malaysia's leading multinati onal technology group of...

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DATO’ AHMAD KABEER BIN MOHAMED NAGOOR

Dato’ Ahmad Kabeer bin Mohamed Nagoor, aged 46, was appointed tothe Board on 1st October 1996 and is the Executive Chairman of theCompany since January 1998. He graduated with a Master Degree inFinance from the University of St. Louis, Missouri, USA in 1986. Hestarted his career with the Bank of Nova Scotia in 1986 in the foreignexchange division before becoming a lecturer at the School ofManagement, University Sains Malaysia from 1988 to 1994. On 24thOctober 2002, he was conferred the Darjah Indera Mahkota Pahang(DIMP) by His Royal Highness, Sultan of Pahang.

He is a substantial shareholder of the Company and is the founder ofAKN Industries Sdn. Bhd., a wholly-owned subsidiary of AKN TechnologyBhd. Dato’ Ahmad Kabeer is also the Deputy Chairman of AKN MessagingTechnologies Berhad.

ONG HEAN KOOI

Ong Hean Kooi, aged 52, is the Executive Vice Chairman of theCompany. He was appointed to the Board on 18th June 1990. He graduated with a Bachelor of Applied Science (Pharmacy) from theTasmanian College of Advance Education, Australia in 1975. He is a re gistered pharmacist and has been involved in the electroplating businesssince 1991.

LOH SOON GNEE

Loh Soon Gnee, aged 47, is the Chief Executive Officer of the Company.He was appointed to the Board on 15th November 2000 and is a substantial shareholder of the Company. He graduated with a Bachelorof Chemical Engineering from the State University of New York in 1979.

He has more than 20 years of experience in the semiconductor industryand is involved in process engineering, product development, designand testing as well as marketing. In 1995, he ventured into his ownbusiness of designing, engineering and development of application systems and distribution of semiconductor chips.

Directors’ Profile

M a l a y s i a ' s L e a d i n g M u l t i n a t i o n a l T e c h n o l o g y G r o u p o f C o m p a n i e s .

The artistic portraits above are the artwork of Mr. Foong Weng Kwan, a physically challenged young artist.

Directors’ Profile cont’d

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OOI BOON LEONG

Ooi Boon Leong, aged 42, was appointed as an Executive Director ofthe Company on 22nd April 2003 and is a substantial shareholder ofthe Company by virture of his recent acquisition of substantial interestin AKN Capital Sdn. Bhd. (AKNC) in July 2003. He is an accountant byprofession, a member of the Malaysian Institute of Certified PublicAccountants. He did his ar t icleship with Hanafiah Raslan & Mohamad andqualified as an accountant in 1986. He left the audit profession to join thecommercial sector before setting up his own businesses where amongothers, he co-founded AKN Industries Sdn. Bhd., a wholly owned subsidiaryof AKN Technology Bhd, in 1994.

He sits on the MIG-Photonics Committee. MIG is the MIGHT (MalaysiaIndustry-Government Group for High Technology) Interest Group whereMIGHT is a Malaysian Government initiative to bring togetherGovernment, Industry and Academic interest to help formulate malaysiangovernmental policies.

He is also a Director of AKN Messaging Technologies Berhad.

YAHAYA BIN JAMALUDDIN

Yahaya bin Jamaluddin, aged 65, was appointed as an IndependentNon-Executive Director of the Company on 28th February 1998 and hadspent 23 years in the teaching profession. He is the Chairman of theAudit Committee of AKN Technology Bhd.

YB DATO’ HILMI BIN HJ. ABDUL RASHID

YB Dato’ Hilmi bin Hj. Abdul Rashid, aged 49, was appointed as anIndependent Non-Executive Director of the Company on 27th February1998. He graduated with a Bachelor of Arts in Business Administrationfrom Monmouth College, Illinois, USA as well as a Master in BusinessAdministration from Marshall University, West Virginia, USA. He is theChairman of PERDA (Penang Regional Development Authority) and alsothe Chairman of the Audit Committee of Ayamas Food CorporationBerhad. On 21st June 2003, he was conferred the Darjah InderaMahkota Pahang (DIMP) by His Royal Highness, Sultan of Pahang.

Directors’ Profile cont’d


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DR. MUHAMMAD GHAZIE BIN ISMAIL

Dr. Muhammad Ghazie bin Ismail, aged 48, was appointed as theSenior Independent Non-Executive Director of the Company on 23rd May2002. He graduated with a Bachelor of Science (Honours), majoring inElectrical and Electronic Engineering from Loughborough University ofTe chnology, London. He also holds a Ph.D., specialising inTelecommunication and Image Processing from the same University andhas published 23 papers on Telecommunication Image Processing andVLSI chip design in local and international journals. He is currently theSenior Vice-President (Corporate Investment and International Affairs)of Multimedia Development Corporation as well as the President ofMEITECH Development Corporation.

MOHAMAD NAJEB BIN ALI

Mohamad Najeb bin Ali, aged 39, was appointed as an IndependentNon-Executive Director of the Company on 22nd April 2003. He graduatedwith a Diploma in Quantity Surveyor from the Federal Institute ofTechnology, Kuala Lumpur. He possess 12 years experience in businessmanagement as Managing Director. Currently, he is also a director ofAKN Messaging Technologies Berhad.

LIM ENG THONG

Lim Eng Thong, aged 42, was appointed as a Non-Independent Non-Executive Director of the Company on 20th August 2001. He is a memberof the Malaysian Institute of Accountants and the Malaysian Institute ofCertified Public Accountants. He spent 11 years in the audit industrywith a Public Accounting firm and left the firm as Senior Audit Managerin 1992. He is also a director of AKN Messaging Technologies Berhad.

All the above Directors are Malaysian and none of the Directors have family relationship with any other Directors ormajor shareholders except for Dato’ Ahmad Kabeer bin Mohamed Nagoor who is a share holder and director of AKNCand Mr. Ooi Boon Leong who is a shareholder of AKNC.

None of the Directors have any convictions for offences other than traff ic offences in the past 10 years.

The artistic portraits above are the artwork of Mr. Foong Weng Kwan, a physically challenged young artist.

THE year just passed, to say the least, has been challenging. There was the Iraq warand the outbreak of Severe Acute Respiratory Syndrome (SARS) adding to the continueduncertainties in the recovery of the global economy.

To be sure, things have turned for the better although we believe the depressed semiconductor business environment of the past few years have altered perm anently theway business is conducted.

In facing the tough challenges of the past few years, hope is not strategy. Your Companyhas always been proactive in anticipating trends and effecting changes to confront themany challenges brought about by the increasingly global economy. We have cut andcontained costs where appropriate, we have reviewed operations to increase pro ductivity,stepped up marketing efforts to increase market share and made various strategicacquisitions to complement the Group’s business operations.

To day, your Company has been transformed into an integrated technology group pro vidingintermediate products and services to the semiconductor industry.

CORPORATE DEVELOPMENTS

In pursuing this transformation, the Group has embarked on its diversification throughseveral strategic acquisitions during the year, taking advantage of the still depressedmarket condition where company valuation has dropped to mid single digit on price-earn ings(PE) multiple valuation. The newly acquired companies, principally engaged in variousactivities within the semiconductor space are briefly described below.

JIT Technology (M) Sdn. Bhd. (JIT) and PSC Technology (M) Sdn. Bhd. (PSC)To broaden AKN Group’s service based income, the Company acquired 60% of JIT on23rd October, 2002 for a total cash consideration of RM7.56 million and 100% ofPSC on 11th Februar y, 2003 for a total cash consideration of RM18.0 million. WhileJIT is involved in the re-balling of Ball-Grid-Array (BGA) and rework of Ceramic ColumnGrid Array (CCGA), PSC specialises in cost reduction programmes and the rework ofrecyclable parts. Both companies service multi-national companies involved in manufacturing activities, particularly those operating within the semiconductor industry.

The increasing intensity of global competition has forced manufacturers throughout t heworld to implement continuing cost reduction programmes in order to stay competitive.Such cost reduction programmes coupled with the emphasis on environmental friendlinesshas resulted in manufacturers focusing and aggressively pursuing the need to recyclerecyclable parts and components.

Executive Chairman’s Letter to Shareholders

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In facing the toughchallenges of the

past few years, hope is not strategy...

...today, your Company has been transform ed

into an integrated technology group

providing intermediate products

and services to the semiconductor industry.

Corporate Head Office

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As such, we believe the market that JIT and PSC serves will continue to gro w. In addition,the acquisitions offer huge opportunities to AKN Group to expand JIT and PSC serv icesto its wide customer base throughout the Asia Pacific Region where the Group operates.To further consolidate its business and position, PSC has, subsequent to the financial yearend, acquired the entire equity interest of CTE Technology (M) Sdn. Bhd. (CTE). Theactivities of CTE are similar to those of PSC.

Autoplus International Group Limited (Autoplus Group)To fill the gap in the semiconductor space where the Group is operating within as wellas to tap the huge and high growth China economy, AKN acquired a 55% equity intere stin Autoplus Group on 13th November, 2002 for a total cash consideration of RM17.5million. Autoplus Group is involved in contract manufacturing and designing of application systems (including designing of Application Specific Integrated Circuits -ASIC) for consumer electronics pro ducts. The operations of Autoplus Group are carriedout by its two wholly owned subsidiaries, Ace Technology Limited and A-P SolutionsElectronics Technology Limited, both of which are located in China.

To further strengthen our penetration into China, Autoplus Group entered into a jointventure agreement with Xiamen Overseas Chinese Electronic Incorporation Limited(Xoceco Incorporation Limited) to set up Xoceco-Ace Co. Ltd in Xiamen, China.

Xoceco Incorporation Limited is a company listed on the Shanghai Stock and S ecuritiesExchange. It has a capital of USD100 million and a market capitalisation of approximatelyRM1.2 billion. It is one of the largest and most advanced manufacturers and exportersof consumer electronic products in China with an annual turnover of appro ximatelyRM2.6 billion. Its products which are marketed under the brand names of “PRIMA” and“XOCECO” includes Pure Flat Television, High Definition Television (HDTV), computerand computer peripherals and other consumer electronic products.

Xoceco-Ace Co. Ltd, where Autoplus has a 70% equity interest is established to takeover the computer and computer peripheral division of Xoceco Incorporation Ltd. It willmanufacture and market the products locally in China as well as export to other countriesunder the brand name of “XOCECO”.

Nanochip Incorporated (Nanochip) and Mems Technology Sdn. Bhd. (Mems Te ch)In order to compete globally as a technology player, AKN needs to increase its technology content and knowledge. As such, AKN invested USD1.8 million for a 15%equity interest in Nanochip on 15th September, 2002 and entered into a conditionalsale and purchase agreement on 18th April, 2003 to acquire the entire equity interestof AKN Equity Ventures Sdn. Bhd. (AKNEV) for RM89 million to be satisfied by theissuance of new AKN shares. AKNEV is an investment holding company and upon thecompletion of its share swap exerc ise involving Malaysia Venture Capital ManagementBhd. (MAVCAP) and Mavcap Photonics Sdn. Bhd. (MAVCAP Photonics), AKNEV will havea 90% equity interest in Mems Tech.

Executive Chairman’s Letter to Shareholders cont’d


...wide customer basethroughout the Asia

Pacific R egion...

In order to competeglobally as a technology

player, AKN needs to increase its

technology content andknowledge.

Team Building Activities

Mems Tech is a group of companies involved in designing, fabricating and production,packaging and marketing of micro-electro-mechanical systems (MEMS) products and itis the first independent foundry services company in Asia for such products.

MEMS is an approach to fabrication that uses the materials and processes of microelectronics and conveys the advantages of miniaturisation, multiple componentsand microelectronics to the design and construction of integrated microstructures andelectromechanically systems. MEMS products are advanced three (3) dimensionaldevices that merge sensors, actuators and digital processing power onto individual ora group of semiconductor chips. It supports and allows numerous functions in diverse industries.

Nanochip is a company incorporated in the United States of America and is involvedin the development of a MEMS based nano storage device. This nano storage devicein a size of a semiconductor chip has the capability of storing up to one giga byte ofdata and it will revolutionise the existing memory storage device particularly the removable device that are currently used in various consumer electronics products.

The acquisition of AKNEV is a director related transaction as yours truly has an equityinterest in the Company. The acquisition is also subject to the approvals of variousMalaysian governmental authorities as well as shareholders of the Company.

SR Technology (M) Sdn. Bhd. (SR Tech)On 4th June, 2003, AKN entered into a conditional sale and purchase agreement toacquire the entire equity interest in SR Tech for a total consideration of RM25.0 million to be satisfied by the issue of new AKN shares.

SR Tech is a company involved in the packaging of semiconductor products specialisingin optoelectronic products. Following the completion of the proposed acquisition ofMems Tech, AKN Group will be involved in the packaging of MEMS products. Theprocesses involved in the packaging of MEMS products is very similar to the packagingof semiconductor products that SR Tech produces. Henceforth, the acquisition of SRTech will strengthen the capabilities of AKN Group. The acquisition of SR Tech is alsosubject to the approval of the shareholders of the Company and various Malaysian governmental authorities.

Apart from the above acquisitions, the Company has also disposed of its associatedcompany, Penning Vacuum Technology Company Limited for a total cash considerationof RM4.5 million. The disposal resulted in a loss of RM373,627, to the Group.

OTHER CORPORATE ACTIVITIES

During the financial year, the Company completed the bonus issue on the basis of one(1) new ordinary share of RM1.00 each for every five (5) existing ordinary shares heldas approved by the shareholders on 29th August, 2002. A total of 14,443,303 newordinary shares capitalised from retained earnings were issued and allotted on 23rdOctober, 2002.

On 28th May, 2003, the Board proposed a further bonus issue on the basis of one (1)new ordinary share of RM1.00 each for every ten (10) ordinary shares held on an entitlement date to be determined on a later date. This proposed bonus issue will becapitalised from the retained earnings of the Company and is subject to approval bythe Kuala Lumpur Stock Exchange as well as the shareholders of the Company.


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Mems and Nanochip are cutting-edge

technology investments.

BOARD CHANGES AND CORPORATE GOVERNANCE

As the Company moves forward, we invite capable individuals to join the Board. On22nd April, 2003, the Board appointed Mr. Ooi Boon Leong as an Executive Directorof the Company. Mr. Ooi, an accountant by profession and a member of the MalaysianInstitute of Certified Public Accountants, is a successful businessman who among others,co-founded AKN Industries Sdn. Bhd, a wholly owned subsidiary of the Company.

Mr. Ooi also sits on the MIG-Photonics Committee. MIG is the MIGHT (MalaysiaIndustry-Government Group for High Technology) Interest Group where MIGHT is aMalaysian Government initiative to bring together Government, Industry and Academicinterest to help formulate malaysian governmental policies.

To provide a balanced and effective Board, the Company has also appointed EncikMohamad Najeb bin Ali who has more than 10 years of experience in business management, as an Independent Director of the Company. With the appointment ofEncik Mohamad Najeb, the Board now has four Independent Directors.

OPERATIONAL EXCELLENCE

Our commitment to operational excellence is unparalleled and thus, we are continuallyimproving the processes that support the design, specifications, manufacturing, delivery,

and outstanding services to delight our customers.

One of our subsidiaries, AKN Industries Sdn. Bhd., was conferred the "Best Vendors of High-Tech Penang" award which bears testimony of our achievements in operational excellence.

Moving forward, we will strive to become a world class semiconductor player by transforming business goals into customer-focused capabilities within our operations.

REVIEW OF OPERATIONS AND FINANCIAL HIGHLIGHTS

I believe we have recorded a satisfactory performance for the financial year ended31st March, 2003 where turnover had increased by 46% to RM250.3 million fromRM170.9 million in the previous financial year. In tandem with the increase in t urnover,the profit after tax has also doubled to RM25.3 million from RM12.9 million generatedin the previous year.

The significant increase in the turnover and profit of the Group is mainly attributed tothe recovery of the global semiconductor industry as well as the aggressive review weundertook to curtail costs, improve operational efficiencies and i ncrease marketshare. Both the manufacturing division and the design, development and distributiondivision recorded higher turnover and profit as compared to the previous year.

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We will strive tobecome a world class

semiconductor player...

Milestones Achievements and Recognition

The contributions from the newly acquired subsidiaries were minimal as the acquisitionsof JIT and Autoplus Group were completed at the end of the third quarter of the financialyear whereas the acquisition of PSC was completed only after the financial year ended.JIT and Autoplus Group contributed a three (3) months post acquisition turnover andprofit after tax of RM11.4 million and RM600,000 respectively to the Group. Weexpect these newly acquired subsidiaries to contribute significantly to the Group in thecurre nt financial year.

Manufacturing divisionTu rnover of this division increased by 28.9% to RM84.7 million from RM65.7 million inthe previous financial year in line with the re covery of the global semiconductor industry.The i ncrease in turnover coupled with improvement in operational efficiencies and costcutting measures undertaken by the division had resulted in the profit after tax of thedivision to surge by 340% to RM2.2 million from RM0.5 million in the previous financial year.

Design, engineering and distribution divisionTurnover of this division recorded an increase of 46.7% to RM154.2 million fromRM105.2 in the previous financial year. Resulting from the increase in turnover, itsprofit after tax has also increased significantly to RM22.41 million from RM12.16 millionin the p revious year. The growth re corded by this division is in tandem with the overallindustry. As reported by the Semiconductor Industry Association (SIA), s emiconductorchip sales in calendar year 2002 for the Asia Pacific region re corded a growth of 30%as compared to 2001 although the overall global sales grew by only 1.8%.

Despite recording a significant improvement in the performance, the profit after tax ofthis division comprising Tecpac Limited and its subsidiaries, Pacgem Limited and itssubsidiaries and Protek Asia Limited and its subsidiaries (TPP Group), it still fell shortof the profit guarantee amounting to RM23.6 million given by Mr. Loh Soon Gnee. Theshortfall amounted to RM1.18 million had been paid by Mr. Loh on 7th July, 2003.

In the previous financial year ended 31st March, 2002, TPP group re corded a short fallin profit of RM11.44 million. As approved by the shareholders, Mr. Loh was grantedan extension to repay the shortfall over six (6) equal quarterly instalments, commencing on 30th September, 2002. As at 31st March, 2003, M r. Loh has paidthree (3) instalments totaling RM5.72 million. Another instalment amounting to RM1.91million was paid on 30th June, 2003. The balance of the short fall amounting to RM3.8million will be payable over two (2) instalments on 30th September, 2003 and 30thDecember, 2003.

To further strengthen the business activities of the division, Tecpac Limited had on12th November, 2002 acquired the entire issued and paid-up capital of I nproTechnology Company Limited (INPRO). INPRO is involved in the distribution of systemsolutions and memory modules and hence allows the division to offer a morecomplete solution to customers in the designing and development of application systems.

DIVIDEND AND SHAREHOLDERS’ RETURN

The Board of Directors is very grateful to have the support of loyal share holders andhence on top of the proposed bonus issue to enable greater participation in the Company’s equity in terms of the number of shares held by you, the B oard has also recommended a first and final tax exempt dividend of 3% for the year just ended.

Besides giving shareholders return by way of cash dividends, the Board will c ontinueits eff ort to enhance and unlock shareholders value to maximise their wealth.


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...continuouslytracking the pulse ofbusiness to increaseshareholders’ value.



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FUTURE OUTLOOK

Given that the global semiconductor industry is expected to grow by 10.1% in c alendaryear 2003 as forecasted by the SIA, the Company, barring any unfore seen c ircumstances,is expected to turn in better perf ormance in this coming financial year. Besides benefitingfrom the expected growth in the semiconductor industry, the C ompany will also realisethe full year operating results of the newly acquired subsidiaries except for Mems Techand SR Tech where the acquisition is expected to be completed by the third quarter ofthe financial year ending 31st March, 2004. However the outbreak of Severe AcuteRespiratory Syndrome (SARS) in various Asian countries, particularly in China, mayslow down the growth of the design, development and distribution division.

I believe the strategic diversification undertaken will position the Company as a leadingtechnology group in Malaysia providing intermediate pro ducts and services to the semi-conductor industry. Henceforth, the C ompany will grow from strength to strength in linewith the semiconductor industry which I believe and which is also supported by industrystatistics and forecast, has recovered from its worst downturn in 2001.

APPRECIATION

On behalf of the Board of Directors, I wish to extend my sincere gratitude and appre ciationto members of our management team and staff for their hard work, commitment and loyalty.

I also wish to record our gratitude and thanks to our customers, suppliers, businessassociates, bankers, government authorities and most import antly, our share holders fortheir support and confidence in the Company.

DATO’ AHMAD KABEER BIN MOHAMED NAGOORExecutive Chairman

...will position the Company as a leading

technology group in Malaysia...

Innovative operating facilities in the emerging technology

The Board of Directors is committed to ensuring that the highest standards of corporate governance are practicedthroughout the Group as a fundamental part of discharging its responsibilities to protect and enhance shareholdervalue and the financial performance of AKN Group.

The Principles and Best Practices of the Malaysian Code on Corporate Governance (the “Code”) published in October2000, were incorporated into the revamped Listing Requirements of the Kuala Lumpur Stock Exchange and in pre p a r i n gthis report, the Board has considered the manner in which it has applied the Principles of the Code and the extent towhich it has complied with the Best Practices of the Code.

SECTION 1: DIRECTORS

Composition of the Board

The Board has nine members. Five out of nine members are Non-Executive Directors, four of whom is independent.No individual or group of individuals dominates the Board ’s decision making and the number of directors reflects fairlythe investment of the shareholders.

Dato’ Ahmad Kabeer bin Mohamed Nagoor is the Executive Chairman while Mr. Loh Soon Gnee is the Chief ExecutiveO ff i c e r. There is a clear division of responsibilities between these two roles to ensure a balance of power and authority.

The Company considers that its complement of Non-Executive Directors provides an effective Board with a mix ofi n d u s t ry-specific knowledge and broad business and commercial experience. This balance enables the Board to pro v i d eclear and effective leadership to the Company and to bring informed and independent judgement to many aspects ofthe Company’s strategies and performance.

More than one-third of the Board comprise Non-Executive Directors since the Company recognises the contribution ofNon-Executive Directors as equal Board members to the development of the Company’s strategy, the importance ofrepresenting the interest of public shareholders and providing a balanced and independent view to the Board.

In accordance with the requirement of the Code, Dr. Muhammad Ghazie bin Ismail has been appointed as the SeniorIndependent Non-Executive Director in 2002, to be available to deal with concerns regarding the Company where itcould be inappropriate for these to be dealt with by the Executive Chairman or Chief Executive Officer.

Board Responsibilities

The Board retains full and effective control of the Company. This includes responsibility for determining the Company’soverall strategic direction as well as, development and control of the Group. Key matters, such as approval of annualand interim results, acquisitions and disposals, as well as material agreements, major capital expenditures, budgets,long range plans and succession planning for top management are reserved for the Board.

The Board has 4 regular quarterly scheduled meetings annually with additional meetings convened as and when necessary.Meeting agenda includes review of quarterly financial results and announcement, macro strategies and other majormatters arising such as acquisitions, mergers and disposals.

Statement on Corporate Governance

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Statement on Corporate Governance cont’d


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Board Responsibilities (cont’d)

Details of each existing Director’s meeting attendances for the financial year 2003 are as follows:

Name Number of Number of meetings meetings attended held during the

Director’s term in office

Dato’ Ahmad Kabeer bin Mohamed Nagoor 5 5Ong Hean Kooi 5 5Loh Soon Gnee 3 5YB Dato’ Hilmi bin Hj Abdul Rashid 4 5Yahaya bin Jamaluddin 5 5Lim Eng Thong 5 5Dr Muhammad Ghazie bin Ismail 3 5Mohamad Najeb bin Ali N/A N/AOoi Boon Leong N/A N/A

Both Mohamad Najeb bin Ali and Ooi Boon Leong have not attended any Board meetings held during the financial yearended 31 March 2003 by virtue of their recent appointment to the Board on 22 April 2003.

The Board has also delegated certain responsibilities to the Audit Committee, which operate within clearly definedterms of reference.

Supply of Information

Each Board member receives quarterly operating results and other re p o rts when applicable. Prior to each Board meeting,Directors are sent an agenda and a full set of Board papers for each agenda item to be discussed at the meeting.This is issued in sufficient time to enable the Directors to obtain further explanations, where necessary, in order tobe briefed properly before the meeting. The Board report includes, among others, the following details:

• Minutes of meetings of Audit Committee• Quarterly performance report of the Group• Major operational and financial issues

Where applicable, there will be a schedule of matters reserved specifically for the Board’s decision, including theapproval of corporate plans and budgets, acquisitions and disposals of assets that are material to the Group, majorinvestments, change to management and control structure of the Group, including key policies, procedures and authority limits.

The Board has approved an agreed procedure for Directors to take independent professional advice if necessary atthe Company’s expense. Before incurring such professional fees, the Director concerned must consult the ExecutiveChairman or with two other Directors (one of whom is non-executive). Such advice was not sought by any Director during the financial year ended 31 March 2003.

Directors have access to all information within the Company whether as full board or in their individual capacity, in furtherance of their duties.

D i rectors also have direct access to the advice and the services of the Gro u p ’s Company Secre t a ry who is re s p o n s i b l efor ensuring that Board procedures are followed.

Appointments of the Board and Re-election

Currently, the appointment of Directors are dealt with by the entire Board. The Board has not set up the NominationCommittee as the Board believes that given its current size and composition, appointment of new directors can beeffectively dealt with by the entire Board.

In accordance with the Company’s Articles of Association, all directors who are appointed by the Board shall retirefrom office once at least on each 3 years, but shall be eligible for re-election. A retiring director shall retain office untilthe close of the meeting at which he/she retires.

SECTION 2: DIRECTORS’ REMUNERATION

Remuneration Policy and Procedures

D i rectors’ remuneration are dealt with by the Board. The Board has not set up a Remuneration Committee after taking intoaccount that there are only two salaried executive directors and also the quantum of remuneration paid to these two dire c t o r s .

The Executive Directors do not receive other benefits apart from their monthly salary and non-contractual annualbonuses and share options granted under the Employees’ Share Option Scheme.

Directors’ fees which are subject to shareholders’ approval are payable only to Non-Executive Directors. For the yearended 31 March 2003, the Board proposed a fee of RM25,000 for each Non-Executive Director as well as a meetingallowance of RM500 per meeting. In addition, the Board also proposed a fee of RM5,000 and RM3,000 payable tothe Chairman of the Audit Committee and Chairman of the Board respectively.

In determining the directors’ remuneration, the Board took into account the responsibilities, contribution and performance by each individual director.

The Executive Directors play no part in determining their own remuneration whilst the Non-Executive Directors abstainfrom discussion of their own remuneration.

Directors’ Remuneration

The details of the Directors’ remuneration for the financial year are:

RM’000 Salary Bonus Fee Total

Executive 170 7 6 183Non-Executive – – 69 69

Total 170 7 75 252

The Directors, whose remuneration falls within the following bands are as follows:

Range Executive Non-Executive

Below RM50,000 – 5RM50,001 - RM100,000 1 –RM100,001 - RM150,000 1 –

The details of remuneration of each director are not disclosed as the information is sensitive and confidential.


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SECTION 3: SHAREHOLDERS

Dialogue Between the Company and Investors

As part of the Board’s responsibility in developing and implementing an investor relations programme, regular discussions were held between the Executive Chairman and the Chief Executive Officer and analysts/investorsthroughout the year. The Group has also conducted several analysts briefing with fund managers and potentialinvestors. Presentations based on permissible disclosures are made to explain the Group’s performance and majordevelopment programmes. Price-sensitive information about the Group is, however, not disclosed in these exchangesuntil after the prescribed announcement to the KLSE has been made.

In addition, the annual and interim re p o rts, together with the Company’s profile and announcements, share price inform a t i o n ,and other extensive information about the Company are available on http://www.akn.com.my. Shareholders are ableto put questions to the Company through this website.

Annual General Meeting

The Annual General Meeting is the principal forum for dialogue with shareholders. Notice of the Annual GeneralMeeting and annual reports are sent out to shareholders at least 21 days before the date of the meeting.

Besides the usual agenda for the Annual General Meeting, the Board presents the progress and performance of thebusiness as contained in the annual report and provides opportunities for shareholders to raise questions pertainingto the business activities of the Group. All Directors are available to provide responses to questions from the share-holders during these meetings.

Items of special business included in the notice of the meeting will be accompanied by an explanatory statement tofacilitate full understanding and evaluation of the issues involved.

SECTION 4: ACCOUNTABILITY AND AUDIT

Financial Reporting

For financial reporting through quarterly reports to KLSE and the annual report to shareholders, the Directors have aresponsibility to present a fair assessment of the Group’s position and prospects. The Audit Committee assists theBoard in scrutinising information for disclosure to ensure accuracy, adequacy and completeness. The Statement byDirectors pursuant to Section 169 of the Companies Act, 1965 is set out on page 37 of this annual report.

Internal Control

I n f o rmation on the Gro u p ’s internal control is presented in the Statement on Internal Control laid out on pages 23 to 24.



Relationship with Auditors

The role of the Audit Committee in relation to the external auditors may be found in the Report on Audit Committeeset out on pages 25 to 26. The Company has always maintained a close and transparent relationship with its auditorsin seeking professional advice and ensuring compliance with the accounting standards in Malaysia.

Statement of Compliance with the Best Practices of the Code

The Company is committed to achieving high standards of corporate governance throughout the Group and to the highestlevel of integrity and ethical standards in all its business dealings. Apart from setting up of a Nomination Committeeand a Remuneration Committee, the Board considers that it has complied throughout the financial year with the BestPractices as set out in the Code.

Statement made in accordance with the resolution of the Board of Directors dated 28 May 2003.


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This statement is prepared as required by the Listing Requirements of the KLSE.

The Directors are required to prepared financial statements which give a true and fair view of the state of affairs ofthe Group and the Company as at the end of each financial year and of their results and their cash flows for that yearthen ended.

The Directors consider that in preparing the financial statements,

• the Group and the Company have used appropriate accounting policies and are consistently applied;• reasonable and prudent judgements and estimates were made; and• all applicable approved accounting standards in Malaysia have been followed.

The Directors are responsible for ensuring that the Company maintains accounting records that disclose with reasonable accuracy the financial position of the Group and the Company, and which enable them to ensure that thefinancial statements comply with the Companies Act, 1965.

The Directors have general responsibilities for taking such steps that are reasonably available to them to safeguardthe assets of the Group, and to prevent and detect fraud and other irregularities.

Directors’ Responsibility in Relation to the Financial Statements


Introduction

Paragraph 15.27(b) of the Kuala Lumpur Stock Exchange Listing Requirements re q u i res the Board of Directors of publiclisted companies to include in its annual report a “statement about the state of internal control of the listed issueras a group”. The Board is committed to maintaining a sound system of internal control in the Group and is pleasedto provide the following statement which outlines the nature and scope of internal control of the Group during the year.

Responsibility

The Board is ultimately responsible for the Group’s system of internal control which includes the establishment of ana p p ropriate control environment and framework as well as reviewing its adequacy and integrity. Because of the limitationsthat are inherent in any system of internal control, this system is designed to manage, rather than eliminate the riskof failure to achieve corporate objectives. Accordingly, it can only provide reasonable but not absolute assuranceagainst material misstatement or loss. The system of internal control covers, inter alia, risk management and financial,organisational, operational and compliance controls.

Following the publication of the Statement on Internal Control: Guidance for Directors of Public Listed Companies (“theI n t e rnal Control Guidance”), the Board confirms that there is an ongoing process for identifying, evaluating and managingsignificant risks faced by the Group, that has been in place for the financial year and up to the date of approval of theannual report and financial statements, and that this process is regularly reviewed by the Board and accords with theInternal Control Guidance.

Risk Management Framework

The Board with the assistance of the Internal Audit Department undertook to identify and evaluate the principal businessrisk in critical areas of the Company and the major subsidiaries of the Group, assessing the likelihood of materialexposures and identifying the measures taken to manage these risks.

The Board has initiated an ongoing process of identifying, evaluating, and managing significant risks encountered bythe Company and the Group in a stru c t u red manner. This would entail establishing pro c e d u res for re p o rting and monitoringof risks and controls. Regular review will be conducted on a yearly basis with additional reviews to be carried out asand when required.

These initiatives would ensure that the Company and the Group have in place a formalised ongoing process to identify,measure and manage the significant risks affecting the achievement of its business objectives.

Key Processes of Internal Control

The Board fully supports the contents of the Internal Control Guidance and, with the assistance of the ExecutiveD i rectors who exercise close supervision on the day-to-day running of the operations, undertook to review the existingrisk management process in place within the various operating businesses, with the aim of formalising the risk management functions across the Group.

Statement on Internal Control

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Key Processes of Internal Control (cont’d)

The key processes that the Directors have established in reviewing the adequacy and integrity of the system of intern a lcontrol, are as follows:

• The Board has developed a monitoring and reporting process to continuously evaluate and monitor the significantrisks in a formalised manner, which entail establishing pro c e d u res for re p o rting and monitoring of risks and contro l s .Regular reviews will be conducted with additional reviews as and when required.

• The Board receives and reviews regular reports from the management of various lines of businesses, on the key operating statistics, legal, environmental and regulatory matters. The Board approves appropriate responses oramendments to the Group’s policy.

• Budgets, containing financial and operating targets, capital expenditure proposals and performance indicators, arereviewed and approved by the Executive Directors and managers of the respective subsidiary companies and subsequently by the Board.

• Performance reports are regularly provided to Directors and discussed at Board meetings. The Board regularlyreceives from the management of subsidiary companies covering areas such as quarterly financial re v i e w, businessdevelopment and other corporate matters.

• The Audit Committee, on behalf of the Board, considers the effectiveness of the operation of internal control procedures in the Group during the financial year. The Audit Committee reviews reports from the internal auditorand considers on the adequacy of the internal audit department’s scope of work and resources.

• The Group’s internal audit department, reporting to the Audit Committee performs regular reviews of businessprocess to access the effectiveness of internal controls and highlight significant risks impacting the Group.

The Board believes that the development of the system of internal control is an ongoing process and has taken stepsthroughout the year to improve its internal control system and will continue to do so.

Statement made in accordance with the resolution of the Board of Directors dated 28 May 2003.

Statement on Internal Control cont’d


Composition

ChairmanYahaya bin Jamaluddin Independent Non-Executive Director

MembersYB Dato’ Hilmi bin Hj Abdul Rashid Independent Non-Executive DirectorLim Eng Thong Non Independent and Non-Executive DirectorDr. Muhammad Ghazie bin Ismail Senior Independent Non-Executive Director

Membership

All members of the Committee have a working familiarity with basic finance and accounting practices, and one of itsmembers i.e. Mr. Lim Eng Thong is member of the Malaysian Institute of Certified Public Accountants.

Authority

The Committee is authorised by the Board:

a. to investigate any matter within its terms of referenceb. to request with full and unrestricted access to any information it seeks as relevant to its activities from any employees

of the Company and Group and all employees are directed to co-operate with any request made by the Committee.c. to seek and accept independent professional advice and to secure attendance of such professionals with relevant

experience and expertise where the Committee consider necessary.

Meetings

The Committee meets at least 4 times annually, or more frequently as circumstances dictate. As part of its duties tofoster open communication, the internal auditor and a representative of the external auditors (if required) will normallyattend the meetings. Other Board members and senior management staff may attend upon invitation of theCommittee. However, the Committee will meet at least once a year without the presence of the Executive Directors.

4 meetings held during the year and the details of attendance of each committee members are as follows:

Committee members No of meetings attended % attendance

Yahaya bin Jamaluddin 4 100%YB Dato’ Hilmi bin Hj Abdul Rashid 3 75%Lim Eng Thong 4 100%Dr. Muhammad Ghazie bin Ismail 2 50%

Report on Audit Committee

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Report on Audit Committee cont’d


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The Committee met 4 times during the year for the following purposes:

• Reviewed the financial statements before the quarterly announcement to KLSE.

• Reviewed the year-end financial statements together with external auditors’ management letter and management response.

• Discussed with external auditors the audit plan and scope for the year as well as the audit procedures to utilised.

• Reviewed the reports of the external auditors.

• Reviewed the risk management framework report.

• Discussed with internal auditor on audit plan and adequacy of resources.

• Reviewed the reports prepared by the internal auditor on the state of internal control of the Group.

• Reviewed related party transactions.

Responsibilities and Duties

The duties of the Committee shall be:

• To consider the appointment of external auditors, the audit fee and any questions of resignation of dismissal.

• To review with the external auditors:

a. the scope of their audit plan,b. their evaluation and findings of the system of internal control, andc. the audit reports on the financial statement.

• To review external auditor’s management letter and management’s response.

• To review the quarterly and year-end financial statements of the Group and the Company, focusing particularly onany changes in or implementation of major accounting policies and procedures, significant adjustments arisingfrom the audit, the going concern assumption and compliance with applicable approved accounting standards andother legal and regulatory requirements.

• To review the adequacy of the scope, function and re s o u rces of internal audit and to ensure that it has the necessaryauthority to carry its work.

• To review the internal audit report and the management’s action taken.

• To review any appraisal or assessment of the performance of the internal audit functions.

• To consider any related party transactions and conflicts of interest situation that may arise within the Group includingany transactions, procedures or course of conduct that raises questions of management integrity.

• Any other function that may be mutually agreed upon by the Committee and the Board, which would be beneficialto the Company and ensure the effectiveness discharge of the Committee’s duties and responsibilities.

Internal Audit Function

The Audit Committee is supported by an independent and adequately resourced internal audit function. TheCommittee is aware of the fact that an independent and adequately resourced internal audit function is essential toassist in obtaining the assurance it requires regarding the maintenance of a sound system of internal control.

The objective of the internal audit function is to provide independent assurance to the Board that the Group’s systemof internal control is adequate and functioning as intended.

During the financial year, the internal audit activities have been carried out according to the internal audit plan, whichhave been approved by the Audit Committee.

Share Buyback

During the financial year, the Company did not enter into any share buyback transaction.

Options or Warrants

During the financial year, 399,000 and 64,200 new ordinary shares were issued arising from the conversion of463,200 options issued pursuant to the Company’s Employees’ Share Option Scheme at an exercise price of RM3.17and RM2.64 per share respectively.

During the financial year, 1,129,400 new ord i n a ry shares were issued pursuant to the exercise of warrants at the exerc i s eprice of RM3.00 per share.

American Depository Receipt (“ADR”) or Global Depository Receipt (“GDR”) Programme

During the financial year, the Company did not sponsor any ADR or GDR programme.

Imposition of Sanctions and Penalties

There were no sanctions or penalties imposed on the Company and its subsidiaries, directors or management by therelevant regulatory bodies during the financial year.

Non-Audit Fees

The amount of non-audit fees paid to the external auditors by the Group for the financial year amounted to RM52,005.

Profit Estimates, Forecast or Projection

The Company did not issue any profit estimate, forecast or projection for the financial year.

Profit Guarantee

During the year, there were no profit guarantees given by the Company. However, pursuant to the acquisition of theentire equity interest in Pacgem Enterprises Limited, Tecpec Limited and Protek Asia Limited (TPP Group) in November2000, the vendor, Mr. Loh Soon Gnee has guaranteed that the profits after taxation of TPP Group will not be less thanUSD6.21 million or RM23.6 million for each of the financial years ending 31 March 2001, 2002 and 2003.

Due to the unexpected prolonged slowdown for the global semiconductor industry in 2001, TPP Group could not meetthe guaranteed profits for the financial year ended 31 March 2002. The shortfall arising thereon was RM11.44 million.As approved by the shareholders, Mr. Loh Soon Gnee was granted an extension to repay the shortfall over six (6) equalquarterly instalments, commencing on 30 September 2002. As at 31 March 2003, Mr. Loh has paid three instalmentstotaling RM5.72million. Another instalment amounting to RM1.91 million was paid on 30 June 2003. The balance ofthe shortfall amounting to RM3.8 million will be payable over two instalments on 30 September 2003 and 30December 2003.

For the financial year ended 31 March 2003, TPP group also recorded a shortfall of RM1.18 million. This shortfallwhich has been credited to the retained earnings as 31 March 2003 in accordance with the applicable ApprovedAccounting Standards in Malaysia has been paid by Mr. Loh on 7 July 2003.

Additional Compliance Information

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Material Contracts Involving Directors and Major Shareholders

The Company entered into a Sale and Purchase Agreement on 18 April 2003 for the proposed acquisition of the entireequity interest of AKN Equity Venture Sdn. Bhd. (AKNEV) for a purchase consideration of RM89,069,128 which will besatisfied by the issuance of 17,464,534 new AKN Technology Bhd. (AKN) ordinary shares at an issue price of RM5.10per share. The completion of the proposed acquisition is conditional upon the approval from the relevant authoritiesand the shareholders of the Company.

Subsequently, the Company had on 15 July 2003 entered into a Supplemental Agreement to the said Sale andPurchase Agreement dated 18 April 2003 for the adjustment of the issue price of AKN Shares to be issued under thesaid acquisition in the event the Proposed Bonus Issued announced by the Company on 28 May 2003 is implementedprior to the issuance and allotment of the AKN Shares under the proposed acquisition.

Dato’ Ahmad Kabeer bin Mohamed Nagoor, one of the vendors of AKNEV, is the Chairman and a substantial share-holder of AKN.

Recurrent Related Party Transactions of a Revenue or Trading Nature

Details of Recurrent Related Party Transactions of a revenue or trading nature for the financial year ended 31 March2003 is disclosed in Note 32 to the financial statement on page 76.

Additional Compliance Information cont’d


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