Leon Chiew (resigned on 1 August 2020) - - - - - -

Total 1,220 385 40 150 17 1,812




The Company

RM’000 Salary Fees BonusOther

EmolumentsBenefits-in-kind Total

Executive Directors

Datuk Dr. Foong Weng Sum - - - 2 - 2Mr. Gary Goh Soo Liang (resigned on 31 October 2019) - - - - - -

Non-Executive Directors

Dr. Foong Weng Cheong - 50 - 27 - 77Dato’ Richard Ong Guan Seng (retired on 16 November 2019) - 19 - 11 - 30Mr. Leong Keng Yuen - 55 - 31 - 86Tuan Haji Mohd Jali @ Mohd Jalil Bin Sany (demised on 3 September 2020) - 50 - 8 - 58

Mr. Ooi Ying Hong - 50 - 17 - 67Ms. Chong Yoke Seng - 50 - 20 - 70Ms. Foong Leon Ie (appointed on 1 January 2020) - 25 - 4 - 29Ms. Navit Kaur Randhawa A/P Hira Singh (appointed on 24 February 2020) - 18 - 2 - 20Mr. Foong Leon Chiew (resigned on 1 August 2020) - - - - - -

Total - 317 - 122 - 439

The number of Directors whose remuneration (including benefits-in-kind) falls into the following bands is as follows:

Band Executive Directors Non-Executive DirectorsRM 1 to RM50,000 - 3RM50,001 to RM100,000 - 4RM100,001 to RM150,000 - 1RM200,001 to RM250,000 1 -RM1,050,001 to RM1,100,000 1 -

The number of key management personnel whose remuneration (including benefits-in-kind) falls into the following bands is as follows:

Band Key Management PersonnelRM 1 to RM100,000 1RM100,001 to RM200,000 1RM300,001 to RM400,000 1RM400,001 to RM500,000 1RM600,001 to RM700,000 1

The remuneration of the top five (5) key executives (who are not directors in FY2020) was shown on a “no name” basis on concern over poaching of these key executives by competitors.




The fees payable to the Directors by the Company will be recommended by the Board for approval by shareholders at the forthcoming AGM scheduled to be held on 28 November 2020.

Other than the contract of service with the CEO, there is no contract of service between any of the Directors and the Company or its subsidiary companies.

Corporate Social Responsibility

The Board is mindful of its responsibility to its various stakeholders and endeavours to operate ethically, paying attention to environmental, social and governance aspects of business. The Group’s mission is to enhance value for all stakeholders whilst taking into consideration our continued social obligations.

PRINCIPLE B: EFFECTIVE AUDIT AND RISK MANAGEMENT

1. UPHOLD INTEGRITY IN FINANCIAL REPORTING

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. The Audit Committee reviews the Group’s annual and quarterly financial statements and the Group accounting policies to ensure that the Group’s financial reporting comply with accounting standards and regulatory requirements.

Risk Management and Internal Control Framework

The Board, with the assistance of the Audit Committee, continues to maintain and to review its risk management system and internal control procedures to ensure that the Group is operating effectively and efficiently in accordance with its internal policies and procedures and complying with laws and regulations. The Statement on Risk Management and Internal Control which provides an overview of the state of risk management and internal control of the Group is presented in this Annual Report.

Audit Committee

The Board is assisted by the Audit Committee in overseeing the Group’s financial reporting, risk management and internal control system. The composition, TOR and summary of the activities of the Audit Committee during the financial year are disclosed in the Audit Committee Report of this Annual Report.

Relationship with the Auditors

(a) Internal Audit The Group has an in-house Internal Audit Unit that assists the Audit Committee in the discharge of its duties and responsibilities. The Internal Audit Unit function includes evaluation of the processes by which significant risks are identified, assessed and managed. The audits are carried out to ensure instituted controls are appropriate, effectively applied and within acceptable risk exposures and consistent with the Group’s risk management policy. The Internal Audit Unit reports directly to the Audit Committee and audit findings and recommendations are communicated to the Board on a quarterly basis.



(b) External Audit The Company has established a transparent and appropriate relationship with the Group’s External Auditors through the Audit Committee. It is the practice of the Audit Committee to meet the External Auditors to discuss their audit plan, audit findings and the financial statements. The Audit Committee will have a private session with the External Auditors without the presence of any executive of the Group at least twice a year.

The Audit Committee has performed evaluation and monitors the suitability and independence of the External Auditors in accordance to a standard criterion adopted. The Company has also obtained assurance from the External Auditors confirming that they are and have been independent throughout the conduct of the audit engagement in accordance with the terms of all relevant professional and regulatory requirements. To maintain independence, the Company supports the External Auditors’ policy to change the lead engagement partner once every seven (7) years.

The External Auditors are invited to attend the AGM of the Company and are available to answer shareholders’ queries on the financial statements tabled at the AGM.

2. RECOGNISE AND MANAGE RISKS

The Board has established an enterprise risk management framework to manage risk. The Risk Management Unit of each operating company is headed by the respective general manager/CEO who oversees and coordinates the overall risk management activities of the respective company. The Risk Management Units submit risk assessment reports to the Audit Committee on a half yearly basis.

The Group has an in-house Internal Audit Unit which reports directly to the Audit Committee. The Internal Audit Unit conducts regular reviews and appraisals of the effectiveness of the internal controls processes and risk management of the Group and reports the findings to the Audit Committee on a quarterly basis.

The Audit Committee reviews and evaluates the effectiveness of the Group’s internal control and risk management systems. The Board is provided with reasonable assurance from the Audit Committee on risk management and internal control systems. Details of the risk management are stated in the Statement on Risk Management and Internal Control of this Annual Report.

PRINCIPLE C: INTEGRITY IN CORPORATE REPORTING AND MEANINGFUL RELATIONSHIP wITH STAKEHOLDERS

1. ENSURE TIMELY AND HIGH QUALITY DISCLOSURE

The Board exercises close monitoring of all price sensitive information potentially required to be released to Bursa Malaysia and makes material announcements to Bursa Malaysia in a timely manner as required. The Board has delegated the authority to the Executive Chairman, the CEO and the Group Chief Accountant to approve all announcements for release to Bursa Malaysia. The Company Secretary is responsible to release such announcements to Bursa Malaysia.

As for the dealings in the Company’s shares, the Directors and senior management are requested to observe the MMLR on the provisions on dealing in the shares of the Company during and outside the “closed period”.




CORPORATE GOVERNANCE OVERVIEW STATEMENT (continued) CORPORATE GOVERNANCE OVERVIEW STATEMENT

2. STRENGTHEN RELATIONSHIP BETwEEN COMPANY AND SHAREHOLDERS

Shareholders Communication and Investors Relationship Policy

The AGM is the principal forum for dialogue and interaction with the shareholders of the Company. The Company dispatches Notice of AGM to shareholders at least twenty-eight (28) days before the AGM, well in advance of the twenty-one (21) days requirement stipulated in the Companies Act, 2016 and the Bursa Malaysia MMLR. The additional time allows shareholders to make the necessary arrangements to attend and participate in person or by proxy or by corporate representative at the AGM. Shareholders are encouraged to attend the Company’s AGM and use the opportunity 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. The Directors, the External Auditors and the management of the Company are present to answer questions raised at the meeting. Where it is not possible to provide immediate answers, the Executive 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 shareholders.

Mr. Leong Keng Yuen, the Deputy Chairman is the Independent Non-Executive Director who will attend to all queries relating to the affairs of the Group.

The Company has leveraged on information technology for effective dissemination of information to shareholders via the Company’s website, www.hexza.com.my which provides all relevant information on the Group and is easily accessible by the public.

Poll Voting

In line with the MMLR, all resolutions set out in the Notice of AGM will be voted by poll and a scrutineer will be appointed to validate the votes cast. Poll voting more accurately and fairly reflects shareholders’ views as every vote is recognised thus enforcing greater shareholder’s rights.

DIRECTORS’ RESPONSIbILITY STATEMENT

The Directors are aware of their responsibility for ensuring that proper accounting records are kept and the accounts and other financial reports of the Group and the Company are prepared in accordance with the applicable approved accounting standards and comply with the requirements of the Companies Act, 2016.

The Directors are also responsible for taking reasonable 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 30 June 2020.



Utilization of Proceeds

No proceeds were raised by the Company from any corporate exercise during the financial year.

Audit and Non-Audit Fees

During the financial year ended 30 June 2020, the amount of audit fees and non-audit fees payable to the External Auditors and its affiliates are as follows:

Audit Fees (RM) Non-Audit Fees (RM)Company 47,500 3,000Group 153,300 3,000

Material Contracts and Contracts Relating to Loans

There are no material contracts and contracts relating to loans entered into by the Company and its subsidiary companies which involve the interests of the Directors and major 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 the financial year are disclosed in Note 21 to the Financial Statements.

ADDITIONAL COMPLIANCE INFORMATION



STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL

The Board of Directors (“the Board”) is pleased to present the statement on risk management and internal control of the Group for the financial year ended 30 June 2020.

This statement is prepared in accordance with the Main Market Listing Requirements of Bursa Malaysia Securities Berhad (“Bursa Malaysia”), Statement on Risk Management and Internal Control: Guidelines for Directors of Public Listed Issuers provided by Bursa Malaysia and the Malaysian Code on Corporate Governance. This statement outlines the nature and scope of the risk management and internal control of the Group and covers all of its operations except for other investment in which the Group does not have full management and control over it.

Board Responsibility

The Board recognises its responsibility in maintaining a sound system of internal controls which includes not only financial controls but also operational and compliance controls as well as effective risk management. The Board has established ongoing processes for identifying, evaluating and managing the significant risks that matter. The Board continually reviews the system to ensure it provides a reasonable although not absolute assurance against material misstatements of management and financial information and records or against financial losses or fraud.

The Board is of the view that the Group’s internal control and risk management framework is effective. The key features of the internal control system are described under the following headings:-

1. Enterprise Risk Management Framework

The Board confirms that the Group continues to implement the methodologies in accordance with the Enterprise Risk Management Framework (“ERM”) approved by the Board. The framework ensures that there is an ongoing process for identifying, evaluating, monitoring and managing risks that matter and affect the Group’s business objectives.

During the financial year under review, the Risk Management Units of the operating subsidiaries continued to coordinate the risk management activities of the respective subsidiaries. The Risk Management Units continued to identify principal risks of the business on an ongoing basis, assess and evaluate the likelihood and impact of potential risks and manage the risks by formulating action plans to mitigate the risks. The Risk Register is updated on a timely basis. Risk assessment reports are submitted on a half yearly basis by the respective operating companies to the Audit Committee for review. The Audit Committee in turn reports to the Board its assessment and recommendations.

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.

2. Internal Audit Function

The Group has an in-house Internal Audit Unit which reports directly to the Audit Committee. The Internal Audit Unit is responsible to monitor compliance with policies and procedures and assess the effectiveness of the internal control system, adequacy of existing risk action plans developed to manage the risks that matter and make recommendations to improve the system of internal controls.

During the financial year under review, the Internal Audit Unit has, in accordance to its internal audit plan, carried out regular and systematic reviews on major business operating units of the Group to assess the effectiveness and adequacy of internal controls and also on risk management and highlighted areas for improvement. The annual audit plan has been reviewed and approved by the Audit Committee prior to the commencement of audit. Internal audit reports, which include details on the audit objectives, scope, audit findings and recommendations as well as management’s response to the recommendations of the Internal Audit Unit, are issued upon completion of each audit. The Internal Audit Unit prepares quarterly reports to update the Audit Committee on the status of audits performed.

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.

The Board reviews the minutes of the Audit Committee meeting and is briefed by the Audit Committee Chairman on a quarterly basis.



STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL (continued)

3. Key Internal Control Processes

(a) Organisation Structure

• There is an appropriate organisational structure with well defined lines of responsibility and authority limits established for Directors and management within the Group in respect of day to day operations, investments, acquisitions and disposals of property, plant and equipment.

(b) Group Policies and Procedures

• Standard Enterprise Risk Management Policy & Procedures that outline the Group’s ERM Framework are in place to ensure clarity and consistency of risk management within the Group.

• Standard operational procedures, policies, guidelines and limits of approving authorities are documented in the Group Manual. The Group uses the same accounting system for all companies within the Group to ensure consistency in the financial reporting processes.

(c) Operational Monitoring and Controls

• The operating units hold regular management meetings to review the financial and operational performance and risk management issues.

• Executive Management Committee meetings are frequently held as and when necessary to monitor and to discuss on investments, projects, financial performance and legal matters.

• Annual business plans and budgets are prepared by the operating units and submitted to the Board for approval. The performance is compared against budget on a monthly basis with explanation of variances. The Board reviews 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 and submitted to the Executive Chairman and Chief Executive Officer for review on a monthly basis.

• Half yearly risk assessment reports are prepared by the operating subsidiaries to ensure risk management is carried out according to procedures.

• Yearly review of insurance coverage and its adequacy is carried out by senior management to ensure the assets are sufficiently covered against any mishaps that may result in material losses to the Group.

• The Board meets at least on a quarterly basis and there is a formal agenda on matters for discussion at every meeting. The Executive Chairman 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 the Chief Executive Officer and the General Managers of the respective operating units at Board Meetings.

Review of the Statement by External Auditors

The External Auditors have reviewed this statement in accordance with the Audit and Assurance Practice Guide 3 issued by the Malaysian Institute of Accountants on the review of Directors’ Statement on Risk Management and Internal Control pursuant to paragraph 15.23 of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad and reported to the Board that nothing has come to their attention that causes them to believe that the statement is inconsistent with their understanding of the process adopted by the Board in the review of the integrity of the system of risk management and internal control of the Group.

Conclusion

The Board has received assurance from the Executive Chairman, Chief Executive Officer and Group Chief Accountant that to the best of their knowledge the risk management and internal controls of the Group are operating effectively and adequately in all material respects, for the year under review up to the date of approval of this statement. The Board has appraised and confirmed the risk management and internal control system is satisfactory and the control issues highlighted by both Internal and External Auditors have not resulted in any material losses, contingencies or uncertainties that would require disclosure in this report.

This statement was reviewed and approved by the Board in accordance with a resolution of the Board of Directors 8 October 2020.

ANNUAL REPORT 2020


FINANCIALSTATEMENTS

Directors' Report

Independent Auditors’ Report

Statements of Profit or Lossand Other Comprehensive Income

Statements of Financial Position

Statements of Changes In Equity


Notes to the Financial Statements

Statement by Directors

Declaration by the Officer Primarily Responsiblefor the Financial Management of the Company

–––––––––––––––––––––––––––––––– 42 - 46

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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, 2020.

PRINCIPAL ACTIVITIES

The Company is principally involved in investment holding.

The information on the name, place of incorporation, principal activities, and percentage of issued share capital held by the holding company in each subsidiary company is as disclosed in Note 15 to the financial statements.

RESULTS OF OPERATIONS

The results of operations of the Group and of the Company for the financial year are as follows:

The GroupRM

The CompanyRM

Profit for the year 16,024,605 17,797,810

Profit attributable to: Owners of the Company 15,453,306 17,797,810Non-controlling interests 571,299 -

16,024,605 17,797,810

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 other than the significant event as disclosed in Note 33 to the financial statements.

DIVIDENDS

Since the end of the previous financial year, the amount of dividends paid/payable or proposed by the Company are in respect of the following:

A final dividend of 5.0 sen per share in respect of 200,380,036 ordinary shares proposed in the previous financial year and dealt with in the previous directors’ report was paid by the Company during the current financial year.

The directors have proposed a final dividend of 5.0 sen per share and a special dividend of 2.5 sen per share in respect of the current financial year. The proposed dividend is subject to approval by the shareholders at the forthcoming Annual General Meeting of the Company and has not been included as a liability in the financial statements.

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

The Company has not issued any new shares or debentures during the financial year.

SHARE OPTIONS

No options have been granted by the Company to any parties during the financial year to take up unissued shares of the Company.

No shares have been issued during the financial year by virtue of the exercise of any option to take up unissued shares of the Company. As of the end of the financial year, there were no unissued shares of the Company under options.



DIRECTORS’ REPORT

OTHER STATUTORY INFORMATION

Before the financial statements of the Group and of the Company were prepared, 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 had satisfied themselves that no known bad debts needed to be written off and that adequate allowance had been made for doubtful debts; and

(b) to ensure that any current assets which were unlikely to be realised in the ordinary course of business including the value of current assets as shown in the accounting records of the Group and of the Company had been written down to an amount which the current assets might be expected so to realise.

At the date of this report, the directors are not aware of any circumstances:

(a) which would require the writing off of bad debts or render 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 would 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 the financial statements of the Group and of the Company which would render any amount stated in the financial statements 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 which secures the liabilities of any other person; and

(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 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 in the financial year in which this report is made.

DIRECTORS

The directors of the Company in office during the financial year and during the period from the end of the financial year to the date of this report are:

Datuk Dr. Foong Weng SumMr. Leong Keng Yuen Dr. Foong Weng CheongMr. Ooi Ying Hong Ms. Chong Yoke Seng Ms. Foong Leon Ie (appointed on January 1, 2020)Mr. Foong Leon Chiew (alternate director to Ms. Foong Leon Ie; appointed on January 3, 2020; resigned on August 1, 2020)Ms. Navit Kaur Randhawa A/P Hira Singh (appointed on February 24, 2020)Mr. Gary Goh Soo Liang (resigned on October 31, 2019) Dato’ Richard Ong Guan Seng (retired on November 16, 2019) Tuan Haji Mohd Jali @ Mohd Jalil Bin Sany (demised on September 3, 2020)



DIRECTORS’ REPORT (continued)

The directors who held office in the subsidiary companies of the Company during the financial year and up to the date of this report are:

Name of directors Subsidiary companies

Datuk Dr. Foong Weng Sum CIM, HM, NR, SDC, HCSMr. Leong Keng Yuen CIM(1), HCSDr. Foong Weng Cheong HCSMr. Ooi Ying Hong SDC Ms. Chong Yoke Seng HCSMr. Leu Moh Sing HCS, NRDr. Beh Seng Kee CIM(10)

En. Mersal bin Abang Rosli HCSEn. Azmi bin Bujang HCSMs. Lim See Cheng BAP, CIM, HM, NM, NPMs. Chin Mun Yong NM, NMD, TZN, HWT, SBM(8), NC(6), NP(6)

Mr. Pragalatha A/L Valaitham BAPMs. Lee Yan Phing NC, NMD(6), SBM(6), TZN(6), HWT(6)

Mr. Foong Leong Wei CIM(2), HCS(3)

Mr. Gary Goh Soo Liang HCS(4)

Dato’ Richard Ong Guan Seng CIM(5), NR(5), SDC(5), SBM(5)

Mr. Lim Yoong Chong NMD(7), SBM(7), TZN(7), HWT(7), NC(7), NP(7)

Tuan Haji Mohd Jali @ Mohd Jalil Bin Sany NR(9)

(1) resigned on July 7, 2020(2) appointed on July 7, 2020(3) appointed on July 8, 2020(4) resigned on October 10, 2019(5) retired on November 15, 2019(6) appointed on December 6, 2019(7) resigned on December 9, 2019(8) appointed on November 15, 2019(9) demised on September 3, 2020(10) resigned on September 15, 2020

Denotes:

BAP Bio-Acetic Products Sdn. Bhd.CIM Chemical Industries (Malaya) Sdn. Bhd.HCS Hexzachem Sarawak Sdn. Bhd.HM Hexza-Mather Sdn. Bhd.HWT Hexza World Trade Sdn. Bhd.NM Norsechem Marketing Sdn. Bhd.NR Norsechem Resins Sdn. BerhadNC NC Management Services Sdn. Bhd.NMD Norse-Med Devices Sdn. Bhd.NP Norsechem Polymer Sdn. Bhd.SDC Summit Development Corporation Sdn. BerhadSBM Synthetic Bakelites (Malaysia) Sdn. Bhd.TZN Trizenith Sdn. Bhd.



DIRECTORS’ REPORT

DIRECTORS’ INTERESTS

The interests in shares in the Company of those who were directors at the end of the financial year according to the Register of Directors’ Shareholdings kept by the Company under Section 59 of the Companies Act, 2016 are as follows:

Number of ordinary shares

Balance as of1.7.2019 Bought Disposed

Balance as of30.6.2020

Shares in the Company

Registered in the name of directorsDatuk Dr. Foong Weng Sum 1,083,228 - - 1,083,228Mr. Leong Keng Yuen 480,000 - - 480,000Dr. Foong Weng Cheong 2,662,500 - - 2,662,500Mr. Ooi Ying Hong 80,000 - - 80,000Ms. Chong Yoke Seng 590,000 - - 590,000

Indirect interests by virtue of shares held by a company in which the directors have interestsDatuk Dr. Foong Weng Sum 62,231,657 - - 62,231,657Dr. Foong Weng Cheong 62,231,657 - - 62,231,657Tuan Haji Mohd Jali @ Mohd Jalil Bin Sany 50,000 - - 50,000

Indirect interests by virtue of shares held by person connected to a director

Mr. Leong Keng Yuen 290,000 - (15,000) 275,000Ms. Chong Yoke Seng 88,000 - - 88,000

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 interests.

DIRECTORS’ BENEFITS

Since the end of the previous financial year, none of the directors of the Company has received or become entitled to receive a benefit (other than a benefit included in the aggregate of remuneration received or due and receivable by directors or the fixed salary of a full-time employee of the Company as disclosed below) 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 21 to the financial statements.

Directors’ remunerationThe Group

RMThe Company

RM

Directors of the CompanyDirectors’ fees 384,608 316,460Other emoluments 1,386,123 122,625Employees' Provident Fund ("EPF") contributions 24,128 -

1,794,859 439,085Benefits-in-kind* 17,173 -



* Represents estimated monetary value of benefits-in-kind received and receivable by a director otherwise than in cash from the Group.

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.

INDEMNITY AND INSURANCE FOR DIRECTORS, OFFICERS AND AUDITORS

The Company maintains public liability insurance throughout the year, where the directors and/or officers of the Company are also indemnified. No indemnity and insurance is provided for auditors. The amount of insurance premium paid/payable during the year amounted to RM450.

AUDITORS

The auditors, Deloitte PLT, have indicated their willingness to continue in office.

AUDITORS’ REMUNERATION

The amount paid/payable as remuneration of the auditors for the financial year ended June 30, 2020 are as follows:

The GroupRM

The CompanyRM

Fees paid/payable to external auditors: Statutory audit 153,300 47,500 Others 3,000 3,000

Signed on behalf of the Board, as approved by the Boardin accordance with a resolution of the Directors,

DATUK DR. FOONG wENG SUM

MR. LEONG KENG YUEN

Ipoh,8 October 2020

DIRECTORS’ REPORT (continued)



Report on the Audit of the Financial Statements

Opinion

We have audited the financial statements of HEXZA CORPORATION BERHAD, which comprise the statements of financial position of the Group and of the Company as of June 30, 2020, and the statements of profit or loss and other comprehensive income, statements of changes in equity and statements of cash flows of the Group and of the Company for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, as set out on pages 50 to 110.

In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Group and of the Company as of June 30, 2020, and of their financial performance and their cash flows for the year then ended in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 2016 in Malaysia.

Basis for Opinion

We conducted our audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence and Other Ethical Responsibilities

We are independent of the Group and of the Company in accordance with the By-Laws (on Professional Ethics, Conduct and Practice) of the Malaysian Institute of Accountants (“By-Laws”) and the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (including International Independence Standards) (“IESBA Code”), and we have fulfilled our other ethical responsibilities in accordance with the By-Laws and the IESBA Code.

Key Audit Matter

Key audit matter is a matter that, in our professional judgement, is of most significance in our audit of the financial statements of the Group and of the Company for the current year. This matter is addressed in the context of our audit of the financial statements of the Group and of the Company as a whole, and in forming our opinion thereon, we do not provide a separate opinion on this matter.

Valuation and Existence of Quoted Equity Investments

As of June 30, 2020, investment in quoted equity shares of the Group and of the Company amounted to approximately RM94 million which accounted for approximately 38% and 42% of the Group’s and of the Company’s net assets respectively. 80% of this balance comprised investment in equity shares quoted outside Malaysia, which are subjected to fluctuations in equity prices and foreign exchange rates, resulting in significant fair value changes in their carrying amounts during the year. Due to their materiality in the context of the financial statements of the Group and of the Company as a whole, they are considered to be an area of the focus of the Group’s and of the Company’s stakeholders.

How the scope of our audit responded to the key audit matter

We have performed the following to address the key audit matter:

(1) Assessed the design and implementation and tested operating effectiveness of relevant controls over valuation and existence of quoted equity investments.

(2) Obtained and matched the portfolio of investments against investment bank corporate trading account statements and Central Depository System (“CDS”) statements and established that the Group and the Company have custodial rights and ownership over the quoted investments.

(3) Agreed 100% of the quoted prices for quoted investments carried in the investment ledger as of June 30, 2020 to closing prices published by independent pricing sources. Foreign quoted investments are translated to Ringgit Malaysia at year end using closing foreign exchange rates.

(4) Tested the record on sales and purchases of quoted investments by agreeing the transactions to supporting documentations and tracing clearance to bank statements.

Please refer to Note 16 to the financial statements “Other Investments” and Note 31 to the financial statements “Financial Instruments, Financial Risks and Capital Risks Management” for details and determination of fair values of the quoted equity investments.

INDEPENDENT AUDITORS’ REPORT TO THE MEMbERS OF HEXZA CORPORATION bERHAD



INDEPENDENT AUDITORS’ REPORT TO THE MEMbERS OF HEXZA CORPORATION bERHAD (continued)

Information Other than the Financial Statements and Auditors’ Report Thereon

The directors of the Company are responsible for the other information. The other information comprises the information included in the annual report, but does not include the financial statements of the Group and of the Company and our auditors’ report thereon.

Our opinion on the financial statements of the Group and of the Company does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements of the Group and of the Company, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements of the Group and of the Company or our knowledge obtained in the audit or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Directors for the Financial Statements

The directors of the Company are responsible for the preparation of financial statements of the Group and of the Company that give a true and fair view in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 2016 in Malaysia. The directors are also responsible for such internal control as the directors determine is necessary to enable the preparation of financial statements of the Group and of the Company that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements of the Group and of the Company, the directors are responsible for assessing the Group’s and the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.

Auditors’ Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements of the Group and of the Company as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with approved standards on auditing in Malaysia and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements of the Group and of the Company, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit 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.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.

• Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s or the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements of the Group and of the Company or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group or the Company to cease to continue as a going concern.



INDEPENDENT AUDITORS’ REPORT TO THE MEMbERS OF HEXZA CORPORATION bERHAD

• Evaluate the overall presentation, structure and content of the financial statements of the Group and of the Company, including the disclosures, and whether the financial statements of the Group and of the Company represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial statements of the Group. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.

From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial statements of the Group and of the Company for the current year and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Other Matters

This report is made solely to the members of the Company, as a body, in accordance with Section 266 of the Companies Act, 2016 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report.

DELOITTE PLT (LLP0010145-LCA)Chartered Accountants (AF 0080)

LIM KENG PEOPartner - 02939/01/2022 JChartered Accountant

Ipoh,8 October 2020



STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOMEFOR THE YEAR ENDED JUNE 30, 2020

The Group The Company

Note2020RM

2019RM

2020RM

2019RM

Revenue 5 90,507,301 106,254,649 14,932,116 8,869,487

Investment revenue 7 1,136,746 409,028 772,818 56,394Other gains and (losses) 8 3,264,029 273,810 3,231,353 (144,410)Other operating income 286,291 192,098 64,500 75,986Changes in inventories

of finished goods andwork-in-progress (4,232,540) 2,376,565 - -

Purchase of finished goods (1,212,145) (1,466,205) - -Raw materials and

consumables used (45,038,142) (70,814,645) - -Directors’ remuneration 10 (1,794,859) (2,275,289) (439,085) (439,000)Employee benefits expenses 10 (6,440,929) (5,793,878) (77,427) (96,817)Depreciation of property,

plant and equipment 14 (2,407,387) (2,930,125) (31,655) (31,654)Finance costs 11 (6,374) (17,284) - (161,278)Other operating expenses 9 (14,371,993) (15,274,884) (613,545) (1,043,332)

Profit before tax 19,689,998 10,933,840 17,839,075 7,085,376Tax expense 12 (3,665,393) (2,351,891) (41,265) (16,969)

Profit for the year 16,024,605 8,581,949 17,797,810 7,068,407

Other comprehensiveincome/(loss):

Items that will not be reclassified subsequently to profit or loss: Net fair value changes in equity

instruments designated as at fair value through other comprehensive income 29,872,718 (10,386,175) 29,875,938 (10,377,175)

Total comprehensiveincome/(loss) for the year 45,897,323 (1,804,226) 47,673,748 (3,308,768)




Note2020RM

2019RM

2020RM

2019RM

Profit for the year attributable to:Owners of the Company 15,453,306 7,793,547 17,797,810 7,068,407Non-controlling interests 15 571,299 788,402 - -

16,024,605 8,581,949 17,797,810 7,068,407

Total comprehensive income/(loss) attributable to:Owners of the Company 45,326,024 (2,592,628) 47,673,748 (3,308,768)Non-controlling interests 15 571,299 788,402 - -

45,897,323 (1,804,226) 47,673,748 (3,308,768)

Earnings per ordinary share

Basic (sen) 13 7.7 3.9

Diluted (sen) 13 7.7 3.9

STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOMEFOR THE YEAR ENDED JUNE 30, 2020

The accompanying Notes form an integral part of the financial statements.




Note2020RM

2019RM

2020RM

2019RM

ASSETS

Non-current assetsProperty, plant and equipment 14 31,984,656 33,720,794 48,258 75,429Investment in subsidiary

companies 15 - - 53,858,461 53,778,519Other investments 16 97,667,932 114,972,177 97,665,632 114,966,657Goodwill arising on

consolidation 17 2,129,365 2,129,365 - -Finance lease receivable 18 - - - -

Total non-current assets 131,781,953 150,822,336 151,572,351 168,820,605

Current assetsInventories 19 16,393,205 26,150,452 - -Trade and other receivables 20 18,157,877 19,546,885 89,552 2,586,355Current tax assets 12 132,222 13,834 - -Other assets 22 376,967 480,295 153,652 261,840Cash and cash equivalents 23 97,065,118 31,470,992 72,870,592 15,341,550

Total current assets 132,125,389 77,662,458 73,113,796 18,189,745

Total assets 263,907,342 228,484,794 224,686,147 187,010,350

STATEMENTS OF FINANCIAL POSITIONAS OF JUNE 30, 2020





Note2020RM

2019RM

2020RM

2019RM

EQUITY AND LIABILITIES

Capital and reservesShare capital 24 100,190,018 100,190,018 100,190,018 100,190,018Reserves 25 144,030,742 108,723,720 124,017,112 86,362,366

Total equity attributable to equity shareholders of listed issuer 244,220,760 208,913,738 224,207,130 186,552,384Non-controlling interests 15 6,303,895 6,947,596 - -

Total equity 250,524,655 215,861,334 224,207,130 186,552,384

Non-current liabilityDeferred tax liabilities 12 4,944,929 5,328,929 - -

Current liabilitiesTrade and other payables 26 4,880,631 3,927,094 63,851 66,208Current tax liabilities 12 1,192,724 573,361 20,711 7,306Other liabilities 27 2,364,403 2,794,076 394,455 384,452

Total current liabilities 8,437,758 7,294,531 479,017 457,966

Total liabilities 13,382,687 12,623,460 479,017 457,966

Total equity and liabilities 263,907,342 228,484,794 224,686,147 187,010,350

Net tangible assets per ordinary share 1.21 1.03





<--------- Attributable to the Owners of the Company --------->

The Group Note

ShareCapital

RM

Non-Distributable

Reserve InvestmentsRevaluation

ReserveRM

DistributableReserve RetainedEarnings

RMSubtotal

RM

Non-Controlling

InterestsRM

TotalEquity

RM

As of July 1, 2018 100,190,018 15,541,453 105,793,897 221,525,368 6,159,194 227,684,562

Profit for the year - - 7,793,547 7,793,547 788,402 8,581,949Other comprehensive loss - (10,386,175) - (10,386,175) - (10,386,175)

Total comprehensive (loss)/income for the year - (10,386,175) 7,793,547 (2,592,628) 788,402 (1,804,226)

Transactions with owners of the Company:Payment of dividends 29 - - (10,019,002) (10,019,002) - (10,019,002)

Transfer of investment revaluation reserve upon disposal of equity instruments designated as at

fair value through other comprehensive income - 4,754,645 (4,754,645) - - -

As of June 30, 2019 100,190,018 9,909,923 98,813,797 208,913,738 6,947,596 215,861,334

Profit for the year - - 15,453,306 15,453,306 571,299 16,024,605Other comprehensive

income - 29,872,718 - 29,872,718 - 29,872,718

Total comprehensive income for the year - 29,872,718 15,453,306 45,326,024 571,299 45,897,323Payment of dividends to:Owners of the Company 29 - - (10,019,002) (10,019,002) - (10,019,002)Non-controlling interests - - - - (1,215,000) (1,215,000)Transfer of investment

revaluation reserve upon disposal of equity instruments designated as at fair value through other comprehensive income - (11,581,542) 11,581,542 - - -

As of June 30, 2020 100,190,018 28,201,099 115,829,643 244,220,760 6,303,895 250,524,655


STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED JUNE 30, 2020




<---------------------- Attributable to the Owners of the Company ---------------------->

The Company Note

ShareCapital

RM

Non-Distributable

Reserve InvestmentsRevaluation

ReserveRM

Distributable Reserve RetainedEarnings

RM

TotalEquity

RM

As of July 1, 2018 100,190,018 15,540,453 84,149,683 199,880,154

Profit for the year - - 7,068,407 7,068,407Other comprehensive loss - (10,377,175) - (10,377,175)

Total comprehensive (loss)/income for the year - (10,377,175) 7,068,407 (3,308,768)Transactions with owners of the

Company:Payment of dividends 29 - - (10,019,002) (10,019,002)

Transfer of investment revaluation reserve upon disposal of equity instruments designated as at fair value through other comprehensive income - 4,754,645 (4,754,645) -

As of June 30, 2019 100,190,018 9,917,923 76,444,443 186,552,384

Profit for the year - - 17,797,810 17,797,810Other comprehensive income - 29,875,938 - 29,875,938

Total comprehensive income for the year - 29,875,938 17,797,810 47,673,748Transactions with owners of the

Company:Payment of dividends 29 - - (10,019,002) (10,019,002)

Transfer of investment revaluation reserve upon disposal of equity instruments designated as at fair value through other comprehensive income - (11,581,542) 11,581,542 -

As of June 30, 2020 100,190,018 28,212,319 95,804,793 224,207,130





The Group2020RM

2019RM

CASH FLOWS FROM/(USED IN) OPERATING ACTIVITIES

Profit for the year 16,024,605 8,581,949Adjustments for: Tax expense recognised in profit or loss 3,665,393 2,351,891 Depreciation of property, plant and equipment 2,407,387 2,930,125 Inventories written off 63,629 - Property, plant and equipment written off 9,309 16,347 Finance costs 6,374 17,284 Unrealised loss/(gain) on foreign exchange 5,171 (75,498) Expired warrants 667 - Dividend income (1,769,166) (2,546,687) Interest income (1,136,746) (409,028) Impairment losses on receivables no longer required (108,000) (81,868) Net gain arising from financial assets designated as at FVTPL (68,755) (81,698) Gain on disposal of property, plant and equipment - (604)

19,099,868 10,702,213

Movements in working capital:Decrease/(Increase) in:

Inventories 9,693,618 (10,384,417)Trade and other receivables 1,497,008 1,013,278Other assets 103,328 203,037

Increase/(Decrease) in:Trade and other payables 953,537 (894,428)Other liabilities (429,673) 589,654

Cash Generated From Operations 30,917,686 1,229,337Dividends received from:

Equity instruments designated as at FVTOCI 1,769,124 2,518,348Financial assets designated as at FVTPL 42 28,339

Interest received 1,205,501 490,726Income tax refunded 11,906 68,967Income tax paid (3,560,324) (3,001,416)Interest paid (6,374) (17,284)

Net Cash From Operating Activities 30,337,561 1,317,017

STATEMENT OF CASH FLOWSFOR THE YEAR ENDED JUNE 30, 2020





The Group

Note2020RM

2019RM

CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES

Proceeds from disposal of equity instruments designated as at FVTOCI 47,594,461 19,025,630Purchase of property, plant and equipment (680,558) (249,183)Purchase of equity instruments designated as at FVTOCI (418,165) (436,166)Proceeds from disposal of property, plant and equipment - 610

Net Cash From Investing Activities 46,495,738 18,340,891

CASH FLOWS USED IN FINANCING ACTIVITIES

Dividends paid to owners of the Company (10,019,002) (10,019,002)Dividends paid to non-controlling interests (1,215,000) -

Net Cash Used In Financing Activities (11,234,002) (10,019,002)

NET INCREASE IN CASH AND CASH EQUIVALENTS 65,599,297 9,638,906

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 31,470,992 21,826,003Effect of exchange rate changes on the balance of cash held in foreign currencies (5,171) 6,083

CASH AND CASH EQUIVALENTS AT END OF YEAR 30(b) 97,065,118 31,470,992



The Company2020RM

2019RM

CASH FLOWS FROM/(USED IN) OPERATING ACTIVITIES

Profit for the year 17,797,810 7,068,407Adjustments for:

Impairment loss on investment in subsidiary companies 107,190 219,400Tax expense recognised in profit or loss 41,265 16,969Depreciation of property, plant and equipment 31,655 31,654Expired warrants 667 -Dividend income (14,932,116) (8,869,487)Interest income (772,818) (56,394)Impairment loss on investment in subsidiary companies no longer required (187,132) -Unrealised gain on foreign exchange (2,946) (75,974)Property, plant and equipment written off - 2

2,083,575 (1,665,423)

Movements in working capital:Decrease in:

Other receivables 8,642 145,519Other assets 108,188 193,168

Increase/(Decrease) in:Other payables 1,256 1,958Accrued expenses 10,003 (11,614)

Cash From/(Used In) Operations 2,211,664 (1,336,392)Dividends received from:

Subsidiary companies 13,162,950 6,322,800Financial assets designated as at FVTOCI 1,769,124 2,518,348Financial assets designated as at FVTPL 42 28,339

Interest received 772,818 56,394Income tax paid (27,860) (9,615)Income tax refunded - 8,680

Net Cash From Operating Activities 17,888,738 7,588,554

STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2020 (continued)



The Company

Note2020RM

2019RM

CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES

Proceeds from disposal of equity instruments designated as at FVTOCI 47,594,461 19,025,630Repayment from subsidiary companies 2,488,161 1,558,685Purchase of equity instruments designated as at FVTOCI (418,165) (436,166)Purchase of property, plant and equipment (4,484) -

Net Cash From Investing Activities 49,659,973 20,148,149

CASH FLOWS USED IN FINANCING ACTIVITIES

Dividends paid to owners of the Company (10,019,002) (10,019,002)Repayment to subsidiary companies 30(a) (3,613) (6,977,959)

Net Cash Used In Financing Activities (10,022,615) (16,996,961)

NET INCREASE IN CASH AND CASH EQUIVALENTS 57,526,096 10,739,742

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 15,341,550 4,595,249Effect of exchange rate changes on the balance of cash held in foreign currencies 2,946 6,559

CASH AND CASH EQUIVALENTS AT END OF YEAR 30(b) 72,870,592 15,341,550




NOTES TO THE FINANCIAL STATEMENTS


1. GENERAL INFORMATION The Company is a public limited company, incorporated and domiciled in Malaysia and is listed on the Main

Market of Bursa Malaysia Securities Berhad.

The Company is principally involved in investment holding.

The information on the name, place of incorporation, principal activities, and percentage of issued share capital held by the holding company in each subsidiary company is as disclosed in Note 15.

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 are presented in their functional currency, which is Ringgit Malaysia (“RM”).

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 October 8, 2020.

2. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS The financial statements of the Group and of the Company have been prepared in accordance with Malaysian

Financial Reporting Standards (“MFRSs”), International Financial Reporting Standards and the requirements of the Companies Act, 2016 in Malaysia.

2.1 Adoption of new and amendments to MFRSs and Interpretation

In the current year, the Group and the Company adopted all of the new and amendments to MFRSs and Interpretation issued by the Malaysian Accounting Standards Board (“MASB”) that are mandatorily effective for an annual period that begins on or after July 1, 2019. Their adoption has not had any material impact on the disclosures or on the amounts reported in these financial statements, except as discussed below:

Impact of initial application of MFRS 16 Leases In the current year, the Group has applied MFRS 16 Leases that is effective for annual periods that begin

on or after January 1, 2019.

MFRS 16 introduces new or amended requirements with respect to lease accounting. It introduces significant changes to lessee accounting by removing the distinction between operating and finance lease and requiring the recognition of a right-of-use asset and a lease liability at commencement for all leases, except for short-term leases and leases of low value assets when such recognition exemptions are adopted. In contrast to lessee accounting, the requirements for lessor accounting have remained largely unchanged. Details of these new requirements are described in Note 3. The impact of the adoption of MFRS 16 on the Group’s financial statements is described below.

The date of initial application of MFRS 16 for the Group is July 1, 2019.

The Group has applied MFRS 16 using the cumulative catch-up approach which:

• Requires recognition of the cumulative effect of initially applying MFRS 16 as an adjustment to the opening balance of retained earnings at the date of initial application, if there is a difference between the assets and liabilities recognised.

• Does not permit restatement of comparatives, which continue to be presented under MFRS 117 Leases and IC Interpretation 4 Determining whether an Arrangement contains a Lease.

(a) Impact of the new definition of a lease

The Group has made use of the practical expedient available on transition to MFRS 16 not to reassess whether a contract is or contains a lease. Accordingly, the definition of a lease in accordance with MFRS 117 will continue to be applied to those leases entered or changed before July 1, 2019.

The change in definition of a lease mainly relates to the concept of control. MFRS 16 determines whether a contract contains a lease on the basis of whether the customer has the right to control the use of an identified asset for a period of time in exchange for consideration. This is in contrast to the focus on ‘risks and rewards’ in MFRS 117.


NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS


The Group applies the definition of a lease and related guidance set out in MFRS 16 to all lease contracts entered into or changed on or after July 1, 2019 (whether it is a lessor or a lessee in the lease contract).

(b) Impact on Lessee Accounting

(i) Former operating leases

MFRS 16 changes how the Group accounts for leases previously classified as operating leases under MFRS 117, which were off statement of financial position.

Applying MFRS 16, for all leases (except as noted below), the Group:

a) Recognises right-of-use assets and lease liabilities in the statement of financial position, initially measured at the present value of the future lease payments;

b) Recognises depreciation of right-of-use assets and interest on lease liabilities in profit or loss; and

c) Separates the total amount of cash paid into principal portion (presented within financing activities) and interest (presented within financing activities) in the statement of cash flows.

Lease incentives (e.g. rent free period) are recognised as part of the measurement of the right-of-use assets and lease liabilities whereas under MFRS 117 they resulted in the recognition of a lease incentive, amortised as a reduction of rental expenses on a straight-line basis.

Under MFRS 16, right-of-use assets are tested for impairment in accordance with MFRS 136.

For short-term leases (lease term of 12 months or less) and leases of low-value assets (which includes tablets and personal computers, small items of office furniture and telephones), the Group has opted to recognise a lease expense on a straight-line basis as permitted by MFRS 16. This expense is presented within ‘other operating expenses’ in profit or loss.

The Group has used the following practical expedients when applying the cumulative catch-up approach to leases previously classified as operating leases under MFRS 117.

• Applied a single discount rate to a portfolio of leases with reasonably similar characteristics.• Elected not to recognise right-of-use assets and lease liabilities for which the lease term ends

within 12 months, as of the date of initial application.• Excluded initial direct costs from the measurement of right-of-use assets at the date of initial

application.• Used hindsight when determining the lease term when the contract contains options to extend

or terminate the lease.

(ii) Former finance leases

For leases that were classified as finance leases applying MFRS 117, the carrying amount of the leased assets and obligations under finance leases measured applying MFRS 117 immediately before the date of initial application is reclassified to right-of-use assets and lease liabilities respectively without any adjustments, except in cases where the Group has elected to apply the low-value lease recognition exemption and leases of land previously already classified as property, plant and equipment.

The right-of-use asset and the lease liability are accounted for applying MFRS 16 from July 1, 2019.




2. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (continued)

(c) Impact on Lessor Accounting

MFRS 16 does not change substantially how a lessor accounts for leases. Under MFRS 16, a lessor continues to classify leases as either finance leases or operating leases and account for those two types of leases differently.

(d) Financial impact of initial application of MFRS 16

The directors of the Group has applied MFRS 16 and noted that there is no material impact on the financial statements of the Group.

2.2 Standards in issue but not yet effective

At the date of authorisation of these financial statements, the Group and the Company have not applied the following new and amendments to MFRSs that have been issued but are not yet effective:

MFRSs Amendments to References to the ConceptualFramework in MFRS Standards1

Amendments to MFRSs Annual improvements to MFRS Standards2018 - 20203

MFRS 17 Insurance Contracts2

Amendments to MFRS 3 Definition of a Business1

Amendments to MFRS 3 Reference to the Conceptual Framework3

Amendments to MFRS 16 COVID-19 Related Rent Concessions4

Amendments to MFRS 9, 139, 7, 4, and 16 Interest Rate Benchmark Reform - Phase 2 6

Amendments to MFRS 101 and 108 Definition of Material1

Amendments to MFRS 101 Classification of Liabilities as Current or Non-current2

Amendments to MFRS 10 and 128 Sale or Contribution of Assets between anInvestor and its Associate or Joint Venture5

Amendments to MFRS 9, 139 and 7 Interest Rate Benchmark Reform1

Amendments to MFRS 116 Property, Plant and Equipment - Proceeds beforeIntended Use3

Amendments to MFRS 137 Onerous Contracts - Cost of Fulfilling a Contract3

1 Effective for annual periods beginning on or after January 1, 2020, with earlier application permitted.2 Effective for annual periods beginning on or after January 1, 2023, with earlier application permitted.3 Effective for annual periods beginning on or after January 1, 2022, with earlier application permitted.4 Effective for annual periods beginning on or after June 1, 2020.5 Effective for annual periods beginning on or after a date to be determined.6 Effective for annual periods beginning on or after January 1, 2021, with earlier application permitted.

The Group and the Company have not elected for early adoption of the relevant new and amendments to MFRSs above until future periods, at the date of authorisation for issue of these financial statements. The directors anticipate that the adoption of these new and amendments to MFRSs when they become effective will have no material impact on the financial statements of the Group and of the Company in the period of initial application.




3. SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting

The financial statements of the Group and of the Company have been prepared on the historical cost basis except for certain financial instruments that are measured at fair value or at amortised cost at the end of each reporting period, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for assets.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group and the Company take into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of MFRS 2, leasing transactions that are within the scope of MFRS 16, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in MFRS 102 or value in use in MFRS 136.

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;

• Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and

• Level 3 inputs are unobservable inputs for the asset or liability.

The principal accounting policies are set out below.

Subsidiary Companies and Basis of Consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company and its subsidiary companies. Control is achieved where the Company:

• haspowerovertheinvestee;• isexposed,orhasrights,tovariablereturnsfromitsinvolvementwiththeinvestee;and• hastheabilitytouseitspowertoaffectitsreturns.

The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.




3. SIGNIFICANT ACCOUNTING POLICIES (continued)

When the Company has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and circumstances in assessing whether or not the Company’s voting rights in an investee are sufficient to give it power, including:

• the size of the Company’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders;

• potential voting rights held by the Company, other vote holders or other parties;• rights arising from other contractual arrangements; and• any additional facts and circumstances that indicate that the Company has, or does not have, the current

ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings.

Consolidation of a subsidiary company begins when the Company obtains control over the subsidiary company and ceases when the Company loses control of the subsidiary company. Specifically, income and expenses of a subsidiary company acquired or disposed of during the year are included in the consolidated profit or loss from the date the Company gains control until the date when the Company ceases to control the subsidiary company.

Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiary companies is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Where necessary, adjustments are made to the financial statements of subsidiary companies to bring their accounting policies into line with the Group’s accounting policies.

All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

Changes in the Group’s ownership interest in existing subsidiary companies

Changes in the Group’s ownership interests in subsidiary companies that do not result in the Group losing control are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary companies. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company.

When the Group loses control of a subsidiary company, a gain or a loss is recognised in profit or loss and is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary company and any non-controlling interests. All amounts previously recognised in other comprehensive income in relation to that subsidiary company are accounted for as if the Group had directly disposed of the relevant assets or liabilities of the subsidiary company (i.e. reclassified to profit or loss or transferred to another category of equity as specified/permitted by applicable MFRSs). The fair value of any investment retained in the former subsidiary company at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under MFRS 9 when applicable, or the cost on initial recognition of an investment in an associate or a joint venture.




Subsidiary Companies

Investment in subsidiary companies, which are eliminated on consolidation, are stated at cost less impairment losses, if any, in the Company’s separate financial statements.

Segment Reporting

For management purposes, the Group is organised into operating segments that engage in business activities from which it may earn revenues and incur expenses, including revenues and expenses that related to transactions with any of the Group’s other components. The Group’s reporting segments were identified based on internal reports that are regularly reviewed by the Group’s chief operating decision maker in order to allocate resources to the segment and to assess its performance. The Group’s reportable segments are strategic business operations that are managed separately based on the Group’s management and internal reporting structure.

Revenue from contracts with customers on sale of goods

Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. The Group recognises revenue when it transfers control of a product or service to a customer.

Revenue from sale of manufactured goods is recognised when control of the goods has transferred to the customer, being at the point the goods are delivered to the customer. Delivery occurs when the goods have been shipped to the customer’s specific location.

Rebates and volume discounts are given to eligible customers, and are taken up as variable considerations in determining the transaction prices contracted. Selected customers are entitled to volume discounts upon meeting a pre-determined volume within a specified period, and these discounts are accrued accordingly, based on actual and expected quantities ordered.

Dividend income

Dividend income represents gross dividends from quoted and unquoted investments and is recognised when the shareholders’ right to receive payment is established.

Interest income

Interest revenue from a financial asset is recognised when it is probable that the economic benefits will flow to the Group and to the Company and the amount of revenue can be measured reliably. Interest revenue is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.





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 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 the end of each reporting period, monetary items denominated in foreign currencies are retranslated into Ringgit Malaysia at the exchange rates prevailing at that 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 are recognised in profit or loss in the year in which they arise except for exchange differences arising on the retranslation of non-monetary items carried at fair value in respect of which gains and losses are recognised in other comprehensive income. For such non-monetary items, the exchange component of that gain or loss is also recognised in other comprehensive income.

Employee Benefits

Short-term employee benefits

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. Short-term non-accumulating compensated absences such as sick leave are recognised when the absences occur.

Defined contribution plan

The Group and the Company make statutory contributions to approved provident funds and the contributions are charged to profit or loss as incurred. The approved provident funds are defined contribution plans. Once the contributions have been paid, there are no further payment obligations.

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 profit or loss because it excludes items of income or expense that are taxable or deductible pertaining to previous years and it further excludes items that are never taxable or deductible. The liability of the Group and of the Company for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

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. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are generally recognised for all deductible temporary differences, unused tax losses and unused tax credits to the extent that it is probable that taxable profits will be available against which those deductible temporary differences, unused tax losses and unused tax credits can be utilised. Such deferred tax 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 the end of each reporting period 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 is realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group and the Company expect, at the end of the reporting period, to recover or to settle the carrying amount of its assets and liabilities.

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 an income in profit or loss, except when they relate to items that are recognised outside profit or loss (whether in other comprehensive income or directly in equity), in which case the tax is also recognised outside profit or loss; or when 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 interest of the acquirer in the net fair value of the identifiable assets, liabilities and contingent liabilities over cost of the acquiree.

Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any.

Depreciation is charged so as to write off the cost of property, plant and equipment, other than freehold land and 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 that represent in-substance purchase of property, plant and equipment 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 or administrative purposes 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, commences when the assets are ready for their intended use, the same basis as other property assets.

Freehold land is not depreciated.

Leasehold land is amortised evenly over the lease period ranging from 57½ years to 79 years commencing from 1985, 2005, 2006 and 1994 respectively.

The annual depreciation rates are as follows:

Buildings and improvements 2% to 20%

Plant, machinery and equipment 5% to 33⅓%

Furniture, fixtures and office equipment 10% to 33⅓%

Motor vehicles and forklifts 20%

The estimated useful lives, residual values and depreciation method of property, plant and equipment are reviewed at the end of each reporting period, with the effect of any changes in estimates accounted for prospectively.

The gain or loss arising on 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 profit or loss.





Leases The Group has applied MFRS 16 using the cumulative catch-up approach and therefore comparative information

has not been restated and is presented under MFRS 117. The details of accounting policies under both MFRS 117 and MFRS 16 are presented separately below.

Policies applicable from July 1, 2019

The Group as lessor

Leases for which the Group is a lessor are classified as finance or operating leases. Whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee, the contract is classified as a finance lease. All other leases are classified as operating leases.

Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term.

Amounts due from lessees under finance leases are recognised as receivables at the amount of the Group’s net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment outstanding in respect of the leases.

The Group as lessee

The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less, for example, rental of equipment) and leases of low value assets (such as tablets and personal computers, small items of office furniture and telephones). For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the lessee uses its incremental borrowing rate.

Lease payments included in the measurement of the lease liability comprise:

• Fixed lease payments (including in-substance fixed payments), less any lease incentives receivable;

• Variable lease payments that depend on an index or a rate, initially measured using the index or rate at the commencement date;

• The amount expected to be payable by the lessee under residual value guarantees;

• The exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and

• Payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.

The lease liability is presented as a separate line in the statement of financial position, if any.

The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.

The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:

• The lease term has changed or there is a significant event or change in circumstances resulting in a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by




discounting the revised lease payments using a revised discount rate.

• The lease payments change due to changes in an index or a rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used).

• A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification.

The Group did not make any such adjustments during the periods presented.

The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day, less any lease incentives received and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses.

Whenever the Group incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or restore the underlying asset to the condition required by the terms and conditions of the lease, a provision is recognised and measured under MFRS 137. To the extent that the costs relate to a right-of-use asset, the costs are included in the related right-of-use asset, unless those costs are incurred to produce inventories.

Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease.

The right-of-use assets are presented as a separate line in the statement of financial position. Land held under finance lease arrangements that represent in-substance purchase of property, plant and equipment continue to be recognised as part of assets of the Group classified under property, plant and equipment and is not separately presented in the statement of financial position.

The Group applies MFRS 136 to determine whether a right-of-use asset is impaired and accounts for any identified impairment loss as described in the ‘Property, Plant and Equipment’ accounting policy.

Variable rents that do not depend on an index or a rate are not included in the measurement of the lease liability and the right-of-use asset. The related payments are recognised as an expense in the period in which the event or condition that triggers those payments occurs and are included in ‘other operating expenses’ in profit or loss.

Policies applicable prior to July 1, 2019

The Group as a lessor

Amounts due from lessees under finance leases are recognised as receivables at the amount of the Group’s and of the Company’s net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s and on the Company’s net investment outstanding in respect of the leases.

Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term.

The Group as a lessee

Assets held under finance leases are initially recognised as assets of the Group at their fair values at the inception of the lease or, if lower, at the present values of the minimum lease payments. The corresponding liability to the lessor is included in the consolidated statement of financial position as a finance lease obligation.

Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognised immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Group general policy on borrowing costs. Contingent rentals are recognised





as expenses in the periods in which they are incurred.

Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.

In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

Goodwill

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 is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held equity interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.

Goodwill is not amortised. Instead, it is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired.

For the purpose of impairment testing, goodwill is allocated to each of the cash-generating units of the Group 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. Any impairment loss is recognised immediately in the consolidated profit or loss and any impairment loss recognised for goodwill is not subsequently reversed.

On disposal of an entity or operation, the goodwill associated with the entity or operation disposed of is included in the carrying amount of the entity or operation when determining the gain or loss on disposal.

Impairment of Assets Excluding Goodwill

At the end of each reporting period, the Group and the Company review the carrying amounts of their assets (other than deferred tax assets, inventories and financial assets which are dealt with in their respective policies) to determine if there is any indication that those assets may be impaired. If any such indication exists, the recoverable amount of the asset is estimated.

Where it is not possible to estimate the recoverable amount of an individual asset, the Group and the Company estimate 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.

Whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognised in profit or loss. An impairment loss is reversed if there has been a change in the estimate used to determine the recoverable amount.




An impairment loss is only reversed to the extent that the carrying amount of the asset does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, had no impairment loss been recognised for the asset in prior years. A reversal is recognised immediately in profit or loss.

Inventories

Inventories are valued at the lower of cost and net realisable value. Cost is determined principally on the “Weighted Average” method. Cost of raw materials and consumables, spare parts and goods-in-transit comprise the original purchase price plus cost incurred in bringing the inventories to their present location. The cost of finished goods and work-in-progress comprises the cost of raw materials, direct labour and a proportion of the production overheads.

Inventories of unsold completed development units are stated at the lower of cost and net realisable value. Cost includes the relevant cost of land, development expenditure and related interest cost incurred during the development year.

Net realisable value represents the estimated selling price in the ordinary course of business less all other estimated costs to completion.

Borrowing Costs

Borrowing costs directly attributable to construction of qualifying 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 are recognised when the Group and the Company have present obligation (legal or constructive) as a result of past event and it is probable that the Group and the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. 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.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

Present obligations arising under onerous contracts are recognised and measured as provisions. An onerous contract is considered to exist where the Group and the Company have a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.

Financial Instruments

Financial assets and financial liabilities are recognised in the Group’s and the Company’s statements of financial position when the Group and the Company become a party to the contractual provisions of the instrument.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of the financial assets and financial liabilities (other than financial assets and financial liabilities classified as at fair value through profit or loss (“FVTPL”)) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition or issue of financial assets or financial liabilities at FVTPL are recognised immediately in profit or loss.

Financial assets

All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis.





Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

All recognised financial assets are measured subsequently in their entirety at either amortised cost or fair value, depending on the classification of the financial assets.

Classification of financial assets

Debt instruments that meet the following conditions are measured subsequently at amortised cost:

• the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and

• the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest (“SPPI”) on the principal amount outstanding.

Debt instruments that meet the following conditions are measured subsequently at fair value through other comprehensive income (“FVTOCI”):

• the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling the financial assets; and

• the contractual terms of the financial asset give rise on specified dates to cash flows that are SPPI on the principal amount outstanding.

By default, all other financial assets are measured subsequently at FVTPL.

Despite the foregoing, the Group and the Company may make the following irrevocable election/designation at initial recognition of a financial asset:

• the Group and the Company may irrevocably elect to present subsequent changes in fair value of an equity investment in other comprehensive income if certain criteria (as mentioned in (ii) below) are met; and

• the Group and the Company may irrevocably designate a debt investment that meets the amortised cost or FVTOCI criteria as measured at FVTPL if doing so eliminates or significantly reduces an accounting mismatch.

(i) Amortised cost and effective interest method

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period.

For financial assets other than purchased or originated credit-impaired financial assets (i.e. assets that are credit-impaired on initial recognition), the effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) excluding expected credit losses (“ECL”), through the expected life of the debt instrument, or, where appropriate, a shorter period, to the gross carrying amount of the debt instrument on initial recognition. For purchased or originated credit-impaired financial assets, a credit-adjusted effective interest rate is calculated by discounting the estimated future cash flows, including ECL, to the amortised cost of the debt instrument on initial recognition.

The amortised cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, adjusted for any loss allowance. The gross carrying amount of a financial asset is the amortised cost of a financial asset before adjusting for any loss allowance.

Interest income is recognised in profit or loss using the effective interest method for debt instruments measured subsequently at amortised cost or at FVTOCI. For financial assets other than purchased or originated credit-impaired financial assets, interest income is calculated by applying the effective interest




rate to the gross carrying amount of a financial asset, except for financial assets that have subsequently become credit-impaired. For financial assets that have subsequently become credit-impaired, interest income is recognised by applying the effective interest rate to the amortised cost of the financial asset. If, in subsequent reporting periods, the credit risk on the credit-impaired financial instrument improves so that the financial asset is no longer credit-impaired, interest income is recognised by applying the effective interest rate to the gross carrying amount of the financial asset.

For purchased or originated credit-impaired financial assets, the Group and the Company recognise interest income by applying the credit-adjusted effective interest rate to the amortised cost of the financial asset from initial recognition. The calculation does not revert to the gross basis even if the credit risk of the financial asset subsequently improves so that the financial asset is no longer credit-impaired.

Interest income is recognised in profit or loss and is included in the ‘investment revenue’ line item (Note 7).

(ii) Equity instruments designated as at FVTOCI

On initial recognition, the Group and the Company may make an irrevocable election (on an instrument-by-instrument basis) to designate investments in equity instruments as at FVTOCI. Designation at FVTOCI is not permitted if the equity instruments is held for trading or if it is contingent consideration recognised by an acquirer in a business combination.

A financial asset is held for trading if:

• it has been acquired principally for the purpose of selling it in the near term; or

• on initial recognition it is part of a portfolio of identified financial instruments that the Group and the Company manage together and have evidence of a recent actual pattern of short-term profit-taking; or

• it is a derivative (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument).

Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value with gains and losses arising from changes in fair value recognised in other comprehensive income and accumulated in the investment revaluation reserve. The cumulative gain or loss is not to be reclassified to profit or loss on disposal of the equity instruments, instead, it is transferred to retained earnings.

Dividends on these investments in equity instruments are recognised in profit or loss in accordance with MFRS 9, unless the dividends clearly represent a recovery of part of the cost of the investment.

(iii) Financial assets at FVTPL

Financial assets that do not meet the criteria for being measured at amortised cost or at FVTOCI are measured at FVTPL. Specifically, investments in equity instruments are classified as at FVTPL, unless the Group and the Company designate an equity investment that is neither held for trading nor a contingent consideration arising from a business combination as at FVTOCI on initial recognition.

Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any fair value gains or losses recognised in profit or loss to the extent they are not part of a designated hedging relationship. The net gain or loss recognised in profit or loss is included in the ‘other gains and (losses)’ line item.

Foreign exchange gains and losses

The carrying amount of financial assets that are denominated in a foreign currency is determined in that foreign currency and translated at the closing rate at the end of each reporting period. Specifically for equity instruments designated as at FVTOCI, exchange differences are recognised in other comprehensive income in the investment revaluation reserve.

Impairment of financial assets

The Group and the Company recognise a loss allowance for ECL on investments in debt instruments that are measured at amortised cost or at FVTOCI, trade receivables, as well as on financial guarantee contracts.





The amount of ECL is updated at the end of each reporting period to reflect changes in credit risk since initial recognition of the respective financial instrument.

The Group and the Company recognise lifetime ECL for trade receivables. The ECL on these financial assets are estimated using a provision matrix based on the Group’s and the Company’s historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the end of the reporting period, including time valueof money where appropriate.

For all other financial instruments, the Group and the Company recognise lifetime ECL when there has been a significant increase in credit risk since initial recognition. However, if the credit risk on the financial instrument has not increased significantly since initial recognition, the Group and the Company measure the loss allowance for that financial instrument at an amount equal to 12-month ECL. Lifetime ECL represents the ECL that will result from all possible default events over the expected life of a financial instrument. In contrast, 12-month ECL represents the portion of lifetime ECL that is expected to result from default events on a financial instrument that are possible within 12 months after the end of the reporting period.

(i) Significant increase in credit risk

In assessing whether the credit risk on a financial instrument has increased significantly since initial recognition, the Group and the Company compare the risk of a default occurring on the financial instrument at the end of the reporting period with the risk of a default occurring on the financial instrument at the date of initial recognition. In making this assessment, the Group and the Company consider both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue cost or effort. Forward-looking information considered includes the future prospects of the industries in which the Group’s and the Company’s debtors operate, obtained from economic expert reports, financial analysts, governmental bodies, relevant think-tanks and other similar organisations, as well as consideration of various external sources of actual and forecast economic information that relate to the Group’s and the Company’s core operations.

In particular, the following information is taken into account when assessing whether credit risk has increased significantly since initial recognition:

• an actual or expected significant deterioration in the financial instrument’s external (if available) or internal credit rating;

• an actual or expected significant deterioration in the operating results of the debtor;

• an actual or expected significant adverse change in the regulatory, economic, or technological environment of the debtor that results in a significant decrease in the debtor’s ability to meet its debt obligations.

Irrespective of the outcome of the above assessment, the Group and the Company presume that the credit risk on a financial asset has increased significantly since initial recognition when contractual payments are more than 90 days past due, unless the Group and the Company have reasonable and supportable information that demonstrates otherwise.

Despite the foregoing, the Group and the Company assume that the credit risk on a financial instrument has not increased significantly since initial recognition if the financial instrument is determined to have low credit risk at the end of the reporting period. A financial instrument is determined to have low credit risk if:

(1) The financial instrument has a low risk of default;(2) The debtor has a strong capacity to meet its contractual cash flow obligations in the near term; and(3) Adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability of the borrower to fulfil its contractual cash flow obligations.

The Group and the Company consider a financial asset to have low credit risk when the asset has external credit rating of ‘investment grade’ in accordance with the globally understood definition or if an external rating is not available, the asset has an internal rating of ‘performing’. Performing means that the counterparty




has a strong financial position and there is no past due amounts.

For financial guarantee contracts, the date that the Group and the Company become a party to the irrevocable commitment is considered to be the date of initial recognition for the purposes of assessing the financial instrument for impairment. In assessing whether there has been a significant increase in the credit risk since initial recognition of a financial guarantee contract, the Group and the Company consider the changes in the risk that the specified debtor will default on the contract.

The Group and the Company regularly monitor the effectiveness of the criteria used to identify whether there has been a significant increase in credit risk and revise them as appropriate to ensure that the criteria are capable of identifying significant increase in credit risk before the amount becomes past due.

(ii) Definition of default

The Group and the Company consider the following as constituting an event of default for internal credit risk management purposes as historical experience indicates that financial assets that meet either of the following criteria are generally not recoverable:

• when there is a breach of financial covenants by the debtor; or

• information developed internally or obtained from external sources indicates that the debtor is unlikely to pay its creditors, including the Group and the Company, in full (without taking into account any collateral held by the Group and the Company).

Irrespective of the above analysis, the Group and the Company consider that default has occurred when a financial asset is more than 180 days past due unless the Group and the Company have reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate.

(iii) Credit-impaired financial assets

A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. Evidence that a financial asset is credit-impaired includes observable data about the following events:

(a) significant financial difficulty of the issuer or the borrower;(b) a breach of contract, such as a default or past due event;(c) the lender(s) of the borrower, for economic or contractual reasons relating to the borrower’s financial

difficulty, having granted to the borrower a concession(s) that the lender(s) would not otherwise consider;(d) it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; or(e) the disappearance of an active market for that financial asset because of financial difficulties.

(iv) Write-off policy

The Group and the Company write off a financial asset when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery, e.g. when the debtor has been placed under liquidation or has entered into bankruptcy proceedings. Financial assets written off may still be subject to enforcement activities under the Group’s and the Company’s recovery procedures, taking into account legal advice where appropriate. Any recoveries made are recognised in profit or loss.

(v) Measurement and recognition of expected credit losses

The measurement of ECL is a function of the probability of default, loss given default (i.e. the magnitude of the loss if there is a default) and the exposure at default. The assessment of the probability of default and loss given default is based on historical data adjusted by forward-looking information as described above. As for the exposure at default, for financial assets, this is represented by the assets’ gross carrying amount at the end of the reporting period; for financial guarantee contracts, the exposure includes the amount drawn down as at the end of the reporting period, together with any additional amounts expected to be drawn down in the future by default date determined based on historical trend, the Group’s understanding of the specific future financing needs of the debtors, and other relevant forward-looking information.

For financial assets, the ECL is estimated as the difference between all contractual cash flows that are due to the Group and the Company in accordance with the contract and all the cash flows that the Group and the Company expect to receive, discounted at the original effective interest rate.





For a financial guarantee contract, as the Group and the Company are required to make payments only in the event of a default by the debtor in accordance with the terms of the instrument that is guaranteed, the expected loss allowance is the expected payments to reimburse the holder for a credit loss that it incurs less any amounts that the Group and the Company expect to receive from the holder, the debtor or any other party.

If the Group and the Company have measured the loss allowance for a financial instrument at an amount equal to lifetime ECL in the previous reporting period, but determines at the end of the current reporting period that the conditions for lifetime ECL are no longer met, the Group and the Company measure the loss allowance at an amount equal to 12-month ECL at the end of the current reporting period, except for assets for which simplified approach was used.

The Group and the Company recognise an impairment gain or loss in profit or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account, except for investments in debt instruments that are measured at FVTOCI, for which the loss allowance is recognised in other comprehensive income and accumulated in the investment revaluation reserve, and does not reduce the carrying amount of the financial asset in the statements of financial position.

Derecognition of financial assets

The Group and the Company derecognise a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group and the Company neither transfer nor retain substantially all the risks and rewards of ownership and continue to control the transferred asset, the Group and the Company recognise its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group and the Company retain substantially all the risks and rewards of ownership of a transferred financial asset, the Group and the Company continue to recognise the financial asset and also recognise a collateralised borrowing for the proceeds received.

On derecognition of a financial asset measured at amortised cost, the difference between the asset’s carrying

amount and the sum of the consideration received and receivable is recognised in profit or loss. In addition, on derecognition of an investment in a debt instrument classified as at FVTOCI, the cumulative gain or loss previously accumulated in the investment revaluation reserve is reclassified to profit or loss. In contrast, on derecognition of an investment in equity instrument which the Group and the Company have elected on initial recognition to measure at FVTOCI, the cumulative gain or loss previously accumulated in the investment revaluation reserve is not reclassified to profit or loss, but is transferred to retained earnings.

Financial liabilities and equity

Classification as debt or equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group and the Company are recognised at the proceeds received, net of direct issue costs.

Repurchase of the Company’s own equity instruments is recognised and deducted directly in equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments.

Financial liabilities

All financial liabilities are measured subsequently at amortised cost using the effective interest method or at FVTPL (the Group does not have any financial liabilities measured at FVTPL).

However, financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or




when the continuing involvement approach applies, and financial guarantee contracts issued by the Group and by the Company, are measured in accordance with the specific accounting policies set out below.

Financial liabilities measured subsequently at amortised cost

Financial liabilities that are not (i) contingent consideration of an acquirer in a business combination, (ii) held-for-trading, or (iii) designated as at FVTPL, are measured subsequently at amortised cost using the effective interest method.

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the amortised cost of a financial liability.

Financial guarantee contract liabilities

A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due in accordance with the terms of a debt instrument.

Financial guarantee contract liabilities are measured initially at their fair values and, if not designated as at FVTPL and do not arise from a transfer of an asset, are measured subsequently at the higher of:

•theamountofthelossallowancedeterminedinaccordancewithMFRS9;and• theamount recognised initially less,whereappropriate,cumulativeamortisation recognised inaccordance

with the revenue recognition policies.

Foreign exchange gains and losses

For financial liabilities that are denominated in a foreign currency and are measured at amortised cost at the end of each reporting period, the foreign exchange gains and losses are determined based on the amortised cost of the instruments. These foreign exchange gains and losses are recognised in the 'other gains and (losses)' line item in profit or loss for financial liabilities that are not part of a designated hedging relationship.

The fair value of financial liabilities denominated in a foreign currency is determined in that foreign currency and translated at the closing rate at the end of the reporting period.

Derecognition of financial liabilities

The Group and the Company derecognise financial liabilities when, and only when, the Group’s and the Company’s obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

When the Group and the Company exchange with the existing lender one debt instrument into another one with substantially different terms, such exchange is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. Similarly, the Group and the Company account for substantial modification of terms of an existing liability or part of it as an extinguishment of the original financial liability and the recognition of a new liability. It is assumed that the terms are substantially different if the discounted present value of the cash flows under the new terms, including any fees paid net of any fees received and discounted using the original effective rate is at least 10 per cent different from the discounted present value of the remaining cash flows of the original financial liability. If the modification is not substantial, the difference between: (1) the carrying amount of the liability before the modification; and (2) the present value of the cash flows after modification should be recognised in profit or loss as the modification gain or loss within 'other gains and (losses)' line item in profit or loss.


The Group and the Company adopt the indirect method in the preparation of the statements of cash flows.

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.




4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the accounting policies of the Group and of the Company, the directors are required to make estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

4.1 Critical judgements in applying the Group’s accounting policies

The following are the critical judgements, apart from those involving estimations (which are presented separately below), that the directors have made in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognised in financial statements.

(a) Business model assessment

Classification and measurement of financial assets depends on the results of the SPPI and the business model test (please see financial assets sections of Note 3). The Group and the Company determine the business model at a level that reflects how groups of financial assets are managed together to achieve a particular business objective. This assessment includes judgement reflecting all relevant evidence including how the performance of the assets is evaluated and their performance measured, the risks that affect the performance of the assets and how these are managed and how the managers of the assets are compensated. The Group and the Company monitor financial assets measured at amortised cost or at fair value through other comprehensive income that are derecognised prior to their maturity to understand the reason for their disposal and whether the reasons are consistent with the objective of the business for which the asset was held. Monitoring is part of the Group’s and of the Company’s continuous assessment of whether the business model for which the remaining financial assets are held continues to be appropriate and if it is not appropriate whether there has been a change in business model and so a prospective change to the classification of those assets. No such changes were required during the periods presented.

(b) Significant increase in credit risk

MFRS 9 does not define what constitutes a significant increase in credit risk. In assessing whether the credit risk of an asset has significantly increased, the Group and the Company take into account qualitative and quantitative reasonable and supportable forward looking information.

4.2 Key sources of estimation uncertainty

The key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below:

(a) Impairment of property, plant and equipment

The Group and the Company assess 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 flows derived from that asset discounted at an appropriate discount rate. Projected future cash flows are based on the Group’s and the Company’s estimates, approved by the management covering a period of five years and calculated based on historical, sector and industry trends, general market and economic conditions, changes in technology and other available information. The terminal value is calculated based on the projected residual value of the asset at the end of the fifth year.

Management of the Group and the Company have carried out a review on their property, plant and equipment, and concluded that there is no indication of impairment during the financial year. The




accumulated impairment loss amounting to RM3,054,530 is adequate, and the Group is able to ultimately recover their carrying amount.

(b)Estimated useful lives of property, plant and equipment

The Group and the Company regularly review 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 accelerate the decrease in value of property, plant and equipment.

(c)Calculation of loss allowance

When measuring ECL, the Group and the Company use reasonable and supportable forward-looking information, which is based on assumptions for the future movement of different economic drivers and how these drivers will affect each other.

Loss given default is an estimate of the loss arising on default. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive.

Probability of default constitutes a key input in measuring ECL. It is an estimate of the likelihood of default over a given time horizon, the calculation of which includes historical data, assumptions and expectations of future conditions.

Historical loss rates are calculated based on total credit loss from the prior year’s revenue and repayment trends of the prior year’s revenue multiplied by the number of days past due.

(d)Income and deferred taxes

Judgement is required in determining capital allowances and the deductibility of certain expenses during the estimation of the provision for income taxes. There are certain transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

5. REVENUE

The Group The Company2020RM

2019RM

2020RM

2019RM

Manufacturing recognised at a point in time 88,738,135 103,707,962

Dividend income:

Shares quoted in Malaysia 1,355,741 1,943,715 1,355,741 1,943,715

Unquoted shares - 54,331 - 54,331

Money market funds 42 28,339 42 28,339

Shares quoted outside Malaysia 413,383 520,302 413,383 520,302

Subsidiary companies - - 13,162,950 6,322,800

90,507,301 106,254,649 14,932,116 8,869,487




5. REVENUE (continued)

The following is an analysis of revenue earned on financial assets and non-financial assets:


2019RM

2020RM

2019RM

Revenue earned on:

Financial assets designated as at FVTPL 42 28,339 42 28,339

Financial assets designated as at FVTOCI 1,769,124 2,518,348 1,769,124 2,518,348

Non-financial assets 88,738,135 103,707,962 13,162,950 6,322,800

90,507,301 106,254,649 14,932,116 8,869,487

The Group applied the practical expedient under MFRS 15 not to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) as of the financial year end as all unsatisfied contracts with customers are expected to be fulfilled within one year.

6. SEGMENT INFORMATION

The Group’s reporting segments were identified based on internal reports that are regularly reviewed by the Group’s chief operating decision maker in order to allocate resources to the segment and to assess its performance.

The Group’s reportable segments are strategic business operations that are managed separately based on the Group’s management and internal reporting structure.

For management purposes, the Group is organised into the following operating segments:

- Investment holding

- Resins:

Manufacture and sale of formaldehyde based adhesive resins and glue for wood related industries

- Ethanol:

Manufacture and sale of ethyl alcohol, liquefied carbon dioxide and kaoliang wine

- Trading

- Others (property development, natural vinegar, dormant and pre-operating companies)

For financial statements presentation purposes, these individual operating segments have been aggregated into a single operating segment taking into account the following factors:

- the production of merchandise of the products are similar; and

- the methods used to distribute the products to the customers are the same.

The Group2020

Investmentholding

RMResins

RMEthanol

RMTrading

RMOthers

RMEliminations

RMConsolidated

RM

RevenueExternal

customers 1,769,166 48,922,152 38,431,292 857,292 527,399 - 90,507,301

Inter-segment 13,162,950 - 780,941 - - (13,943,891) -

14,932,116 48,922,152 39,212,233 857,292 527,399 (13,943,891) 90,507,301




The Group2020

Investmentholding

RMResins

RMEthanol

RMTrading

RMOthers

RMEliminations

RMConsolidated

RMResultsSegment profit/

(loss) 17,066,257 3,789,181 10,872,525 1,710 72,845 (13,242,892) 18,559,626

Interest income 772,818 27,227 201,980 133,991 730 - 1,136,746

Finance costs - (6,374) - - - - (6,374)

Profit before tax 17,839,075 3,810,034 11,074,505 135,701 73,575 (13,242,892) 19,689,998

Tax expense (3,665,393)

Profit for the year 16,024,605

AssetsReportable

segment assets 170,745,020 39,507,782 45,364,431 4,487,510 3,670,377 - 263,775,120

Unallocated corporate assets 132,222

Consolidated total assets 263,907,342

LiabilitiesReportable

segment liabilities (400,345) (4,351,980) (2,239,356) (36,568) (216,785) - (7,245,034)

Unallocated corporate liabilities (6,137,653)

Consolidated total liabilities (13,382,687)

Other information

Capital additions 4,484 49,087 603,791 4,484 18,712 - 680,558

Realised gain/(loss) on foreign exchange 3,149,132 30,388 (9,341) - 30 - 3,170,209

Unrealised gain/(loss) on foreign exchange 2,946 - (8,117) - - - (5,171)

Depreciation of property, plant and equipment (31,655) (685,813) (1,639,702) (412) (49,805) - (2,407,387)

Other non-cash (expenses)/income (667) (59,725) - - 55,542 - (4,850)

Impairment losses on receivables no longer required - 108,000 - - - - 108,000




The Group2019

Investmentholding

RMResins

RMEthanol

RMTrading

RMOthers

RMEliminations

RMConsolidated

RM

RevenueExternal

customers 2,546,687 76,075,702 26,297,530 731,830 602,900 - 106,254,649

Inter-segment 6,322,800 - 633,050 - - (6,955,850) -

8,869,487 76,075,702 26,930,580 731,830 602,900 (6,955,850) 106,254,649

ResultsSegment profit/

(loss) 7,190,260 5,189,698 4,293,993 (69,852) 41,397 (6,103,400) 10,542,096

Interest income 56,394 130,923 372,409 139,283 533 (290,514) 409,028

Finance costs (161,278) (146,520) - - - 290,514 (17,284)

Profit before tax 7,085,376 5,174,101 4,666,402 69,431 41,930 (6,103,400) 10,933,840

Tax expense (2,351,891)

Profit for the year 8,581,949

AssetsReportable

segment assets 130,661,003 45,381,113 44,662,217 4,244,975 3,521,652 - 228,470,960

Unallocated corporate assets 13,834

Consolidated total assets 228,484,794

LiabilitiesReportable

segment liabilities (389,086) (4,006,958) (2,085,037) (22,153) (217,936) - (6,721,170)

Unallocated corporate liabilities (5,902,290)

Consolidated total liabilities (12,623,460)

Other information

Capital additions - 31,685 125,795 480 91,223 - 249,183

Unrealised gain/(loss) on foreign exchange 75,974 - (476) - - - 75,498

Realised gain/(loss) on foreign exchange (982) 75,912 5,999 - 48 - 80,977

Depreciation of property, plant and equipment (31,654) (1,166,757) (1,675,295) (554) (55,865) - (2,930,125)

Other non-cash (expenses)/income (2) (4,722) - (1) 70,076 - 65,351

6. SEGMENT INFORMATION (continued)




The Group2019

Investmentholding

RMResins

RMEthanol

RMTrading

RMOthers

RMEliminations

RMConsolidated

RMGain on disposal

of property, plant and equipment - - 604 - - - 604

Impairment losses on receivables no longer required - 81,868 - - - - 81,868

Segment profit represents the profit earned by each segment before interest revenue, finance costs and income tax. This is the measure reported to the chief operating decision maker for the purpose of resource allocation and assessment of segment performance.

For the purpose of monitoring segment performance and allocating resources:

• Allassetsareallocatedtothereportablesegmentsotherthancurrentanddeferredtaxassets.Goodwillis allocated to the resins and ethanol segments as disclosed in Note 17.

• Allliabilitiesareallocatedtothereportablesegmentsotherthancurrentanddeferredtaxliabilities.

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 agreed by the parties.

Revenue from major products

The following is an analysis of the Group’s revenue from its major products:

2020RM

2019RM

Formaldehyde based resins 48,745,897 75,377,632

Ethyl alcohol based products 38,431,292 26,288,280

87,177,189 101,665,912

Information on the Group’s operations by geographical segment has not been provided as the Group operates predominantly in Malaysia. Accordingly, the information about geographical areas as required by the standard is not disclosed.

Revenue from two (2019: two) customers of the Group’s resins segment represent approximately 34% (2019: 41%) of the Group’s total revenue.

7. INVESTMENT REVENUE


2019RM

2020RM

2019RM

Interest income from:

Short-term deposits 184,262 89,434 111,443 20,847

Money market funds 952,484 319,594 661,375 30,479

Subsidiary companies (Note 21) - - - 5,068

1,136,746 409,028 772,818 56,394




7. INVESTMENT REVENUE (continued)

The following is an analysis of investment revenue earned on financial assets by category of asset:


2019RM

2020RM

2019RM

Financial assets designated as at FVTPL 952,484 319,594 661,375 30,479

Financial assets designated as at amortised cost 184,262 89,434 111,443 25,915

1,136,746 409,028 772,818 56,394

8. OTHER GAINS AND (LOSSES)

Included in other gains and (losses) are the following:


2019RM

2020RM

2019RM

Realised gain/(loss) on foreign exchange 3,170,209 80,977 3,149,132 (982)

Net gain arising from financial assets designated as at FVTPL 68,755 81,698 - -

Insurance claims received 40,212 51,380 - -

Unrealised (loss)/gain on foreign exchange (5,171) 75,498 2,946 75,974

Gain on disposal of property, plant and equipment - 604 - -

Property, plant and equipment written off (9,309) (16,347) - (2)

Expired warrants (667) - (667) -

Impairment loss of investment in subsidiary companies (Note 15) - - (107,190) (219,400)

Impairment loss of investment in subsidiary companies no longer required (Note 15) - - 187,132 -

3,264,029 273,810 3,231,353 (144,410)




9. OTHER OPERATING EXPENSES

Included in other operating expenses are the following:


2019RM

2020RM

2019RM

Impairment losses on receivables no longer required (Note 20) 108,000 81,868 - -

Fees paid/payable to external auditors:

Statutory audit:

Current year (153,300) (157,500) (47,500) (47,500)

Prior year - 3,000 - 3,000

Non-audit services (3,000) (3,000) (3,000) (3,000)

Inventories written off (Note 19) (63,629) - - -

Rental of equipment (3,649) (2,938) - -

10. DIRECTORS’ REMUNERATION AND EMPLOYEE BENEFITS EXPENSES


2019RM

2020RM

2019RM

Directors of the CompanyExecutive directors:

Fees 3,500 3,500 - -

Other emoluments 1,286,626 1,762,039 2,000 2,000

1,290,126 1,765,539 2,000 2,000

Non-executive directors:

Fees 381,108 371,750 316,460 305,000

Other emoluments 123,625 138,000 120,625 132,000

504,733 509,750 437,085 437,000

1,794,859 2,275,289 439,085 439,000

Included in employee benefits expenses and directors’ remuneration are the following:


2019RM

2020RM

2019RM

Contributions to EPF:

Directors’ remuneration 24,128 72,689 - -

Employee benefits expenses 659,487 588,610 3,859 5,616

The estimated monetary value of benefits-in-kind received and receivable by a director otherwise than in cash from the Group amounted to RM17,173 (2019: RM24,548).




11. FINANCE COSTS


2019RM

2020RM

2019RM

Commission charges for letter of credit 6,374 17,284 - -

Interest on loan received from a subsidiary company (Note 21) - - - 161,278

Total interest expense for financial liabilities not classified as at FVTPL 6,374 17,284 - 161,278

12. TAX EXPENSE AND DEFERRED TAX ASSETS AND LIABILITIES


2019RM

2020RM

2019RM

Tax expense comprises:

Current income tax expense 4,004,123 2,938,821 40,823 16,921

Deferred tax relating toorigination and reversal of temporary differences (319,712) (489,000) - -

3,684,411 2,449,821 40,823 16,921

Under/(Over) provision in prior years:

Income tax 45,270 (77,930) 442 48

Deferred tax (64,288) (20,000) - -

3,665,393 2,351,891 41,265 16,969

The total income tax expense for the year can be reconciled to the accounting profit as follows:


2019RM

2020RM

2019RM

Profit before tax 19,689,998 10,933,840 17,839,075 7,085,376

Tax expense at the applicable tax rate of 24% (2019: 24%) 4,726,000 2,624,000 4,281,000 1,700,000

Tax effects of:

Expenses that are not deductible in determining taxable profit 209,411 234,821 128,823 179,921

Unutilised tax losses and unabsorbed capital allowances not recognised as deferred tax assets 31,000 67,000 - -

Income that is not taxable in determining taxable profit (1,250,000) (439,000) (4,369,000) (1,863,000)





2019RM

2020RM

2019RM

Utilisation of unutilised investment tax allowances previously not recognised as deferred tax assets (24,000) - - -

Utilisation of unutilised tax losses and unabsorbed capital allowances previously not recognised as deferred tax assets (8,000) (37,000) - -

3,684,411 2,449,821 40,823 16,921

Under/(Over)provision in prior years:

Income tax 45,270 (77,930) 442 48

Deferred tax (64,288) (20,000) - -

Tax expense recognised in profit or loss 3,665,393 2,351,891 41,265 16,969

Current tax assets and liabilities


2019RM

2020RM

2019RM

Current tax assetsTax refund receivable 132,222 13,834 - -

Current tax liabilitiesIncome tax payable 1,192,724 573,361 20,711 7,306

Deferred tax balances

The Group2020RM

2019RM

Deferred tax liabilitiesAt beginning of year (5,328,929) (5,837,929)

Recognised in profit or loss 384,000 509,000

At end of year (4,944,929) (5,328,929)

The deferred tax liabilities are in respect of temporary differences arising from property, plant and equipment.

As of June 30, 2020, certain subsidiary companies have unutilised investment tax allowances of RM811,000 (2019: RM910,000) and unutilised tax losses and unabsorbed capital allowances amounting to RM18,655,000 (2019: RM18,559,000) respectively, which are available for set-off against future taxable profit.




12. TAX EXPENSE AND DEFERRED TAX ASSETS AND LIABILITIES (continued)

The unutilised tax losses will expire as follows:

The Group2020RM

2019RM

Financial years ending June 30:

2025 15,999,000 16,014,000

2026 109,000 -

16,108,000 16,014,000

Deferred tax asset A deferred tax asset was recognised in respect of the following:

The Group2020RM

2019RM

Tax effects of:

Temporary differences arising from property, plant and equipment (47,000) (35,000)

Unabsorbed capital allowances and unutilised tax losses 40,000 35,000

Unutilised investment tax allowances 7,000 -

- -

Unrecognised deferred tax assets

The following deferred tax assets have not been recognised at the end of the reporting period:

The Group2020RM

2019RM

Tax effects of:

Unabsorbed capital allowances and unutilised tax losses 4,438,000 4,421,000

Unutilised investment tax allowances 188,000 219,000

4,626,000 4,640,000

13. EARNINGS PER ORDINARY SHARE - GROUP

The basic and diluted earnings per ordinary share are calculated as follows:

2020 2019

Profit for the year attributable to owners of the Company RM15,453,306

RM7,793,547

Weighted average number of ordinary shares in issue at beginning and end of year 200,380,036 200,380,036

Basic and fully diluted

Earnings per ordinary share (sen) 7.7 3.9




14. PROPERTY, PLANT AND EQUIPMENT

The Group

Land and buildings

RM

Plant, machinery

and equipment

RM

Furniture, fixtures

and office equipment

RM

Motor vehicles

and forkliftsRM

Capital work-in-progress

RMTotalRM

CostAs of July 1, 2018 34,214,667 83,378,592 1,686,155 1,948,911 30,001 121,258,326

Additions 38,960 171,763 27,360 - 11,100 249,183

Disposals - (12,160) (19,875) - - (32,035)

Write offs - (75,665) (8,237) - - (83,902)

As of June 30, 2019 34,253,627 83,462,530 1,685,403 1,948,911 41,101 121,391,572

Additions 7,800 123,378 62,267 - 487,113 680,558

Reclassifications - 29,000 37,000 - (66,000) -

Write offs - (93,975) (9,000) (7,350) - (110,325)

As of June 30, 2020 34,261,427 83,520,933 1,775,670 1,941,561 462,214 121,961,805

Accumulated depreciation

As of July 1, 2018 10,459,256 68,012,823 1,577,901 1,735,727 - 81,785,707

Depreciation charge for the year 709,859 2,077,544 43,198 99,524 - 2,930,125

Disposals - (12,160) (19,869) - - (32,029)

Write offs - (59,321) (8,234) - - (67,555)

As of June 30, 2019 11,169,115 70,018,886 1,592,996 1,835,251 - 84,616,248

Depreciation charge for the year 704,187 1,596,966 49,700 56,534 - 2,407,387

Write offs - (86,288) (8,400) (6,328) - (101,016)

As of June 30, 2020 11,873,302 71,529,564 1,634,296 1,885,457 - 86,922,619

Accumulated impairment loss

As of July 1, 2018/ As of June 30, 2019/ As of June 30, 2020 - 3,054,530 - - - 3,054,530

Carrying amountsAs of June 30, 2020 22,388,125 8,936,839 141,374 56,104 462,214 31,984,656

As of June 30, 2019 23,084,512 10,389,114 92,407 113,660 41,101 33,720,794




14. PROPERTY, PLANT AND EQUIPMENT (continued)

Land and buildings of the Group consist of:

The Group

FreeholdlandRM

Leasehold land RM

Buildings and improvements

RMTotalRM

CostAs of July 1, 2018 15,385 16,093,333 18,105,949 34,214,667

Additions - - 38,960 38,960

As of June 30, 2019 15,385 16,093,333 18,144,909 34,253,627

Additions - - 7,800 7,800

As of June 30, 2020 15,385 16,093,333 18,152,709 34,261,427

Accumulated depreciationAs of July 1, 2018 - 2,288,276 8,170,980 10,459,256

Depreciation charge for the year - 330,724 379,135 709,859

As of June 30, 2019 - 2,619,000 8,550,115 11,169,115

Depreciation charge for the year - 330,726 373,461 704,187

As of June 30, 2020 - 2,949,726 8,923,576 11,873,302

Carrying amounts

As of June 30, 2020 15,385 13,143,607 9,229,133 22,388,125

As of June 30, 2019 15,385 13,474,333 9,594,794 23,084,512




The Company

Furniture, fixtures

and office equipment

RM

Motor vehicles

RM

Capital work-in-progress

RMTotalRM

CostAs of July 1, 2018 43,827 156,796 - 200,623

Write offs (2,429) - - (2,429)

As of June 30, 2019 41,398 156,796 - 198,194

Additions - - 4,484 4,484

As of June 30, 2020 41,398 156,796 4,484 202,678

Accumulated depreciationAs of July 1, 2018 41,189 52,349 - 93,538

Depreciation charge for the year 295 31,359 - 31,654

Write offs (2,427) - - (2,427)

As of June 30, 2019 39,057 83,708 - 122,765

Depreciation charge for the year 295 31,360 - 31,655

As of June 30, 2020 39,352 115,068 - 154,420

Carrying amountsAs of June 30, 2020 2,046 41,728 4,484 48,258

As of June 30, 2019 2,341 73,088 - 75,429

15. INVESTMENT IN SUBSIDIARY COMPANIES

The Company2020RM

2019RM

Unquoted shares - at cost 69,691,444 69,691,444

Less: Accumulated impairment:

As of July 1, (15,912,925) (15,693,525)

Impairment loss (Note 8) (107,190) (219,400)

Impairment loss no longer required (Note 8) 187,132 -

As of June 30 (15,832,983) (15,912,925)

53,858,461 53,778,519

In 2019, a capital reduction exercise was carried out by a subsidiary company, Norsechem Resins Sdn. Berhad, which reduced the Company’s investment in the subsidiary company from RM15,000,000 to RM2. RM12,500,000 of the capital reduction, which was offset against amount owing to the subsidiary company, did not result in actual cash inflows to the Company.




15. INVESTMENT IN SUBSIDIARY COMPANIES (continued)

The subsidiary companies, all of which are incorporated in Malaysia, are as follows:

EffectiveEquity Interest

Name of Company2020

%2019

% Principal Activities

Bio-Acetic Products Sdn. Bhd. #100.00 #100.00 Manufacture and sale of natural vinegar.

Chemical Industries (Malaya) Sdn. Bhd. 100.00 100.00 Manufacture and sale of ethyl alcohol, liquefied carbon dioxide and kaoliang wine.

Hexza-Mather Sdn. Bhd. 100.00 100.00 Manufacture and sale of alcoholic and non-alcoholic beverages. Temporarily ceased operations since financial year 2012.

Hexzachem Sarawak Sdn. Bhd. 80.00 80.00 Manufacture and sale of formaldehyde and formaldehyde based adhesive resins and glue for wood related industries.

Norsechem Marketing Sdn. Bhd. 100.00 100.00 Marketing and distribution of consumer products and industrial chemicals.

Norsechem Resins Sdn. Berhad 100.00 100.00 Manufacture and sale of formaldehyde and formaldehyde based adhesive resins and glue for wood related industries. Ceased operations since financial year 2016.

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..




Composition of the Group

Information about composition of the Group at the end of the reporting period is as follows:

Principal activity

Place of incorporation and operation

Number of wholly-owned subsidiary companies2020 2019

Manufacture and sale of ethyl alcohol, liquefied carbon dioxide and kaoliang wine. Malaysia 1 1

Manufacture of natural vinegar. Malaysia 1 1

Marketing and distribution of consumer products and industrial chemicals. Malaysia 1 1

Property development. Malaysia 1 1

Dormant/Pre-operating/Ceased operations. Malaysia 6 6

10 10

Principal activity

Place of incorporation and operation

Number of non-wholly-owned subsidiary companies2020 2019

Manufacture and sale of formaldehyde and formaldehyde based adhesive resins and glue for wood related industries. Malaysia 1 1

Dormant. Malaysia 2 2

3 3

Details of non-wholly owned subsidiary companies that have material non-controlling interests are as follows:

Name of subsidiary company

Place of incorporation and principal

place of business

Proportion of ownership

interest and voting rights held by

non-controlling interests

Profit allocated tonon-controlling

interestsAccumulated

non-controlling interests2020

%2019

%2020RM

2019RM

2020RM

2019RM

Hexzachem Sarawak Sdn. Bhd.(“HCSSB”) 20 20 571,407 788,468 6,302,136 6,945,729

Individually immaterial subsidiary companies with non-controlling interests (108) (66) 1,759 1,867

571,299 788,402 6,303,895 6,947,596

Summarised financial information in respect of the Group’s subsidiary company, HCSSB, that has material non-controlling interests, is set out below. The summarised financial information below represents amounts before intragroup eliminations.




15. INVESTMENT IN SUBSIDIARY COMPANIES (continued)

HCSSB 2020RM

2019RM

Current assets 24,735,429 27,295,394

Non-current assets 12,807,828 13,453,863

Current liabilities (4,360,662) (4,258,696)

Non-current liabilities (1,671,929) (1,761,929)

Equity attributable to owners of the Company (25,208,530) (27,782,903)

Non-controlling interests (6,302,136) (6,945,729)

2020RM

2019RM

Revenue 48,922,152 76,075,702

Income 272,018 203,893

Expenses and tax (46,337,136) (72,337,255)

Profit and total comprehensive income for the year 2,857,034 3,942,340

Profit and total comprehensive income attributable to owners of the Company 2,285,627 3,153,872

Profit and total comprehensive income attributable to non-controlling interests 571,407 788,468

Profit and total comprehensive income for the year 2,857,034 3,942,340

Dividends paid to non-controlling interests 1,215,000 -

Net cash from operating activities 9,206,442 4,400,297

Net cash used in investing activities (21,860) (10,265)

Net cash used in financing activities (6,095,632) (4,001,786)

Net cash inflow 3,088,950 388,246

16. OTHER INVESTMENTS


Note2020RM

2019RM

2020RM

2019RM

Financial assets measured at FVTOCI:

At fair value:

Shares quoted in Malaysia 19,156,653 31,889,907 19,154,353 31,884,387

Warrants quoted in Malaysia 123 119,730 123 119,730

Shares quoted outside Malaysia 74,630,356 79,081,740 74,630,356 79,081,740

31(b) 93,787,132 111,091,377 93,784,832 111,085,857

At cost: Unquoted shares 31(b) 3,880,800 3,880,800 3,880,800 3,880,800

97,667,932 114,972,177 97,665,632 114,966,657




In the current year, the Group and the Company disposed of certain quoted investments at a total consideration of RM47,594,461 (2019: RM19,025,630), which was also the fair value as at the date of disposal. The Group and the Company disposed of the quoted investments as the Group decided to reduce the risk exposure. Cumulative gains/(losses) on disposal of the quoted investments amounting to RM11,581,542 (2019: (RM4,754,645)) has been transferred to retained earnings.

17. GOODWILL ARISING ON CONSOLIDATION

The Group2020RM

2019RM

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 financial year, the Group carried out a review of the recoverable amount of the CGUs containing 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 2021 to 2025. The following key assumptions were used to generate the financial forecast:

Sales volume growth rate 4.0% to 5.0% per annum

Inflation rate 3.0% per annum

Pre-tax discount rate 8.0%

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 exceeded their carrying amounts, including the goodwill allocated.

18. FINANCE LEASE RECEIVABLE

The Group and The Company2020RM

2019RM

Finance lease receivable 35,484,179 35,484,179

Less: Impairment loss on finance lease receivable

As of July 1/June 30 (35,484,179) (35,484,179)

- -




18. FINANCE LEASE RECEIVABLE (continued)

The Group and The Company

Minimum lease paymentsPresent value of minimum

lease payments2020RM

2019RM

2020RM

2019RM

Amount receivable under finance lease 65,665,845 65,665,845 35,484,179 35,484,179

Less: Unearned finance income (30,181,666) (30,181,666) - -

Present value of minimum lease payments receivable 35,484,179 35,484,179 35,484,179 35,484,179

Less: Impairment loss on finance lease receivable (35,484,179) (35,484,179) (35,484,179) (35,484,179)

- - - -

Leasing arrangements

The Group and the Company (“Hexza”) entered into a Sale & Purchase and Leaseback Agreement (“Agreement”) to acquire part of the equipment for a 8MW Heavy Fuel Oil Power Generation System of USD6,000,000 (equivalent to RM25,755,000) from Tembusu Industries Pte. Ltd. (“Tembusu”). Under the said Agreement, Tembusu agreed to lease back the equipment for a period of 10 years commencing on July 1, 2015, with monthly lease rental of USD130,205 (equivalent to RM558,905) payable in arrears on a quarterly basis. Tembusu shall take ownership of the equipment at the end of the lease for a further payment of USD10,000 after due performance of all the terms and conditions under the lease agreement or the exercise of Buy-out Option by the lessee as stipulated in the agreement.

The unguaranteed residual value of the asset leased under financial lease at the end of the reporting period was estimated at USD10,000 (equivalent to RM42,925).

The interest rate inherent in the leases is fixed at the contract date for the entire lease term. The average effective interest rate contracted was approximately 23.36% per annum.

The finance lease receivable is denominated in United States Dollar (“USD”).

In 2017, management of Hexza had assessed for indication of impairment of the finance lease receivable following slow repayments by the lessee. Management of Hexza had visited the sites where the assets were located in March 2017 and September 2017, during which the team reviewed the accounting records of the lessee for January 2017 to August 2017 and determined that the power generation plant in Kawthaung, Myanmar, did not generate meaningful surplus cash flows. An impairment loss of RM6,947,871 was recognised on the monthly lease rentals due but unpaid by Tembusu.

On November 7, 2017, Hexza announced that they had served a notice of default for Tembusu’s failure to repay its obligations. Due to the default by Tembusu, the Board suspended further finance lease interest recognition and had proceeded to make a full provision on the carrying amount of their investment in the finance lease receivable, being the outstanding principal and interest recognised net of repayments. An impairment of RM28,536,308 was recognised for the quarter ended September 30, 2017.

As of March 1, 2018, Hexza had filed a notice of arbitration with the Registrar of the Singapore International Arbitration Centre (“SIAC”) to demand that their claims against Tembusu be referred to arbitration. The Notice of Arbitration was filed pursuant to the arbitration clauses included in the original Agreement with Tembusu, and the Deed of Guarantee dated January 30, 2015 by Mr. Tin Maung Kyin (“Pete Tin”) issued in favour of Hexza to guarantee punctual payment by Tembusu to Hexza, of the sums under the agreement. The reliefs claimed in the arbitration included:

(a) An order that Tembusu and Pete Tin make payment of USD15,289,190 presently due and owing to Hexza;(b) Late payment interest on the said USD15,289,190;(c) Further and/or in the alternative, damages in connection with Tembusu and Pete Tin’s fraudulent




misrepresentations that the Equipment was brand new and that its value was equal or more than USD6,000,000; and

(d) Costs of the arbitration.

In their formal response to the SIAC, Tembusu and Pete Tin did not defend Hexza’s claim for breach of contract, but also did not concede liability for the outstanding lease receivable. They had also not paid the first tranche of deposits required of them by the SIAC to proceed with the arbitration process. Hexza viewed Tembusu and Pete Tin’s neglect of their obligation to pay their share of the deposits as a lack of genuine desire or willingness to participate in arbitration, despite the arbitration clauses in the Agreement. On July 27, 2018, in addition to the arbitration proceedings, Hexza had also commenced litigation against Tembusu and Pete Tin for breach of the Agreement and Deed of Guarantee. A statement of claim had been filed with the High Court of Singapore against Tembusu and Pete Tin for the amount of USD15,289,190 plus late payment interest and other costs, damages and reliefs.

On October 29, 2018 the High Court of Singapore had ordered summary judgement in favour of Hexza. On July 5, 2019, Hexza has filed a bankruptcy application against Pete Tin for the amount of USD15,289,190 plus late payment interest (“judgement sum”) and other costs. A Notice of Determination had been issued on December 19, 2019, providing for the defendant’s monthly contribution and target contribution over a period of 52 months. Hexza does not agree with the total contribution sum, and on July 2, 2020, has made an application to the High Court of Singapore for review of the determination of monthly contribution and target contribution. The outcome of the submission is not known at this juncture.

19. INVENTORIES

The Group2020RM

2019RM

Raw materials and consumables 11,284,214 15,986,888

Finished goods 3,489,561 7,737,069

Goods-in-transit 1,450,369 2,277,728

Completed development units for sale 77,397 77,397

Spare parts 72,211 66,885

Work-in-progress 19,453 4,485

16,393,205 26,150,452

The cost of inventories recognised as an expense during the financial year for the Group was RM61,452,584 (2019: RM80,927,278).

Included in cost of inventories recognised as an expense is the following:

The Group2020RM

2019RM

Raw materials and consumables written off 63,629 -




20. TRADE AND OTHER RECEIVABLES


2019RM

2020RM

2019RM

Trade receivables 18,857,587 20,520,822 - -

Less: Loss allowances (930,172) (1,038,172) - -

Net receivables from third parties 17,927,415 19,482,650 - -

Other receivables 224,242 38,016 666 9,164

Goods and Services Tax receivable 6,220 26,219 6,220 6,364

Net amount owing by subsidiary companies (Note 21) - - 82,666 2,570,827

18,157,877 19,546,885 89,552 2,586,355

Trade receivables comprise amounts receivable for sale of goods. The credit periods granted on sale of goods ranged from 30 to 90 days (2019: 30 to 90 days). No interest was charged on overdue trade receivables.

The Group and the Company measure the loss allowance for trade receivables at an amount equal to lifetime ECL using a simplified approach. The expected credit losses on trade receivables are estimated based on past default experience and an analysis of the trade receivables’ current financial position, adjusted for factors that are specific to the trade receivables, general economic conditions of the industry in which the trade receivables operate and an assessment of both the current as well as the forecast direction of conditions as at the end of the reporting period.

There has been no change in the estimation techniques or assumptions made during the current reporting period.

The Group and the Company write off a trade receivable when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery, e.g. when the debtor has been placed under liquidation or has entered into bankruptcy proceedings. None of the trade receivables that have been written off is subject to enforcement activities.

The following table details the risk profile of trade receivables based on the Group provision matrix. As the Group’s historical credit loss experience does not show significantly different loss patterns for different customer segments, the provision for loss allowance based on past due status is not further distinguished between the Group’s different customer base.

2020 Trade receivables - days past dueNot past due

RM1 - 30 RM

31 - 60RM

61 - 90RM

>90RM

TotalRM

Expected credit loss rate - - - - -

Estimated total gross carrying amount 12,028,885 2,999,412 1,299,261 1,038,890 1,491,139 18,857,587

Loss allowances:

Lifetime ECL - - - - - -

Impairment losses - - - - (930,172) (930,172)

17,927,415




2019 Trade receivables - days past dueNot past due

RM1 - 30 RM

31 - 60RM

61 - 90RM

>90RM

TotalRM

Expected credit loss rate - - - - -

Estimated total gross carrying amount 15,858,380 2,041,301 718,005 471,619 1,431,517 20,520,822

Loss allowances:

Lifetime ECL - - - - - -

Impairment losses - - - - (1,038,172) (1,038,172)

19,482,650

The following table shows the movement in loss allowance for trade receivables:

The Group2020RM

2019RM

Trade receivables

As of July 1 1,038,172 1,120,040

Impairment losses no longer required (Note 9) (108,000) (81,868)

As of June 30 930,172 1,038,172

There were no significant changes in loss allowances provided during the year. The composition of receivables remained relatively consistent with no material change in credit periods and expected credit loss rates.

The currency profile of trade receivables is as follows:

The Group2020RM

2019RM

Ringgit Malaysia 18,757,342 20,320,969

United States Dollar 80,639 148,697

Singapore Dollar 19,606 51,156

18,857,587 20,520,822

Other receivables are denominated in Ringgit Malaysia.

Transactions with related parties are disclosed in Note 21.




21. RELATED COMPANIES AND RELATED PARTY TRANSACTIONS

Subsidiary companies

The Company2020RM

2019RM

Amounts owing by subsidiary companies consists of:

Current accounts 9,931,746 12,419,907

Less: Loss allowances (9,849,080) (9,849,080)

Net amounts owing by subsidiary companies (Note 20) 82,666 2,570,827

Amounts owing to subsidiary companies consists of: Current accounts (Note 26) 57,961 61,574

The Company2020RM

2019RM

Movements in loss allowances are as follows:

At beginning and end of year 9,849,080 9,849,080

Included in loss allowances are individually impaired receivables amounting to RM9,849,080 (2019: RM9,849,080). The impairment recognised represents the difference between the carrying amount of these receivables and the present value of expected collections.

The ageing of the impaired receivables as mentioned above is more than one year.

The amounts owing by/(to) subsidiary companies, which are denominated in Ringgit Malaysia and classified under current accounts, arose mainly from expenses paid on behalf and advances which are unsecured, interest-free and are repayable on demand.

Loans received from a subsidiary company which were unsecured and repayable on demand, bore interest at 6.85% per annum in 2019. The loans were fully settled in 2019.

Loans granted to subsidiary companies bore interest at a rate of 5.00% per annum in 2019. The loans were fully settled in 2019.

During the financial year, transactions undertaken by the Company with its subsidiary companies are as follows:

The Company2020RM

2019RM

Gross dividends received/receivable 13,162,950 6,322,800

Advances granted 8,000 -

Loan granted - 1,010,000

Interest paid (Note 11) - 161,278

Interest received (Note 7) - 5,068

The transactions with subsidiary companies are aggregated as these transactions are similar in nature.




Compensation of key management personnel

Directors’ remuneration are as disclosed in Note 10. The remuneration of key management personnel other than the directors are as follows:

The Group2020RM

2019RM

Short-term employee benefits 1,640,305 1,368,380

Included in compensation of key management personnel are contributions to EPF of RM188,861 (2019: RM159,330).

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 RM15,417 (2019: RM23,063).

22. OTHER ASSETS


2019RM

2020RM

2019RM

Refundable deposits 212,880 296,789 134,025 217,934

Prepaid expenses 164,087 183,506 19,627 43,906

376,967 480,295 153,652 261,840

23. CASH AND CASH EQUIVALENTS


2019RM

2020RM

2019RM

Money market funds measured at FVTPL 84,651,809 10,670,692 68,930,240 1,328,827

Short-term deposits with licensed banks 1,900,000 1,750,000 - -

Cash and bank balances 10,513,309 19,050,300 3,940,352 14,012,723

97,065,118 31,470,992 72,870,592 15,341,550

The currency profile of cash and cash equivalents is as follows:


2019RM

2020RM

2019RM

Ringgit Malaysia 96,404,444 19,433,369 72,222,450 3,324,575

United States Dollar 446,152 11,871,703 433,620 11,851,055

Singapore Dollar 214,522 165,920 214,522 165,920

97,065,118 31,470,992 72,870,592 15,341,550




23. CASH AND CASH EQUIVALENTS (continued)

The interest rates are as follows:

The Group The Company2020

%2019

%2020

%2019

%

Money market funds measured at FVTPL 2.33 - 3.46 2.12 - 3.73 2.83 - 3.46 2.12 - 3.71

Short-term deposits 1.45 - 2.65 2.45 - 2.55 - - The maturity periods of the deposits of the Group and of the Company range from 1 day to 31 days (2019: 1 day

to 31 days).

24. SHARE CAPITAL

The Group and The Company 2020

Number of ordinary shares

2019Number of ordinary shares

2020RM

2019RM

Issued and fully paid:Ordinary shares 200,380,036 200,380,036 100,190,018 100,190,018

25. RESERVES


2019RM

2020RM

2019RM

Non-distributable reserve:Investment revaluation reserve 28,201,099 9,909,923 28,212,319 9,917,923

Distributable reserve:Retained earnings 115,829,643 98,813,797 95,804,793 76,444,443

144,030,742 108,723,720 124,017,112 86,362,366

Movement in the investment revaluation reserve is shown in the statements of changes in equity on pages 54 to 55.

The entire retained earnings of the Company is available for distribution as single-tier dividends to the shareholders of the Company.




26. TRADE AND OTHER PAYABLES


2019RM

2020RM

2019RM

Trade payables 3,653,906 2,778,103 - -

Other payables 1,226,725 1,148,991 5,890 4,634

4,880,631 3,927,094 5,890 4,634

Amount owing to subsidiary companies (Note 21) - - 57,961 61,574

4,880,631 3,927,094 63,851 66,208

Trade and other payables comprise amounts outstanding for trade purchases and ongoing costs respectively. The credit periods granted to the Group for trade purchases ranged from 1 to 90 days (2019: 1 to 90 days).

The currency profile of trade payables is as follows:

The Group2020RM

2019RM

Ringgit Malaysia 2,754,056 2,761,828

United States Dollar 899,850 16,275

3,653,906 2,778,103

Other payables are denominated in Ringgit Malaysia.

Transactions with related parties are as disclosed in Note 21.

27. OTHER LIABILITIES


2019RM

2020RM

2019RM

Accrued expenses 2,335,712 2,765,385 394,455 384,452

Goods and Services Tax payable 28,691 28,691 - -

2,364,403 2,794,076 394,455 384,452

28. SHORT-TERM BORROWINGS

The Group has bank overdraft and other credit facilities obtained from licensed banks to the extent of RM45,500,000 (2019: RM52,500,000) which are secured by a negative pledge on the assets of the subsidiary companies and guaranteed by the Company.




29. DIVIDENDS

The Group and The Company Net dividend per share

2020RM

2019RM

2020Sen

2019Sen

Recognised during the financial year:

Final dividend paid: 10.0% (2019: 10.0%) 10,019,002 10,019,002 5.00 5.00

A final dividend of 5.0 sen per share in respect of 200,380,036 ordinary shares proposed in the previous financial year and dealt with in the previous directors’ report was paid by the Company during the current financial year.

The directors have proposed a final dividend of 5.0 sen per share and a special dividend of 2.5 sen per share in respect of the current financial year. The proposed dividend is subject to approval by the shareholders at the forthcoming Annual General Meeting of the Company and has not been included as a liability in the financial statements.

30. STATEMENTS OF CASH FLOWS

(a) Reconciliation of liabilities arising from financing activities

The table below details changes in the Company’s liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Company’s statement of cash flows as cash flows from financing activities.

The Company

Note


RM

Financing cash flows

RM

Non-cashtransactions

RM


RM

Amount owing to subsidiary companies 26 61,574 (3,613) - 57,961

The Company

Note


RM

Financing cash flows

RM

Non-cashtransactions

RM


RM

Amount owing to subsidiary companies 26 19,539,533 (6,977,959) (12,500,000) 61,574

(b) Cash and cash equivalents

For the purposes of the statements of cash flows, cash and cash equivalents include money market funds, short-term deposits and cash on hand and at banks. Cash and cash equivalents at the end of the reporting period as shown in the statements of cash flows can be reconciled to the related items in the statements of financial position as follows:





2019RM

2020RM

2019RM

Money market funds measured at FVTPL 84,651,809 10,670,692 68,930,240 1,328,827

Short-term deposits with licensed banks 1,900,000 1,750,000 - -

Cash and bank balances 10,513,309 19,050,300 3,940,352 14,012,723

97,065,118 31,470,992 72,870,592 15,341,550

31. FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL RISKS MANAGEMENT

Categories of financial instruments


2019RM

2020RM

2019RM

Financial assetsFVTOCI:

Other investments 97,667,932 114,972,177 97,665,632 114,966,657

FVTPL:

Money market funds 84,651,809 10,670,692 68,930,240 1,328,827

Amortised cost:

Trade and other receivables 18,151,657 19,520,666 666 9,164

Refundable deposits 212,880 296,789 134,025 217,934

Amount owing by subsidiary companies - - 82,666 2,570,827

Short-term deposits, cash and bank balances 12,413,309 20,800,300 3,940,352 14,012,723

Financial liabilitiesAmortised cost:

Trade and other payables 4,880,631 3,927,094 5,890 4,634

Amount owing to subsidiary companies - - 57,961 61,574

Accrued expenses 2,335,712 2,765,385 394,455 384,452

(a) Financial Risk Management Objectives and Policies

Risk management is integral to the whole business of the Group and of the Company. Management continuously monitors the Group’s and the Company’s risk management processes to ensure that an appropriate balance between risk and control is achieved. Risk management policies and systems are reviewed regularly to reflect changes in the market conditions and the Group’s and the Company’s activities.

There have been no changes to the Group’s and the Company’s exposure to these financial risks or the manner in which they manage and measure the risk.




31. FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL RISKS MANAGEMENT (continued)

Foreign currency risk management

The Group and the Company transact business mainly in United States Dollar (“USD”), Singapore Dollar (“SGD”) and Indonesian Rupees (“IDR”). The carrying amount of foreign currency denominated monetary assets and liabilities of the Group and of the Company at the end of the reporting period is disclosed in Notes 18, 20 and 23.

Foreign currency sensitivity analysis

The Group and the Company are mainly exposed to the currency of USD. The management considers the impact of other currencies to be minimal.

The following table details the sensitivity of the Group and of the Company to a 1.50% (2019: 1.00%) increase/decrease in Ringgit Malaysia (“RM”) against the relevant foreign currency. These sensitivity rates are used when reporting foreign currency risk internally to key management and represents management’s assessment of the reasonable possible change in foreign exchange rates in the next 12 months.

The following sensitivity analysis includes only outstanding foreign currency denominated financial instruments. If the foreign currency denominated financial instruments of the Group and of the Company at the end of the reporting period were translated into RM with a 1.50% (2019: 1.00%) fluctuation in the exchange rates against the following relevant foreign currencies respectively, the effect on profit/(loss) net of tax in profit or loss and other reserve are as follows:

2020 2019The Group and The Company Profit or loss

RMOther reserve

RMProfit or loss

RMOther reserve

RM

USD impact 6,773 1,084,216 109,642 762,494

SGD impact 3,246 35,028 1,677 28,113

IDR impact - 170 - 176

The above impacts are mainly attributable to the exposure to USD on the financial instruments outstanding at the end of the reporting period in the Group and in the Company. In the opinion of the management, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk as the year end exposure does not reflect the full exposure during the year.

Market risk management

The Group and the Company have in place policies to manage the Group’s exposure to fluctuations in prices of key raw materials and consumables used in operations through management’s constant survey on market prices and its awareness of market trends. For marketable securities, the Group and the Company use an investment committee to monitor fluctuations in market prices and to establish suitable cut loss procedures.

Credit risk management

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group and to the Company.

The maximum exposure to credit risk in the event that the counterparties fail to perform their obligations at the end of the reporting period in relation to each class of recognised financial assets is the carrying amount of those assets as stated in the statements of financial position. The Group and the Company do not hold any collateral on the balances outstanding.

Receivables

The Group and the Company establish policies on credit control which involves comprehensive credit evaluations, setting up appropriate credit limits, ensuring the sales are made to customers with good credit history and regular review of customers’ outstanding balances and payment trends. The Group and the Company consider the risk of material loss in the event of non-performance by the customers of which loss




allowance not provided for to be unlikely.

Concentration of credit risk of the Group relates to amounts owing by 2 (2019: 2) major customers which constituted approximately 28% (2019: 38%) of the total trade receivables of the Group at the end of the reporting period. These trade receivables are regular customers that have been transacting with the Group. The Group uses ageing analysis to monitor the credit quality of the trade receivables. Any receivables having significant balances past due or more than 90 days, which are deemed to have higher credit risk, are monitored individually.

In order to minimise credit risk, the Group has developed and maintained credit risk gradings to categorise exposures according to their degree of risk of default. The credit rating information is supplied by independent rating agencies where available and, if not available, the Group uses other publicly available financial information and its own trading records to rate its major customers and other debtors. The Group’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties.

For trade receivables, the Group has applied the simplified approach in MFRS 9 to measure the loss allowance at lifetime ECL. The Group determines the expected credit losses on these items by using a provision matrix, estimated based on historical credit loss experience based on the past due status of the debtors, adjusted as appropriate to reflect current conditions and estimates of future economic conditions. Accordingly, the credit risk profile of these assets is presented based on their past due status in terms of the provision matrix. Note 20 include further details on the loss allowance for these assets respectively.

Financial guarantees

The Company provides unsecured financial guarantees to licensed banks in respect of credit facilities granted to certain subsidiary companies. The Company monitors on an ongoing basis the trend of repayments made by these subsidiary companies.

The maximum exposure to credit risk amounts to RM4,837,861 (2019: RM7,975,375) representing the total credit facilities utilised by subsidiary companies in which financial guarantees are given by the Company as of the end of the reporting period.

At the end of the reporting period, there was no indication that the subsidiary companies will default in repayment.

Other financial assets

The credit risk on liquid funds are limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies.

Other price risk management

The Group and the Company are exposed to equity price risks arising from equity investments. Equity investments are held for both strategic and long-term purposes.

Equity price sensitivity analysis

The sensitivity analysis below has been determined based on the exposure to equity price risks at the end of the reporting period.

If equity prices had been 11% (2019: 4%) higher/lower, the Group’s and the Company’s:

• net profit would have been unaffected as the equity investments are classified as FVTOCI; and

• investment revaluation reserve would increase/decrease by RM10,307,636 and RM10,307,376 (2019: RM4,437,027 and RM4,436,787) respectively as a result of the changes in fair value of equity instruments designated as at FVTOCI.

The Group’s and the Company’s sensitivity to equity prices have not changed significantly from the prior year.





Liquidity and cash flow risks management

The Group practises prudent liquidity risk management to minimise the mismatch of financial assets and financial liabilities and to maintain sufficient credit facilities for contingent funding requirement of working capital.

The Group’s and the Company’s principal source of liquidity have historically been cash flows from operations and funds obtained from long and short-term borrowings.

The Group and the Company expect that the cash generated from their operations, their existing credit facilities and the trade terms provided by their suppliers will be sufficient to meet the Group’s and the Company’s currently anticipated capital expenditure and working capital needs for at least the next 12 months.

The Group has bank overdrafts and other credit facilities of approximately RM45,500,000 (2019: RM52,500,000), of which only RM4,837,861 (2019: RM7,975,375) has been utilised for bank guarantees and trade facilities at the end of the reporting period. The Group and the Company expect to meet their financial obligations from their operating cash flows and proceeds from maturing financial assets.

All non-derivative financial assets and financial liabilities of the Group and of the Company are repayable on demand or due within one year from the end of the reporting period.

The Company’s remaining contractual maturity for its non-derivative financial liabilities include the above financial guarantees utilised by subsidiary companies amounting to RM4,837,861 (2019: RM7,975,375).

Capital risk management

The Group and the Company manage their capital to ensure the Group and the Company will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of debt and equity balance. The Group’s and the Company’s overall strategy remain unchanged from 2019.

The capital structure of the Group and of the Company as of the end of the reporting period consists solely of equity of the Group and of the Company. The Group and the Company are not subject to any externally imposed capital requirements.

(b) Fair Values of Financial Assets and Financial Liabilities

The carrying amounts and the estimated fair values of the Group’s and of the Company’s financial instruments are as follows:


Note

CarryingAmount

RM

FairValue RM

CarryingAmount

RM

FairValue RM

As of June 30, 2020Financial assets at

FVTPLMoney market funds 23 84,651,809 84,651,809 68,930,240 68,930,240

Financial assets at FVTOCI

Other investments- unquoted shares 16 3,880,800 * 3,880,800 *

- quoted shares and warrants 16 93,787,132 93,787,132 93,784,832 93,784,832





Note

CarryingAmount

RM

FairValue RM

CarryingAmount

RM

FairValue RM

As of June 30, 2019Financial assets at

FVTPLMoney market funds 23 10,670,692 10,670,692 1,328,827 1,328,827

Financial assets at FVTOCI

Other investments- unquoted shares 16 3,880,800 * 3,880,800 *

- quoted shares and warrants 16 111,091,377 111,091,377 111,085,857 111,085,857

The fair values of quoted shares and warrants are determined based on open market prices as at the end of the reporting period and approximate their carrying amounts.

The fair values of money market funds are determined using the money market funds’ net asset value per unit as at the end of the reporting period.

* It is not practical to estimate the fair values of unquoted investments as there was a wide range of possible fair value measurements and management is of the opinion that cost represents the best estimate of fair value. As of the end of the reporting period, 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 RM3,788,000 (2019: RM3,979,000).

The carrying amounts of other short-term financial assets and financial liabilities as reported in the statements of financial position approximate their fair values due to the short-term maturity of these instruments.

(c) Fair value hierarchy

The Group2020

Level 1RM

Level 2RM

Level 3RM

TotalRM

Financial assets at FVTPLMoney market funds 84,651,809 - - 84,651,809

Financial assets at FVTOCIOther investments

- unquoted shares - - 3,880,800 3,880,800

- quoted shares and warrants 93,787,132 - - 93,787,132

178,438,941 - 3,880,800 182,319,741

The Group2019

Level 1RM

Level 2RM

Level 3RM

TotalRM



- unquoted shares - - 3,880,800 3,880,800


121,762,069 - 3,880,800 125,642,869





The Company2020

Level 1RM

Level 2RM

Level 3RM

TotalRM



- unquoted shares - - 3,880,800 3,880,800


162,715,072 - 3,880,800 166,595,872

The Company2019

Level 1RM

Level 2RM

Level 3RM

TotalRM

Financial assets at FVTPL

Money market funds 1,328,827 - - 1,328,827


- unquoted shares - - 3,880,800 3,880,800


112,414,684 - 3,880,800 116,295,484

There were no transfers between Levels 1 and 2 during the current and previous financial year.

Significant assumptions used in determining fair values of the above financial assets are as disclosed in (b) above.

There was no movement in the fair value of financial assets classified as Level 3 in the fair value hierarchy.

32. CAPITAL COMMITMENTS

As of June 30, 2020, the Group and the Company have the following commitments in respect of property, plant and equipment:


2019RM

2020RM

2019RM

Capital expenditure:

Approved and contracted for 1,369,771 25,900 157,121 -

33. SIGNIFICANT EVENT

The World Health Organisation declared the 2019 Novel Coronavirus infection (“COVID-19”) a pandemic on March 11, 2020. This was followed by the Government of Malaysia issuing a Federal Government Gazette on March 18, 2020, imposing a Movement Control Order (“MCO”) effective from March 18, 2020 to March 31, 2020 arising from COVID-19. The MCO was subsequently extended until May 12, 2020, followed by a Conditional MCO until June 9, 2020 and a Recovery MCO until December 31, 2020.

The restrictions imposed have not, however, negatively impacted the Group’s financial performance as its main manufacturing facilities were allowed to operate throughout the MCO, under restrictions set by the Ministry of International Trade and Industry (“MITI”).

34. SUBSEQUENT EVENT

Subsequent to the financial year end, the directors of a subsidiary company approved the purchase of plant and machinery amounting to RM6,500,000.

STATEMENT BY DIRECTORS




The directors of HEXZA CORPORATION BERHAD state that, in their opinion, the accompanying financial statements are drawn up in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 2016 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, 2020 and of the financial performance 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

MR. LEONG KENG YUEN

Ipoh,8 October 2020

DECLARATION BY THE OFFICER PRIMARILY RESPONSIBLE FOR THE FINANCIAL MANAGEMENT OF THE COMPANY

STATEMENT BY DIRECTORS

I, MS. CHIN MUN YONG, the officer primarily responsible for the financial management of HEXZA CORPORATION BERHAD, do solemnly and sincerely declare that the accompanying financial statements 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.

MS. CHIN MUN YONG (MIA No. CA 40659)

Subscribed and solemnly declared by the abovenamedMS. CHIN MUN YONG at IPOH this 8 October 2020

Before me,

Commissioner For OathsIpoh



STATEMENT OF SHAREHOLDINGS AS AT 30 SEPTEMBER 2020

Total Number of Shares Issued : 200,380,036Class of Securities : Ordinary shares Voting Rights : One vote per ordinary share

ANALYSIS OF SHAREHOLDINGS AS AT 30 SEPTEMBER 2020

Range of ShareholdingsNo. of

Holders% of

HoldersNo. of

Shares% of Issued

Capital

Less than 100 131 1.58 5,482 0.00

100 – 1,000 617 7.46 425,509 0.22

1,001 – 10,000 5,580 67.51 23,574,366 11.76

10,001 – 100,000 1,724 20.86 51,310,641 25.61

100,001 – 10,019,000 (*) 213 2.58 64,482,381 32.18

10,019,001 and above (**) 1 0.01 60,581,657 30.23

TOTAL 8,266 100.00 200,380,036 100.00

Note: * - Less than 5% of issued holdings ** - 5% and above of issued holdings

SUBSTANTIAL SHAREHOLDERS AS AT 30 SEPTEMBER 2020

According to the Register of Substantial Shareholders required to be kept under Section 144 of the Companies Act, 2016, the following are the substantial shareholders of the Company:

Direct Interest (A) Deemed Interest (B) Total Interest (A+B)Name of Substantial Shareholders No. of Shares % No. of Shares % No. of Shares %

Summit Holdings Sdn Bhd 60,581,657 30.23 60,581,657 30.23

Datuk Dr. Foong Weng Sum 1,083,228 0.54 62,231,657 1 31.06 63,314,885 31.60

Dr. Foong Weng Cheong 2,662,500 1.33 62,231,657 1 31.06 64,894,157 32.39

Note: 1. Deemed interested by virtue of their shareholdings in Summit Holdings Sdn Bhd and Sumivest Holdings Sdn Bhd pursuant to Section 8 of the Companies Act, 2016.

DIRECTORS’ INTEREST IN SHARES AS AT 30 SEPTEMBER 2020

According to the Register of Directors’ Shareholdings required to be kept under Section 59 of the Companies Act, 2016, the Directors’ interests in the ordinary shares capital of the Company and its related companies are as follows:

Direct Interest (A) Deemed Interest (B)Total Interest

(A+B)Name of Director No. of Shares % No. of Shares % No. of Shares

Datuk Dr. Foong Weng Sum 1,083,228 0.54 62,231,657 1 31.06 63,314,885

Dr. Foong Weng Cheong 2,662,500 1.33 62,231,657 1 31.06 64,894,157

Mr. Leong Keng Yuen 480,000 0.24 275,000 2 0.14 755,000

Mr. Ooi Ying Hong 80,000 0.04 - - 80,000

Ms. Chong Yoke Seng 590,000 0.29 88,000 3 0.04 678,000

Ms. Foong Leon Ie - - - - -

Ms. Navit Kaur Randhawa A/P Hira Singh - - - - -

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 interests.

Notes: 1. Deemed interested by virtue of their shareholdings in Summit Holdings Sdn Bhd and Sumivest Holdings Sdn Bhd pursuant to

Section 8 of the Companies Act, 2016.2. Deemed interested through the shares held by his spouse.3. Deemed interested through the shares held by her spouse.



STATEMENT OF SHAREHOLDINGS AS AT 30 SEPTEMBER 2020

THIRTY (30) LARGEST SHAREHOLDERS AS AT 30 SEPTEMBER 2020

Shareholders No. of Shares% of Issued

Capital

1. Summit Holdings Sdn Bhd 60,581,657 30.23

2. UOB Kay Hian Nominees (Asing) Sdn BhdExempt AN for UOB Kay Hian Pte Ltd (A/C Clients)

4,028,950 2.01

3. Foong Weng Cheong 2,662,500 1.33

4. Sumivest Holdings Sdn Bhd 1,650,000 0.82

5. Citigroup Nominees (Asing) Sdn BhdExempt AN For OCBC Securities Private Limited (Client A/C-NR)

1,482,000 0.74

6. Phang Chee Meng 1,342,300 0.67

7. Foong Weng Sem @ Foong Weng Sum 1,083,228 0.54

8. Xiang Ling Capital Sendirian Berhad 1,049,700 0.52

9. CGS-CIMB Nominees (Asing) Sdn Bhd Exempt AN For CGS-CIMB Securities (Singapore) Pte. Ltd. (Retail Clients)

1,007,875 0.50

10. Ronie Tan Choo Seng 950,000 0.47

11. UOB Kay Hian Nominees (Tempatan) Sdn Bhd Exempt AN For UOB Kay Hian Pte Ltd ( A/C Clients )

922,250 0.46

12. Public Nominees (Tempatan) Sdn Bhd Pledged Securities Account For Teo Tin Lun (E-IMO)

911,200 0.45

13. Kenanga Nominees (Tempatan) Sdn BhdPledged Securities Account For Seraya Makmur Sdn Bhd

810,000 0.40

14. Tan Liong Huat @ Tan Swee Huat 778,000 0.39

15. Public Nominees (Tempatan) Sdn BhdPledged Securities Account For Surinder Singh A/L Wassan Singh (E-IMO)

760,000 0.38

16. Wong Kong Wai 752,600 0.38

17. Grand Terrace Sdn Bhd 680,000 0.34

18. Lim Tai Soon 658,150 0.33

19. Ooi Hoe Hean 640,000 0.32

20. Wang Swee Teck 607,000 0.30

21. Kenanga Nominees (Asing) Sdn Bhd Exempt AN For Phillip Securities Pte Ltd (Client Account)

606,000 0.30

22. Lee Chan Investments Sdn. Bhd. 600,000 0.30

23. Kenanga Nominees (Asing) Sdn Bhd Pledged Securities Account For Chin Kiam Hsung

595,400 0.30

24. Chong Yoke Seng 590,000 0.29

25. Public Nominees (Tempatan) Sdn BhdPledged Securities Account For Chee Sai Mun (E-KLC)

551,100 0.28

26. Chong Cheong Leong 540,000 0.27

27. Lao Chok Keang 503,300 0.25

28. Ng Siew Hwa 503,100 0.25

29. Lim Lu Bee 501,050 0.25

30. Tan Kheak Geai 500,000 0.25

TOTAL 88,847,360 44.32



PROPERTIES OWNED BY HEXZA CORPORATION BERHAD & ITS SUBSIDIARY COMPANIES AS AT 30 JUNE 2020

Location Tenure

Approximate Area

in sq. meter

Approximate Age of

Buildings in years

Net Book Value

30.6.2020RM’000

Year ofAcquisition(A)/Completion(C)/

LastRevaluation(R)

Existing Usage

Lot 6, Tasek Industrial Estate, Tasek Drive, Ipoh, Perak Darul Ridzuan.

Leasehold Expiry 2062 28,328

60 4,878 R:2012 Factory

17 1,741 C:2004 Office

15 1,455 C:2006 Factory

Lot 20, Tasek Industrial Estate, Tasek Drive, Ipoh, Perak Darul Ridzuan.

Leasehold Expiry 2064 12,141 - 1,574 R:2012 Factory

Lot 70071, Tasek Industrial Estate, Tasek Drive, Ipoh,Perak Darul Ridzuan.

Leasehold Expiry 2069 12,245 - 1,616 R:2012

Vacant industrial

land

Lot 799, Block 7, Sejingkat Industrial Estate, Muara Tebas Land District,Kuching, Sarawak.

Leasehold Expiry 2052 38,970 26 8,023 R:2012 Factory

Lot 3057, Block 26,Kemena Land District,Bintulu, Sarawak.

Leasehold Expiry 2063 20,235 - 3,086 R:2012

Vacant industrial

land

HEXZA CORPORATION BERHAD [196901000339 (8705-K)]

I/We ........................................................................................................................................................ (FULL NAME IN BLOCK CAPITALS)

NRIC No./Company No........................................................... of ...................................................................................................................

...........................................................................................................................................................................................(FULL ADDRESS)

being a member/members of HEXZA CORPORATION BERHAD, hereby appoint the following person(s):

Name of Proxy NRIC No. No.of Shares %

Proxy 1

Proxy 2

or failing him/her, the Chairman of the Meeting as my/our proxy, to vote for me/us and on my/our behalf at the Fifty-First (51st) Annual General Meeting of the Company to be held on Saturday, 28 November 2020 at 11.00 a.m. and at any adjournment thereof in the manner indicated below in respect of the following Resolutions:

Ordinary Resolution

No.Ordinary Business FOR AGAINST

1. Declaration of a final single-tier dividend of 5 sen per ordinary share and a special dividend of 2.5 sen per ordinary share.

2. Approval for the payment of Directors’ fees.

3. Approval for the payment of Director’s fee to Tuan Haji Mohd Jali @ Mohd Jalil Bin Sany, deceased.

4. Approval for the payment of Directors’ Benefits.

5. Re-election of Datuk Dr. Foong Weng Sum as Director.

6. Re-election of Dr. Foong Weng Cheong as Director.

7. Re-election of Mr. Ooi Ying Hong as Director.

8. Re-election of Ms. Foong Leon Ie as Director.

9. Re-election of Ms. Navit Kaur Randhawa A/P Hira Singh as Director.

10. Re-appointment of Messrs Deloitte PLT as Auditors and to authorise the Directors to fix their remuneration.

Special Business

11. Approval for the continuation in office of Mr. Ooi Ying Hong as an Independent Non-Executive Director.

12. Authority under Section 76 of the Companies Act, 2016 for the Directors to allot and issue shares.

Please indicate with (√) or (X) how you wish your vote to be cast. If you do not indicate how you wish your proxy to vote on any resolution, the proxy shall vote as he thinks fit, or at his discretion, abstain from voting.

...................................................................................Signature of Shareholder/

(Common Seal & Signatures)

Date: ..................................................

Notes:1. Only members whose names appear on the Record of Depositors as at 18 November 2020 shall be entitled to attend the AGM or appoint proxies in his/her stead or in the case of a corporation,

a duly authorised representative to attend and to vote in his/her stead. A proxy must be 18 years and above and may but need not be a member of the Company. 2. A member, other than an exempt authorised nominee is entitled to appoint one (1) or two (2) proxies to attend and vote instead of him/her.3.Whereamemberappointstwo(2)proxies,theappointmentsshallbeinvalidunlesshe/shespecifiestheproportionsofhis/herholdingstoberepresentedbyeachproxy.4. Where a member of the Company is an Exempt Authorised Nominee which holds ordinary shares in the Company in an Omnibus Account, there is no limit to the number of proxies which the ExemptAuthorisedNomineemayappointinrespectofeachOmnibusAccountitholdsbuttheproportionofholdingstoberepresentedbyeachproxymustbespecified.

5. The instrument appointing a proxy shall be in writing under the hand of the appointer or his/her attorney duly authorised in writing or if the appointer is a corporation, either under the corporation’s sealorunderthehandofanofficerorattorneydulyauthorised.Ifunderthehandofattorney/authorisedofficer,thePowerofAttorneyorLetterofAuthorisationmustbeattached.

6.TheinstrumentappointingaproxyorproxiesmustbedepositedatBoardroomShareRegistrarsSdnBhd,11thFloor,MenaraSymphony,No.5,JalanProf.KhooKayKim,Seksyen13,46200PetalingJaya,SelangorDarulEhsannot lessthan48hoursbeforetheholdingof themeetingoranyadjournment thereofeitherbyhand,post,courierorelectronicmail tobsr.helpdesk@boardroomlimited.combeforetheFormofProxylodgementcut-offtimeasmentionedabove.

7.Forverificationpurposes,membersandproxiesarerequiredtoproducetheiroriginalidentitycardattheregistrationcounter.Nopersonwillbeallowedtoregisteronbehalfofanotherpersoneven with the original identity card of that other person.

8.PersonalDataPrivacy–Bysubmittinganinstrumentappointingaproxy(ies)and/orrepresentative(s)toattend,speakandvoteattheAGMand/oranyadjournmentthereof,amemberoftheCompanyherebyagreeandconsentthatanyofyourpersonaldatainourpossessionshallbeprocessedbyusinaccordancewiththePersonalDataProtectionAct2010.Further,youherebywarrant that relevant consent has been obtained by you for us to process any third party’s personal data in accordance with the said Act.

Proxy Form

No. of Shares HeldCDS Account No.Telephone No.

1st fold here

THE SHARE REGISTRAR

HEXZA CORPORATION BERHAD [196901000339 (8705-K)] 11th Floor, Menara Symphony,No. 5, Jalan Prof. Khoo Kay Kim,Seksyen 13, 46200 Petaling Jaya,Selangor Darul Ehsan,Malaysia.

AFFIXSTAMP(Within

Malaysia)

Then fold here

196901000339 (8705-K)

Download - 2020 Annual Report - Hexza

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