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VISION

A Successful and Diversified Steel related International

Business Enterprise.

MISSION

• To be “Supplier of First Choice” of Customers.

• To have consistent “Fair and Equitable Return of

Investment” for Shareholders.

• To progress through continuous advancement on

Technology, Innovation and Training.

• To be “A Preferred Place of Work” of employees.

• To be a good Corporate Citizen, who is committed to

a high standard of protection of Health, Safety and

Environment (HSE) at all times.

KKB ENGINEERING BERHAD Registration No.: 197601000528 (26495-D)

1 A N N U A L R E P O R T 2 0 1 9

2 CORPORATE INFORMATION

3 CHAIRMAN’S STATEMENT

5 BOARD OF DIRECTORS’ PROFILE

11 KEY SENIOR MANAGEMENT’S PROFILE

13 CORPORATE STRUCTURE

14 GROUP PERFORMANCE

15 MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A)

30 SUSTAINABILITY STATEMENT

34 CORPORATE GOVERNANCE OVERVIEW STATEMENT

44 STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL

49 DIRECTORS’ REPORT

53 STATEMENT BY DIRECTORS & STATUTORY DECLARATION

54 INDEPENDENT AUDITORS’ REPORT

57 STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

58 STATEMENTS OF FINANCIAL POSITION

60 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

61 COMPANY STATEMENT OF CHANGES IN EQUITY

62 STATEMENTS OF CASH FLOWS

64 NOTES TO THE FINANCIAL STATEMENTS

126 OTHER DISCLOSURES

128 ANALYSIS OF SHAREHOLDINGS

131 LIST OF PROPERTIES

Contents

KKB ENGINEERING BERHAD 2

CORPORATE INFORMATION

BOARD OF DIRECTORS

Chairman/Group Managing Director• Dato Kho Kak Beng

Independent Non-Executive Directors• Dr Arjunan Subramaniam• Lau Nai Pek• Datin Mary Sa’diah Binti Zainuddin• Yong Voon Kar

Non-Independent Non-Executive Directors• Chai Woon Chew• Syed Hizam Alsagoff

Group Executive Director• Kho Pok Tong

Executive Director• Kho Poh Lin

• COMPANY SECRETARY Voon Jan Moi [MAICSA 7021367]

• LEGAL ADVISER Battenberg & Talma, Advocates 1st Floor, No. 4, Jalan Song Thian Cheok 93100 Kuching, Sarawak, Malaysia

• AUDITORS Ernst & Young PLT, Chartered Accountants 3rd Floor, Wisma Bukit Mata Kuching Jalan Tunku Abdul Rahman 93100 Kuching, Sarawak, Malaysia

• PRINCIPAL BANKERS Hong Leong Bank Berhad Bank of China (Malaysia) Berhad CIMB Bank Berhad Ambank (M) Berhad

• SHARE REGISTRAR Boardroom Share Registrars Sdn Bhd Registration No.: 199601006647 (378993-D) 11th Floor, Menara Symphony No. 5, Jalan Prof. Khoo Kay Kim Seksyen 13 46200 Petaling Jaya, Selangor, Malaysia Helpdesk: 603-7890 4700 Fax: 603-7890 4670 Email: [email protected]

• REGISTERED OFFICE Head Office: Lot 865, Section 66, Jalan Kilang Bintawa Industrial Estate 93450 Kuching, Sarawak, Malaysia Tel: 6082-333 877 (10 lines) Fax: 6082-331 152 Email: [email protected]

Corporate Office: No. 22, 4th Floor, Jalan Tunku Abdul Rahman 93100 Kuching, Sarawak, Malaysia Tel: 6082-419 877 Fax: 6082-419 977 Email: [email protected]

Branch Office – Kota Kinabalu: No. 11-13, Jalan 1G KKIP Selatan Lots 13, 14 & 15 (IZ 4) Kota Kinabalu Industrial Park 88460 Kota Kinabalu, Sabah, Malaysia Tel: 6088-495 240 (3 lines) Fax: 6088-495 340 Email: [email protected]

• STOCK EXCHANGE LISTING Main Market of Bursa Malaysia Securities Berhad (BMSB) Sector: Industrial Products & Services Sub-sector: Industrial Engineering Stock Name: KKB Stock Code: 9466

• WEBSITE www.kkbeb.com.my

3 A N N U A L R E P O R T 2 0 1 9

CHAIRMAN’S STATEMENT

Dear Stakeholders,

On behalf of the Board of Directors, I would like to congratulate the KKB team on their stellar achievements and great accomplishments in 2019. 2019 was busy and rewarding for us as we executed our strategy of building a foundation for growth and sustainable profitability. We strengthened our core segments and continued to drive changes to reap the benefits. I am pleased to report that your Company had an outstanding year, crossing major milestones, and delivering commendable financial performance for the financial year ended 31 December 2019 (“FY2019”).

KKB Group crossed two important milestones in FY2019. The Group’s annual revenue crossed the half-billion mark, more than 29-fold increase since its listing in 1994. Also, the arbitration proceedings between KKB Builders Sdn Bhd (a wholly-owned subsidiary of KKB Engineering Berhad) and Global Upline Sdn Bhd has been successfully concluded. The Arbitral Tribunal had made, issued and published its Final Award in favour of KKB Builders Sdn Bhd.

I am also glad to report that KKB Engineering Berhad was selected as one of the winners by Focus Malaysia, in its annual signature event “Best Under Billion Awards” in November 2019. Under category of Companies with market capitalisation of between RM150 million to RM499 million, KKB was awarded the “Best Turnaround Story”. This category aims to recognise a Company which has succeeded in navigating through headwinds to return to profitability.

We recognise that producing sustainable growth in the future will require continued and further excellence in people leadership, strategy, commercial agility, governance and investment in technology.

Summary Financial Performance

Group’s revenue for the current financial year (“FY2019”) was RM559.3 million, a growth of 35.6% as compared to RM412.5 million posted in the preceding financial year ("FY2018"). We saw strong revenue growth in our Engineering sector which grew 39.1%, whilst Manufacturing sector grew 9.0% over the preceding financial year. We continued to be well diversified in our revenue stream. The Steel Fabrication and Civil Construction division within the Engineering sector registered a combined revenue of RM503.7 million (FY2018: RM360.2 million), whilst the Steel Pipes manufacturing division registered revenue of RM40.8 million (FY2018: RM34.2 million) and LPG Cylinders manufacturing division posted revenue of RM12.1 million (FY2018: RM14.2 million).

The Group achieved profit before tax of RM77.9 million in FY2019, as compared to RM29.5 million in FY2018. Profit Attributable to equity holders of the parent increased 171.0% to RM47.7 million (FY2018: RM17.6 million). Thus, Earnings per share grew from 6.84 sen in FY2018 to 18.50 sen in FY2019.

The Group's balance sheet remained sound, with healthy cash position of RM111.4 million as at 31 December 2019. We remain committed to optimising cash flow, maintaining capital discipline and improving value and returns.

The Group’s net assets were RM336.7 million, up from RM299.4 million in FY2018. This was equivalent to net assets per share of RM1.31, compared to RM1.16 per share in FY2018.

We ended 2019 with an order book of more than RM800.0 million, providing the Group with a healthy pipeline of revenue for FY2020. In 2019, we spent about RM22.7 million on capital expenditure. A significant portion of this expenditure was deployed for capacity expansion to support growth opportunities for our major Onshore fabrication for the Oil & Gas facilities, such as the construction and extension to our new mega Fabrication workshop 9 at Lot 777.

Strategic focus

Our focus and strategy are clear. Our plan consists of continuing to grow and strengthen our core businesses as well as widening our presence in the oil and gas sector and prudently managing operating costs and business risks to stay competitive. We are committed to growing our strategic lines of business and we have been keeping a constant lookout for acquisition targets that can contribute profitable revenue streams and sharpen our competitive edge.

We undertook a review of the group's strategy and refined it to ensure KKB is robust, yet agile and flexible enough to grow in an uncertain environment. We concentrate on getting the right balance between exploring new opportunities and developing those areas where we are already leaders. We strongly believe that KKB Group is well-positioned for future growth, capitalising on its competitive strengths with strong track record over fifty (50) years. To support our growth aspiration, we continue to focus on our people, technology and innovation and outlined how we could be gearing up to embrace Industry 4.0. We continued our efforts to re-groom the Group for the challenges ahead. We recognise that we cannot build all our capabilities internally, hence the need for increased collaboration with external partners to leverage each other’s expertise.


CHAIRMAN’S STATEMENT (CONT’D)

Consistent Fair and equitable return of Investment to shareholders

KKB’s financial position remains strong. In 2019, dividend of RM10.3 million was paid to the shareholders for FY2018 and significant investments were made in solidifying the company’s footing and preparing for its future growth, including continuous investments in innovation; taking Information Technology to the next level and expansion of our existing fabrication facilities and improving the working environment of our employees. In line with our mission to have consistent fair and equitable return of investment for shareholder, the Board of Directors has proposed a first and final single tier dividend of six (6.0) sen per share for FY2019 (FY2018: 4.0 sen), subject to approval by shareholders at the forthcoming Annual General Meeting.

Our presence in the major onshore fabrication

Our presence in the Major Onshore fabrication for the Oil and Gas facilities will help the Group to diversify our core business in Structural Steel Fabrication engineering for the Oil and Gas Sectors to complement our traditional engineering and manufacturing business activities.

We continue to look at modern technology and talent to support and grow our core competencies in Structural Steel Fabrication engineering for the Oil and Gas Sectors.

The long-term prospects for the Group are encouraging and I remain confident that we will continue to deliver value for our customers, employees, shareholders and other stakeholders over the coming years.

Appreciation

I would like to thank my fellow directors for their concerted effort and insights through the past years. On behalf of the board, I would like to thank Datuk Syed Ahmad Alwee Alsree, our Non-Independent Non-Executive Director who stepped down from the board on 3 December 2019. Datuk Syed’s past contribution to the Group has been invaluable and we wish him well in his future endeavours.

The board is pleased to have welcomed Mr Syed Hizam Alsagoff and Mr Yong Voon Kar to KKB. Hizam has made early contributions to the board’s activities as he was appointed as Alternate Director to Datuk Syed Ahmad Alwee Alsree prior to his appointment as Non-Independent Non-Executive Director in KKB on 4 December 2019. Mr Yong Voon Kar was a Managing Partner of Ernst & Young, East Malaysia office from 2002 to 2018 prior to his appointment as Independent Non-Executive Director in KKB on 1 March 2020. Mr Yong’s professional career in Ernst & Young spanned over 34 years in assurance, corporate recovery and corporate finance service lines. Both of them bring a wealth of experience and strong credentials in financial leadership along with deep commercial awareness to KKB Group.

We are poised for sustained growth in 2020 and beyond, barring any unforeseen circumstances, backed by the winning combination of our people, our strategy as well as our proven strengths and track record. These achievements would not be attained without the efforts from the Group’s management team and the unwavering commitment of our employees, who in their own way and collectively, have made us a better and stronger organisation. My heartfelt thanks to the management and staff across the KKB Group for their persistent efforts, teamwork and contributions.

Last but not least, I would like to express my appreciation to our shareholders, customers, suppliers, bankers, business associates, advisers and relevant authorities whom we have been dealing with over the years. Thank you for the trust and confidence you have placed upon us and we certainly looking forward to your steadfast support. Running a sustainable business has long been at the heart of KKB’s culture. With over 50 years of solid foundation, I firmly believe that KKB Group is well positioned to deliver sustainable growth and value creation for our shareholders in a fair, transparent and responsible manner, consistent with the values of the Group.

Thank you.

DATO KHO KAK BENGChairman/Group Managing Director

5 A N N U A L R E P O R T 2 0 1 9

BOARD OF DIRECTORS’ PROFILE

DATO KHO KAK BENGChairman/Group Managing Director

Gender: Male

Age: 76

Nationality: Malaysian

Date Joined: 20 February 1976

Dato Kho Kak Beng is the founder of KKB Engineering Berhad. He started his business in 1962 in welding works and subsequently with his indepth knowledge in steel works he ventured into other steel related engineering and construction industries. His vast experience and dynamic vision and entrepreneurship coupled with his technical and managerial skills have strongly positioned him as Group Managing Director in charge of the overall group management and business development. He sits on the Board of various other private companies.

Dato Kho’s entrepreneurship was recognized and endorsed by the State Government of Sarawak when he was awarded Master Entrepreneur of the Year 2004 by the Ministry of Industrial Development Sarawak on 7 September 2004. On 29 July 2010, he received the Outstanding Entrepreneurship Award from Asia Pacific Entrepreneurship Awards 2010 Malaysia. Further, Dato Kho was adjudged one of the three (3) Top Nominees for the Master Entrepreneur Category of EY Entrepreneur of the Year 2014 Malaysia Awards. He was also awarded Pingat Terpuji Jubli Emas (P.T.E) by The State Government of Sarawak in conjunction with Memorial Awards Ceremony of Sarawak Independence Golden Jubilee Celebration on 28 August 2014. On 5th November 2015, he was conferred The BrandLaureate Great Entrepreneur Brand ICON Leadership Awards by Asia Pacific Brands Foundation (APBF). On 23 November 2018, Dato Kho was conferred the coveted Sarawak State Outstanding Entrepreneur Award 2018 by the Ministry of Industrial Development, in association with the Sarawak Chamber of Commerce and Industries (SCCI) and Ernst & Young in recognition of his contribution towards the State’s economic development. He is the Chairman of Sarawak Foundry & Engineering Industries Association. He is also the Honorary Chairman of Kuching Samarahan Division Building & Civil Engineering Contractors Association and the Honourable Advisor of The Federation of Kuching and Samarahan Division Chinese Association including various other local community associations. Dato Kho Kak Beng is also the Vice President of Federation of Malaysian Foundry & Engineering Industries Association, Sarawak.

Dato Kho Kak Beng does not sit on any Board Committee of the Company. He is the Chairman of Management Executive Committee (“MANCO”). He does not hold any directorship in other public companies. He is the father to Directors, Kho Pok Tong and Kho Poh Lin and is a shareholder of Kho Kak Beng Holding Company Sdn Bhd. He has no previous convictions for any offences within the past 5 years nor any public sanction or penalty imposed by the relevant regulatory bodies during the financial year. Except for certain recurrent related party transactions of a revenue nature for which he is deemed interested by virtue of his deemed indirect interests, he has no conflict of interest with the Company.

During the financial year ended 31 December 2019, he attended 3 out of 4 Board meetings.

As at 22 April 2020, his shareholdings in the Company are as follows:

Name of Company Direct Shareholding % Indirect

Shareholding %

KKB Engineering Berhad 4,742,480 1.84 111,244,500* 43.15

* Deemed interested by virtue of his substantial interest in Kho Kak Beng Holding Company Sdn Bhd, spouse’s and child’s shareholding


BOARD OF DIRECTORS’ PROFILE (CONT’D)

DR ARJUNAN SUBRAMANIAMIndependent Non-Executive Director

Gender: Male

Age: 78


Date Joined: 5 September 1994

LAU NAI PEKIndependent Non-Executive Director

Gender: Male

Age: 67


Date Joined: 22 July 2011

Dr Arjunan Subramaniam is the Chairman of the Audit Committee and on 15 August 2019 he was appointed as Chairman of Nomination & Remuneration Committee (“NRC”). He is also appointed as Senior Independent Director, to whom concerns may be conveyed.

He holds a Bachelor of Art (Hons.) degree from University of Malaya, Bachelor of Law (Hons.) degree and a Master of Laws degree from University of London. He is also Doctor of Philosophy (Malaya). He also holds a Certificate in Legal Practice (CLP).

He joined Inland Revenue Department and was Assistant Director General when he left to be a Tax Director of an International Accounting Firm. Dr Arjunan has extensive experience in corporate tax planning, restructuring, tax investigation and formulating business plans and drafting of tax statutes and is still an active member. He also wrote several books on tax policies and taxation and was an Adjunct Professor at UUM (School of Accounting). Previously, he was an Adjunct Professor of Law at Northern Territory University, Darwin, Australia. He was also formerly an Adjunct Professor at University Tun Abdul Razak.

Currently, he is an advocate and solicitor, and is a partner of Messrs Shanker, Arjunan & Chua.

Dr Arjunan Subramaniam does not hold any directorship in other public listed companies. He has no relationship with other directors and substantial shareholders and has no previous convictions for any offences within the past 5 years nor any public sanction or penalty imposed by the relevant regulatory bodies during the financial year. He has no conflict of interest with the Company.

During the financial year ended 31 December 2019, he attended 4 out of 4 Board meetings and 4 out of 4 Audit Committee meetings.

He has no shareholdings in the Company.

Lau Nai Pek is a member of the Audit Committee. He holds a Bachelor of Commerce degree from University of Canterbury, New Zealand. He is a member of the Malaysian Institute of Accountants and also a member of the New Zealand Society of Accountants.

He has over 35 years of professional experience in finance and leading financial organizations in various locations in Australia, Brunei, China, Malaysia, New Zealand, the Netherlands and the United Kingdom. He retired from Shell Malaysia in August 2011 after serving the Shell Group for about 30 years. His major assignments include the Finance Director for Shell Malaysia, Finance Director for Shell China, Global Controller for the Exploration & Production Division of Royal Dutch Shell, and Vice-President Finance for Shell International Exploration and Production B.V., the Netherlands.

Lau Nai Pek is currently a Non-Executive Director and Chairman of the Board Audit Committee of Axiata Group Berhad, a public listed company and he also sits on the Board of Celcom Axiata Berhad. He is a Non-Executive Director and Chairman of the Board Audit Committee of Malaysia Airlines Berhad. He is also a member of the Investment Panel of the Malaysian Employees Provident Fund.

He has no relationship with other directors and has no previous convictions for any offences within the past 5 years nor any public sanction or penalty imposed by the relevant regulatory bodies during the financial year. He has no conflict of interest with the Company.

During the financial year ended 31 December 2019 he attended 4 out of 4 Board meetings and 4 out of 4 Audit Committee meetings.


7 A N N U A L R E P O R T 2 0 1 9


DATIN MARY SA’DIAH BINTI ZAINUDDINIndependent Non-Executive Director

Gender: Female

Age: 63



Datin Mary Sa’diah Binti Zainuddin was appointed as member of the Nomination & Remuneration Committee (“NRC”) on 15 August 2019. She holds a Bachelor of Social Science (Honours) degree from University Sains Malaysia, Penang.

She has over 30 years of experience in various fields with PETRONAS. She was General Manager for PETRONAS Sarawak Regional Office, Kuching.

Currently, she sits on the Board of Naim Holdings Berhad and also a Board member of the Dewan Bandaraya Kuching Utara. She has no relationship with other directors and has no previous convictions for any offences within the past 5 years nor any public sanction or penalty imposed by the relevant regulatory bodies during the financial year. She has no conflict of interest with the Company.

During the financial year ended 31 December 2019, she attended 4 out of 4 Board meetings.

She has no shareholdings in the Company.

YONG VOON KARIndependent Non-Executive Director

Gender: Male

Age: 61


Date Joined: 1 March 2020

Yong Voon Kar is a Chartered Accountant by profession.

He has been a Member of the Institute of Chartered Accountants in Australia (since renamed as Chartered Accountants, Australia & New Zealand) since 1984 and is a Member of the Malaysia Institute of Accountants. He graduated from the Royal Melbourne Institute of Technology with a Bachelor of Business Studies in Accountancy (distinction) in 1981.

He was a Managing Partner of Ernst & Young East Malaysia offices from 2002 to 2018 when he retired from the partnership of Ernst & Young, Malaysia. He joined Ernst & Young Malaysia (formerly Ernst & Whinney) in 1984 and was admitted as a Partner in 1996. His professional career in Ernst & Young spanned over 34 years in the assurance, corporate recovery and corporate finance service lines. He had been the lead audit partner of major East and West Malaysia public and non-public listed companies covering a range of industries such as manufacturing, processing, trading, construction and engineering services, plantations, timber, property development, services, media publishing and utilities.

Yong Voon Kar had served in various governance and advisory roles in the Ernst & Young global and regional network from 2008 to 2015. During this period he served as a member of the Asia Pacific Governance/ Advisory Council and was its Finance Sub Committee Co-Chair from 2010 to 2015. He had also served at Ernst & Young’s highest governance level – the Global Governance/ Advisory Council from 2013 to 2015.

Currently, he is the Independent Director of Jaya Tiasa Holdings Berhad. He is also a Trustee of Yayasan Sin Chew, a company incorporated under the Companies Act, 1965 (predecessor to the Companies Act 2016) for the main purpose of carrying out charitable activities.

He has no relationship with other directors and substantial shareholders and has no previous convictions for any offences within the past 5 years nor any public sanction or penalty imposed by the relevant regulatory bodies during the financial year. He has no conflict of interest with the Company.




* Deemed interested by virtue of his interest in Laman Satria Sdn Bhd

CHAI WOON CHEWNon-Independent Non-Executive Director

Gender: Male

Age: 62



Chai Woon Chew was appointed as Independent Non-Executive Director since he joins the Company. On 14 April 2005, he was re-designated as Non-Independent Non-Executive Director. He is a member of the Audit Committee and on 15 August 2019, he was appointed as member of the Nomination & Remuneration Committee (“NRC”).

He holds a Bachelor of Laws (Hons.) degree from the University of Buckingham, Bachelor of Science (Hons.) degree from University of Surrey, UK and qualified as Barrister-at-Law from Lincoln’s Inn, England.

Chai Woon Chew is a partner of Messrs Michael Chai & Co., Advocate & Solicitors.

Currently, he sits on the Board of Bank of China (Malaysia) Berhad. He is not related to any of the directors and has no previous convictions for any offences within the past 5 years nor any public sanction or penalty imposed by the relevant regulatory bodies during the financial year. He has no conflict of interest with the Company.

During the financial year ended 31 December 2019, he attended 4 out of 4 Board meetings and 4 out of 4 Audit Committee Meetings.



Shareholding %

KKB Engineering Berhad 435,720 0.17 14,400,000* 5.59

SYED HIZAM ALSAGOFFNon-Independent Non-Executive Director

Gender: Male

Age: 52

Nationality: Singaporean


On 4 December 2019, Syed Hizam Alsagoff was re-designated and appointed as Non-Independent Non-Executive Director. Due to the resignation of Datuk Syed Ahmad Alwee Alsree from the Board, he resigned as Alternate Director to Datuk Syed Ahmad Alwee Alsree.

He graduated with a Bachelor of Science degree from San Jose State University, California, USA in 1996, majoring in Finance with a minor in Economics. He also received the university award, Cum Laude, for Outstanding Scholastic Achievement.

Syed Hizam Alsagoff is Main Market-Listed Cahya Mata Sarawak Berhad’s (“CMS”) Group Chief Financial Officer. He joined the conglomerate in 2005 where he is responsible for all Group Finance and Treasury-related matters. His role covers providing updates and advice on finance, budgetary and treasury-related matters, overseeing timely reporting and analysis, monitoring financial performance and investigating variances, as well as overall financial management and planning to support decision-making on operational and strategic issues. Currently, he sits on the Board of Al Wasatah Al Maliah Company (Closed Joint Stock Company), Saudi Arabia, and several subsidiaries and associates companies under the CMS Group.

Prior to joining CMS, Syed Hizam Alsagoff built 15 years’ experience in finance management through positions held in complex organizations in a variety of industries and countries – in education (Queensland University of Technology, Australia), textile (Eclipse Textiles Pty Ltd., Brisbane, Australia), in computer hardware and the semi-conductor industry (Zac International, San Francisco, USA) and in a public listed (NYSE) manufacturing of aeronautical engineering parts (Space Systems Loral, USA).

He has no relationship with other directors and has no previous convictions for any offences within the past 5 years nor any public sanction or penalty imposed by the relevant regulatory bodies during the financial year. Except for certain recurrent related party transactions of a revenue nature for which he is deemed interested by virtue of his deemed indirect interests, he has no conflict of interest with the Company.

During the financial year ended 31 December 2019, he attended 2 out of 4 Board meetings.


9 A N N U A L R E P O R T 2 0 1 9


KHO POK TONGGroup Executive Director

Gender: Male

Age: 51


Date Joined: 14 January 1994

Kho Pok Tong is a member of Management Executive Committee (“MANCO”) and Chairman of the Risk Management Committee. He holds a Bachelor of Laws (Hons.) degree from University of London.

He joined the Company as Manager in 1992 and was responsible for the business and operations of various divisions within the Company. Instrumental in the pre-public listing and corporate exercise of the Company, he was appointed as Executive Director in 1994 and as Group Executive Director on 1 October 2006.

In line with the Company’s expansion plan and diversifications from Engineering activities - Steel, Construction and Hot-Dip Galvanizing into Steel Related Manufacturing activities – LP Gas Cylinders and Steel Water Pipes inclusive Specials and Steel Pipe Piles, he is currently responsible for the overall Group’s Operations. He initiated the Quality Assurance Programme and now oversees the maintenance of the Group’s ISO certifications and Group’s OHSAS 18001:2007 certification.

He assists the Group Managing Director with planning in Group’s Finance and its long-term Business Strategies and Development.

He is a key member in the Group’s expansion into the Oil & Gas Sector and a Director of OceanMight Sdn Bhd (a PETRONAS Major Licensed Company).

On 13 April 2014, he received the Outstanding Entrepreneurship Award for Outstanding & Exemplary Achievements in Entrepreneurship from Asia Pacific Entrepreneurship Awards 2014 Malaysia and subsequently on 17 June 2014, he won the Best CEO for Investor Relation (Small Cap) category from Malaysia Investor Relations Awards (MIRA).

He is a member of the Federation of Malaysian Manufacturers Working Committee (Sarawak) since 30 August 2001. He also sits on the Board of several subsidiary and associate companies of KKB Engineering Berhad as well as various other private companies.

Kho Pok Tong does not hold any directorship in other public listed companies. He is the son of Dato Kho Kak Beng, brother of Kho Poh Lin and a shareholder of Kho Kak Beng Holding Company Sdn Bhd. He has no previous convictions for any offences within the past 5 years nor any public sanction or penalty imposed by the relevant regulatory bodies during the financial year. Except for certain recurrent related party transactions of revenue nature for which he is deemed interested by virtue of his interests in certain companies in which he is a Director, he has no conflict of interest with the Company.

During the financial year ended 31 December 2019, he attended 4 out of 4 Board meetings and 4 out of 4 Audit Committee meetings.



Shareholding %


* Deemed interested by virtue of his substantial interest in Kho Kak Beng Holding Company Sdn Bhd



KHO POH LINExecutive Director

Gender: Female

Age: 53


Date Joined: 14 January 1994

Kho Poh Lin is a member of the Management Executive Committee (“MANCO”) and the Risk Management Committee. She holds a Bachelor of Laws (LL.B) (Hons.) degree from University of Buckingham and also a Certificate in Legal Practice (CLP). She is also a licensed Company Secretary.

She is responsible for the Corporate and Legal Affairs of the Company and its Group of Companies. In addition, she also takes responsibilities in the administration and management of the Company such as human resources, registration and licensing with statutory and regulatory authorities. She also takes charge of all compliance requirements of Bursa Securities and Securities Commission for the Company including all company secretarial practices for the Group. Before appointment as Executive Director, Kho Poh Lin served the Company as Corporate and Legal Affairs Manager and also held the position of Alternate Director. Prior to joining the Company, she was attached to a legal firm. She also sits on the Board of several subsidiaries of KKB Engineering Berhad as well as other private companies.

Kho Poh Lin does not hold any directorship in other public listed companies. She is the daughter of Dato Kho Kak Beng, sister of Kho Pok Tong and a shareholder of Kho Kak Beng Holding Company Sdn Bhd. She has no previous convictions for any offences within the past 5 years nor any public sanction or penalty imposed by the relevant regulatory bodies during the financial year. Except for certain recurrent related party transactions of a revenue nature for which she is deemed interested by virtue of her interests in certain companies in which she is a Director, she has no conflict of interest with the Company.

During the financial year ended 31 December 2019, she attended 4 out of 4 Board meetings and 4 out of 4 Audit Committee meetings.

As at 22 April 2020, her shareholdings in the Company are as follows:


Shareholding %


* Deemed interested by virtue of her substantial interest in Kho Kak Beng Holding Company Sdn Bhd

11 A N N U A L R E P O R T 2 0 1 9

KEY SENIOR MANAGEMENT’S PROFILE

DIWEK ANAK DAYUSGroup Chief Financial Officer

Gender: Female

Age: 53



Diwek Anak Dayus joined KKB Engineering Berhad (“KKB”) as Company Accountant. Since then she was promoted to several key positions before appointed as Group Chief Financial Officer on 1 July 2013.

She is a Chartered Accountant and a member of the Malaysian Institute of Accountants. She has accumulated over 30 years working experience in financial and operational management positions in commercial firms of different sectors such as manufacturing, property development, construction and engineering services.

During the course of her work, she has acquired invaluable experience and knowledge in the area of Accounts & Finance, Risk and Internal Control System, Corporate Tax Planning, Sales & Service Tax, Treasury Management, Implementation of Enterprise Resource Planning and Goods and Services Tax.

She has also attended and passed the examination for the six (6) days course conducted jointly by the Royal Customs of Malaysia and Malaysian Institute of Accountants on Goods and Services Tax (GST) for GST Consultants/ Agents.

On 4 June 2015, she won the Best CFO for Investor Relation (Small Cap) category from Malaysia Investor Relations Awards (MIRA).

Currently, she sits on the Board of KKB Industries (Sabah) Sdn Bhd and Harum Bidang Sdn Bhd, subsidiaries of KKB and is a Director of Edisi Optima Sdn Bhd, associate company of KKB. She is also responsible for managing the finance and accounting division of the Company and the Group and ensuring that the financial reports are accurate and completed in a timely manner. She works closely with the Group Managing Director/Chairman, Group Executive Director (GED) and Executive Director (ED) and directly assists the GED and ED on all strategic and tactical matters including but not limited to financial planning and reporting, Corporate Tax Planning, risk and internal control, treasury and budget management, cost-benefit analysis, forecasting and the securing of new funding/Banking facilities for the Group.

She does not hold any directorship in public companies and listed issuers. She has no relationship with other directors and substantial shareholders and has no previous convictions for any offences within the past 5 years nor any public sanction or penalty imposed by the relevant regulatory bodies during the financial year. She has no conflict of interest with the Company.

As at 22 April 2020, her shareholdings in the Company are as follows:


Shareholding %

KKB Engineering Berhad 53,700 0.02 - -


KEY SENIOR MANAGEMENT’S PROFILE (CONT’D)

DOMINIC A/L LAAHSenior General Manager (Group Commercial & Project)

Gender: Male

Age: 52


Date Joined: 4 April 1995

Dominic A/L Laah joined the Company as Quantity Surveyor. Since then he was promoted to several key positions before assuming his present position as Senior General Manager (Group Commercial & Project) since 1 July 2013.

He holds a Diploma in Quantity Surveying from Federal Institute of Technology Kuala Lumpur and Certificate in Quantity Surveying from City and Guilds of London Institute. He has 29 years working experience in Quantity Survey.

Currently, he sits on the Board of Edisi Optima Sdn Bhd, associate company of KKB. He is also responsible for the Group Commercial Department’s affairs. His duties include but are not limited to authorizing Pre and Post Tendering works, Contract Management, Project Management for successful completion of Steel Fabrication, Hot-Dip Galvanising and Civil Construction businesses.

Dominic does not hold any directorship in public companies and listed issuers. He has no relationship with other directors and substantial shareholders and has no previous convictions for any offences within the past 5 years nor any public sanction or penalty imposed by the relevant regulatory bodies during the financial year. He has no conflict of interest with the Company. He has no shareholdings in the Company.

LIEW HUP KUISenior General Manager (Group Manufacturing-Business)

Gender: Male

Age: 51


Date Joined: 6 May 1995

Liew Hup Kui is appointed as Senior General Manager (Group Manufacturing-Business) since 1 October 2015. He holds an Honour Degree in Manufacturing Management from Open University Malaysia, Advance Diploma in Business Management from Management Institute Department of Singapore and Diploma in Chemical Process Technology from Singapore Polytechnic, Singapore.

He is currently responsible for the Group Manufacturing-Business Department’s affairs. His duties include but are not limited to authorizing and overseeing of production and development of polymeric uPVC roofing, QC, production and engineering works of Kuching Plant, working on reconditioning, RQ, shot blasting and repainting of used LPG Cylinders, the smooth LPG Cylinders manufacturing operation and KKB facilities, factories, machineries and ensuring all assets are in working condition.

He does not hold any directorship in public companies and listed issuers. He has no relationship with other directors and substantial shareholders and has no previous convictions for any offences within the past 5 years nor any public sanction or penalty imposed by the relevant regulatory bodies during the financial year. He has no conflict of interest with the Company.


13 A N N U A L R E P O R T 2 0 1 9

CORPORATE STRUCTURE

100%> KKB INDUSTRIES (SABAH) SDN BHD • Manufacturing of Steel Pipes and Pipe Specials • Steel Fabrication

100%> OPTIMA LINE ENGINEERING SDN BHD • Property Holding

100%> KKB UNIVERSAL ROOFING (SARAWAK) SDN BHD • Manufacturing of uPVC Roofing Sheets, uPVC Pipes and other related products

90%> HARUM BIDANG SDN BHD • Manufacturing and Trading of Steel Pipes and Pipe Specials

70%> KKBWCT JOINT VENTURE SDN BHD • Civil Construction

60.81%> OCEANMIGHT SDN BHD • Structural Steel Fabrication for Oil & Gas Facilities

40%> EDISI OPTIMA SDN BHD • Construction and General Engineering • Requalification of LP Gas Cylinders and Related Services

100%> KKB BUILDERS SDN BHD • Building Contractor • Civil Engineering • Water Engineering Works • Others Contracting Services • Earthworks

100%> HB PIPES SDN BHD • Property Holding

13.75%

KKB ENGINEERINGBERHAD

Steel Fabrication

Civil Construction

Hot-Dip Galvanising

LP Gas Cylinders Manufacturing


509,

324,

410

547,

885,

526

TOTAL ASSETS (RM) SHAREHOLDERS’ EQUITY (RM) NET ASSETS PER SHARE (RM) EARNINGS/(LOSS) PER SHARE (SEN)

2015 20172016 2018 2019

333,

436,

117

331,

827,

739

358,

492,

465

301,

351,

780

285,

260,

449

286,

868,

495

299,

356,

222

336,

731,

023

2015 20172016 2018 2019

1.31

2015 20172016 2018 2019

1.17

1.11

1.11 1.16

2015 20172016 2018 2019

50,5

05,2

64

3,61

5,99

9

19,4

38,0

64 42,6

85,2

37

91,2

83,7

66

GROUP PERFORMANCE FOR FINANCIAL YEAR ENDED 31 DECEMBER

REVENUE (RM)PROFIT BEFORE

INTEREST, TAX, DEPRECIATION AND AMORTISATION (RM)

PROFIT/(LOSS) BEFORE TAXATION (RM)

PROFIT/(LOSS) ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT (RM)

2015 20172016 2018 2019

127,

908,

245

103,

110,

656

209,

297,

976

412,

478,

697 559,

281,

188

2015 20172016 2018 2019

37,6

28,9

72

(9,1

40,5

03)

6,37

3,74

5 29,4

87,7

16

77,9

39,8

74

2015 20172016 2018 2019

26,0

30,9

68

(5,7

79,6

51)

1,60

8,04

6 17,6

43,5

67

47,6

86,4

81

4.00

6.00

2.44

0.00

2.11

4.57

14.9

9

4.03

DIVIDEND PER SHARE (SEN) * DIVIDEND YIELD (%) * RETURN ON AVERAGE SHAREHOLDERS’ EQUITY (%) RETURN ON TOTAL ASSETS (%)

2015 20172016 2018 2019

4.00

0.00

2.00

2015 20172016 2018 2019 2015 20172016 2018 2019

8.87

(1.9

7)

0.56

6.02

2015 20172016 2018 2019

(1.7

4)

0.45

3.46

7.81

8.70

* Dividend for FY2019 is based on assumption that Company will pay a First and Final Single Tier Dividend of 6.0 sen per share, upon obtaining Shareholders’ approval at the forthcoming AGM.

10.1

0

(2.2

4)

0.62

6.84

18.5

0

2015 20172016 2018 2019

15 A N N U A L R E P O R T 2 0 1 9

INTRODUCTION

This Management’s Discussion and Analysis (MD&A) of the consolidated financial results of KKB Engineering Berhad (“KKB” or “the Company”) and its subsidiaries (“KKB Group” or “the Group”) should be read in conjunction with the audited consolidated financial statements and notes thereto for the financial year ended 31 December 2019 (“FY2019”). Additional information about the Company is available at www.kkbeb.com.my

COMPANY OVERVIEW

KKB Engineering Berhad is a public listed Company listed on the main Board of Bursa Malaysia Securities Berhad. KKB has developed a strong base for steel fabrication and with its experience and intricate understanding of the industry; it further expanded into other synergistic activities.

The operational activities of the KKB Group are segmented into the Engineering and Manufacturing sectors:

Engineering Sector

• Steel Fabrication

Activities under this division include supply, fabrication and installation of steel structures, piping spool, steel storage tanks and all other special fabricated items for industries, factories and plants including Major Fabrication – Offshore Facilities for the Oil and Gas sectors.

The Group has another similar plant in Kota Kinabalu, Sabah operated under our subsidiary company which provides similar steel fabrication activities.

• Hot-Dip Galvanising

This division provides additional services to its steel fabrication activities that require any steel products to be galvaniseds. Products that can be galvanised include bolts and nuts, cable ladder, transmission tower, street lighting columns, high & low tension poles, angles bars, pipes, tubes and channels, gate and fencing, gratings and chequered plates, platforms and all other steel fabricated items.

KKB has a Galvanising Bath size of 7.0m length x 1.2m width x 1.8m depth to cater for any steel products within its range that requires galvanising.

• Civil Construction

Under the Civil Construction division, the Group undertakes construction projects for petrol service stations, turnkey construction projects, laying and commissioning of gas and water pipelines and other construction activities.

MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A)


MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A) (CONT’D)

Manufacturing Sector

• LP Gas Cylinders Manufacturing

As one of the leading LP Gas cylinders manufacturers in Malaysia, KKB designs, manufactures and reconditions domestic and industrial LP Gas cylinders using advanced and sophisticated systems such as Zig-Zag blanking machines, automatic trimming and joggling machines and robotic welding. The Company customizes LP Gas cylinders to clients’ exact requirements and cylinders can be supplied with compact, vapour withdrawal or liquid withdrawal valves.

The Company has manufactured and supplied LP Gas cylinders to the following Petroleum Companies:

(a) Shell Malaysia Trading Sdn Bhd(b) Shell Timur Sdn Bhd(c) Brunei Shell Marketing Sdn Bhd(d) Shell Gas Lanka Limited, Sri Lanka(e) Petronas Dagangan Berhad(f) ExxonMobil Malaysia Sdn Bhd(g) Boustead Petroleum Marketing Sdn Bhd(h) NGC Malaysia Sdn Bhd(i) Petron Malaysia Refining & Marketing Bhd (j) Summit Petroleum (M) Sdn Bhd(k) MyGaz Sdn Bhd

• Steel Pipes Manufacturing

KKB Group manufactures Steel Tubular Piles, Mild Steel Concrete Lined (MSCL) pipes and Mild Steel Polyurethane Lined (MSPUL) pipes and pipe specials for foundation, dredging, land reclamation, water and sewage delivery system.

Our Group has two (2) manufacturing plants one of which is located in Kuching, Sarawak and another one in Kota Kinabalu, Sabah.

Striving to deliver products and services of superior quality and high standards to customers, almost all of KKB Group’s activities are certified:

a) ISO 9001:2015 by Lloyd’s Register Quality Assurance (LRQA)

• Fabrication of Steel Structures, Non-Pressurised Tanks, Silos, Piping Spools, Lamp Post, Guardrails and Steel Containers

• Provision of Hot-Dip Galvanising of Steel Products • Design and Manufacture of LP Gas Cylinders • Reconditioning of used LP Gas Cylinders • Manufacture of Steel Tubular Piles • Manufacture of Polyurethane Lined Mild Steel Pipes and Pipe Specials • Manufacture of Mild Steel Concrete Lined Pipes and Specials • Manufacture of Concrete Lined Mild Steel Pipes and Pipe Specials

b) ISO 9001:2015 by Bureau Veritas Certification (Malaysia) Sdn Bhd (BVC)

• Provision of Tendering Process for Project Management Services (Including Design activity) For Buildings, Fuel Oil Depot & Installation (including Petrol Service Filling Stations)

• Inspection and Re-Qualification of Used LP Gas Cylinders • Provision of Engineering, Procurement, Construction (including pre-commissioning and load-out),

Installation, Hook up and Commissioning of Oil & Gas Onshore and Offshore Facilities

c) OHSAS 18001:2007 by Bureau Veritas Certification (Malaysia) Sdn Bhd (BVC)

• Fabrication of Steel Structures, Installation and Commissioning at Site • Provision of Hot-Dip Galvanising of Steel Products • Manufacturing of LP Gas Cylinders

17 A N N U A L R E P O R T 2 0 1 9

• Civil Construction Services • Provision of Engineering, Procurement, Construction (including pre-commissioning and load-out),

Installation, Hook up and Commissioning of Oil & Gas Onshore and Offshore Facilities • Manufacture of MSCL (Mild Steel Cement Lined) Steel Pipes, Pipe Specials, Fittings and Fabrication of

Steel Structures • Manufacture of MSCL (Mild Steel Concrete Lined) Steel Pipes, Pipe Specials and Fittings for Water and

Sewage Industries

d) MS 1722:2011 Bureau Veritas Certification (Malaysia) Sdn Bhd (BVC)

• Provision of Engineering, Procurement, Construction (including pre-commissioning and load-out), Installation, Hook up and Commissioning of Oil & Gas Onshore and Offshore Facilities

e) Product Certification by IKRAM QA Services Sdn Bhd

• Manufacture of Steel Pipes - Submerged Arc Welded (SAW) • Manufacture of Steel Pipe Specials - Submerged Arc Welded (SAW) • Manufacture of Steel Pipes - Electric Resistance Welded (ERW) • Manufacture of Steel Pipe Specials – Electric Resistance Welded (ERW) • Manufacture of Steel Fittings For Water And Sewage • Manufacture of Steel Pipes For Water And Sewage

f) Product Certification by SIRIM QAS International Sdn Bhd

• Street Lighting Column • Corrugated Sheet Steel Beam for Highway Guardrail

INFORMATION TECHNOLOGY (IT) DEVELOPMENT

KKB’s business resilience and longevity comes from its ability to stay abreast with technology change, continually investing in building capabilities on newer technologies, and creatively harnessing the power of those technologies.

KKB Group has a fully integrated Enterprise Resource Planning (ERP) system covering Financial and Distribution, Manufacturing, Fixed Assets Management and Project Management modules using Oracle JD Edwards EnterpriseOne software. During the current financial year, the Group upgraded its Oracle JD Edwards EnterpriseOne to a latest version 9.2 to improve its business processes and operation efficiency.

In addition, the Group prides itself in investing in advanced detailing 3-D Computer software for perfect and accurate engineering shop-drawings under the Drafting Section.

We have made significant investments in hardware and software assets to boost our IT infrastructure capabilities in line with our mission to progress through continuous advancement on Technology, Innovation and Training.

REMAIN COMMITTED AND FOCUSED ON OUR CORE COMPETENCIES

We remain committed to our strategy to stay focused on core competencies to be a successful and diversified steel related International Business. We continue to improve competitiveness, extend our presence into fabrication for the oil and gas sector, explore overseas opportunities, and diversify earnings through further expansion and diversification into manufacturing activities related to steel.

We have proactively adjusted our approach and strategy for our future development, continued to focus on quality and efficiency. During the year under review, the Group continued to improve on operational efficiency, adding new equipment, modifying and expanding its fabrication yard layout at Lot 777, Block 5, Jalan Bako, Muara Tebas Land District, Kuching, Sarawak (“Lot 777”) to improve workflow and productivity. The importance of quality and efficiency has always been deeply embedded in the heart of every employee of the Group.

The Group has invested in modern and automated heavy machineries and equipment and covered fabrication workshop to cater for the fabrication requirements in the oil and gas offshore structures. Construction for our new covered fabrication workshop 9 is in progress and scheduled for completion in 1H2020. The yard also facilitated with private deep water Jetties located less than five (5) kilometres from the Sarawak River Mouth with loadout capacity of up to 30,000 metric tones of fabricated structures.



Our Steel Fabrication yard at Lot 777 is strategically designed, configured and structured in terms of advance state-of-the-art Indoor Fabrication Facilities and Modern Technology for optimization of yard activities and operations – embracing Automation of Pipe Spool and Structural Steelworks Production.

Under the challenging and competitive business environment, we monitored closely and controlled strictly the decision-making and execution process of the Group’s operations and projects. We conducted comprehensive analysis on costs and adopted measures to further strengthen risk management on each of our business operating unit.

HIGH COMMITMENT ON HEALTH, SAFETY AND ENVIRONMENT

Health, safety and environmental protection remain KKB’s top priority. The Group actively fulfills its social responsibilities by giving back to the society. As the scale of production continues to increase, KKB recognizes the importance of driving continuous improvement on health and safety. As such, a Group Health Safety and Environment (“HSE”) Task Force Committee was formed during the year to ensure safety is strengthened and continues to remain as part of our corporate culture. In a practical sense, employees across the Group strive to run our operations responsibly, uphold the highest ethical standards and safeguard their own safety and that of their colleagues.

The drive for on-going improvement in environmental and safety reporting is described in the Sustainability Statement section of this Annual Report. This major initiative to tackle the world’s most serious environmental, economic and social challenges over the next decade calls upon companies to work together and play their part by contributing positively to communities in which they operate.

GOVERNANCE AND REPORTING

KKB’s Board of Directors is committed to good corporate governance and ethical business practices, promoting the long-term interests of shareholders, thus ensuring that we remain a successful and sustainable entity with good governance principles and practices as well as strong Board oversight. The composition of the Board with its diverse range of skills and experience is one of our key strengths and the relationships we have fostered both within and outside the boardroom have strengthened Board dynamics.

We continued to enhance governance and compliance with the ongoing embedding of our code of ethics, demonstrating our commitment to doing the right thing and holding those who are found lacking in this area accountable.


19 A N N U A L R E P O R T 2 0 1 9

OUR PRESENCE IN THE MAJOR ONSHORE FABRICATIOIN

OceanMight Sdn Bhd (“OMSB”) (KKB’s subsidiary), has been awarded the PETRONAS Frame Agreement for the Provision of Engineering, Procurement and Construction (“EPC”) of Fixed Offshore Structure works by Petroliam Nasional Bhd, effective from 12 December 2018 and continue for a period of six (6) years, unless terminated earlier. The Frame Agreement open up more opportunities to OMSB, being one of the few PETRONAS Licensed Yards in Malaysia to bid for contract works involving the EPC of Fixed Offshore Structure works by Petroliam Nasional Bhd.

OMSB, a licensed Approved Service Provider by PETRONAS for Offshore Facilities Construction-Major Fabrication-Offshore Facilities has to-date secured the following projects related to the Major Onshore Fabrication for the Oil and Gas sectors, since commencement of its operation:

ITEM YEAR AWARDED PROJECT TITLE CLIENT

1 2014 Provision of Fabrication, Hook-up and Commissioning Services for Tanjong Baram Wellhead Platform

2H Offshore Engineering Services Sdn Bhd

2 2015 Provision of Yard Space, Manpower, Tools, Equipment and Services for New Helideck Steel Support Fabrication and New Helideck Assembly for Baram-B Revisit 4 Project

Petronas Carigali Sdn Bhd

3 2015 Engineering, Procurement and Construction (EPC) of Wellhead Platform for Kinabalu Redevelopment Project

Repsol Oil & Gas Malaysia Limited

4 2016 Engineering, Procurement and Construction (EPC) for Bunga Pakma Wellhead Riser

Repsol Oil & Gas Malaysia Limited

5 2018 Provision of Engineering, Procurement, Construction, Installation and Commissioning of Wellhead Platforms for D28 Phase 1 Project


6 2018 Provision of Engineering, Procurement, Construction, Installation and Commissioning of Wellhead Platforms for D18 Phase 2 Project


7 2018 Provision of Procurement and Construction for Wellhead Deck, Piles and Conductor for Pegaga Project

Sapura Fabrication Sdn Bhd

8 2019 Provision of Engineering, Procurement, Construction, and Commissioning of New ESP Module for Upgrading and Modification on MAMPU-1 and AJK Platform for Vestigo Petroleum Sdn Bhd

MISC Offshore Floating Terminals Dua (L) Limited

9 2020 Provision of Engineering, Procurement, Construction, Installation and Commissioning of Wellhead Platforms for BKD-A and Host Tie-In Modification at BNCPP-B Topsides – Bakau Non-Associated Gas Development Project


10 2020 Provision of Engineering, Procurement, Construction and Commissioning (EPCC) of Pemanis Satellite (PESA) Topside for PTTEP’s Sarawak SK309 Development (Contract No. CP16003)

PTTEP Sarawak Oil Limited

The first five projects have been successfully completed and delivered ahead of schedule to its customers, achieving a combined total of 2,622,407 safe working man-hours without any lost time incidents. The smooth and timely completion of all these projects has demonstrated our capability in strong project management.




HIGHLIGHTS OF THE GROUP’S FINANCIAL INFORMATION FOR THE PAST FIVE (5) YEARS

FINANCIAL YEAR ENDED 31 DECEMBER

YEAR 2015 2016 2017 2018 2019

Revenue (RM) 127,908,245 103,110,656 209,297,976 412,478,697 559,281,188

Finance costs (RM) 528,818 486,413 520,115 1,502,164 4,158,169

EBITDA (RM) 50,505,264 3,615,999 19,438,064 42,685,237 91,283,766

Profit/(loss) before tax (RM) 37,628,972 (9,140,503) 6,373,745 29,487,716 77,939,874

Profit/(loss) after tax (RM) 29,105,153 (5,743,147) 3,265,228 23,030,764 61,477,709

Profit/(loss) attributable to equity holders of the parent (RM)

26,030,968 (5,779,651) 1,608,046 17,643,567 47,686,481

Total assets (RM) 333,436,117 331,827,739 358,492,465 509,324,410 547,885,526

Total borrowings (RM) 10,000,251 11,880,714 4,705,494 1,430,886 11,032,486

Issued capital (RM) 128,896,000 128,896,000 128,896,000 128,896,000 128,896,000

Shareholders’ equity (RM) 301,351,780 285,260,449 286,868,495 299,356,222 336,731,023

Total number of issued shares 257,792,000 257,792,000 257,792,000 257,792,000 257,792,000

PER SHARE INFORMATION

Earnings/(loss) per share (sen) 10.10 (2.24) 0.62 6.84 18.50

Net assets per share (RM) 1.17 1.11 1.11 1.16 1.31

Dividend per share (sen) * 4.00 - 2.00 4.00 6.00

KEY FINANCIAL RATIOS

Gross margin (%) 39.22 3.75 5.94 12.92 19.05

EBITDA margin (%) 39.49 3.51 9.29 10.35 16.32

Net profit/(loss) margin (%) 22.75 (5.57) 1.56 5.58 10.99

Return on average shareholders’ equity (%) 8.87 (1.97) 0.56 6.02 14.99

Return on total assets (%) 7.81 (1.74) 0.45 3.46 8.70

Inventory turnover (times) 2.33 3.59 6.32 10.08 8.54

Trade receivable turnover (days) 79 55 62 55 43

Trade payable turnover (days) 37 27 46 99 121

Current ratio (times) 13.43 6.23 3.78 1.99 2.34

Gearing – Debts to equity (times) 0.03 0.04 0.02 0.00 0.03

Dividend payout ratio (%) * 39.61 - 320.63 58.44 32.44

Note:* Dividend for FY2019 is based on assumption that Company will pay a First and Final Dividend of 6.0 sen per share,

upon obtaining Shareholders’ approval at the forthcoming AGM.

21 A N N U A L R E P O R T 2 0 1 9

OVERVIEW OF KKB’S SHARE PRICE IN 2019

Month High PriceRM

Low PriceRM

Close PriceRM

Volume(Units)

January 0.950 0.855 0.940 319,400

February 1.230 0.900 1.190 7,134,000

March 1.460 1.170 1.220 11,050,100

April 1.370 1.210 1.370 6,610,800

May 1.390 1.230 1.320 4,899,100

June 1.330 1.250 1.290 2,729,100

July 1.410 1.290 1.380 2,374,600

August 1.520 1.360 1.420 5,106,900

September 1.500 1.380 1.500 911,200

October 1.500 1.380 1.390 5,341,300

November 1.580 1.380 1.450 6,510,100

December 1.550 1.400 1.490 2,015,800

RM

Year High 1.580

Year Low 0.855

Year close 1.490

Market capitalisation as at 31.12.2019 384,110,080

REVIEW OF FINANCIAL PERFORMANCE

The financial information discussed in this section is extracted from KKB’s Audited Consolidated Financial Statements.

GROUP

FY2019RM’000

FY2018RM’000

VARIANCE %

Revenue 559,281 412,479 35.6%

Gross Profit 106,539 53,280 100.0%

Selling and Distribution expenses (1,368) (960) 42.5%

Administrative Expenses (34,055) (26,800) 27.1%

Finance Cost (4,158) (1,502) 176.8%

Finance Income 1,102 849 29.8%

Other Expenses (4,149) (2,134) 94.4%

Other Income 11,747 6,973 68.5%

Share of results of associates 2,282 (218) 1146.8%

Profit before Tax 77,940 29,488 164.3%

Income Tax Expense (16,462) (6,457) 154.9%

Profit after Tax 61,478 23,031 166.9%



REVENUE

Group revenue of RM559.3 million rose by 35.6%, as compared to RM412.5 million registered in the preceding year, mainly driven by the strong revenue growth of the Steel Fabrication and Civil Construction divisions within the Engineering sector.

Breakdown of revenue by sectors and divisions:

GROUP

FY2019 FY2018 VARIANCE

RM'000 % RM'000 % %

Engineering Sector

Civil Construction 285,239 51% 219,529 53% 29.9%

Steel Fabrication 218,494 39% 140,647 34% 55.3%

Hot-Dip Galvanising 2,707 1% 3,832 1% -29.4%

506,440 91% 364,008 88% 39.1%


LPG Cylinders 12,075 2% 14,247 4% -15.2%

Steel Pipes 40,766 7% 34,224 8% 19.1%

52,841 9% 48,471 12% 9.0%

Total Revenue 559,281 100% 412,479 100% 35.6%

Engineering Sector

The Engineering sector recorded a strong performance in FY2019. Revenue grew by 39.1% to register RM506.4 million (FY2018: RM364.0 million), due to higher progress billings from both the Civil Construction and Steel Fabrication divisions.

The Civil Construction division registered a growth in revenue of RM65.7 million, representing a 29.9% increase as compared to FY2018 due to higher progress billings from on-going projects. The development and upgrading of the Proposed Pan Borneo Highway in the State of Sarawak (Phase 1 Works Package Contract – WPC-09) undertaken by the subsidiary Company i.e KKBWCT Joint Venture Sdn Bhd contributed RM216.7 million revenue to the Group in the current year (FY2018: RM219.5 million). Since its commencement in the 4th Quarter 2016, total revenue recognized to-date from the Pan Borneo Project amounts to RM558.0 million. The other contribution came from the two pipe laying projects secured during the year from Jabatan Bekalan Air Luar Bandar Sarawak for the Design, Construction, Completion, Testing and Commissioning of Proposed Package SR1 (Southern Region) and the Construction and Completion of 900mm Nominal Diameter MSCL Pipeline and All Associated Works from Summer Mall Junction to Existing Tambirat BPS, Samarahan Division (Package 1C) implemented under the Sarawak Water Supply Grid Programme.

For Steel Fabrication Division, group revenue increased by 55.3% to RM218.5 million, compared to RM140.6 million in the preceding year. Current year’s revenue was mostly derived from the Engineering, Procurement, Construction, Installation and Commissioning (“EPCIC”) of Wellhead Platforms for D18 Phase 2 Project for Petronas Carigali Sdn Bhd, the Provision of Procurement and Construction of Wellhead Deck, Piles and Conductors for the Pegaga Development Project (Mubadala Petroleum) in Block SK320, offshore waters of Sarawak awarded by Sapura Fabrication Sdn Bhd, the Provision of Engineering, Procurement, Construction and Commissioning of New ESP Module for Upgrading and Modification on MAMPU-1 and AJK Platform for Vestigo Petroleum Sdn Bhd awarded by MISC Offshore Floating Terminals Dua (L) limited, and other miscellaneous fabrication works involving the supply of Low/High Tension Steel Poles and structural steel works for the Balingian Coal Stockyard.

Our presence in the Major Onshore fabrication for the Oil and Gas facilities has in one way or another proven to support the Group to diversify our core business in Structural Steel Fabrication engineering to complement our traditional engineering and manufacturing business activities.


23 A N N U A L R E P O R T 2 0 1 9

For Hot-Dip Galvanising division, revenue of RM2.7 million for the current year remained low, as compared to RM3.8 million recorded in the preceding year. Revenue was mainly contributed from the supply of galvanized Low and High Tension Steel Poles to Syarikat Sesco Berhad and other ad-hoc walk in customers.

We saw an improved performance in the Engineering sector. The recovery, both in terms of financial performance and order book, reflects the strength, competence and resilience of our Engineering business. We are committed to growing our strategic lines of business and we have been keeping a constant lookout for acquisition targets that can contribute profitable revenue streams and sharpen our competitive edge.


The Manufacturing sector Group’s revenue improved by 9.0% to RM52.8 million, compared to RM48.5 million recorded in the preceding year.

Steel Pipes manufacturing business under both subsidiary companies in Sarawak and Sabah, increased by 19.1%, registered an aggregate revenue of RM40.8 million (FY2018: RM34.2 million. The increase in order for the supply of Mild Steel Pipes to Jabatan Bekalan Air Luar Bandar Sarawak under the Sarawak State Water Supply Grid Programme and other ad-hoc customers in Kota Kinabalu, Sabah had attributed to the positive growth in its revenue. LPG Cylinders manufacturing division recorded revenue of RM12.1 million (FY2018: RM14.2 million), lower by 15.2% as compared to the preceding year due to lower offtake of new LPG cylinders by Petroleum Companies. 61.0% of current year’s revenue was from the supply of new LPG cylinders (FY2018: 95%) and 39.0% from the Reconditioning/Requalification of LPG Cylinders (FY2018: 5%) to Petroleum Companies.

GROSS PROFIT

The Group’s gross profit increased by almost two folds to RM106.5 million in FY2019, from RM53.3 million in FY2018. Gross profit margin improved from 13% in FY2018 to 19% in the current financial year, mainly due to better performance from the Engineering sector.

Comparatively, revenue increased by 35.6% but gross profit increased by 100.0% over the preceding year. The overall improvement in group gross profit in excess of the group revenue in percentage term was mainly due to higher gross profit registered by the Engineering sector.

From the table below, gross profit margin improved marginally by some 6% compared to the preceding year, mainly due to the strong performance of the Engineering sector, in particular the Group’s Steel Fabrication division. Whilst for Manufacturing sector, gross profit margin remains more or less consistent with the preceding year.

FY2019RM'000

FY2018RM'000

% ON REVENUE

FY2019 FY2018

Revenue 559,281 412,479 100% 100%

Cost of Sales

Raw materials consumed 77,068 54,173 14% 13%

Direct Labour cost (Salaries, Wages & Subcontractors’ fee) 351,696 286,228 63% 69%

Depreciation 7,767 10,367 1% 3%

Others 16,211 8,431 3% 2%

452,742 359,199 81% 87%

Gross Profit/Gross Profit Margin 106,539 53,280 19% 13%

OTHER INCOME

Included in the Group’s other income amount of RM11.7 million was a sum of RM4.0 million, arising from the amicable settlement of the Arbitration Award reached between KKB Builders Sdn Bhd (a wholly owned subsidiary of KKB Engineering Berhad) and Global Upline Sdn Bhd in FY2019.



ADMINISTRATIVE EXPENSES

On a consolidated basis, general and administration (“G & A”) expenses amounted to 6.1% of our total revenues in the current year, compared to 6.5% in the preceding year.

The Group’s G & A costs of RM34.1 million (FY2018: RM26.8 million) was higher by 27.1%, mainly due to the increase in staff salaries and related cost, director’s remuneration and bank charges for issuance of performance guarantee.

Group’s staff salaries and related cost of RM20.2 million (FY2018: RM14.7 million) accounted about 59.2% of the Group’s total G & A expenses of RM34.1 million. Staff salaries and related cost has increased in line with the increase in the number of staff headcount on the back of increased activities within the Group.

OTHER EXPENSES

Major components of the Group’s other expenses consist of depreciation of property, plant and equipment, impairment on trade receivables, donation and sponsorship, realized loss on forex and legal and professional fees. The increase in other expenses account was mainly from the realized loss on forex, impairment on trade receivables and donation and sponsorship.

PROFIT BEFORE TAX

Group’s current year pre-tax profit rose to RM77.9 million, increased by 164.3% compared to RM29.5 million in the preceding year. The overall improved margin alongside higher revenue registered by both the Engineering and Manufacturing sectors has been a driver contributing to the strong results in FY2019.

This was largely due to higher contributions from the Group’s Steel Fabrication and Civil Construction divisions, which recorded a combined gross profit of RM95.9 million in the current year as compared to RM42.6 million in the preceding year. The Engineering, Procurement, Construction, Installation and Commissioning of Wellhead Platform projects and commencement of the two construction projects secured during the year from Jabatan Bekalan Air Luar Bandar Sarawak (Package 1C and SR1) implemented under the Sarawak Water Supply Grid Programme had contributed positively to the Group’s earnings in FY2019.

The Company itself recorded a pre-tax profit of RM25.0 million (FY2018: RM14.0 million) after taking into account the Dividend Income of RM5.6 million (FY2018: RM13.5 million) receivable from its subsidiary companies.

During the year, the Company has secured four major construction projects from Jabatan Bekalan Air Luar Bandar Sarawak (Contract Package 1C, SR1, 3A and 3B) for Sarawak Water Supply Grid Programme – Stressed Areas, apart from carrying out the subcontracting works for Fabrication of Wellhead Platforms and other ad-hoc Structural Steel Works. Despite the challenging and competitive business environment, KKB is able to sustain its businesses by leveraging on its strong track record and capabilities. KKB remains committed to focusing on its core competencies to deliver high quality products and reliable services to its customers.

PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT

In FY2019, the Group’s Profit Attributable to Equity Holders of the Parent grew 171.0% to RM47.7 million, compared to RM17.6 million in the preceding year. This represents 8.5% of total group revenue for FY2019 as compared to 4.3% in the preceding year. Thus, Earnings per Share (EPS) for FY2019 was 18.50 sen, a commendable 170.5% above the preceding year EPS of 6.84 sen. This was itself a result of redefined focus on our core businesses as well as operational efficiency which was critical in delivering the overall solid results.

CONSOLIDATED FINANCIAL POSITION

The Group’s financial position remains healthy, showing growth in total assets and a healthy working capital. As at 31 December 2019, the Group’s total assets grew to RM547.9 million (FY2018: RM509.3 million).

Net current assets of the Group also improved to RM223.6 million, from RM183.1 million recorded in the preceding year, an increase of approximately RM40.5 million or 22.1%. The increase was primarily due to an increase in inventories, trade and other receivables, partially offset by an increase in short term loans and borrowings, Income tax payable and decrease in trade and other payables.

As at 31 December 2019, trade and other receivables and contract assets of the Group recorded a combined total of


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RM209.0 million, an increase of RM27.5 million or 15.2% compared to the preceding year total of RM181.5 million. The increase in trade and other receivables and contract assets of the Group was mainly from the major fabrication and construction jobs and the on-going contract for the development and upgrading of the Proposed Pan Borneo Highway project in the State of Sarawak (Phase 1 Works Package Contract – WPC-09) undertaken by the subsidiary Company, KKBWCT Joint Venture Sdn Bhd.

Short term funds and cash and cash equivalents combined total of RM111.4 million (FY2018: RM146.5 million) accounted for 20.3% of the Group’s total assets as at 31 December 2019. The Group’s short term funds are investment in money market funds in Malaysia that invest in highly liquid assets, which are readily convertible to cash. The Group used its cash reserves to finance its operations. The net cash used in operating activities and net cash from investing activities for the year under review were RM14.7 million and RM15.9 million respectively.

Group’s total loans and borrowings (current and non-current) increased to RM11.0 million in the current year, from RM1.4 million in the preceding year, mostly Bankers’ Acceptances for financing the purchase of Hot Rolled Steel Coil for production of Steel Pipes and finance leases for the purchase of heavy machineries and equipment for use at our Fabrication yard at Lot 777.

Trade and other payables decreased to RM160.4 million, from RM186.7 million in the preceding year.

Breakdown of trade and other payables:

FY2019RM’000

FY2018RM'000

VARIANCERM'000

Trade payable 146,565 153,071 (6,506)

Other Payable 13,825 33,604 (19,779)

160,390 186,675 (26,285)

Out of the total trade payables amount of RM146.6 million, RM107.6 million was trade payables of KKBWCT Joint Venture Sdn Bhd in respect of cost incurred for the Pan Borneo Highway project in the State of Sarawak (Phase 1 Works Package Contract – WPC-09).

Included in other payables of RM13.8 million was refundable security deposits amounted to RM7.0 million for the due performance, execution and completion of the Pan Borneo Highway project in the State of Sarawak (Phase 1 Works Package Contract - WPC-09). The remaining other payables were accruals in respect of staff salaries and related expenses for the month of December 2019, staff and executive directors’ bonus, directors’ fee, audit fees and other accruals for FY2019.

Shareholder’s equity increased to RM336.7 million (FY2018: RM299.4 million) resulting from the improved performance in the current year.

We continue to maintain our prudent financial management, monitor closely our cash flow position in order to maintain a more competitive financial condition and be more stringent on investment decisions and strengthen cost control.

CAPITAL EXPENDITURE

The Group has been constantly upgrading its yard’s facilities and exploring ways to be more efficient. During the year, the Group incurred Capital Expenditure of RM22.7 million. A significant portion of this expenditure was deployed for capacity expansion to support growth opportunities in our major Onshore fabrication for the Oil & Gas facilities, mostly for the construction and extension to our new mega Fabrication workshop 9 and acquisition of heavy machineries and equipment for use at Lot 777.

As at 31 December 2019, a total sum of approximately 139.5 million has been invested for the expansion of our fabrication yard at Lot 777. The Group funded most of its capital expenditures through cash generated from operations.

DIVIDENDS



Delivering strong shareholder returns is a key priority to KKB. We strive to continuously reward our shareholders fairly while taking into account the importance of long term development as well as the Group’s needs for future growth. With the Company’s sound financial position, the Board of Directors is pleased to recommend for Shareholders’ approval at the forthcoming Forty-Fourth (44th) Annual General Meeting a first and final single tier dividend of six (6) sen per ordinary share in respect of financial year ended 31 December 2019. The proposed first and final single tier dividend, if approved, would amount to approximately RM15.5 million.

GOING FORWARD

Our business is perceived to face challenges presented by volatile raw material prices coupled with trade tension between the US and China. As such, we will continue to enhance operational efficiencies and implement measures through automation for efficient production whilst managing costs prudently and effectively.

Management continues to focus on strengthening relationships with key customers, as well as securing new relationships with multi-size organizations, which is anticipated to provide repeat business into the foreseeable future.

Our primary objective is to maximize the long-term sustainable value of the KKB Group through enhancing the worth of the Group’s net assets. This is accomplished through direct ownership and equity participation in businesses that management understands and believes to have the potential for long-term sustainable growth and profitability, principally in steel related businesses and other synergistic activities.

KKB strives to grow its core competencies and aspires to balance its robust and diversified business activities within both the Engineering and Manufacturing sectors. To achieve this, we will direct our resources towards the most promising opportunities in its well-established core strengths business activities by concentrating and directing its resources and capital towards growing long-term sustainable value through cash flow, income growth and cost reductions.

While we continue to manage our costs prudently and business risks to stay competitive, KKB continues to enhance and upgrade its plant and yards’ facilities and capabilities to improve efficiency and productivity across our businesses. Our well-equipped and strategically located fabrication yard at Lot 777 is well positioned to leverage its track record to seize pockets of opportunities, particularly in the major onshore fabrication jobs for the oil and gas facilities, in collaboration with OceanMight Sdn Bhd and other strategic partner(s).

The Group relies on management and technology talents with top-tier management capabilities and technical personnel with strong professionalism and innovative thinking. We continue to develop our talents in order to succeed in the future. We continue to focus on the improvement of our productivity and cost control measures and maintaining a high standard of Health, Safety and Quality. We will invest prudently in core competencies and continue to exercise greater prudence to ensure that business risks are continually managed to further support the sustainability of the Group in years to come.

OUTLOOK

Year 2020 seems to be an ever-changing environment for the KKB Group with an uncertain operating outlook and its financial performance could be affected in FY2020, driven by headwinds from the Covid-19 outbreak and the slump in commodity oil prices and a macroeconomic-led slowdown which is being exacerbated by the Covid-19 outbreak. The uncertainty appears likely to continue into FY2020, and thus manufacturers’ and businesses optimism has experienced a noteworthy setback. KKB’s Board and management view that the Covid-19 outbreak will have a negative impact on industries and businesses as a whole, including KKB Group.

The Group continues its cautious outlook on performance of its Engineering sector, particularly the Group’s Steel Fabrication division which relates to the major onshore fabrication for the Oil and Gas sectors. Given the volatile oil prices, there may be possibilities of slower contracts roll out and downward revision in capex spending by Petroliam Nasional Berhad, although there are no signs of slowdown yet.

Notwithstanding, KKB believes its diversified and well-balanced portfolio provides a resilient platform to navigate the challenges in both the global economy and commodity markets. KKB will continue to execute its strategic pathways for future growth to strengthen, streamline and focused on its business portfolio, drive margin improvement by enhancing cost and capital efficiency.

The Group ended with strong earnings results for financial year ended 31 December 2019, supported by the on-going


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construction works for the development and upgrading of the Pan Borneo Highway project; Water related projects including the supply, laying and commissioning of water pipes and other related infrastructure works implemented under the Sarawak Water Supply Grid Programme and Major Onshore fabrication jobs for the Oil & Gas facilities.

The demand for steel water pipes is expected to remain firm, buoyed by ongoing and upcoming water related infrastructure projects planned under the Sarawak Water Supply Grid Programme. The Group is continuously pursuing various engineering projects, particularly water related projects and other related infrastructure works.

In addition, the award of the PETRONAS Frame Agreement to OceanMight Sdn Bhd (KKB’s subsidiary), will open up more opportunities to OceanMight, being one of the few PETRONAS Licensed Yards in Malaysia to bid for contract works involving the Provision of Engineering, Procurement and Construction (“EPC”) of Fixed Offshore Structure works by Petroliam Nasional Bhd. The Frame Agreement is effective from 12 December 2018 and continues for a period of six (6) years, unless terminated earlier.

In January 2020, OMSB has secured two new contracts; from Petronas Carigali Sdn Bhd and PTTEP Sarawak Oil Limited for the Provision of Engineering, Procurement, Construction, Installation and Commissioning of Wellhead Platforms and the Provision of Engineering, Construction and Commissioning of Pemanis Satellite Topside, respectively.

The Group is actively participating in new business opportunities in the Major Onshore Fabrication, be it domestic or international, in collaboration with OceanMight Sdn Bhd and other strategic partner(s) to increase its revenue base and earnings, with continued effort on prudent cost management and operational efficiency to remain robust and competitive.

With the existing contracts in hand and our diverse portfolio of businesses coupled with the Group’s healthy financial position, the Board remains optimistic that both its Engineering and Manufacturing sectors will perform favourably towards a sustainable growth for the financial year ending 2020, barring any unforeseen circumstances.

The Group however continues to manage the challenges of uncertainties in the global economic environment, escalation of costs due to inflationary pressure, volatility of global raw material steel prices and fluctuation of exchange rates are amongst factors that may impact the Group’s performance.

RISKS

Across the Group, we continue our efforts to embed strong risk management into our culture, governance structures and internal control framework. KKB recognise the importance of risk identification, and monitoring and mitigation of its principal risks.

The Group is exposed to a number of risks in the normal course of business that could adversely impact its ability to create value over the short, medium and long-term.

The Group’s financial risks include credit risk, liquidity risk, interest rate risk and market price risk.

The Group is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments.

The Group has payables denominated in foreign currencies i.e US dollars, mainly for the purchase of steel raw material. Foreign currency exposure arises mainly from the exchange rate movement of this foreign currency against the Malaysian Ringgit, which is the Group’s measurement currency. It impacts our ability to manage product availability at competitive prices, pay our suppliers and creditors on time. Volatility in financial markets including fluctuation in foreign exchange rates may adversely affect the results of our operations. To mitigate our exposure to foreign exchange volatility, the Group actively monitor the currency and commodity markets and formulate strategies with inputs from market participants and industry experts.

The Group maintains its policy that all customers who wish to trade on credit terms are subject to credit verification procedures. The Group trade only with recognised and creditworthy third parties. Receivables’ balances are monitored closely on an ongoing basis to minimize the Group’s exposure to bad debts.

The Group’s exposure to liquidity risk arises primarily from mismatches of the maturities of financial assets and liabilities. The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of stand-by credit facilities.

The Group maintains adequate reserves, access to a number of sources of banking facilities which are sufficient to




meet anticipated funding requirements, and reserve borrowing facilities by continuously monitoring its forecasts and actual cash flows and matching the maturity profiles of its financial assets and liabilities.

The Group’s exposure to market risk for changes in interest rates relates primarily to the short term deposits with licensed banks and floating rate advances given to/by related parties.

The Group is exposed to market price risk and the risk of impairment in the value of investments held. The Group manages the risk of impairment by evaluating investment opportunities, continuously monitoring the performance of investments held and assessing market risk relevant to which the investments operate.

Amongst other factors or concerns that may have an impact or affect the Group’s performance include:

• The economic environment, pricing pressures and decrease employee utilisation rates could negatively impact our revenues and operating results.

• Competition from other materials, or changes in the products or manufacturing design of the Company’s customers who use steel products, could reduce market prices and demand for the Company’s products, thereby may affect our revenue and profitability.

• Intense competition in the market for limited available projects could affect our pricing of which could reduce our share of business from clients and reduce our revenues.

• Our success depends upon the commitments of our management team and key personnel, and our ability to attract and retain skilled and experienced personnel to support the operations.

• Any announcements of minimum wage increases will have an impact on labour costs and the labour force of the Group and may reduce our profit margin.

• Failure to complete the projects within budget and on time, may affect our profitability.• Inability to obtain regulatory approvals and permits such as work permit, Import permit, and approval for

Treasury Exemption for importation of raw materials, which if not available, may adversely affect our operations and financial position.

• Disruption in the supply chain of raw materials and volatility in the prices of raw materials poses a significant risk to operations and operating costs.

• Potential liabilities and expenses associated with product defects and design, handling and distribution. Although Product liabilities are insured by the Company’s insurance program, there is no assurance that the insurance policy is sufficient to cover any resulting financial liability or reputational harm.

• Cyber-crime is becoming ever more prevalent, which may adversely affect our operations. To mitigate this, the Group continuously upgrades firewalls and phishing detection software and pro-actively train and test awareness of IT governance and control framework for all IT-related risks.

• Compliance, Legal & Governance Risk. This relates to the risk of loss through fines, penalties, personal loss of liberty and reputational damage from non-compliance with the legal and regulatory requirement including those relating to financial reporting, statutory and regulatory requirements, environmental health and safety. New and changing corporate governance and public disclosure requirements add uncertainty to our compliance policies and increase our costs of compliance. To mitigate our risk exposure, we assess the impact of new legislation on our various operating companies and update our procedures and controls to ensure that we fulfill all our compliance responsibilities and compliance with all applicable regulations and legislation.

• Operational Risk which relates to the risk of loss caused by poor or ineffective internal processes, people and systems. It is the failure to implement acceptable practices in term of internal processes, procedures and controls that may result in the non-achievement of the Group’s objectives/vision and loss of core values. The failure to implement and monitor effective procedures and controls manifests itself in various functional areas such as financial disclosure and reporting, human resource practices, execution of projects or new initiatives, contract management, IT project implementation, etc. To mitigate this risk, the Group optimize it business processes through standardisation and customization and continuously invest in training of staff in quality management.

We take any risk to our business very seriously, and ensure we have rigorous systems in place to identify any implications to our operations so that we can take steps to mitigate them and protect our business. KKB is committed to improving its focus on risk management and internal controls and the Group operates a well-established risk management policies and procedures to identify and assess risks across our business units and operations.

Risk management and mitigation of risks are considered as a vital exercise to achieve our corporate objectives and

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deliver long-term value to our stakeholders. To manage risks, the Board of Directors has formed a Risk Management Committee to frame, implement, review and monitor the Group’s risk management plan in ensuring its effectiveness. The key risks identified across the business are systematically addressed and mitigated against on a continual basis. It draws inputs from audit findings and is integrated with the internal audit process as well. In addition to its internal audit, the Group also continues to conduct a detailed review and testing of the key internal controls related to financial reporting. This will provide adequate assurance to the Audit Committee regarding the effectiveness of the internal control procedures defined and implemented by the management.

The Board of Directors with the assistance of the Management Executive Committee, Risk Management Committee and professionals and advisers such as the Internal Auditors, has the overall responsibility for the establishment and oversight of the Group’s risk management framework. The Management Executive Committee, represented by the Group Managing Director, Group Executive Director, Executive Director, Group Chief Financial Officer, Senior General Manager (Group Commercial and Project) and Senior General Manager (Group Manufacturing – Business) are the top management responsible for the implementation of decisions and policies formulated by the Board. The Risk Management Committee comprising Executive Directors and senior management staff who are responsible under their respective scope of work for the day-to-day operations carry out risk identification, evaluate, monitor and formulate mitigation strategies on risks identified and periodically review risk management processes and policies. The Risk Management Committee operates independently and reports directly to the Audit Committee. The Audit Committee provides independent oversight to the effectiveness of the risk management process. The Internal Auditor regularly evaluates the effectiveness and appropriateness of the entire Risk Management and Control structure as directed by the Audit Committee and reports to the Audit Committee. The Audit Committee in turn reports back to the Board of Directors for review on the adequacy effectiveness on Internal Control and Risk Management System.

HUMAN CAPITAL

The ability to attract, motivate and retain talent is critical to KKB’s continued success. We are committed to our mission to be “A preferred place of work” of employees. Ensuring employee satisfaction, motivation and loyalty is crucial in order to maintain our competitive edge and success. Our business depends on searching, developing and retaining talented people, and providing a working environment that promotes their well-being and development.

As at 31 December 2019, KKB’s Group total headcount was 1,100 full-time employees. Our cultures to have a close working relationship with them have enabled the Group to recruit and retain some of the employees for more than 10 years.

The Group formulates and delivers training programs at all levels across its various operating segments in order to improve employee knowledge and to better serve its customers. Our continuous education programs emphasize on enhancing the relevance and effectiveness of learning. Hands-on assessments have been strengthened and skill-based certifications have been included.

There is always a risk associated with the loss of key personnel. The Company periodically reviews the succession plan for its senior management team to ensure continuity in leadership. These plans are deliberated at least annually at the Board meeting.

We view seriously the Occupational Health & Safety and well-being of our employees and business partners impacted by our operations and proud to report zero fatal accidents during the year. The Group has robust programs and reporting mechanisms in place designed to ensure regulatory compliance and mitigate the risks associated with work place injury and illness.



Sustainability is core to operations of KKB Engineering Berhad and its Group of Companies (“KKB Group” or “the Group”) that has an impact on the marketplace, environment and the community. KKB Group is mindful on the way it works and operates in order to ensure sustainability. KKB Group pays attention to how its businesses impact the economy, environment and society (“EES”) and takes a holistic approach in its management. It takes cognizance of the importance of sustainability and manages material EES risks and opportunities to deliver value and long-term growth to its stakeholders. KKB Group will therefore continue to identify and strengthen sustainability initiatives into every level of its organization.

KKB Group is a well-diversified business covering activities in:• Steel Fabrication;• Civil Construction;• Hot-Dip Galvanising;• LP Gas Cylinders Manufacturing;• Structural Steel Fabrication for Oil & Gas Facilities; and• Manufacturing and Trading of Steel Pipes and Pipe Specials.

ECONOMIC

KKB Group recognizes that the operating environment for the steel fabrication industry has changed bringing with it new risks and opportunities in the ever-changing market.

To be competitive in delivering quality products and works to attract new and demanding customers, as well as ensuring customer satisfaction, recognized certification is a crucial requirement. This is supported by having obtained international ISO standards throughout the production processes and operations as well as the application of established quality practices and policies.

A standard procedure in the selection of suppliers/vendors and ensures suppliers meet the Group’s materials requirement and with highest ethics and integrity. Our re-standardized Quality Management System certification ISO 9001:2015 by Lloyd’s Register Quality Assurance for operational control procedures with stringent documentation requirements provides assurance that a trail of accountability exists and also for continuous quality improvement.

The existence of OHSAS 18001:2007 has also been audited and re-certified by Bureau Veritas Certification (Malaysia) Sdn Bhd (BVC) for Occupational, Health & Safety Management System and documented system procedures provide for continual improvements and management commitment in legal and statutory compliance.

The Company has also implemented planned preventive maintenance for all main machines to avoid unexpected breakdowns and minimize downtime. Emphasizing on quality towards its products and ensuring they are properly and adequately protected during the handling and loading process by using appropriate bearing strips or wooden pellets and fastening is one of the Group’s continuous efforts towards sustainability.

Harum Bidang Sdn Bhd (“HBSB”), a subsidiary company used to have a diesel fired heating system to melt bitumen which proved to be unproductive, dirty and unreliable. Today, HBSB uses a bitumen decanter which reduces bitumen run-offs by at least 20% resulting in fuel savings. Constant working temperature results in elimination of hot spots on decanter. Hot spot is defined as uneven heating which would cause premature puncturing of steel wall on affected area. This situation contributes to no maintenance downtime and lead to production output efficiency increased by 70%.

In order to cater for the growing business, KKB has built a Mega-Shed at its Lot 777, Muara Tebas Land District factory that will enable continuous operation regardless of bad weather.

Cyber Risks Policy and Procedures implemented will protect against any cyber threats which could have an impact on the business operation, reputation and image of the Group.

KKB Group recognizes the corporate liability on corruption and understands the consequence of severe penalty on fines and imprisonment imposed on KKB Group, its Directors, employees and persons associated. Internal Training on anti-bribery and corruption has been conducted by and external consultant on anti-bribery and corruption during the financial year end review and KKB will continue to formulate a Policy Statement and Guidance on the execution of business dealings and how to act professionally, fairly and with integrity in line with the MACC Act 2009. A Anti-Bribery & Corruption Task-Force is formed to address anti-bribery and corruption, establish Anti-Bribery & Corruption Policy and implement adequate procedures.

KKB also conducts Customer Feedback and management review including supply chain management by working hand in hand with suppliers to improve quality and price.

SUSTAINABILITY STATEMENT

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ENVIRONMENTAL

KKB Group has undertaken various measures to mitigate the adverse impact on its operations. In minimizing the impact caused by our factory operations, appropriate actions have been taken to ensure the environmental sustainability as well as to meet the applicable legal requirements. Some of the environmental risks which are being mitigated are as follows:

• Spent hydraulic oil is being reused as lubrication for heavy-duty machineries such as shovel trucks and forklifts. Machine parts which are constantly soiled by cement waste water are coated with this spent oil as a release agent to minimize effort in doing the cleaning.

• In order to minimize the cost for electricity for lighting, the roof has been partially installed with transparent roofing to introduce more natural light into the factory floor.

• Used bituminous enamel to coat our products which are mild steel pipes and pipe specials. In the process of coating the pipes, some of the molten bitumen will end up as a waste which then be re-melt for the coating of the next batch’s pipes. This also minimizes the consumption of the raw materials.

• During the process of lining the pipe’s internal with cement solution, some portion of the cement solution will become waste which then be washed away. In order to prevent the waste cement solution from entering the drainage system or polluting the surroundings, a Cement Waste Water System has been installed to collect all the cement water and accumulate them at designated location where it will be left for drying. Then it can be disposed as dry soil.

• Emission of smoke from Bitumen Decanter has been significantly reduced by introduction of new type of decanter. Furthermore, the very small amount of smoke emitted from the decanter is properly channeled through the ducting and dispersed through the chimney.

• Recycling of scraps/ waste materials/ papers/ newspapers and others.

• Implementing an effective production shift scheduling which in turn reduces unnecessary energy consumption and pollution.

• Reducing production wastage throughout the operations by implementing an effective production planning, control

and monitoring process.

• Monitoring and ensuring that our fuel burning system discharge comply with the Environmental regulation. All fuel burning equipments are registered with Department of Environmental (“DOE”) with periodic monitoring of discharge conducted by third party.

• Management of industrial scheduled waste, from “cradle to grave” concept and compliant to Environment Quality Act and Regulations. Industrial wastes are identified, registered with DOE and properly stored. Disposal of the waste is through competent company registered and approved by DOE.

• Use of solar and wind powered factory street lamp to conserve energy.

• Use of CNC metal cutting and welding system, hence more efficient and less energy wastages.

• Maximizing our raw material usage so that there is less wastages. Example is our zig-zag steel blanking line, where the corners of the steels are cut out for other uses, hence saving energy.

• As an ongoing practice, employees are also urged and reminded to conserve energy by using more natural light, switch off lights and air-conditioner when not in the office, and minimize printing by increased use of softcopies to reduce paper consumption and using recycled papers to print-out informal matters.

• A new purpose - built Mega-Shed is constructed to prevent disruption of activities from heavy rain.

SOCIAL

A Corporate Social Responsibility (“CSR”) Committee is formed to ensure that activities are carried out responsibly and voluntarily taking into consideration the impact of the business on its customers, shareholders, suppliers and employees. The CSR Committee sits on a regular basis to consider all corporate social responsibility matters.

SUSTAINABILITY STATEMENT (CONT’D)


During the year under review, KKB undertook various initiatives as part of its sustainability social responsibility towards communities, employees and customers:

a) Community

KKB Group is aware that continuous blood donation campaign for the Blood Bank could save lives. KKB participated twice yearly in Blood Donation Campaign for the Sarawak General Hospital. The blood donation campaign was held on 23 May 2019 and 14 November 2019. Malaysia Red Crescent Society organizes “Run to Save Lives 2019” to raise fund to meet the cost of recruitment campaign and giving awards to honors the blood donors. KKB Group participates and supports the event on 27 October 2019. The Company also joined the CMS Tribal Charity Run 5.0 held on 4 August 2019 to support raising funds for local charities and to maintain a good business relationship.

Donations and contributions were also given to education institutions, charity associations, and others in a way to support their local community welfare activities to improve a better standard of living.

Expansion in KKB Group businesses results in more job creation in the local community. It gives jobs and business opportunities with the priority of recruiting candidates from the nearby residential and villages.

Apart from that, KKB Group continues to offer practical on-job training (“OJT”) to students from local colleges,

universities and institutions. This programme is to expose the students on the know-how and know-skills of working environment especially in steel fabrication, LP Gas manufacturing, pipes and pipe specials manufacturing and others. Such OJT provides the sustainability human resources in these business areas. Those students may also apply and be one of the KKB Groups’ employees after they finished their study.

b) Employee’s Welfare

The Group understands that its employees are its most valuable asset organization wide. Our hiring practices are based on capability and suitability and there is no discrimination in the hiring policies. The wellbeing of the Group’s employees remains a priority as their strength and contributions are the Group’s result.

The Group invests on the continuous development of its people. In its quest to provide regular training to its employees, in-house trainings, seminars and courses are conducted to increase productivity in various relevant fields and to equip employees with required skills. This is in line with the Company’s mission to be “A Preferred Place of Work” of employees.

During the year under review, employees were given training on anti-bribery and corruption by external consultant to have a clear understanding on corrupt practices and the consequences if found guilty of such offences under MACC Act 2009.

It is a priority of KKB Group to ensure that all employees remuneration and benefits packages, meet the enforceable statutory minimum. The pay rates and benefits are reviewed regularly to ensure that they are in line with the job market.

To ensure there is enough qualified and competent employees who are ready to fill up critical positions should the need arise, the Company has a succession plan in place as part of its risk management.

KKB Group recognizes the role it plays in ensuring the health and wellbeing of the workforce is looked after. A Special Hospitalization & Surgical Insurance Scheme is provided for all full-time employees. To this end, Company offer employees ongoing health screening activities to help mitigate health-related issues and the risks of major or harmful illnesses particularly those who are likely to be exposed to certain work hazards. Health screening has been undertaken annually and it includes Hearing Test, Blood and Urine Test, Physical Check-Up and Chest X-Ray.

Besides that, Company also organized Christmas Gift Exchange Party for the Group’s staff with the objective of creating a good relationship among co-workers and among the Management throughout the Group.

c) Occupational, Health and Safety

The Group’s commitment to operate responsibly in a safe and healthy workplace for employees is reflected in the establishment of the Health, Safety and Environment Committee (“HSE”) which comprises representatives from several levels of the organizations and is guided mainly by the Occupational Safety and Health Act 1994 (Act 514) and Factories and Machinery Act (Act 139). To this end, we have established Group HSE Task Force, Individual HSE Committee and Sub-Committee to brainstorm areas of high risks and come up with best procedures and policies to standardize all safety practices for the whole Group.


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The HSE Committee is chaired by the Group Executive Director and the Committee regularly reviews the Group’s HSE policies, HSE objectives and operational activities to ensure due safety observance at all times.

To be “a good Corporate Citizen, who is committed to a high standard of protection of HSE at all times” is one of KKB’s missions that demonstrates its total commitment towards better quality health and improved safety.

In order to maintain and upgrade the standard of HSE, Management practised the following routine activities among employees and workers:

• Campaign on Internal Safety, Health and Environmental Promotion at company level. • Attending in-house and external training on any new rules and regulations for HSE by relevant authority. • Person in charge be responsible for Safety Walk and Safety Audit during their tour in the plant. • Established ERP team and have Fire Drill exercise to build awareness on fire among employees. • Insurance cover for employees, workers, factory, building and etc to prevent and minimize risk of losses because

of sudden disaster such as floods and fire. • Tool Box Meeting being conducted regularly between Managers and workers on any day-today issues. • Installing relevant safety signage at strategic point to remind and create awareness. • Safety Induction for all new employee and refresher course on safety awareness education to work scope for

existing employee.

Furthermore, KKB’s certification award for Occupational Health and Safety Management System – OHSAS 18001:2007 is an endorsement of its commitment towards Group’s health and safety.



CORPORATE GOVERNANCE OVERVIEW STATEMENT

The Board of KKB Engineering Berhad (“the Board”) is pleased to present this Corporate Governance (“CG”) Overview Statement (“Statement”) to the shareholders and investors on the application of CG Practices of the Group during the financial year ended 2019. This Statement is to be read together with the CG Report which is available on the Company’s website and also through Company’s announcement to Bursa Malaysia. It should also be read in tandem with other statements in this Annual Report such as Statement on Risk Management and Internal Control and Sustainability Statement.

KEY FOCUS AREAS

KKB Group’s key focus areas during the year ended 2019 are (among others) as follows:

• Appointment of Independent Director in line with Succession Plan• Anti-Bribery Policies and Procedures• Remuneration Policy and Procedures for Board and Senior Management• Establishment of a Nomination & Remuneration Committee • Group Major Risk Profile review• Succession Plan review

BOARD LEADERSHIP AND EFFECTIVENESS

Roles and Responsibilities of the Board of Directors

The Board is committed to discharging its responsibilities to protect and enhance shareholders value and performance of the Group. The Board sets strategic directions to ensure long term success. It has established a framework where the specific powers of the Board are delegated to Board Committees and Management.

The Company’s Board Charter sets out clear functions and responsibilities reserved for the Board, Individual Directors, Board Committees and those delegated to Management. The Board recognizes its duties and has adopted this Board Charter as a general statement of its expectations as to how it will discharge its duties and as assistance to the Board in its ongoing assessment of its own performance and that of individual Directors. Detailed information of the Board Charter can be seen from the Company’s website at www.kkbeb.com.my. The Code of Conduct/Ethics and Whistle Blowing Policy which are available on the Company’s website also ensure the Board is committed to transparency and integrity.

Board Composition

As at 31 December 2019, there are eight (8) Directors on the Board. It comprises three (3) Executive Directors, three (3) Independent Non-Executive Directors and two (2) Non-Independent Non-Executive Directors. On 1 March 2020, Mr Yong Voon Kar was appointed to the Board as Independent Non-Executive Director. Accordingly, there are nine (9) Directors comprising three (3) Executive Directors, four (4) Independent Non-Executive Directors and two (2) Non-Independent Non-Executive Directors. The Board through the Nomination & Remuneration Committee (“NRC”) also considers woman candidates as part of recruitment exercise to ensure gender diversity. Out of nine (9) Directors, two (2) Directors are female.

The Board is satisfied with the composition and good mix of Executive Directors and Independent Non-Executive Directors to carry out the Board’s priorities objectively and impartially and to grow the Group effectively. The Board will give careful consideration and take necessary measure to comply including any restructuring and re-alignment of the whole Board progressively through its Succession Plan. It will review yearly its Succession Plan to ensure an effective and suitable composition, including the right Board size, is achieved in the interest of the Company and to apply all applicable practices including Board composition of 50% independent directors.

The Board recognizes the importance of independence and objectivity in its decision-making process and is mindful of the recommendation of the Code on limiting the tenure of independent directors to nine (9) years in line with the Code. The Board Charter which has been adopted by the Company sets out the restriction on the tenure of an independent director to a cumulative term of nine (9) years. However, an Independent Director may continue to serve the Board upon reaching the nine (9) years limit.

In the event the Board intends to retain the Director as Independent Director after the latter has served a cumulative term of nine (9) years, the Board must justify the decision and seek shareholders’ approval at general meeting. If the Board continues to retain the Independent Director after the twelfth year, the Board should seek annual shareholders’ approval through a two-tier voting process. In justifying the decision, the NRC is entrusted to assess the candidate’s suitability to continue as an Independent Non-Executive Director based on the criteria on independence and to disclose the reasons for retaining him/her as independent Director in the Notice of Annual General Meeting.

35 A N N U A L R E P O R T 2 0 1 9

CORPORATE GOVERNANCE OVERVIEW STATEMENT (CONT’D)

Although the Independent Non-Executive Director, Dr Arjunan Subramaniam has served a consecutive term of more than twelve (12) years on the Board as Independent Non-Executive Director and Senior Independent Director, his long tenure has not impaired his independent background and can continue to bring independent and objective judgment to the Board’s decision with his vast experience and his technical background qualification. During the year under review, Dr Arjunan attended all scheduled Board Meetings without fail including official functions.

Dr Arjunan’s position as Independent Non-Executive Director is also subject to prior yearly assessment by the Board through the NRC. Further, his seniority, intellectual honesty, bona fide commitment and vast knowledge in various areas of finance, legal and particularly his specialized knowledge in Tax matters, warrant his retention as Independent Non-Executive Director and Senior Independent Director of the Company to which the Board seeks shareholder’s approval at the forthcoming Annual General Meeting. Furthermore, he is able to challenge ideas and provide perspective to Management. In addition, in maintaining strong independence on the Board with tenure of more than twelve (12) years, Dr Arjunan also provides a bi-annual declaration of independence to the Board.

Mr Lau Nai Pek was appointed as Independent Non-Executive Director on 22 July 2011. He would have served nine (9) years on the Board this year (2020). The NRC has assessed the independency of Mr Lau Nai Pek and he has met the criteria as Independent Director pursuant to Main Market Listing Requirements (“MMLR”). Although having served for a cumulative term of nine (9) years, Mr Lau Nai Pek is subject to yearly assessment and review by the Board through a transparent criteria evaluation. His valuable advice on financial and accounting matters and wide knowledge will continue to add credence to the Company and will not have any adverse effect on his independency as Independent Non-Executive Director.

Further, his high intellect, honesty and genuine commitment to serve in the best interest of the Company and his position as an Independent Non-Executive Director has no conflict of interest or undue influence from interested parties. Mr Lau Nai Pek is able to challenge ideas and provide perspective to Management and he attended all scheduled Board meetings without fail during the year under review.

The Independent Non-Executive Directors are also free from any business or related parties that could materially interfere with independent judgment. Brief profile of each Director is presented from pages 5 to 10 of this Annual Report.

Group Managing Director

The Group Managing Director (“GMD”) is responsible for the day-to-day running of the business operation of the Group. He is supported by a team of Management Staff whose performance is tabled to the Board every quarter.

Although the positions of Chairman and GMD are held by the same individual, its independence is still maintained. He does not chair nor sit on any of the Board Committees. The Board is satisfied with the composition and good mix of Executive Directors, Independent Non-Executive Directors and Non-Independent Non-Executive Directors to carry out the Board’s priorities objectively and impartially and to grow the Group effectively. The Board will give careful consideration and take necessary measure to align the whole Board progressively. It will ensure an effective and suitable composition, including the right Board size, is achieved in the interest of the Company. The NRC is established to regularly assess the independence of independent directors and the overall composition of the Board.

Roles and Responsibilities of the Company Secretary

The Company Secretary is a person qualified to act as a Company Secretary under Section 235(2) of the Companies Act 2016 (“the Act”). She is qualified, experienced and capable of carrying out duties attached to the post.

Prior to the Board meetings, the Company Secretary will furnish a notice together with an agenda to the Directors to allow them to have adequate preparation time to ensure effectiveness at the proceedings of the meeting. The Company Secretary will ensure Board’s proceedings are followed regularly and reviewed and will also provide guidance to the Board on director’s obligation arising from the rules and regulations including the Malaysian Code on Corporate Governance (“MCCG”) and the MMLR.

Supply of Information

Directors are supplied with relevant information and reports on financial, operations, corporate and other business development, by way of Boards Papers and including Minutes of Past Meetings, report on Recurrent Related Party Transactions, updates by Regulatory Authorities, Internal and External Audit Reports. In order to ensure the Board has sufficient time to review the board papers, the Company will circulate at least seven (7) days before the date of Board meetings.

All Directors have full and free access to obtain information including the advice and services of the Company Secretary in furtherance of their duties. The Directors also as individuals or as full Board have the same right of access to all data including seeking independent professional advice as and when required at the Company’s expenses.



Board Meetings

The Board ordinarily meets four (4) times a year at quarterly intervals for the purpose of reviewing Group’s quarterly and annual financial reports and performance against its annual operating and capital budgets, approving strategic business plans, corporate business plans, operational and development of the Group. It is also responsible for reviewing the adequacy and integrity of the Company’s Risk Management and Internal Control System. Additional meetings will be held as and when necessary.

During the financial year ended 2019, four (4) Board meetings were held. The Board records its deliberations on matters discussed and all proceedings at the Board meetings are minuted and confirmed by the Chairman of the meeting. Directors are also informed of restriction period in dealing with the securities of the Company at least one month prior to release of the quarterly financial announcement.

Board Committees

The Board also has established various Board Committees to assist in the discharge of duties and responsibilities. Each of the following committees will operate within defined terms of reference or procedures and the Chairman of respective Committees will report to the Board on matters considered and submit recommendations to the Board for approval as appropriate.

The members of each Board Committee shall be determined by the Board acting on the recommendation of the NRC.

There are two (2) Board Committees established to assist the Board in the discharge of its duties namely Audit Committee and NRC. Reporting to the Audit Committee is the Risk Management Committee which comprises Executive Directors and Senior Management Staff of the Company and the Internal Auditors.

All Board Committees’ terms of reference are reviewed annually taking into consideration recommendation of the MCCG and MMLR. They are available on the Company’s website at www.kkbeb.com.my.

AUDIT COMMITTEE (AC) BOARD COMMITTEES Risk Management Committee (“RMC”) Internal Auditors NOMINATION & REMUNERATION COMMITTEE (“NRC”)

Audit Committee

The composition of Audit Committee, details of Audit Committee meetings, summary of work of the Audit Committee, how it has met its responsibilities, summary of work of the internal audit function and together with its report is presented from pages 41 to 42 in the Audit Committee Report.

• Risk Management Committee (“RMC”)

RMC was established to assist in identifying and managing risks within the Group of Companies. The RMC comprises Group Executive Director, Executive Director and various management staff who are responsible under their respective scope of work for the day-to-day operations. The RMC members are as follows:

Name Position

Kho Pok Tong Group Executive Director (Chairman)

Kho Poh Lin Executive Director (Member)

Diwek Anak Dayus Group Chief Financial Officer (Member)

Dominic A/L Laah Senior General Manager (Group Commercial and Project)

(Member)

Liew Hup Kui Senior General Manager (Group Manufacturing-Business)

(Member)

Kho Poh Joo General Manager (Group Human Resource and Business Services)

(Member)

Than Yiew Ling General Manager (Group Finance) (Member)

Teh Kiang Meng General Manager (Harum Bidang Sdn Bhd) (Member)

37 A N N U A L R E P O R T 2 0 1 9


During the financial year, the RMC sat four (4) times on 19 March 2019, 21 June 2019, 27 August 2019 and 20 November 2019 and deliberated on various risk areas identified by committee members and implemented ways of prevention or mitigation as it deemed necessary.

• Internal Auditors

The Internal Auditor and its Internal Audit Function is outsourced to an independent outside party to assist the Audit Committee in the discharge of its duty. Refer to pages 43, 45 and 46 of this Annual Report for more detail information.

Nomination & Remuneration Committee (“NRC”) The Nomination Committee and Remuneration Committee respectively were dissolved on 15 August 2019 and the NRC is established instead to replace the Nomination Committee and Remuneration Committee with specific terms of reference by the Board. The NRC is a committee form to combine the Nomination Committee and Remuneration Committee. NRC comprises exclusively Non-Executive Directors and two of them are Independent. Below are the members of NRC:

Name Position Category

Dr Arjunan Subramaniam Chairman Independent Non-Executive Director

Datin Mary Sa’diah Binti Zainuddin Member Independent Non-Executive Director

Chai Woon Chew Member Non-Independent Non-Executive Director

The NRC is responsible for the structure, size and composition of the Board, the Board Committees, and the contribution of each individual Director including Independent Non-Executive Director and Group Managing Director. The NRC also evaluated the performance of Group Chief Financial Officer and recommended to the Board.

The NRC also recommends to the Board the framework of the Executive Directors’ remuneration and the remuneration packages for each Executive Director including Group Managing Director, Group Executive Director and Executive Director. The Senior Management’s remuneration package as evaluated and recommended by Group Managing Director and/or Group Executive Director will be reviewed, approved and be recommended to the Board by the NRC.

More detailed information on the role and responsibilities of the Committee can be found in the Committee’s Terms of Reference which can be accessed on the Company’s website at www.kkbeb.com.my.

Activities throughout the year 2019

During the financial year under review, the Nomination Committee met on 26 February 2019 and the NRC met on 13 November 2019. The meeting was attended by all members to deliberate, inter alia, on the evaluation of the Board’s required mix of skills and experience, including core competencies, assessing the effectiveness of the Board as a whole, the performance of the Board Committees and the contribution of each individual Director including the independence of independent directors.

During the financial year under review, the Nomination Committee also reviewed the terms of office and performance of the Audit Committee and its members and determines whether Audit Committee and its members have carried out their duties according with Audit Committee’s terms of reference.

The NRC at its meeting on 13 November 2019 discussed and deliberated on the possible and timely appointment and promotion of Executive Directors and a new Independent Non-Executive Director respectively.

The NRC also noted that on 3 December 2019, Datuk Syed Ahmad Alwee Alsree has tendered his resignation as the Director of KKB and noted that CMSB vide their letter on 4 December 2019, nominated Mr. Syed Hizam Alsagoff to be appointed as Director on the Board of KKB in place of Datuk Syed Ahmad Alwee Alsree. All the NRC members approved the resignation of Datuk Syed Ahmad Alwee Alsree and the appointment of Mr Syed Hizam Alsagoff through the NRC’s Circular Resolution dated 4 December 2019.

Assessment and Evaluation

During the financial year under review, the Nomination Committee also evaluated the Group Chief Financial Officer’s character, experience, integrity, competence and time to discharge her role, Directors’ training needs, retention of Dato Kho Kak Beng as Group Managing Director and Chairman of the Company, retaining Dr Arjunan as Independent Director, female Directorships on the Board, developing and reviewing the criteria used in the recruitment process, annual assessment of Directors and Group Chief Financial Officer, and recommending to the Board for continuation in service of Directors who are due for retirement by rotation.



The Board has also set out expectations on time commitment of its members through assessment and evaluation practised annually by the Nomination Committee. The Directors of KKB are committed and devoted sufficient time in carrying out their responsibility from the time of appointment.

The step by step assessment process of the Board, Board Committees, Individual Director and Group Chief Financial Officer for the year ended 31 December 2019 is stated as follows:

i) The Evaluation Form of Board, Individual Director, Group Chief Financial Officer and Self Evaluation, Audit Committee, Nomination Committee and Remuneration Committee are sent to all Nomination Committee members for their perusal.

ii) Members of Nomination Committee will evaluate, recommend and complete all the evaluation forms and thereafter return to Management office for compiling.

iii) Thereafter, the Nomination Committee members will discuss during the meeting and make recommendation to the Board at the Board of Directors’ Meeting.

iv) Chairman of Nomination Committee is required to report outcome of assessment and tabled to the Board during

the Board of Directors’ Meeting.

Although internally facilitated, a detailed assessment using evaluation form is carried out. Such evaluation forms are continuously enhanced to keep pace with changing business environment.

Attendance of the Directors who held office during the financial year ended 31 December 2019 is shown below:

Name of Directors BoardCommittees 43rd

AGMAC NC RC NRC

Chairman/Group Managing DirectorDato Kho Kak Beng 3/4 - - - - √

Independent Non-Executive DirectorsDr Arjunan SubramaniamLau Nai PekDatin Mary Sa’diah Binti Zainuddin

4/44/44/4

4/44/4-

1/1-

1/1

1/1-

1/1

1/1-

1/1

√√√

Non-Independent Non-Executive DirectorsDatuk Syed Ahmad Alwee Alsree(Resigned on 3 December 2019)Syed Hizam Alsagoff(Appointed on 4 December 2019)Chai Woon Chew

1/4

-

4/4

-

-

4/4

-

-

1/1

-

-

1/1

-

-

1/1

√

-

√

Executive DirectorsKho Pok TongKho Poh Lin

4/44/4

4/44/4

--

--

--

√√

Alternate DirectorSyed Hizam Alsagoff(Resigned on 3 December 2019)

2/4 - - - - √

Protocols for New Directorships

As recommended by MCCG, KKB has their own guideline practice on welcoming new Directors on board. Induction and Orientation is carried out for familiarization on the Company’s main activities, Management and staff, subsidiaries and associate companies. Besides, new directors must be in compliance with the Company’s Criteria for Recruitment. All criteria for recruitment will be reviewed annually by the Board.

39 A N N U A L R E P O R T 2 0 1 9

Directors Training

The Board ensures Directors are committed and devote sufficient time to carry out their responsibility and regularly update their responsibilities. During the year, all Directors have completed the Mandatory Accreditation Programme (“MAP”) required under the MMLR. They are also mindful that training is essential to all Directors and they should continue to update their skills and knowledge to effectively execute their duties.

The Group acknowledges that continuous education is vital for Board members to gain insight on latest regulatory development. Therefore, the NRC evaluates the training needs and assesses the capability of Directors.

Directors’ list of trainings/courses attended for year 2019 as follows:

Name of Director Description of Training

Dato Kho Kak Beng • Malaysian Anti-Corruption Commission Amendment Act 2018• Corporate Liability Provision Under the MACC Act 2009 – Safeguarding

the Group, its Directors, Top Management & Other Personnel against Corruption Prosecution

Kho Pok Tong • Malaysian Anti-Corruption Commission Amendment Act 2018• Corporate Criminal Liability for Corruption (Section 17A MACC Act)• Corporate Liability Provision Under the MACC Act 2009 – Safeguarding


Kho Poh Lin • Technical Briefing For Company Secretaries Of Listed Issuers 2019• Corporate Criminal Liability for Corruption (Section 17A MACC Act)• Corporate Liability Provision Under the MACC Act 2009 – Safeguarding


Chai Woon Chew • Rethinking Strategy• National Economic Forum 2019• Corporate Criminal Liability for Corruption (Section 17A MACC Act)

Dr Arjunan Subramaniam • The Securities Commission Malaysia’s Audit Oversight Board Conversation with Audit Committees

• Related Party Transactions: Conflict of Interest – Implications to the Board of Directors, Audit Committee and Management

• Corporate Liability Provision Under the MACC Act 2009 – Safeguarding the Group, its Directors, Top Management & Other Personnel against Corruption Prosecution

Datin Mary Sa’diah Binti Zainuddin • Malaysian Anti-Corruption Commission Amendment Act 2018

Lau Nai Pek • Axiata Audit Committee Chairman Forum• Integrated Reporting by MIA• Corporate Liability Provision Under the MACC Act 2009 – Safeguarding


Datuk Syed Ahmad Alwee Alsree • International Manganese Institute (IMnI) 2019 Annual Conference• International Digital Economy Conference Sarawak (IDECS 2019)• Briefing on Bay Al-Dayn in Islamic Finance

Syed Hizam Alsagoff • Integrated Reporting <IR>: Communicating Value Creation

Directorships in other companies

In compliance with Paragraph 15.06 of the Listing Requirements of Bursa Malaysia Securities Berhad (“BMSB”), the Directors of KKB do not hold more than five (5) directorships in Listed Issuers and the listing of directorships held by Directors is confirmed by each Director twice a year.



Remuneration

The Board has in place a Remuneration Policy and Procedures to determine the remuneration of Directors and Senior Management and being reviewed annually. The packages take into consideration the demands, complexity and performance of the Company as well as skills and experience requirements.

The Board through its NRC will determine the remuneration of each Executive Director, Group Managing Director, Group Chief Financial Officer and Senior Management (as assisted and recommended by Group Managing Director and/or Group Executive Director) reflecting the level of responsibility, experience and commitment. The fees paid to Non-Executive Directors are the responsibilities of the entire Board. No director is involved in determining his/her own remuneration.

The NRC also recommends to the Board the framework of the Executive Directors’ remuneration and the remuneration package for each Executive Director, drawing from outside advice as necessary. As part of its ongoing corporate governance exercise, the NRC will also review, approve and recommend to the Board the Senior Management’s remuneration package as evaluated and recommended by Group Managing Director and/or Group Executive Director.

Currently, Management is in the process of re-aligning and re-defining the overall Human Resources Organization hierarchy and Management positions in order to be in line with its corporate governance ongoing practice in identifying its Senior Management personnel.

The details of remuneration of Directors of the Company paid to all Directors for the financial year ended (“FYE”) 31 December 2019 are as follows:

Company

Directors Fees (RM) Salaries (RM) Bonus (RM)Allowance and benefit in kind

(RM)Independent Non- Executive Diretor I 63,600.00 - - 20,000.00 Independent Non- Executive Diretor II 63,600.00 - - 14,000.00 Independent Non- Executive Diretor III 63,600.00 - - 8,000.00 Non-Independent Non-Executive Director I 63,600.00 - - 500.00 Non-Independent Non-Executive Director II 63,600.00 - - 20,000.00 Non-Independent Non-Executive Director III - - - - Executive Director I 1,783,828.00 685,247.00 1,093,319.94 Executive Director II 515,078.00 214,207.00 250,010.32 Executive Director III 421,422.00 175,258.00 233,291.40

Group

Directors Fees (RM) Salaries (RM) Bonus (RM)Allowance and benefit in kind

(RM)Independent Non- Executive Diretor I 63,600.00 - - 20,000.00 Independent Non- Executive Diretor II 63,600.00 - - 14,000.00 Independent Non- Executive Diretor III 63,600.00 - - 8,000.00 Non-Independent Non-Executive Director I 63,600.00 - - 500.00 Non-Independent Non-Executive Director II 63,600.00 - - 20,000.00 Non-Independent Non-Executive Director III - - - - Executive Director I - 1,783,828.00 685,247.00 1,362,119.94 Executive Director II - 515,078.00 214,207.00 386,241.32 Executive Director III - 421,422.00 175,258.00 260,727.80 Director (Group) - - - 6,885.20 Director (Group) - - 4,500.00 50,567.60

Although the Directors names are not specifically spelt out but are individually based on numbers and such detailed individual breakdowns, shareholders will be able to assess the remuneration of Directors.


41 A N N U A L R E P O R T 2 0 1 9

EFFECTIVE AUDIT AND RISK MANAGEMENT

AUDIT COMMITTEE REPORT

Pursuant to Para 15.15 of BMSB’s MMLR, the Board is required to prepare an Audit Committee Report for inclusion in this Annual Report.

Audit Committee Members

The Audit Committee comprises the followings:

Dr Arjunan Subramaniam - Independent Non-Executive Director

Lau Nai Pek - Independent Non-Executive Director

Chai Woon Chew - Non-Independent Non-Executive Director

Activities of the Audit Committee

a) During the FYE 2019, the Audit Committee held four (4) meetings and carried out its duties as set out in the Terms of Reference. The Audit Committee sat on 26 February 2019, 21 May 2019, 15 August 2019 and 13 November 2019. Details of the members and their attendance are as follows:

Name Position Attendance of Meeting

Dr Arjunan Subramaniam Chairman 4/4

Lau Nai Pek Member 4/4

Chai Woon Chew Member 4/4

b) Reviewed the unaudited quarterly financial statements and the audited annual financial statements of the Company and the Group, prior to recommending the same document for approval by the Board, upon being satisfied that the financial reporting and disclosure requirements to the relevant authorities had been complied with, before releasing to Bursa Malaysia Securities Berhad.

c) Reviewed with the External Auditors the Audit Plan for FYE 2019.

d) The Audit Committee sat twice with the External Auditors without the presence of other Directors and employees on 26 February 2019 and 13 November 2019 to determine whether there were any significant issues on the findings of their audit and cooperation extended by management.

e) Reviewed and approved the internal audit plan of the Internal Auditors for 2019, and their quarterly report and findings.

f) The Audit Committee sat once with the Internal Auditors or person(s) carrying out the internal audit function or activity without the presence of other Directors and employees on 26 February 2019.

g) Reviewed Quarterly Related Party Transactions which are required to be transacted at arm’s length and are not detrimental to the interests of minority shareholders.

h) Reviewed the Audit Committee’s Terms of Reference.

i) Considered and recommended the re-appointment of External Auditors and their fees.

j) Reviewed Statement on Risk Management and Internal Control.

k) Reviewed Report of Audit Committee.

l) Reviewed Report from Risk Management Committee.

m) Assessed the suitability, objectivity and independence of external and internal Auditors through the Evaluation Form.

n) Obtained written 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.




Summary of work of Internal Audit

The Internal Audit Function of the Company is outsourced to an independent professional firm in ensuring an independent, objective assurance and to add value to and improve the Group’s operations.

For impartiality and independency, the Internal Auditors report directly to the Audit Committee on its findings and recommendations. Any necessary corrective action after reporting to the Board by the Audit Committee will be monitored by the Management.

During the financial year under review, the Internal Auditors carried out its audit assignments as approved by the Audit Committee. The audit subjects were selected based on a risk assessment exercise reviewed by the Audit Committee. The Audit Committee received and reviewed the Internal Audit Reports highlighting audit issues, recommendations and management response and directed actions to be taken by management to rectify and improve the system of risk management and internal control.

The audit works conducted by the Internal Auditors during the FYE 2019 are as follows:

(i) Review of QAQC Calibration Documentation and Certification, Lot 777, OMSB & KKBEB;

(ii) Verification of Measuring Equipment and Updates on Hot Dip Galvanising;

(iii) Operation Readiness of KKB Industries (Sabah) Sdn Bhd; and

(iv) Operation Review of Harum Bidang Sdn Bhd.

Financial Reporting

The Board is responsible for ensuring accounting records are properly kept and the Company and Group’s financial statements are prepared in accordance with applicable Financial Reporting standards in Malaysia and the provisions of the Act. It is assisted by the Audit Committee to oversee the Group’s financial reporting processes, to determine that the reports fairly present the Group’s financial position and the results of its operation and ensure the accuracy and adequacy of the information announced.

The Audit Committee is an independent platform for regular discussions between Independent Directors and External Auditors and reviews the Company’s process including internal control and communication with Internal Auditors.

Risk Management and Internal Control

The Board is responsible for establishing a sound system of internal control to safeguard shareholders investments and Company’s assets. The information on Group’s Risk Management and Internal Control is presented in the Statement on Risk Management and Internal Control as set out in this Annual Report.

The Audit Committee assists the Board in fulfilling such obligation by reviewing and evaluating independently its effectiveness and adequacy with the assistance of the Internal Auditors.

In addition to the Audit Committee’s independent evaluation of the Internal Control system, the Risk Management Committee also ensures the implementation of a Risk Management Framework relating to all the Group’s operations and business activities. The Risk Management Committee shall be under the purview of the Audit Committee and reports to the Audit Committee.

Relationship with External Auditors

The Company has always maintained a formal and transparent relationship with its External Auditors in seeking professional advice and ensuring compliance with applicable approved accounting standards, Malaysian Financial Reporting Standards and the Act.

The External Auditors carry out an important role for the shareholders by giving assurance on the reliability of the financial statements. The External Auditors will meet the Board whenever necessary and it shall meet the Audit Committee without the presence of other Directors and employees twice a year.

43 A N N U A L R E P O R T 2 0 1 9

Internal Auditors

The Group outsourced its Internal Audit function to external party which assists the Audit Committee in the discharge of its duties and responsibilities. Its role is to provide independent and objective reports on the Group’s management, records, accounting policies and controls to the Board.

All internal audit functions during the financial year were conducted by Core Business Success Sdn Bhd. The Internal Auditors carrying out the internal audit function or activity for the Group of Companies is headed by Mr. Wee Hun Been, member of Chartered Accountants (Malaysia), Associate Chartered Management Accountants (UK) and Certified Financial Planner License No.: C01441. Mr. Wee Hun Been holds a Bachelor Degree in Science (Education), Graduate Certificate in TESL and a member of the Malaysian Institute of Accountants (MIA: 8853) since 1996. He has accumulated over 30 years’ experience in a wide range industry.

Where required, the Internal Auditors may be assisted by other qualified personnel in specific technical areas including forensic advisory. During the FYE 2019, the total cost incurred for the internal audit function was in the region of RM28,000.00 (FYE 2018: RM28,000).

The Audit Committee meets with the Internal Auditors at least once a year without the presence of other Directors and Management or whenever deemed necessary to ensure that the internal audit function is effective and able to function independently. The Internal Auditor reports directly to the Audit Committee and his findings and recommendations are communicated to the Board via the Audit Committee.

A statement on the Internal Audit Function is presented on pages 45 to 46 of this Annual Report.

INTEGRITY IN CORPORATE REPORTING AND MEANINGFUL RELATIONSHIP WITH STAKEHOLDERS

Communication with Stakeholders

The Board recognize the importance of being transparent and accountable to the Company’s investors and hence have communication through quarterly announcement on its financial results to Bursa, Annual General Meeting (“AGM”) and relevant announcements. The Company’s website is also used as a platform for communication between the Company and its stakeholders.

Conduct of General Meetings

The AGM is used as a platform to allow shareholders dialogues and allows shareholders to pose questions for Board’s response and clarification. The Board of Directors including Senior Management team, External Auditors and Internal Auditors were present at the AGM held on 22 May 2019 to answer queries from shareholders. The Notice of 43rd AGM was issued on 18 April 2019 and published in the New Straits Times newspaper also.

DIRECTORS’ RESPONSIBILITY STATEMENT

The Directors are required by the Act to prepare financial statements for the financial year which has been made out in accordance with the applicable Malaysian Financial Reporting Standards and International Financial Reporting Standards so as to give a true and fair view of the financial position of the Group and of the Company and of their financial performance and cash flows for the financial year ended then.

In preparing the financial statements of the Company and the Group, the Directors have adopted suitable accounting policies and applying them consistently, have made judgments and estimates that are reasonable and prudent and ensuring applicable accounting standards have been complied with.

All financial results required for announcement to Bursa Securities by the Board are released within stipulated timeframe.

This CG Overview Statement is made in accordance with a resolution of the Board dated 18 February 2020.



STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL

The Board of Directors (“the Board”) is pleased to provide the statement on Risk Management and Internal Control pursuant to Paragraph 15.26(b) of the Main Market Listing Requirements (“MMLR”) of Bursa Malaysia Securities Berhad, Principle B of Malaysian Code on Corporate Governance (“MCCG”) and guided by the Statement on Risk Management and Internal Control: Guidelines for Directors of Listed Issuers.

Responsibility The Board recognizes the importance of maintaining sound risk management practices and internal control system to safeguard shareholder’s investment and Group’s assets. The Board affirms its overall responsibility of reviewing the adequacy and integrity of the Group’s risk management and internal control system and management information system in compliance with applicable laws, regulations, rules, directives and guidelines. In carrying out this responsibility, the Board is assisted by the Audit Committee and Risk Management Committee. Both committees are guided by its terms of reference to ensure the adequacy and integrity of the risk management practices and the internal control system.

This is done through reports by Risk Management Committee on the risk management activities carried out, internal auditors on internal control system, independent financial audit and Management respectively. In addition, the Board also received assurance from the Group Managing Director and Group Chief Financial Officer that the Group’s risk management and internal control system are operating adequately and effectively in all material aspects.

The risk management and internal control system not only covers financial controls but operational and compliance controls and risk management. Due to limitations inherent in the system, this system can only manage rather than eliminate the risk of failure to achieve business objectives. Therefore, any part of this system can only provide reasonable and not absolute assurance against material misstatement, fraud or loss occurrence.

Risk Management Framework The Board recognizes the importance of identifying principal risks and ensuring the implementation of appropriate systems to manage the risks.

It regards risk management as an ongoing process and an integral part of the day-to-day operations of the Group. It recognizes that and pursuant to the MCCG, a risk management program must be implemented to ensure that all key risks are identified and managed appropriately and sufficiently. The Board has established a framework for identifying, evaluating, managing and reporting the significant risks found by the Group.

The Board together with the assistance of the Audit Committee, the Risk Management Committee and professionals and advisers such as the Internal Auditors, identify risks as an ongoing process and ensure continuous risk management arising therefrom.

Risk Management Committee (“RMC”)

The RMC which comprises Executive Directors and Senior Management staff has been set up to further enhance and improve the process of risk management and to execute in accordance with the Terms of Reference laid down.

As an ongoing process the RMC carries out risks identification, evaluate, monitor and formulate mitigation strategies on risks identified. The RMC executes its duties based on the Group’s operational activities and manages risks as directed by the Audit Committee who in turn reports to the Board.

The RMC periodically reviews risk management processes and policies to ensure relevancy and effectiveness. It will then submit an annual report on the overall risk management processes to the Audit Committee.

During the financial year under review, the RMC held four (4) meetings and worked within the adopted risk management framework. This process is monitored and reviewed by the Audit Committee who shall report and recommend to the Board.

The risk responses and internal controls that the management have implemented and/or are implementing are documented in the minutes of meeting of the RMC. For each of the risks identified, the management is assigned to ensure appropriate risk response actions are carried out.

45 A N N U A L R E P O R T 2 0 1 9

STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL (CONT’D)

Internal Audit Function

Whilst the RMC operates within the confines of its Terms of Reference and reports to the Audit Committee in ensuring that a sound system of risk management and internal control is maintained, the adequacy and integrity of the risk management and internal control system are further assured by the existence of an Independent Internal Audit Function which possesses the necessary expertise to perform its duties. The Internal Audit Function’s activities are outsourced to an independent service provider, who is adequately resourced to ensure the audit activities are carried out professionally with independence, objectivity and impartiality without interference.

The Internal Auditors’ role is separate (although may overlap) from that of the RMC as it regularly evaluates on an independent basis the effectiveness and appropriateness of the entire risk management and internal control structure as directed by the Audit Committee. In addition, the Internal Auditors may also provide such assurance and advice covering specialized areas. With the report presented to the Audit Committee, the Audit Committee in turn reports to the Board for review on the adequacy and effectiveness of the risk management and internal control system.

The Internal Auditors carried out detailed risk audits on each identified area as per directed and approved by the Audit Committee.

During the financial year under review, the Audit Committee discussed with the Internal Auditors on the following areas which audits were carried out subsequently:

(i) Review of QAQC Calibration Documentation and Certification, Lot 777, OMSB & KKBEB;

(ii) Verification of Measuring Equipment and Updates on Hot Dip Galvanising;

(iii) Operation Readiness of KKB Industries (Sabah) Sdn Bhd; and

(iv) Operation Review of Harum Bidang Sdn Bhd.

At the conclusion of each audit, the Internal Auditors submitted their findings and recommendations to the Audit Committee during the scheduled Audit Committee meetings. The findings from each audit were subsequently tabled to the Board at scheduled Board meetings by the Chairman of the Audit Committee accordingly.

The total costs incurred for the Internal Audit Function in respect of the financial year ended 31 December 2019 was in the region of RM28,000 (FYE 2018: RM28,000).

Key Processes of Risk Management & Internal Control

Other key areas of the Group’s risk management and internal control system include the following:

• Existence of Board Committees such as Audit Committee, Nomination & Remuneration Committee (“NRC”) and other Management Committees such as MANCO, RMC, CSR and IT. Each committee has its clearly defined terms of reference, authority and responsibility.

• Scheduled management meetings for each divisions and department to review operational matters, contingency plans, new requirements and updates.

• ISO 9001:2015 Quality Management System certifications for operational control procedures with stringent documentation requirements provide assurance that a trail of accountability exists and also continuous quality improvement.

• OHSAS 18001:2007 Occupational, Health & Safety management system and documented system procedures provide for continual improvements and management commitment in regulatory compliance.

• Establishment of Employee’s Handbook, Health & Safety Manual and other publication provide for continuous assurance and trail of accountability.



• Establishment of a system of governance through code of conduct, whistle blowing policy, corporate disclosure policy, dividend policy, remuneration policy & procedures, gender diversity policy and the board charter.

• A well-structured organizational hierarchy with formally defined lines of responsibility and duties.

• Implementation of Enterprise Resource Planning (ERP) using Oracle JD Edwards EnterpriseOne (Release 9.1) to integrate and improve the overall efficiency of the Group’s financial and operational control, and to optimize capacity utilization. During the year under review, the ERP software was upgraded to Release 9.2.

• Continuous practice of Employee’s Performance appraisal on a yearly basis, and to align it with the Group’s Pay and Reward Scheme.

• The Human Resource & Business Services Department continuously facilitates operational skills and leadership development and training as well as knowledge enhancement for employees against company’s business requirements, consistent with the Group’s Mission to be “A Preferred Place of Work” of employees.

• Comprehensive and timely financial reporting to the Audit Committee and then to the Board of quarterly financial performance.

• Legal, Corporate and Listing Requirements compliance are continuously addressed, monitored and managed via a single focal point through the Executive Director in charge of Legal and Corporate Affairs, assisted and advised by the legal counsel and Company Secretary as and when necessary.

• Adequate insurance coverage on major assets and transaction to prevent material losses and reduce contingent liabilities.

• Review of the Risk Profile to monitor whether risks identified during the period under review have been mitigated.

• Annual review of Succession Planning Policy by NRC as it is an ongoing strategic approach of KKB Group of Companies to ensure that necessary talent and skills will be available when needed, and that essential knowledge and abilities will be maintained when employees in critical positions leave.

• Formation of the Anti-bribery & Corruption Task-Force to establish a programme and to provide good practice anti-bribery and corruption system as to what constitutes adequate procedures.

• Formation of Group HSE Task-Force to brainstorm areas of high risks and come up with best procedures and policies to standardize all safety practices for the whole Group.

Review of the statement by External Auditors

As required by Para 15.23 of the MMLR, the external auditors have reviewed this Statement on Risk Management and Internal Control pursuant to the scope set out in Audit and Assurance Practice Guide 3, Guidance for Auditors on Engagements to Report on the Statement on Risk Management and Internal Control included in the Annual Report (“AAPG 3”) issued by the Malaysian Institute of Accountants (“MIA”) for inclusion in the annual report of the Group for the year ended 31 December 2019, and reported to the Board that nothing has come to their attention that cause them to believe that the statement intended to be included in the annual report of the Group, in all material respects; has not been prepared in accordance with the disclosures required by paragraphs 41 and 42 of the Statement on Risk Management and Internal Control: Guidelines for Directors of Listed Issuers, or is factually inaccurate.

AAPG 3 does not require the external auditors to consider whether the Directors’ Statement on Risk Management and Internal Control covers all risks and controls, or to form an opinion on the adequacy and effectiveness of the Group’s risk management and internal control system including the assessment and opinion by the Directors and management thereon. The report from the external auditors was made solely for, and directed solely to the Board in connection with their compliance with the listing requirements of Bursa Malaysia Securities Berhad and for no other purposes or parties. The external auditors do not assume responsibility to any person other than the Board in respect of any aspect of this report.

47 A N N U A L R E P O R T 2 0 1 9


Conclusion

In reviewing the risk management & internal control of the Group, the Board confirms that the system of risk management and internal control with the key control processes as listed above are in place during the financial year. There is a continuous process for identifying, evaluating and managing significant risks to assess and enhance the effectiveness of the risk management and internal control system.

Notwithstanding the above, as business continues to grow, more emphasis will be placed on maintaining sound Risk Management practices and establishing a sustainable Risk Management framework. As such the existing Risk Management framework will gradually be enhanced and strengthened through the formation of a Board Risk Committee comprising majority of independent directors (in line with MCCG Step Up 9.3) to add value to deal with the risks the Company may face and to oversee the overall Group’s Risk Management framework and policies.

Overall the Board is satisfied that the risk management and internal control system is in place for the year under review and is adequate and effective to safeguard the shareholders’ investment, the interests of customers, regulators, employees and the Group’s assets.

The Board is not aware of any significant material weaknesses in risk management and internal control resulting in significant losses. Management will continue to review the adequacy and integrity of the Group’s risk management and internal control system.

This Statement is made in accordance with a resolution of the Board dated 18 February 2020.


DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTSFor the Financial Year Ended 31 December 2019

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DIRECTORS’ REPORT

The directors have pleasure in presenting their report together with the audited financial statements of the Group and of the Company for the financial year ended 31 December 2019.

Principal activities

The principal activities of the Company consist of steel fabrication, civil construction, hot dip galvanising and the manufacture of LPG cylinders. The principal activities of the subsidiaries are set out in Note 15 to the financial statements.

There have been no significant changes in the nature of the principal activities during the financial year.

Results Group Company RM RM

Profit net of tax 61,477,709 22,389,460 Profit attributable to:

Equity holders of the parent 47,686,481 22,389,460Non-controlling interests 13,791,228 -

61,477,709 22,389,460

In the opinion of the directors, the results of the operations of the Group and of the Company during the financial year were not substantially affected by any item, transaction or event of a material and unusual nature.

Reserves and provisions

There were no material transfers to or from reserves and provisions during the financial year other than as disclosed in the financial statements.

Dividends

At the forthcoming Annual General Meeting, a first and final single tier dividend in respect of the financial year ended 31 December 2019, of 6.00 sen per ordinary share, amounting to a dividend payable of RM15,467,520 will be proposed for shareholders’ approval. The financial statements for the current financial year do not reflect this proposed dividend. Such dividend, if approved by the shareholders, will be accounted for in equity as an appropriation of retained earnings in the financial year ending 31 December 2020.

Directors

The directors of the Company in office since the beginning of the financial year and up to the date of this report are:

Dato Kho Kak Beng**Dr. Arjunan SubramaniamChai Woon ChewLau Nai Pek Datin Mary Sa’diah Binti ZainuddinKho Pok Tong**Kho Poh Lin***Syed Hizam Alsagoff (Redesignated as director on 4 December 2019)Yong Voon Kar (Appointed on 1 March 2020)Datuk Syed Ahmad Alwee Alsree (Resigned on 3 December 2019)

**These directors are also directors of the Company’s subsidiaries and associate.***This director is also a director of the Company’s subsidiaries.


DIRECTORS’ REPORT (CONT’D)

Directors (cont’d)

The directors of the Company’s subsidiaries and associates in office since the beginning of the financial year and up to the date of this report (not including those directors listed above) are:

Tan Sri Abd Rahman Bin MamatDato’ Anwarrudin Bin Ahamad OsmanDiwek Anak DayusDominic A/L LaahLee Thien FaiLiang Kai ChongNg Eng KeatPaul Chan Phoo Thien (Resigned on 15 January 2019)

Directors’ benefits

Neither at the end of the financial year, nor at any time during that year, did there subsist any arrangement to which the Company was a party, whereby the directors might acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate.

Since the end of the previous financial year, no director has received or become entitled to receive a benefit (other than benefits included in the aggregate amount of emoluments received or due and receivable by the directors as shown below) by reason of a contract made by the Company or a related corporation with any director or with a firm of which he is a member, or with a company in which he has a substantial financial interest, except as disclosed in Note 30 to the financial statements.

The directors’ benefits are as follows:

Group Company 2019 2018 2019 2018 RM RM RM RM

Directors’ remuneration

Executive directors’ remuneration:- Fees - 180,000 - 180,000- Other emoluments 5,750,614 4,399,680 5,263,079 4,355,663

5,750,614 4,579,680 5,263,079 4,535,663Estimated money value of benefit-in-kind 108,433 109,715 108,433 109,715

5,859,047 4,689,395 5,371,512 4,645,378

Non-executive directors’ remuneration:- Fees 318,000 350,000 318,000 350,000- Other emoluments 62,650 127,349 62,650 67,000

380,650 477,349 380,650 417,000

Total directors’ remuneration (Note 11) 6,239,697 5,166,744 5,752,162 5,062,378

Indemnification of directors and officers

The Group maintains a liability insurance for the directors and officers of the Group. The amount of insurance premium effected for the directors and officers of the Group and the Company during the financial year was RM9,020. The directors and officers shall not be indemnified by such insurance for any negligence, fraud, intentional breach of the law or breach of trust proven against them.

There were no payments of indemnification during the financial year and up to the date of this report.

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Directors’ interests

According to the register of directors’ shareholdings, the interests of directors in office at the end of the financial year in shares in the Company and its related corporations during the financial year were as follows:

Number of ordinary shares As at As at 01.01.2019 Bought Sold 31.12.2019

The Company

Direct interest

Dato Kho Kak Beng 4,742,480 - - 4,742,480Chai Woon Chew 435,720 - - 435,720Kho Pok Tong 744,600 - - 744,600Kho Poh Lin 608,500 - - 608,500

Indirect interest

Dato Kho Kak Beng 111,144,500 100,000 - 111,244,500Chai Woon Chew 14,400,000 - - 14,400,000Kho Pok Tong 110,669,520 100,000 - 110,769,520Kho Poh Lin 110,669,520 100,000 - 110,769,520

Number of ordinary shares Shareholdings registered in the names of directors 01.01.2019 and 31.12.2019Holding company

Kho Kak Beng Holding Company Sdn. Bhd.

Dato Kho Kak Beng 234,091 Kho Pok Tong 36,720Kho Poh Lin 36,720

Dato Kho Kak Beng, Kho Pok Tong and Kho Poh Lin, by virtue of their interest in shares of KKB Engineering Berhad, are also deemed interested in the shares of the subsidiaries to the extent of the Company’s interest in these companies.

None of the other directors in office at the end of the financial year had any interest in shares in the Company or its related corporations during the financial year.

Other statutory information

(a) Before the statements of profit or loss and other comprehensive income and statements of financial position of the Group and of the Company were made out, the directors took reasonable steps:

(i) 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 satisfied themselves that all known bad debts had been written off and that adequate allowance had been made for doubtful debts; and

(ii) to ensure that any current assets which were unlikely to realise their values as shown in the accounting records in the ordinary course of business had been written down to an amount which they might be expected so to realise.

(b) At the date of this report, the directors are not aware of any circumstances which would render:

(i) the amount written off for bad debts or the amount of the allowance for doubtful debts in the financial statements of the Group and of the Company inadequate to any substantial extent; and

(ii) the values attributed to current assets in the financial statements of the Group and of the Company misleading.



Other statutory information (cont’d)

(c) At the date of this report, the directors are not aware of any circumstances 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.

(d) At the date of this report, the directors are not aware of any circumstances not otherwise dealt with in this report or financial statements of the Group and of the Company which would render any amount stated in the financial statements misleading.

(e) As at the date of this report, there does not exist:

(i) any charge on the assets of the Group or of the Company which has arisen since the end of the financial year which secures the liabilities of any other person; or

(ii) any contingent liability of the Group or of the Company which has arisen since the end of the financial year.

(f) In the opinion of the directors:

(i) 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 will or may affect the ability of the Group or of the Company to meet their obligations when they fall due; and

(ii) 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 the operations of the Group or of the Company for the financial year in which this report is made.

Holding company

The holding company is Kho Kak Beng Holding Company Sdn. Bhd., a company incorporated and domiciled in Malaysia, with its registered office located at No.22, 4th Floor, Jalan Tunku Abdul Rahman, 93100 Kuching, Sarawak.

Non-adjusting events after the reporting period

Details of the above are disclosed in Note 32 to the financial statements.

Auditors

The auditors, Ernst & Young PLT, have expressed their willingness to continue in office.

Auditors’ remuneration are disclosed in Note 10 to the financial statements.

To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young PLT, as part of the terms of its audit engagement against claims by third parties arising from the audit. No payment has been made to indemnify Ernst & Young PLT during or since the financial year.

Signed on behalf of the Board in accordance with a resolution of the directors dated 30 April 2020.

(Signed) (Signed)

Dato Kho Kak Beng Dr. Arjunan Subramaniam

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STATEMENT BY DIRECTORS PURSUANT TO SECTION 251(2) OF THE COMPANIES ACT 2016

We, Dato Kho Kak Beng and Dr. Arjunan Subramaniam, being two of the directors of KKB Engineering Berhad, do hereby state that, in the opinion of the directors, the accompanying financial statements set out on pages 57 to 125 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 at 31 December 2019 and of their financial performance and cash flows for the year then ended.

Signed on behalf of the Board in accordance with a resolution of the directors dated 30 April 2020.

(Signed) (Signed)

Dato Kho Kak Beng Dr. Arjunan Subramaniam

STATUTORY DECLARATION PURSUANT TO SECTION 251(1)(B) OF THE COMPANIES ACT 2016

I, Diwek Anak Dayus, being the officer primarily responsible for the financial management of KKB Engineering Berhad, do solemnly and sincerely declare that the accompanying financial statements set out on pages 57 to 125 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.

Subscribed and solemnly declared by the abovenamed Diwek Anak Dayusat Kuching in the State of Sarawak on 30 April 2020 (Signed)

Diwek Anak Dayus (MIA 10988)Before me,

Phang Dah Nan(Q119)Commissioner For Oaths


INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF KKB ENGINEERING BERHAD (INCORPORATED IN MALAYSIA)

Report on the audit of the financial statements

Opinion

We have audited the financial statements of KKB Engineering Berhad, which comprise the statements of financial position as at 31 December 2019 of the Group and of the Company, and 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 57 to 125.

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 at 31 December 2019, 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 audit 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 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 matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the Group and of the Company for the current year. We have determined that there is no key audit matter to communicate in our report on the financial statements of the Company. The key audit matter for the audit of the financial statements of the Group is described below. This matter was 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, and we do not provide a separate opinion on these matters. For the matter below, our description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditors’ responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matter below, provide the basis of our audit opinion on the accompanying financial statements.

Revenue Recognition Relating to Construction Contracts

The revenue from construction contracts of the Group is measured using the percentage of completion method. Management estimates the revenue and costs at the inception of the contracts and regularly assess the progress of construction works as well as the financial impact arising from changes in scopes, claims, foreseeable losses and liquidated ascertained damages. The process to measure the revenue, budgeted costs, including the determination of the appropriate timing of revenue recognition, involves significant management judgement and these factors may give rise to a risk of incorrect recognition of revenue during the year. The Group recorded revenue from construction contracts amounted to approximately RM447 million for the year ended 31 December 2019. Considering the above, we determine this to be a key audit matter.

Our audit procedures included an assessment of management’s assumptions in the determination of estimated costs to complete projects and the related computation of the percentage of completion, provisions for foreseeable losses and liquidated ascertained damages. In evaluating the significant judgements and estimation made by management, we assessed the reliability of the reports provided by management and the competency of management’s experts. In addition, we performed substantive audit procedures over the recording of contract costs and contract revenues and the estimation of costs to complete those projects. We also performed assessment of the financial implications due to the potential delays in the execution of the projects. We also considered the adequacy of the disclosures on revenue recognition included in the summary of significant accounting policies in Note 2.22 to the financial statements, as well as the significant accounting judgements and estimates in Note 3(a) to the financial statements.

55 A N N U A L R E P O R T 2 0 1 9

Report on the audit of the financial statements (cont’d)

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 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 KKB ENGINEERING BERHAD (INCORPORATED IN MALAYSIA) (CONT’D)


Report on the audit of the financial statements (cont’d)

Auditors’ responsibilities for the audit of the financial statements (cont’d)

• 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, related safeguards.

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.

ERNST & YOUNG PLT AU YONG SWEE YIN202006000003 (LLP0022760-LCA) & AF 0039 No. 03101/02/2022 JChartered Accountants Chartered Accountant

Kuching, MalaysiaDate: 30 April 2020

INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF KKB ENGINEERING BERHAD (INCORPORATED IN MALAYSIA) (CONT’D)

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STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOMEFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2019

Group Company Note 2019 2018 2019 2018 RM RM RM RM

Revenue from contracts with customers 4 559,281,188 412,478,697 180,706,728 68,063,139 Dividend income from subsidiaries - - 5,608,125 13,500,000

Revenue 559,281,188 412,478,697 186,314,853 81,563,139

Cost of sales (452,742,393) (359,198,570) (146,928,791) (56,472,495)

Gross profit 106,538,795 53,280,127 39,386,062 25,090,644

Selling and distribution expenses (1,367,607) (959,538) (1,327,193) (907,137)Administrative expenses (34,055,454) (26,800,279) (15,378,272) (13,310,423)

Operating profit 71,115,734 25,520,310 22,680,597 10,873,084

Finance costs 7 (4,158,169) (1,502,164) (620,039) (408,116)Finance income 8 1,102,480 848,887 767,614 935,937Other expenses (4,148,664) (2,134,211) (1,348,406) (760,310)Other income 9 11,746,908 6,973,205 3,485,577 3,389,465Share of results of associates 2,281,585 (218,311) - -

Profit before tax 10 77,939,874 29,487,716 24,965,343 14,030,060

Income tax expense 12 (16,462,165) (6,456,952) (2,575,883) (279,834)

Profit for the year, net of tax, representing total comprehensive income for the year 61,477,709 23,030,764 22,389,460 13,750,226

Attributable to:Equity holders of the parent 47,686,481 17,643,567 22,389,460 13,750,226 Non-controlling interests 13,791,228 5,387,197 - -

61,477,709 23,030,764 22,389,460 13,750,226

Group Note 2019 2018 sen sen

Earnings per share attributable to equity holders of the parent

Basic 13 18.50 6.84

The accompanying accounting policies and explanatory notes form an integral part of the financial statements.


STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 2019


ASSETS

Non-current assets

Property, plant and equipment 14 149,469,437 135,906,751 124,411,792 110,026,008Investment in subsidiaries 15 - - 37,714,893 37,714,893Investment in associates 16 3,773,871 1,492,286 100,000 100,000Goodwill 17 1,632,667 1,632,667 - -Deferred tax assets 12 1,859,214 2,027,666 1,859,214 2,027,666

156,735,189 141,059,370 164,085,899 149,868,567

Current assets

Inventories 18 69,821,571 36,224,216 17,142,026 14,194,970Trade and other receivables 20 67,809,580 27,810,266 54,839,570 24,111,665Contract assets 21 141,163,814 153,643,157 6,941,057 729,538Other current assets 22 908,661 4,047,881 11,284 1,542,712Short term funds 23 38,079,135 72,419,095 31,806,784 47,311,780Cash and short-term deposits 24 73,367,576 74,120,425 10,821,455 23,139,997

391,150,337 368,265,040 121,562,176 111,030,662

TOTAL ASSETS 547,885,526 509,324,410 285,648,075 260,899,229

EQUITY AND LIABILITIES

Equity

Issued capital 27 128,896,000 128,896,000 128,896,000 128,896,000 Retained earnings 207,835,023 170,460,222 119,623,995 107,546,215

Equity attributable to equity holders of the parent 336,731,023 299,356,222 248,519,995 236,442,215

Non-controlling interests 33,175,253 19,775,900 - -

Total equity 369,906,276 319,132,122 248,519,995 236,442,215

59 A N N U A L R E P O R T 2 0 1 9

STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 2019 (CONT’D)


EQUITY AND LIABILITIES (cont’d)

Non-current liabilities

Interest-bearing loans and borrowings 25 547,648 603,686 359,115 603,686 Trade and other payables 26 8,809,101 3,285,960 - -Deferred tax liabilities 12 1,107,183 1,160,875 - -

10,463,932 5,050,521 359,115 603,686

Current liabilities

Trade and other payables 26 151,580,622 183,389,102 35,493,363 23,158,620Interest-bearing loans and borrowings 25 10,484,838 827,200 474,066 694,708Income tax payable 5,449,858 925,465 801,536 -

167,515,318 185,141,767 36,768,965 23,853,328

Total liabilities 177,979,250 190,192,288 37,128,080 24,457,014

TOTAL EQUITY AND LIABILITIES 547,885,526 509,324,410 285,648,075 260,899,229



Equity attributable to equity holders of the parent Retained Non-controlling Total Issued capital earnings Total interests equity

(Note 27) RM RM RM RM RM

At 1 January 2019 128,896,000 170,460,222 299,356,222 19,775,900 319,132,122

Total comprehensive income - 47,686,481 47,686,481 13,791,228 61,477,709

Transactions with owners Dividend on ordinary shares (Note 31) - (10,311,680) (10,311,680) - (10,311,680)Dividend paid to non- controlling interests - - - (391,875) (391,875)

At 31 December 2019 128,896,000 207,835,023 336,731,023 33,175,253 369,906,276

At 1 January 2018 128,896,000 157,972,495 286,868,495 11,775,166 298,643,661

Total comprehensive income - 17,643,567 17,643,567 5,387,197 23,030,764

Transactions with owners Dividend on ordinary shares (Note 31) - (5,155,840) (5,155,840) - (5,155,840)Dividend paid to non- controlling interests - - - (1,500,000) (1,500,000)Non-controlling interests arising from acquisition of a subsidiary - - - 4,113,537 4,113,537

At 31 December 2018 128,896,000 170,460,222 299,356,222 19,775,900 319,132,122

CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2019


61 A N N U A L R E P O R T 2 0 1 9

COMPANY STATEMENT OF CHANGES IN EQUITYFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2019

Issued Retained Total capital earnings equity (Note 27) RM RM RM

At 1 January 2019 128,896,000 107,546,215 236,442,215

Total comprehensive income - 22,389,460 22,389,460

Transactions with owners Dividend on ordinary shares (Note 31) - (10,311,680) (10,311,680) At 31 December 2019 128,896,000 119,623,995 248,519,995

At 1 January 2018 128,896,000 98,951,829 227,847,829

Total comprehensive income - 13,750,226 13,750,226

Transactions with owners Dividend on ordinary shares (Note 31) - (5,155,840) (5,155,840)

At 31 December 2018 128,896,000 107,546,215 236,442,215



STATEMENTS OF CASH FLOWSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2019


Operating activities

Profit before tax 77,939,874 29,487,716 24,965,343 14,030,060

Adjustments to reconcile profit before tax to net cash flows: Depreciation of property, plant and equipment 10 9,185,723 11,695,357 7,146,035 9,781,518 Property, plant and equipment written-off 10 8,448 429 2,995 429 Gain on disposal of property, plant and equipment 9 (42,121) (146) (42,121) (1,000) Dividend income 9 (2,401,619) (2,307,121) (1,637,437) (1,053,817) Dividend income from subsidiaries - - (5,608,125) (13,500,000) Fair value changes in short term funds 9,10 119,867 (511,692) 134,432 (379,025) Interest income from financial assets 8 (1,102,480) (412,940) (767,614) (935,937) Interest income from financial liabilities 8 - (435,947) - - Finance costs 7 4,158,169 1,502,164 620,039 408,116 Impairment loss on trade receivables 10 314,854 6,686 314,854 6,405 Net unrealised foreign exchange loss/(gain) 9,10 354,019 (114) 1,539 (2,576) Write down of slow moving inventories 10 31,005 188,570 - - Gain on remeasurement of investment in former associate 9 - (1,932,456) - - Share of results of associates (2,281,585) 218,311 - -

Total adjustments 8,344,280 8,011,101 164,597 (5,675,887)

Operating cash flows before changes in working capital 86,284,154 37,498,817 25,129,940 8,354,173

Working capital adjustments:(Increase)/decrease in receivables (40,544,750) 23,754,189 (31,044,298) 2,821,623 Increase in inventories (33,628,360) (1,397,781) (2,947,056) (2,495,563)Decrease/(increase) in contract assets 12,479,343 (105,649,942) (6,211,519) (729,538)(Decrease)/increase in payables (26,408,776) 112,563,714 12,334,743 4,414,296 (Increase)/decrease in other current assets (93,055) 5,886 (11,284) 10,238

Total changes in working capital (88,195,598) 29,276,066 (27,879,414) 4,021,056

Cash flows (used in)/generated from operating activities (1,911,444) 66,774,883 (2,749,474) 12,375,229

Interest paid (4,158,169) (1,502,164) (620,039) (408,116)Net taxes paid (8,590,737) (6,284,093) (63,183) (621,725)

Net cash flows (used in)/ generated from operating activities (14,660,350) 58,988,626 (3,432,696) 11,345,388

63 A N N U A L R E P O R T 2 0 1 9


Investing activities

Proceeds from disposal of property, plant and equipment 45,721 146 45,721 1,000 Purchase of property, plant and equipment 14 (21,911,483) (8,831,722) (21,256,286) (8,431,995)Net cash inflow from acquisition of a subsidiary 15 - 2,276,314 - -Dividend received from subsidiaries - - 5,608,125 13,500,000Investment in short term funds (28,501,850) (94,123,188) (10,000,000) (47,000,000)Redemption of short term funds 65,123,562 107,804,812 27,008,001 44,960,025Interest received 1,102,480 403,958 767,614 927,377

Net cash flows from investing activities 15,858,430 7,530,320 2,173,175 3,956,407

Financing activities

Proceeds from bankers’ acceptances 9,730,000 - - -Repayment of principal lease liabilities 25 (977,374) (3,322,454) (747,341) (3,120,497) Dividend paid to shareholders of the Company 31 (10,311,680) (5,155,840) (10,311,680) (5,155,840)Dividend paid to non-controlling interests (391,875) (1,500,000) - -

Net cash flows used in financing activities (1,950,929) (9,978,294) (11,059,021) (8,276,337)

Net (decrease)/increase in cash and cash equivalents (752,849) 56,540,652 (12,318,542) 7,025,458

Cash and cash equivalents at 1 January 74,120,425 17,579,773 23,139,997 16,114,539

Cash and cash equivalents at 31 December 24 73,367,576 74,120,425 10,821,455 23,139,997

STATEMENTS OF CASH FLOWSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2019 (CONT’D)



NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2019

1. Corporate information

The Company is a public limited liability company, incorporated and domiciled in Malaysia, and is listed on the Main Market of Bursa Malaysia Securities Berhad. The registered office of the Company is located at Lot 865, Section 66, Jalan Kilang, Bintawa Industrial Estate, 93450 Kuching, Sarawak.

The holding company is Kho Kak Beng Holding Company Sdn. Bhd., a company incorporated and domiciled in Malaysia with its registered office located at No.22, 4th Floor, Jalan Tunku Abdul Rahman, 93100 Kuching, Sarawak.

The principal activities of the Company are steel fabrication, civil construction, hot dip galvanising and the manufacture of LPG cylinders. The principal activities of the subsidiaries are set out in Note 15. There have been no significant changes in the nature of the principal activities during the financial year.

2. Basis of preparation and summary of significant accounting policies

2.1 Basis of preparation

The financial statements of the Group and of the Company have been prepared in accordance with Malaysian Financial Reporting Standards (“MFRS”), International Financial Reporting Standards (“IFRS”) and the requirements of the Companies Act 2016 in Malaysia.

The financial statements of the Group and of the Company have also been prepared on the historical cost basis except as disclosed in the accounting policies below.

The financial statements of the Group and of the Company are presented in Ringgit Malaysia (“RM”) which is also the functional currency of the Company.

2.2 Changes in accounting policies

The accounting policies adopted are consistent with those of the previous financial year except as disclosed below:

On 1 January 2019, the Group and the Company adopted the applicable new and amended MFRSs and Annual Improvements (collectively known as “pronouncements”), which are mandatory for annual financial periods beginning on or after 1 January 2019.

Effective for annual periods beginning Description on or after

IC Interpretation 23: Uncertainty over Income Tax Treatments 1 January 2019 MFRS 16: Leases 1 January 2019 Annual Improvements to MFRSs 2015-2017 Cycle: (i) Amendments to MFRS 3: Business Combinations 1 January 2019 (ii) Amendments to MFRS 11: Joint Arrangements 1 January 2019 (iii) Amendments to MFRS 112: Income Taxes 1 January 2019 (iv) Amendments to MFRS 123: Borrowing Costs 1 January 2019 Amendments to MFRS 9: Prepayment Features with Negative Compensation 1 January 2019 Amendments to MFRS 128: Long-term Interest in Associates and Joint Ventures 1 January 2019 Amendments to MFRS 119: Plan Amendment, Curtailment or Settlement 1 January 2019

Except for the effects arising from the adoption of MFRS 16 as described below, the adoption of these “pronouncements” did not have any material effect on the financial performance or position of the Group and the Company.

MFRS 16: Leases

Definition of a lease

On transition to MFRS 16, the Group and the Company elected to apply the practical expedient to grandfather the assessment of which transactions are leases. It applied MFRS 16 only to contracts that were previously identified as leases. Contracts that were not identified as leases under MFRS 117 and IC Interpretation 4, determining whether an arrangement contains a lease were not reassessed. Therefore, the definition of a lease under MFRS 16 has been applied only to contracts entered into or changed on or after 1 January 2019.

65 A N N U A L R E P O R T 2 0 1 9

2. Basis of preparation and summary of significant accounting policies (cont’d)

2.2 Changes in accounting policies (cont’d) MFRS 16: Leases (cont’d)

As a lessee

Where the Group and the Company are lessees, the Group and the Company applied the requirements of MFRS 16 retrospectively with the cumulative effect of initial application as an adjustment to the opening balance of retained earnings at 1 January 2019.

At 1 January 2019, for leases that were classified as operating lease under MFRS 117, lease liabilities were measured at the present value of the remaining lease payments, discounted at the Group’s and the Company’s incremental borrowing rate as at 1 January 2019. The weighted-average rate applied is 4.69% per annum. Right-of-use assets are measured at either:

• their carrying amount as if MFRS 16 had been applied since the commencement date, discounted using the lessee’s incremental borrowing rate at 1 January 2019; or

• an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments.

The Group and the Company used the following practical expedients when applying MFRS 16 to leases previously classified as operating lease under MFRS 117:

• applied a single discount rate to a portfolio of leases with similar characteristics; • applied the exemption not to recognise right-of-use assets and liabilities for leases with less than 12 months

of lease term as at 1 January 2019; • excluded initial direct costs from measuring the right-of-use asset at the date of initial application; and • used hindsight when determining the lease term if the contract contains options to extend or terminate the

lease.

For leases that were classified as finance lease under MFRS 117, the carrying amounts of the right-of-use asset and the lease liability at 1 January 2019 are determined to be the same as the carrying amount of the leased asset and lease liability under MFRS 117 immediately before that date.

The Group and the Company have applied commercial judgement to determine the lease term for those leases with renewal options and this in turn will impact on the amount of right-of-use assets and lease liabilities recognised. The Group and the Company have elected not to recognise right-of-use assets and lease liabilities for low value assets and short-term leases. The lease payments for these leases are expense on a straight-line basis over the lease term.

The following table provides the impact of changes to the statements of financial position of the Group resulting from the adoption of MFRS 16 as at 1 January 2019:

At 31 Effect of At 1 December adoption January Group 2018 of MFRS 16 2019 RM RM RM Non-current assets Property, plant and equipment, at cost 261,275,774 102,740 261,378,514

Current liabilities Interest-bearing loans and borrowings 827,200 50,522 877,722

Non-current liabilities Interest-bearing loans and borrowings 603,686 52,218 655,904 Total lease liabilities 1,430,886 102,740 1,533,626

The initial application of the above has no material impact to the financial statements of the Company.

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2019 (CONT’D)




2.3 Pronouncements issued but not yet effective

The Standards and Interpretations (collectively referred to as “pronouncements”) that are issued but not yet effective up to the date of issuance of the Group’s and the Company’s financial statements are disclosed below. The Group and the Company intend to adopt these pronouncements, if applicable, when they become effective.

Effective for annual periods beginning Description on or after

Amendments to MFRS 3: Definition of a Business 1 January 2020 Amendments to MFRS 9, MFRS 139 and MFRS 7: Interest Rate Benchmark Reform 1 January 2020 Amendments to MFRS 101 and MFRS 108: Definition of Material 1 January 2020 Revised Conceptual Framework for Financial Reporting 1 January 2020 MFRS 17: Insurance Contracts 1 January 2021 Amendments to IAS 1: Classification of Liabilities as Current or Non-current 1 January 2022 Amendments to MFRS 10 and MFRS 128: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture Deferred

(a) Amendments to MFRS 3: Definition of a Business

The definition of a business in MFRS 3 Business Combinations was amended to help entities determine whether an acquired set of activities and assets is a business or not. They clarify the minimum requirements for a business, remove the assessment of whether market participants are capable of replacing any missing elements, add guidance to help entities assess whether an acquired process is substantive, narrow the definitions of a business and of outputs, and introduce an optional fair value concentration test.

Minimum requirements to be a business

The amendments clarify that to be considered a business, an integrated set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. They also clarify that a business can exist without including all of the inputs and processes needed to create outputs. That is, the inputs and processes applied to those inputs must have ‘the ability to contribute to the creation of outputs’ rather than ‘the ability to create outputs’. An acquired process must be considered substantive only if:

- it is critical to the ability to develop or convert acquired inputs into outputs; and - the inputs acquired include both an organised workforce with the necessary skills, knowledge, or

experience to perform that process, and other inputs that the organised workforce could develop or convert into outputs.

(b) Amendments to MFRS 101 and MFRS 108: Definition of Material

The amendments to MFRS 101 Presentation of Financial Statements and MFRS 108 align the definition of ‘material’ across the standards and clarify certain aspects of the definition. The new definition states that, ‘Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.’

The amendments clarify that materiality will depend on the nature or magnitude of information, or both. An entity will need to assess whether the information, either individually or in combination with other information, is material in the context of the financial statements.

Material information may, for instance, be obscured if information regarding a material item, transaction or other event is scattered throughout the financial statements or disclosed using a language that is vague or unclear. Material information can also be obscured if dissimilar items, transactions or other events are inappropriately aggregated, or conversely, if similar items are inappropriately disaggregated.

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2.3 Pronouncements issued but not yet effective (cont’d)

(c) Revised Conceptual Framework for Financial Reporting

On 30 April 2018, MASB issued a revised Conceptual Framework for Financial Reporting. The purpose of the Conceptual Framework is, amongst others, to help preparers develop consistent accounting policies if there is no applicable standard in place and to assist all parties to understand and interpret the standards.

The Conceptual Framework includes some new concepts, provides updated definitions and recognition criteria for assets and liabilities and clarifies some important concepts. The main changes in the Conceptual Framework are as follows:

• Reintroduces the concept of stewardship and the information needed to assess management’s stewardship

• Reintroduces the concept of prudence • Defines the concept of measurement uncertainty • Reinstates an explicit reference to the need to “faithfully represent the substance of the phenomena

that it purports to represent” • Made changes to the definitions of an asset and a liability

(d) Amendments to IAS 1: Classification of Liabilities as Current or Non-current

The amendments clarify:

• What is meant by a right to defer settlement • That a right to defer must exist at the end of the reporting period • That classification is unaffected by the likelihood that an entity will exercise its deferral right • That only if an embedded derivative in a convertible liability is itself an equity instrument would the

terms of a liability not impact its classification

The Group and the Company do not expect the clarifications of the above would result in any material changes when determining whether a liability is current or non-current.

2.4 Basis of consolidation

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at the reporting date.

Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in 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.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity, while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.





2.4 Basis of consolidation (cont’d)

Business combinations and goodwill

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at acquisition date fair value, and the amount of any non-controlling interests in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of MFRS 9 Financial Instruments, is measured at fair value with the changes in fair value recognised in the statement of profit or loss in accordance with MFRS 9. Other contingent consideration that is not within the scope of MFRS 9 is measured at fair value at each reporting date with changes in fair value recognised in profit or loss. If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss. The accounting policy for goodwill is set out in Note 2.10.

2.5 Current versus non-current classification

Assets and liabilities are presented in the statement of financial position based on current and non-current classification. An asset is current when it is:

• Expected to be realised or intended to be sold or consumed in the normal operating cycle • Held primarily for the purpose of trading • Expected to be realised within twelve months after the reporting period, or • Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least

twelve months after the reporting period

All other assets are classified as non-current. A liability is current when:

• It is expected to be settled in the normal operating cycle • It is held primarily for the purpose of trading • It is due to be settled within twelve months after the reporting period, or • There is no unconditional right to defer the settlement of the liability for at least twelve months after the

reporting period

All other liabilities are classified as non-current.

Deferred tax assets and liabilities are classified as non-current assets and liabilities.

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2.6 Foreign currencies

Transactions in foreign currencies are initially recorded at their respective functional currency spot rates. Monetary assets and liabilities denominated in foreign currencies are subsequently translated at the functional currency spot rates of exchange at the reporting date.

Differences arising on settlement or translation of monetary items are recognised in profit or loss with the exception of monetary items that are designated as part of the hedge of the Group’s net investment in a foreign operation. These are recognised in other comprehensive income until the net investment is disposed of, at which time, the cumulative amount is reclassified to profit or loss. Tax charges and credits attributable to exchange differences on those monetary items are also recognised in other comprehensive income.

Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of the gain or loss on the change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognised in other comprehensive income or profit or loss are also recognised in other comprehensive income or profit or loss, respectively).

In determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which the Group initially recognises the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, the Group determines the transaction date for each payment or receipt of advance consideration.

2.7 Property, plant and equipment

All items of property, plant and equipment are initially recorded at cost. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the entity and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the profit or loss when incurred.

Subsequent to recognition, property, plant and equipment except for freehold land are stated at cost less accumulated depreciation and any accumulated impairment losses.

Leasehold land is depreciated over the remaining lease term. Capital work-in- progress are also not depreciated as these assets are not available for use. Depreciation of other property, plant and equipment is provided for on a straight-line basis to write off the cost of each asset to its residual value over the estimated useful life, as follows:

Buildings 50 years Plant, machinery and tools 5 - 10 years Motor vehicles 5 years Office furniture and equipment 5 - 10 years

The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.

The residual values, useful life and depreciation method are reviewed at each financial year-end to ensure that the amount, method and period of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items of property, plant and equipment.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. The difference between the net disposal proceeds, if any and the net carrying amount is recognised in profit or loss.




2.8 Subsidiaries

A subsidiary is an entity controlled by the Company. Control exists when the Company is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

In the separate financial statements of the Company, investments in subsidiaries are accounted for at cost less impairment losses. On disposal of such investments, the difference between net disposal proceeds and their carrying amounts is included in profit or loss.

Dividend income is recognised when the Company’s right to receive payment is established.

2.9 Investment in associates and joint ventures

An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

The Group’s investment in its associate and joint venture are accounted for using the equity method.

Under the equity method, the investment in an associate or a joint venture is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group’s share of net assets of the associate or joint venture since the acquisition date. Goodwill relating to the associate or joint venture is included in the carrying amount of the investment and is not tested for impairment separately.

The statement of profit or loss reflects the Group’s share of the results of operations of the associate or joint venture. Any change in other comprehensive income of those investees is presented as part of the Group’s other comprehensive income. In addition, when there has been a change recognised directly in the equity of the associate or joint venture, the Group recognises its share of any changes, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the associate or joint venture are eliminated to the extent of the interest in the associate or joint venture.

The aggregate of the Group’s share of profit or loss of an associate and a joint venture is shown on the face of the statement of profit or loss outside operating profit and represents profit or loss after tax and non-controlling interests in the subsidiaries of the associate or joint venture.

The financial statements of the associate or joint venture are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group.

After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its associate or joint venture. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate or joint venture is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate or joint venture and its carrying value, and then recognises the loss within ‘Share of profit of an associate and a joint venture’ in the statement of profit or loss.

Upon loss of significant influence over the associate or joint control over the joint venture, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate or joint venture upon loss of significant influence or joint control and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss.


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2.10 Impairment of non-financial assets

An assessment is made at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when an annual impairment testing for an asset is required, the asset’s recoverable amount is estimated. An asset’s recoverable amount is the higher of an asset’s or cash-generating units (“CGU”)’s fair value less costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

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. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used.

The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Group’s CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years or more. A long-term growth rate is calculated and applied to project future cash flows after the fifth year.

Impairment losses are recognised in the statement of profit or loss in expense categories consistent with the function of the impaired asset.

For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the asset’s or CGU’s recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss.

Goodwill is tested for impairment annually at the reporting date and when circumstances indicate that the carrying value may be impaired.

Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods.

2.11 Financial assets

Initial recognition and measurement

Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income (“OCI”), and fair value through profit or loss.

The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the practical expedient has been applied, the Group and the Company initially measure a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the practical expedient has been applied are measured at the transaction price determined under MFRS 15.

In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are ‘solely payments of principal and interest (“SPPI”) on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level.

The Group’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both.




2.11 Financial assets (cont’d)

Initial recognition and measurement (cont’d)

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e., the date that the Group commits to purchase or sell the asset.

Subsequent measurement

For purposes of subsequent measurement, financial assets are classified in four categories:

- Financial assets at amortised cost (debt instruments) - Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments) - Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon

derecognition (equity instruments) - Financial assets at fair value through profit or loss

(a) Financial assets at amortised cost (debt instruments)

The Group measures financial assets at amortised cost if both of the following conditions are met:

- The financial asset is held within a business model with the objective 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 on the principal amount outstanding

Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.

(b) Financial assets at fair value through OCI (debt instruments)

The Group measures debt instruments at fair value through OCI if both of the following conditions are met:

- The financial asset is held within a business model with the objective of both holding to collect contractual cash flows and selling; and

- The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding

For debt instruments at fair value through OCI, interest income, foreign exchange revaluation and impairment losses or reversals are recognised in the statement of profit or loss and computed in the same manner as for financial assets measured at amortised cost. The remaining fair value changes are recognised in OCI. Upon derecognition, the cumulative fair value change recognised in OCI is recycled to profit or loss.

(c) Financial assets designated at fair value through OCI (equity instruments)

Upon initial recognition, the Group can elect to classify irrevocably its equity investments as equity instruments designated at fair value through OCI when they meet the definition of equity under IAS 32 Financial Instruments: Presentation and are not held for trading. The classification is determined on an instrument-by-instrument basis.

Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognised as other income in the statement of profit or loss when the right of payment has been established, except when the Group benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments designated at fair value through OCI are not subject to impairment assessment.


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2.11 Financial assets (cont’d)

Subsequent measurement (cont’d)

(d) Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets held for trading, financial assets designated upon initial recognition at fair value through profit or loss, or financial assets mandatorily required to be measured at fair value. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets with cash flows that are not solely payments of principal and interest are classified and measured at fair value through profit or loss, irrespective of the business model. Notwithstanding the criteria for debt instruments to be classified at amortised cost or at fair value through OCI, as described above, debt instruments may be designated at fair value through profit or loss on initial recognition if doing so eliminates, or significantly reduces, an accounting mismatch.

Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognised in the statement of profit or loss.

This category includes investment securities which the Group had not irrevocably elected to classify at fair value through OCI. Dividends on investment securities are also recognised as other income in the statement of profit or loss when the right of payment has been established.

Derecognition

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e., removed from the Group’s consolidated statement of financial position) when:

- The rights to receive cash flows from the asset have expired; or - The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay

the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of its continuing involvement. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

2.12 Impairment of financial assets

The Group recognises an allowance for expected credit losses (“ECLs”) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).




2.12 Impairment of financial assets (cont’d)

For trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix for trade receivables that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.

For debt instruments at fair value through OCI, the Group applies the low credit risk simplification. At every reporting date, the Group evaluates whether the debt instrument is considered to have low credit risk using all reasonable and supportable information that is available without undue cost or effort. In making that evaluation, the Group reassesses the internal credit rating of the debt instrument. In addition, the Group considers that there has been a significant increase in credit risk when contractual payments are more than 60 days past due.

The Group considers a financial asset in default when contractual payments are 180 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.

2.13 Fair value measurement

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. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

- In the principal market for the asset or liability, or - In the absence of a principal market, in the most advantageous market for the asset or liability

The principal or the most advantageous market must be accessible by the Group.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities.

Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable

For assets and liabilities that are recognised in the financial statements at fair value on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.


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2.14 Cash and short-term deposits

Cash and short-term deposits in the statement of financial position comprise cash at banks and on hand and short-term deposits with a maturity of three months or less, which are subject to an insignificant risk of changes in value.

For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash and short-term deposits, as defined above, net of outstanding bank overdrafts as they are considered an integral part of the Group’s cash management.

2.15 Inventories Inventories are valued at the lower of cost and net realisable value.

Costs incurred in bringing each product to its present location and condition are accounted for, as follows:

- Raw materials: purchase costs on a weighted average cost basis. - Finished goods and work-in-progress: costs of direct materials and labour and a proportion of manufacturing

overheads based on the normal operating capacity. These costs are assigned on a weighted average cost basis.

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

2.16 Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the statement of profit or loss net of any reimbursement.

If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

Onerous contracts

If the Group has a contract that is onerous, the present obligation under the contract is recognised and measured as a provision. However, before a separate provision for an onerous contract is established, the Group recognises any impairment loss that has occurred on assets dedicated to that contract. An onerous contract is a contract under which the unavoidable costs (i.e., the costs that the Group cannot avoid because it has the contract) of meeting the obligations under the contract exceed the economic benefits expected to be received under it. The unavoidable costs under a contract reflect the least net cost of exiting from the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfil it.

2.17 Financial liabilities

Initial recognition and measurement

Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.




2.17 Financial liabilities (cont’d)

Subsequent measurement

The measurement of financial liabilities depends on their classification, as described below:

(a) Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.

Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in

the near term.

Gains or losses on liabilities held for trading are recognised in the statement of profit or loss.

Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, and only if the criteria in MFRS 9 are satisfied.

(b) Loans and borrowings

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the effective interest rate amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included as finance costs in the statement of profit or loss.

Derecognition

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit or loss.

Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.

2.18 Financial guarantee contracts

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 payment when due.

Financial guarantee contracts are recognised initially as a liability at fair value, net of transaction costs. Subsequent to initial recognition, financial guarantee contracts are recognised as income in profit or loss over the period of the guarantee. If the debtor fails to make payment relating to financial guarantee contract when it is due and the Group, as the issuer, is required to reimburse the holder for the associated loss, the liability is measured at the higher of the best estimate of the expenditure required to settle the present obligation at the reporting period and the amount initially recognised less cumulative amortisation.

2.19 Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset.

All other borrowing costs are expensed in the period they are incurred. Borrowing costs consist of interest and other costs are incurred in connection with the borrowing of funds.


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2.20 Employee benefits (a) Short-term benefits

Wages, salaries, allowances, 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 the Company. Short-term accumulating compensated absences such as paid annual leave are recognised when services are rendered by employees that increase their entitlement to future compensated absences, and short-term non-accumulating compensated absences such as sick leave are recognised when the absences occur.

(b) Defined contribution plans

Defined contribution plans are post-employment benefit plans under which the Group and the Company pay fixed contributions into separate entities or funds and will have no legal or constructive obligation to pay further contributions if any of the funds do not hold sufficient assets to pay all employee benefits relating to employee services in the current and preceding financial years. Such contributions are recognised as an expense in the profit or loss as incurred. As required by law, companies in Malaysia make such contributions to the Employees Provident Fund (EPF).

2.21 Leases

Current financial year

The Group and the Company assess at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

As a lessee

The Group and the Company apply a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Group and the Company recognise lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.

(a) Right-of-use assets

The Group and the Company recognise right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are classified within the same line item as the corresponding underlying assets would be presented if they were owned. Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets, as follows:

Leasehold land over period of the lease Buildings 1 to 2 years Plant, machinery and tools 5 to 10 years Motor vehicles 5 years

If ownership of the leased asset transfers to the Group and the Company at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset.

(b) Lease liabilities

At the commencement date of the lease, the Group and the Company recognise lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and by the Company and payments of penalties for terminating the lease, if the lease term reflects the Group and the Company exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognised as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs.




2.21 Leases (cont’d)

Current financial year (cont’d)

(b) Lease liabilities (cont’d)

In calculating the present value of lease payments, the Group and the Company use their incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.

(c) Short-term leases and leases of low-value assets

The Group and the Company apply the short-term lease recognition exemption to their short-term leases of machinery and equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). They also apply the lease of low-value assets recognition exemption to leases of office equipment that are considered to be low value. Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term.

As a lessor

Leases in which the Group or the Company do not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. Rental income arising is accounted for on a straight-line basis over the lease terms and is included in revenue in the statement of profit or loss due to its operating nature. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned.

Previous financial year

The determination of whether an arrangement was (or contained) a lease was based on the substance of the arrangement at the inception of the lease. The arrangement was, or contained, a lease if fulfilment of the arrangement was dependent on the use of a specific asset (or assets) and the arrangement conveyed a right to use the asset (or assets), even if that asset was (or those assets were) not explicitly specified in an arrangement.

(a) As a lessee

A lease was classified at the inception date as a finance lease or an operating lease. A lease that transferred substantially all the risks and rewards incidental to ownership to the Group or the Company was classified as a finance lease.

Finance leases were capitalised at the commencement of the lease at the inception date fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments were apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges were recognised in finance costs in the statement of profit or loss.

A leased asset was depreciated over the useful life of the asset. However, if there was no reasonable certainty that the Group or the Company will obtain ownership by the end of the lease term, the asset was depreciated over the shorter of the estimated useful life of the asset and the lease term.

An operating lease was a lease other than a finance lease. Operating lease payments were recognised as an operating expense in the statement of profit or loss on a straight-line basis over the lease term.


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2.21 Leases (cont’d)

Precious financial year (cont’d)

(b) As a lessor

Leases in which the Group did not transfer substantially all the risks and rewards of ownership of an asset were classified as operating leases. Rental income arising was accounted for on a straight-line basis over the lease terms and was included in revenue in the statement of profit or loss due to its operating nature. Initial direct costs incurred in negotiating and arranging an operating lease were added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents were recognised as revenue in the period in which they were earned.

2.22 Revenue from contracts with customers

Revenue from contracts with customers is recognised when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Group or the Company expects to be entitled in exchange for those goods or services. The Group and the Company have generally concluded that they are the principal in its revenue arrangements.

(a) Sale of manufacturing goods

Revenue from sale of manufacturing goods consists of a single performance obligation and is recognised at a point in time when control of the goods is transferred to the customer, generally on delivery of the goods or collection from customers.

(b) Engineering and construction works

The Group and the Company recognise construction revenue over time as the project being constructed has no alternative use to the Group and the Company and they have an enforceable right to the payment for the performance completed to date. The stage of completion is measured using the input method, which is based on the costs incurred relative to total estimated costs.

The Group and the Company consider whether there are other promises in the contract that are separate performance obligations to which a portion of the transaction price needs to be allocated. In determining the transaction price for the sale of goods, the Group and the Company consider the effects of variable consideration, the existence of significant financing components, non-cash consideration, and consideration payable to the customer (if any).

(i) Variable consideration

If the consideration in a contract includes a variable amount, the Group and the Company estimate the amount of consideration to which they will be entitled in exchange for transferring the goods to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognised will not occur when the associated uncertainty with the variable consideration is subsequently resolved.

(ii) Significant financing component

When the Group or the Company receives short-term advances from its customers, using the practical expedient in MFRS 15, the Group or the Company does not adjust the promised amount of consideration for the effects of a significant financing component if it expects, at contract inception, that the period between the transfer of the promised goods or services to the customer and when the customer pays for that goods or services will be one year or less.

Contract balances

(a) Contract assets

A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Group or the Company perform by transferring goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognised for the earned consideration that is conditional.




2.22 Revenue from contracts with customers (cont’d)

Contract balances (cont’d)

(b) Trade receivables

A receivable represents the right to an amount of consideration that is unconditional (i.e., only the passage of time is required before payment of the consideration is due).

(c) Contract liabilities

A contract liability is the obligation to transfer goods or services to a customer for which the Group or the Company has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the Group or the Company transfers goods or services to the customer, a contract liability is recognised when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the Group or the Company performs under the contract.

2.23 Taxes

(a) Current income tax

Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the end of the reporting date.

Current income tax relating to items recognised directly in equity is recognised in equity and not in the statement of profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

(b) Deferred tax

Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

- when the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

- in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised except:

- when the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

- in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.


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2.23 Taxes (cont’d)

(b) Deferred tax (cont’d)

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are re-assessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity.

The Group and the Company offset deferred tax assets and deferred tax liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

2.24 Segment reporting

For management purposes, the Group is organised into operating segments based on their products and services which are independently managed by the respective segment managers responsible for the performance of the respective segments under their charge. The segment managers report directly to the management of the Company who regularly review the segment results in order to allocate resources to the segments and to assess the segment performance. Additional disclosures on each of these segments are shown in Note 5, including the factors used to identify the reportable segments and the measurement basis of segment information.

2.25 Issued capital and share issuance expenses

Ordinary shares are recorded at the proceeds received, net of directly attributable incremental transaction costs and are not remeasured subsequently. Ordinary shares are classified as equity. Dividends on ordinary shares are recognised in equity in the period in which they are declared.

2.26 Contingencies

A contingent liability or asset is a possible obligation or asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of uncertain future event(s) not wholly within the control of the Group or the Company.

Contingent liabilities and assets are not recognised in the statements of financial position of the Group and the Company.

2.27 Dividend

The Company recognises a liability to pay a dividend when the distribution is authorised and the distribution is no longer at the discretion of the Company.



3. Significant accounting estimates and judgements

The preparation of the Group’s and the Company’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities at the end of the reporting period. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amounts of the assets or liabilities affected in the future.

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) Revenue from contracts with customers

The Group applied the following judgements that significantly affect the determination of the amount and timing of revenue from contracts with customers:

- Determining the timing of satisfaction of construction works

The Group concluded that revenue from construction works is to be recognised over time because the project being constructed has no alternative use to the Group. The Group determined that the input method is the best method in measuring progress of the construction work because there is a direct relationship between Group’s effort and the transfer of service to customer. Significant judgement is required in determining the stage of completion which will impact the revenue and cost recognised, the variable consideration arising from variation orders and the total estimated cost to complete the construction works.

- Determining the recoverability of contract assets The Group assessed the recoverability of contract assets using the simplified approach based on the historical

observed default rates. The Group calibrated the ECL rate to adjust the historical credit loss experience with forward-looking information. The assessment of the correlation between historical observed default rates, forecast economic conditions and ECLs is a significant estimate.

(b) Depreciation of property, plant and equipment

Property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives. Management estimates the useful lives of the property, plant and equipment (excluding land and buildings) to be within 5 to 10 years. Changes in the expected level of usage and technological developments could impact the economic useful lives and the residual values of these assets, therefore future depreciation charges could be revised.

(c) Provision for expected credit losses of trade receivables

The Group uses a provision matrix to calculate ECLs for trade receivables. The provision rates are based on days past due for groupings of various customer segments that have similar loss patterns (i.e., by geography, product type, customer type and rating, and coverage by letters of credit and other forms of credit insurance).

The provision matrix is initially based on the historical observed default rates. The Group will calibrate the matrix to adjust the historical credit loss experience with forward-looking information. For instance, if forecast economic conditions (i.e., gross domestic product) are expected to deteriorate over the next year which can lead to an increased number of defaults, the historical default rates are adjusted. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analysed.

The assessment of the correlation between historical observed default rates, forecast economic conditions and ECLs is a significant estimate. The amount of ECLs is sensitive to changes in circumstances and of forecast economic conditions. The historical credit loss experience and forecast of economic conditions may also not be representative of customer’s actual default in the future.


83 A N N U A L R E P O R T 2 0 1 9

3. Significant accounting estimates and judgements (cont’d)

Key sources of estimation uncertainty (cont’d)

(d) Taxes

Deferred tax assets are recognised for unused tax losses, unused capital allowances and unused reinvestment allowances to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits, together with future tax planning strategies.

4. Revenue from contracts with customers

4.1 Disaggregated revenue information

Set up below is the disaggregation of the Group’s and the Company’s revenue from contracts with customers:


Sale of goods 52,840,709 48,470,936 42,398,246 14,246,736 Engineering and construction works 506,440,479 364,007,761 138,308,482 53,816,403

Total revenue from contracts with customers 559,281,188 412,478,697 180,706,728 68,063,139

Timing of revenue recognition

At a point in time 112,568,329 74,661,815 56,265,517 46,869,031 Over time 446,712,859 337,816,882 124,441,211 21,194,108

Total revenue from contracts with customers 559,281,188 412,478,697 180,706,728 68,063,139

4.2 Contract balances Group Company 2019 2018 2019 2018 RM RM RM RM

Trade receivables 63,531,992 20,562,752 49,005,623 18,868,287 Contract assets 141,163,814 153,643,157 6,941,057 729,538

Trade receivables are non-interest bearing and are generally on terms of 30 to 90 (2018: 30 to 90) days.

Contract assets primarily relate to the Group’s and the Company’s right to consideration for work completed but not yet billed at reporting date. Contract assets are transferred to receivables when the rights become unconditional.

4.3 Performance obligations

Information about the Group’s performance obligations are summarised below:

Sale of manufacturing goods

The performance obligation is satisfied upon delivery of the goods and payment is generally due within 30 – 60 days from delivery.



4. Revenue from contracts with customers (cont’d)

4.3 Performance obligations (cont’d)

Engineering and construction works

For engineering and construction works where the Group and the Company satisfy their performance obligations over time, management has determined that a cost-based input method provides a faithful depiction of the Group’s and the Company’s performance in transferring control of construction contracts to the customers, as it reflects the Group’s and the Company’s efforts incurred to date relative to the total inputs expected to be incurred for the construction works. The measure of progress is based on the costs incurred to date as a proportion of total costs expected to be incurred up to the completion of the construction works.

The estimated total construction and other related costs are based on contracted amounts, and in respect of amounts not contracted for, management relies on past experience and knowledge of the project engineers to make estimates of the amounts to be incurred.

Remaining performance obligations

The transaction price allocated to the remaining performance obligation (unsatisfied or partially unsatisfied) as at 31 December, are as follows:


Within one year 584,779,844 417,213,240 140,973,253 65,006,446 More than one year 527,410,535 699,533,653 18,161,386 19,528,241

The remaining performance obligations expected to be recognised relate primarily to engineering and construction works.

5. Segment information

(a) Reporting format

The primary segment reporting format is determined to be business segments as the Group’s risks and rates of return are affected predominantly by differences in the products and services produced. The operating businesses are organised and managed separately according to the nature of the products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets.

(b) Business segments

The Group is organised into two major business segments:

(i) Manufacturing - manufacturing of LPG cylinders, steel pipes and related products.

(ii) Engineering and construction - civil engineering works and construction, steel fabrication and hot dip galvanising.

(c) Geographical segments

Segment analysis by geographical locations has not been prepared as the Group’s operations are predominantly conducted in Malaysia.

(d) Allocation basis and transfer pricing

Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.


85 A N N U A L R E P O R T 2 0 1 9

5. Segment information (cont’d)

(d) Allocation basis and transfer pricing (cont’d)

Transfer prices between business segments are set on an arm’s length basis in a manner similar to transactions with third parties. Segment revenue, expenses and results have reflected the elimination of transfers between business segments.

Engineering Adjustments and and Manufacturing construction eliminations Total RM RM RM RM

2019

Revenue from contracts with customers

External revenue 52,840,709 506,440,479 - 559,281,188 Inter-segment revenue 55,881,838 62,612,563 (118,494,401) -

Total revenue 108,722,547 569,053,042 (118,494,401) 559,281,188

Results

Profit from operations 8,351,853 71,464,605 - 79,816,458 Finance costs (436,886) (3,721,283) - (4,158,169) Share of results of associates 324,160 1,957,425 - 2,281,585

Profit before tax 8,239,127 69,700,747 - 77,939,874 Income tax expense (2,446,532) (14,015,633) - (16,462,165)

Profit for the year, net of tax 5,792,595 55,685,114 - 61,477,709

Other disclosures

Capital expenditure 1,203,470 21,454,247 - 22,657,717 Depreciation of property, plant and equipment 1,081,625 8,104,098 - 9,185,723 Finance income 159,659 942,821 - 1,102,480 Cost of inventories recognised as an expense 52,050,113 4,670,933 - 56,721,046

Employee benefits expense 9,722,071 57,485,146 - 67,207,217



5. Segment information (cont’d)

(d) Allocation basis and transfer pricing (cont’d)

Engineering Adjustments and and Manufacturing construction eliminations Total RM RM RM RM

2018

Revenue from contracts with customers

External revenue 48,470,936 364,007,761 - 412,478,697 Inter-segment revenue 14,376,672 30,246,195 (44,622,867) -

Total revenue 62,847,608 394,253,956 (44,622,867) 412,478,697

Results

Profit from operations 7,126,564 24,081,627 - 31,208,191 Finance costs (9,601) (1,492,563) - (1,502,164)

Share of results of associates 38,693 (257,004) - (218,311)

Profit before tax 7,155,656 22,332,060 - 29,487,716 Income tax expense (2,249,276) (4,207,676) - (6,456,952)

Profit for the year, net of tax 4,906,380 18,124,384 - 23,030,764

Other disclosures

Capital expenditure 243,149 8,588,573 - 8,831,722 Depreciation of property, plant and equipment 1,072,541 10,622,816 - 11,695,357 Finance income 81,684 767,203 - 848,887 Cost of inventories recognised as an expense 38,108,970 2,218,800 - 40,327,770 Employee benefits expense 8,239,948 34,407,566 - 42,647,514

6. Capital management

The primary objective of the Group’s and the Company’s capital management is to ensure that they maintain a strong credit rating and healthy capital ratios in order to support their businesses and maximise shareholders’ value.

The Group and the Company manage their capital structure and make adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group and the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the years ended 31 December 2019 and 31 December 2018.

The Group and the Company monitor capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Group and the Company include within net debt, interest-bearing loans and borrowings, trade and other payables, less short term funds and cash and short-term deposits. Capital comprises equity attributable to equity holders of the parent.


87 A N N U A L R E P O R T 2 0 1 9

6. Capital management (cont’d)


Interest-bearing loans and borrowings 25 11,032,486 1,430,886 833,181 1,298,394 Trade and other payables 26 160,389,723 186,675,062 35,493,363 23,158,620 Less: Short term funds 23 (38,079,135) (72,419,095) (31,806,784) (47,311,780) Cash and short-term deposits 24 (73,367,576) (74,120,425) (10,821,455) (23,139,997)

Net debt/(cash) 59,975,498 41,566,428 (6,301,695) (45,994,763)

Equity 336,731,023 299,356,222 248,519,995 236,442,215

Total capital 336,731,023 299,356,222 248,519,995 236,442,215

Capital and net debt 396,706,521 340,922,650 N/A* N/A*

Gearing ratio 15.12% 12.19% N/A* N/A*

* Not applicable as the Company were in a net cash position.

7. Finance costs Group Company 2019 2018 2019 2018 RM RM RM RM

Interest expense on other financial liabilities: - bankers’ acceptances 465,454 - - - - obligations under lease arrangements - 137,829 - 126,975 - subsidiaries - - 562,897 281,141 - other payables 492,314 - - - - related parties 3,063,467 1,364,335 - - - lease liabilities (Note 25(a)) 136,934 - 57,142 -

4,158,169 1,502,164 620,039 408,116

8. Finance income Group Company 2019 2018 2019 2018 RM RM RM RM

Interest income from financial assets: - short-term deposits 1,102,480 357,555 253,214 103,426 - subsidiaries - - 514,400 777,548 - associates - 46,403 - 46,403 - unwinding of discount (Note 20(a)) - 8,982 - 8,560

1,102,480 412,940 767,614 935,937 Interest income from financial liabilities: - trade payables - 435,947 - -

1,102,480 848,887 767,614 935,937



9. Other income Group Company 2019 2018 2019 2018 RM RM RM RM

Dividend income from short term funds at fair value through profit or loss 2,401,619 2,307,121 1,637,437 1,053,817 Fair value changes in short term funds at fair value through profit or loss - 511,692 - 379,025 Gain on disposal of property, plant and equipment 42,121 146 42,121 1,000 Gain on remeasurement of investment in former associate - 1,932,456 - - Insurance compensation 20,500 15,737 1,500 12,651 Realised foreign exchange gain - 214,021 - - Unrealised foreign exchange gain - 2,576 - 2,576 Rental income: - subsidiaries - - 267,783 241,443 - associates 24,000 40,857 - 16,857 - third parties 23,324 23,000 23,600 18,000 Award arising from settlement of arbitration 4,000,000 - - - Miscellaneous income 5,235,344 1,925,599 1,513,136 1,664,096

11,746,908 6,973,205 3,485,577 3,389,465

10. Profit before tax

The following amounts have been included in arriving at profit before tax: Group Company 2019 2018 2019 2018 RM RM RM RM

Employee benefits expense (Note 11) 67,207,217 42,647,514 36,141,391 20,692,941 Non-executive directors’ remuneration (Note 11): - fees 318,000 350,000 318,000 350,000 - other emoluments 62,650 127,349 62,650 67,000 Auditors’ remuneration: - statutory audits 238,100 219,200 143,600 135,700 - under provision in prior year - 8,100 - - Depreciation of property, plant and equipment (Note 14) 9,185,723 11,695,357 7,146,035 9,781,518 Expenses relating to short term leases and small value assets (Note 25(a)) 1,375,835 - 742,698 - Fair value changes in short term funds at fair value through profit or loss 119,867 - 134,432 - Impairment loss on trade receivables (Note 20(a)) 314,854 6,686 314,854 6,405 Property, plant and equipment written off 8,448 429 2,995 429 Rental expense - 978,123 - 452,285 Realised foreign exchange loss 1,063,821 13,770 7,739 13,770 Unrealised foreign exchange loss 354,019 2,462 1,539 - Write down of slow moving inventories 31,005 188,570 - -


89 A N N U A L R E P O R T 2 0 1 9

11. Employee benefits expense Group Company 2019 2018 2019 2018 RM RM RM RM

Salaries, wages, allowances and overtime 56,746,272 35,578,480 30,411,480 17,169,617 Social security contributions and employment insurance scheme 641,131 358,922 387,585 173,977 Contributions to defined contribution plan 5,830,799 3,706,404 3,044,501 1,692,404 Other benefits 3,989,015 3,003,708 2,297,825 1,656,943

67,207,217 42,647,514 36,141,391 20,692,941

Included in employee benefits expense of the Group and of the Company are executive directors’ remuneration amounting to RM5,750,614 (2018: RM4,579,680) and RM5,263,079 (2018: RM4,535,663) respectively.


Directors’ remuneration

Executive directors’ remuneration: - fees - 180,000 - 180,000 - other emoluments 5,750,614 4,399,680 5,263,079 4,355,663

5,750,614 4,579,680 5,263,079 4,535,663 Estimated money value of benefit-in-kind 108,433 109,715 108,433 109,715

5,859,047 4,689,395 5,371,512 4,645,378

Non-executive directors’ remuneration (Note 10): - fees 318,000 350,000 318,000 350,000 - other emoluments 62,650 127,349 62,650 67,000

380,650 477,349 380,650 417,000

Total directors’ remuneration 6,239,697 5,166,744 5,752,162 5,062,378

The categorisation of the aggregate remuneration of directors and the information on the respective bands of the remuneration are disclosed in the corporate governance statement in the annual report of the Group.



12. Income tax expense

The major components of income tax expense for the years ended 31 December 2019 and 2018 are:


Statements of profit or loss and other comprehensive income:

Current income tax: - Malaysian income tax 16,251,369 6,699,578 2,390,617 259,716 - Under/(over) provision in respect of previous years 96,036 (198,869) 16,814 20,118

16,347,405 6,500,709 2,407,431 279,834

Deferred tax: - Relating to origination and reversal of temporary differences 109,072 8,884 168,452 - - Under/(over) provision in respect of previous years 5,688 (52,641) - -

114,760 (43,757) 168,452 -

Income tax expense reported in the statements of profit or loss 16,462,165 6,456,952 2,575,883 279,834

Reconciliation of tax expense and the accounting profit multiplied by the applicable corporate tax rate for 2019 and 2018:

Group 2019 2018 RM RM

Accounting profit before tax 77,939,874 29,487,716

Tax at Malaysian statutory tax rate of 24% (2018: 24%) 18,705,570 7,077,052

Adjustments: Dividend income not subject to tax (576,389) (553,709) Income not subject to tax (5,911) (746,746) Non-deductible expenses 1,404,530 916,851 Deferred tax assets recognised on previously unrecognised reinvestment allowances (2,477,632) (379,337) Deferred tax assets not recognised on unutilised tax losses and unabsorbed capital allowances 348,563 717,373 Under/(over) provision of deferred tax in respect of previous years 5,688 (52,641) Under/(over) provision of income tax in respect of previous years 96,036 (198,869) Share of results of associates (547,580) 52,395 Exemption based on incremental chargeable income from business - (375,417) Utilisation of previously unrecognised tax losses (490,710) -

Income tax expense reported in the statements of profit or loss 16,462,165 6,456,952


91 A N N U A L R E P O R T 2 0 1 9

12. Income tax expense (cont’d)

Reconciliation of tax expense and the accounting profit multiplied by the applicable corporate tax rate for 2019 and 2018: (cont’d)

Company 2019 2018 RM RM

Accounting profit before tax 24,965,343 14,030,060

Tax at Malaysian statutory tax rate of 24% (2018: 24%) 5,991,682 3,367,214

Adjustments: Dividend income not subject to tax (1,738,935) (3,492,916) Income not subject to tax (2,416) (143,609) Non-deductible expenses 786,370 591,080 Deferred tax assets not recognised on reinvestment allowances - 317,284 Deferred tax assets recognised on previously unrecognised reinvestment allowances (2,477,632) (379,337) Under provision of income tax in respect of previous years 16,814 20,118

Income tax expense reported in the statements of profit or loss 2,575,883 279,834

Domestic income tax is calculated at the Malaysian statutory tax rate of 24% (2018: 24%) of the estimated assessable

profit for the year.



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93 A N N U A L R E P O R T 2 0 1 9

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12. Income tax expense (cont’d)

Deferred tax (cont’d)


Reflected in the statements of financial position as follows:

Deferred tax assets, net 1,859,214 2,027,666 1,859,214 2,027,666 Deferred tax liabilities, net (1,107,183) (1,160,875) - -

752,031 866,791 1,859,214 2,027,666

The Group and the Company have the following tax incentives for offset against future taxable profits:


Unutilised tax losses 8,027,183 8,944,769 - - Unutilised reinvestment allowances 6,068,074 16,391,542 6,068,074 16,391,542 Unabsorbed capital allowances 3,624,972 3,330,673 - - Other temporary differences 31,005 - - -

17,751,234 28,666,984 6,068,074 16,391,542

At the reporting date, the Group and the Company have unutilised tax losses, unutilised reinvestment allowances, unabsorbed capital allowances and other temporary differences of approximately RM17,751,234 (2018: RM28,666,984) and RM6,068,074 (2018: RM16,391,542) respectively that are available for offset against future taxable profits of the companies in which the losses arose, for which no deferred tax asset is recognised because it is not probable that future taxable profits will be available against which the Group can use the benefits therefrom. The use of these tax losses and allowances is subject to the agreement of the tax authorities and compliance with certain provisions of the tax legislation. Pursuant to Section 44(5F) of the Act, effective from Year of Assessment (“YA”) 2019, the unutilised tax losses from YA 2019 can only be carried forward until YA 2026. For unutilised tax losses and unutilised reinvestment allowances accumulated prior to and up to YA 2018, such unutilised losses and unutilised reinvestment allowances can only be carried forward until YA 2025, pursuant to the transitional provision provided in the Act. Other allowances may be carried forward indefinitely subject to the conditions imposed by law including the retention of majority shareholders as defined.

13. Earnings per share (“EPS”)

Basic EPS is calculated by dividing the profit for the year, net of tax, attributable to equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

The following table reflects the income and share data used in the basic EPS calculations: Group 2019 2018

Profit net of tax, attributable to equity holders of the parent (RM) 47,686,481 17,643,567 Weighted average number of ordinary shares for basic EPS 257,792,000 257,792,000 Basic earnings per share (sen) 18.50 6.84

There is no dilution in the earnings per share for the current and previous year end as there are no dilutive potential ordinary shares outstanding at the end of the reporting period.


95 A N N U A L R E P O R T 2 0 1 9

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At

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NOTE

S TO

THE F

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97 A N N U A L R E P O R T 2 0 1 9

NOTE

S TO

THE F

INAN

CIAL

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TEM

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FO

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DED

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NOTE

S TO

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INAN

CIAL

STA

TEM

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FO

R TH

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ANCI

AL YE

AR EN

DED

31 D

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BER

2019

(CON

T’D)

14.

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r 201

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Dec

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r 201

8

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926,

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110,

026,

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31

Dec

embe

r 201

9

31,4

65,9

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4,41

1,79

2

99 A N N U A L R E P O R T 2 0 1 9

14. Property, plant and equipment (cont’d)


(i) Leasehold land is analysed as: Long term 4,873,474 4,935,229 - - Short term 35,292,074 36,318,406 31,465,994 32,373,940

40,165,548 41,253,635 31,465,994 32,373,940

(ii) During the financial year, the Group and the Company acquired property, plant and equipment with an aggregate cost of RM22,657,717 (2018: RM8,831,722) and RM21,538,414 (2018: RM8,431,995) respectively, of which RM746,234 (2018: Nil) and RM282,128 (2018: Nil) were acquired by means of lease arrangements by the Group and the Company, respectively.

(iii) Right-of-use assets

Included in the net carrying amount of property, plant and equipment are right-of-use assets as follows:

Group Plant, Leasehold machinery Motor land Buildings and tools vehicles Total RM RM RM RM RM

At 1 January 2019 - - - - - Effect of adoption of MFRS 16: - Reclassification 41,253,635 - 5,067,264 335,531 46,656,430 - Recognition (Note 2.2) - 102,740 - - 102,740 Additions - 134,234 - 731,851 866,085 Depreciation charge for the year (Note 25(a)) (1,088,087) (98,971) (910,480) (193,220) (2,290,758)

At 31 December 2019 40,165,548 138,003 4,156,784 874,162 45,334,497

Company

At 1 January 2019 - - - - - Effect of adoption of MFRS 16: - Reclassification 32,373,940 102,740 5,067,264 - 37,543,944 Additions - 26,128 - 286,000 312,128 Depreciation charge for the year (Note 25(a)) (907,946) (8,896) (910,480) (42,900) (1,870,222)

At 31 December 2019 31,465,994 17,232 4,156,784 243,100 35,883,110

The Group and the Company have lease contracts for buildings used in their operations.

There are several lease contracts that include extension options. These options are negotiated by management to provide flexibility in managing the leased-asset portfolio and align with the Group’s business needs. Management exercises significant judgement in determining whether these extension options are reasonably certain to be exercised.



14. Property, plant and equipment (cont’d)

(iii) Right-of-use assets (cont’d)

The table below describes the nature of the Group’s and of the Company’s leasing activities by type of right-of-use assets recognised on the statements of financial position:

Plant, Leasehold machinery Motor land Buildings and tools vehicles Group

No. of right-of-use assets leased 6 15 13 4 No. of leases with extension options - 2 - - No. of leases with variable lease payments - - - - No. of leases with termination options - - - -

Company

No. of right-of-use assets leased 1 3 13 3 No. of leases with extension options - - - - No. of leases with variable lease payments - - - - No. of leases with termination options - - - -

Leased assets of the Group and of the Company with a carrying amount of RM5,030,946 (2018: RM5,402,795) and RM4,399,884 (2018: RM5,067,264) respectively are pledged as security for the related lease liabilities (Note 25).

15. Investment in subsidiaries Company 2019 2018 RM RM

Unquoted shares, at cost 38,452,893 28,722,893 Add: Acquisition of a subsidiary - 9,730,000 Less: Impairment in subsidiary (738,000) (738,000)

37,714,893 37,714,893

Details of the subsidiaries, all of which are incorporated in Malaysia and audited by Ernst & Young PLT, Malaysia are shown below:

Proportion (%) of Name of company Principal activities ownership interest 2019 2018

Direct subsidiaries of the Company

KKB Universal Roofing (Sarawak) Manufacturing of uPVC roofing sheets and pipes Sdn. Bhd. and other related products 100 100

Harum Bidang Sdn. Bhd. Manufacturing and trading of steel pipes and other related steel products 90 90

Optima Line Engineering Sdn. Bhd. Property holding 100 100

KKB Industries (Sabah) Sdn. Bhd. Manufacturing of steel pipes and pipe specials, steel fabrication and hot dip galvanising 100 100

KKB Builders Sdn. Bhd. To carry on trade or business as building contractor, civil engineering, earthworks, water engineering works and other contracting services 100 100


101 A N N U A L R E P O R T 2 0 1 9

15. Investment in subsidiaries (cont’d)

Details of the subsidiaries, all of which are incorporated in Malaysia and audited by Ernst & Young PLT, Malaysia are shown below: (cont’d)

Proportion (%) of Name of company Principal activities ownership interest 2019 2018

Direct subsidiaries of the Company (cont’d)

KKBWCT Joint Venture Sdn. Bhd. Construction works for the “Proposed Development and Upgrading of Pan Borneo Highway in the State of Sarawak, Malaysia – Phase 1 (Works Package Contract – WPC-09: Sungai Arip Bridge to Bintulu Airport Junction) 70 70

OceanMight Sdn. Bhd. General trading, construction and maintenance services, steel structural fabrication, provision of structural assemblies and engineering services 60.81 60.81

Subsidiary of Harum Bidang Sdn. Bhd.

HB Pipes Sdn. Bhd. Property holding 90 90

Financial information of subsidiaries that have material non-controlling interests are provided below:

Proportion (%) of equity interest held by non- Country of controlling interests Name of company incorporation 2019 2018

Harum Bidang Sdn. Bhd. Malaysia 10 10 KKBWCT Joint Venture Sdn. Bhd. Malaysia 30 30 OceanMight Sdn. Bhd. Malaysia 39.19 39.19

Accumulated balances of material non-controlling interests: 2019 2018 RM RM

Harum Bidang Sdn. Bhd. 7,752,384 6,991,188 KKBWCT Joint Venture Sdn. Bhd. 7,055,098 6,372,185 OceanMight Sdn. Bhd. 18,367,771 6,412,527

33,175,253 19,775,900

Profit allocated to material non-controlling interests: 2019 2018 RM RM

Harum Bidang Sdn. Bhd. 761,196 888,935 KKBWCT Joint Venture Sdn. Bhd. 682,913 2,199,272 OceanMight Sdn. Bhd. 12,347,119 2,298,990

13,791,228 5,387,197




The summarised financial information of the subsidiaries are provided below. This information is based on amounts before inter-company eliminations.

Summarised statement of profit or loss and other comprehensive income for the year: Harum Bidang Sdn. Bhd. 2019 2018 RM RM

Revenue from contracts with customers 59,886,574 46,012,665 Cost of sales (49,843,690) (35,544,330) Finance income 763,306 344,459 Other income 1,356,339 1,691,461 Administrative expenses (1,634,646) (1,186,945) Other expenses (244,375) (226,240) Finance costs (404,900) (9,655)

Profit before tax 9,878,608 11,081,415 Income tax expense (2,266,647) (2,192,066)

Total comprehensive income 7,611,961 8,889,349

Attributable to non-controlling interests 761,196 888,935 Dividend paid to non-controlling interests - 1,500,000

Summarised statement of financial position as at 31 December: Harum Bidang Sdn. Bhd. 2019 2018 RM RM

Property, plant and equipment (non-current) 7,135,115 6,854,923 Inventories (current) 41,799,594 15,462,144 Short term funds and cash and bank balances (current) 31,623,953 38,170,508 Trade and other receivables and other current assets (current) 11,368,213 13,719,604 Trade and other payables (current) (2,892,730) (3,533,340) Trade and other payables (non-current) (23,175) - Loans and borrowings (current) (9,905,406) (117,283) Loans and borrowings (non-current) (152,117) - Income tax payables (current) (748,293) - Deferred tax liabilities (non-current) (681,333) (644,696)

Total equity 77,523,821 69,911,860

Attributable to: Equity holders of parent 69,771,437 62,920,672 Non-controlling interests 7,752,384 6,991,188

Summarised cash flow information for the year: Harum Bidang Sdn. Bhd. 2019 2018 RM RM

Operating (17,163,780) 11,363,861 Investing 19,875,396 15,901,882 Financing 9,576,793 (15,169,319)

Net increase in cash and cash equivalents 12,288,409 12,096,424


103 A N N U A L R E P O R T 2 0 1 9


The summarised financial information of the subsidiaries are provided below. This information is based on amounts before inter-company eliminations. (cont’d)

Summarised statement of profit or loss and other comprehensive income for the year: KKBWCT Joint Venture Sdn. Bhd. 2019 2018 RM RM

Revenue from contracts with customers 216,666,527 219,529,542 Cost of sales (209,276,920) (209,180,467) Finance income 131,232 490,761 Other income - 11,982 Administrative expenses (570,162) (215,476) Other expenses (8,382) - Finance costs (3,555,781) (1,364,335)



Attributable to non-controlling interests 682,913 2,199,272

Summarised statement of financial position as at 31 December: KKBWCT Joint Venture Sdn. Bhd. 2019 2018 RM RM Property, plant and equipment (non-current) 1,993,340 2,330,114 Cash and short-term deposits (current) 635,644 20,720,049 Contract assets (current) 118,928,325 124,966,158 Trade and other receivables (current) 10,447,461 14,473,060 Other current assets 809,693 - Trade and other payables (current) (100,403,996) (137,763,565) Trade and other payables (non-current) (8,809,101) (3,285,960) Income tax payables (current) - (117,840) Deferred tax liabilities (non-current) (84,371) (81,398)

Total equity 23,516,995 21,240,618


Summarised cash flow information for the year: KKBWCT Joint Venture Sdn. Bhd. 2019 2018 RM RM Operating (20,215,637) 20,302,338 Investing 131,232 54,814 Financing - -

Net (decrease)/increase in cash and cash equivalents (20,084,405) 20,357,152




The summarised financial information of the subsidiaries are provided below. This information is based on amounts before inter-company eliminations. (cont’d)

Summarised statement of profit or loss and other comprehensive income for the year/period: OceanMight Sdn. Bhd. 2019 2018 RM RM Revenue from contracts with customers 214,078,034 120,890,506

Cost of sales (158,305,830) (99,699,496) Finance income 544,699 151,170 Other income 661,067 214,023 Administrative expenses (16,033,210) (11,600,942) Distribution expenses (23,697) (24,790) Other expenses (2,729,288) (679,406) Finance costs (69,256) (388,938)



Attributable to non-controlling interests 12,347,119 2,298,990 Dividend paid to non-controlling interests 391,875 -

Summarised statement of financial position as at 31 December: OceanMight Sdn. Bhd. 2019 2018 RM RM Property, plant and equipment (non-current) 2,742,445 3,196,750 Cash and short-term deposits (current) 33,802,503 16,975,898 Contract assets (current) 15,294,432 27,947,461 Trade and other receivables (current) 22,472,072 4,592,797 Trade and other payables (current) (23,577,971) (32,589,144) Loans and borrowings (current) (79,089) (15,208) Loans and borrowings (non-current) (13,241) - Income tax payables (current) (3,428,168) (638,442) Deferred tax liabilities (non-current) (341,480) (434,782)

Total equity 46,871,503 19,035,330


Summarised cash flow information for the year/period: OceanMight Sdn. Bhd. 2019 2018 RM RM Operating 17,422,349 4,756,438 Investing 481,082 (24,216) Financing (1,076,826) 4,967,362

Net increase in cash and cash equivalents 16,826,605 9,699,584


105 A N N U A L R E P O R T 2 0 1 9


On 24 January 2018, the Company subscribed for 5,000,000 new ordinary shares at an issue price of RM1 each in the share capital of OceanMight Sdn. Bhd. (“OMSB”), a former associate company of the Company. The consideration for the said subscription was settled by way of capitalising a sum of RM5,000,000 being the amount owing by OMSB to the Company. Following the said subscription, OMSB became a 60.81% owned subsidiary of the Company.

Assets acquired and liabilities assumed

The fair values of the identifiable assets and liabilities of Oceanmight Sdn. Bhd. as at the date of acquisition were:

Fair value recognised on acquisition RM

Assets Property, plant and equipment 3,593,785 Cash and cash equivalents 376,314 Short-term deposits 6,900,000 Trade and other receivables 13,362,839 Contract assets 9,330,827 Tax recoverable 7,979

33,571,744

Liabilities Trade and other payables 20,852,495 Loans and borrowings (current) 38,692 Loans and borrowings (non-current) 9,154 Deferred tax liabilities 460,533

21,360,874

Total identifiable net assets at fair value 12,210,870

Non-controlling interests measured at fair value (4,113,537) Goodwill arising on acquisition 1,632,667 Shares owned, prior to acquisition (4,730,000)

Purchase consideration via debt settlement 5,000,000 Less: Cash and cash equivalents 7,276,314

Net cash inflow from acquisition 2,276,314



16. Investment in associates Group Company 2019 2018 2019 2018 RM RM RM RM

Unquoted shares, at cost 100,000 100,000 100,000 100,000 Share of post-acquisition profit 3,673,871 1,392,286 - -

3,773,871 1,492,286 100,000 100,000

The associates, which are incorporated in Malaysia, are: Proportion (%) of Name of company Principal activities ownership interest 2019 2018

Held by the Company

Edisi Optima Sdn. Bhd. To carry on the trade or business as contractors for construction works and general engineering, and service provider for the requalification and repairs of LPG cylinders 40 40

Held through Edisi Optima Sdn. Bhd.

OceanMight Sdn. Bhd. General trading, construction and maintenance services, steel structural fabrication, provision of structural assemblies and engineering services 5.50 5.50

The summarised statement of profit or loss and other comprehensive income of the Group’s immaterial associate not adjusted for the proportion of ownership interest held by the Group is as follows:

Edisi Optima Sdn. Bhd. 2019 2018 RM RM

Profit before tax 960,099 78,356 Profit for the year, representing total comprehensive income for the year 800,626 68,310

17. Goodwill Group 2019 2018 RM RM

At 1 January 1,632,667 - Arising from acquisition of a subsidiary - 1,632,667

At 31 December 1,632,667 1,632,667

Goodwill arising from business combinations has been allocated to the cash-generating unit (“CGU”) for impairment testing.

The carrying amounts of goodwill allocated to the Group’s CGU are as follows:

Group 2019 2018 RM RM

Engineering and construction 1,632,667 1,632,667


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17. Goodwill (cont’d)

Key assumptions used in value-in-use calculations:

The recoverable amounts of the CGU are determined based on value-in-use calculations using cash flow projections based on financial budgets approved by management covering a three-year period. The assumptions used for value-in-use calculations are:

Gross Margin Discount Rates 2019 2018 2019 2018

OceanMight Sdn. Bhd. 13% 17% 9.39% 11.47%

The following describes each key assumption on which management has based its cash flow projections to undertake impairment testing of goodwill:

(a) Budgeted gross margin

The basis used to determine the value assigned to the budgeted gross margins is the gross margin of the new project awarded to OceanMight Sdn. Bhd. for the upcoming financial year.

(b) Discount rates

The discount rates used are pre-tax and reflect specific risks relating to the Group.

The Group believes that any reasonable possible change in the above key assumptions applied is unlikely to materially cause the recoverable amounts to be lower than their carrying amounts.

18. Inventories Group Company 2019 2018 2019 2018 RM RM RM RM

Raw materials 53,664,649 25,861,904 8,630,037 8,282,190 Goods-in-transit - 237,975 - 10,575 Work-in-progress 4,002,346 2,158,456 1,357,202 1,049,342 Consumables 994,048 666,477 571,398 331,776 Finished goods 10,972,160 7,113,628 6,496,494 4,435,736 Others 188,368 185,776 86,895 85,351

Total inventories at the lower of cost and net realisable value 69,821,571 36,224,216 17,142,026 14,194,970

During the year, the amounts of inventories recognised as an expense in cost of sales of the Group and of the Company were RM56,721,046 (2018: RM40,327,770) and RM16,940,608 (2018: RM11,478,872), respectively.



19. Financial assets and financial liabilities

19.1 Financial assets Group Company 2019 2018 2019 2018 RM RM RM RM

Financial assets at fair value through profit or loss Short term funds 38,079,135 72,419,095 31,806,784 47,311,780

Debt instruments at amortised cost

Trade and other receivables 67,809,580 27,810,266 54,839,570 24,111,665 Cash and short-term deposits 73,367,576 74,120,425 10,821,455 23,139,997

141,177,156 101,930,691 65,661,025 47,251,662

Total financial assets 179,256,291 174,349,786 97,467,809 94,563,442

19.2 Financial liabilities Group Company 2019 2018 2019 2018 RM RM RM RM

Current interest-bearing loans and borrowings

Lease liabilities 754,838 827,200 474,066 694,708 Bankers’ acceptances 9,730,000 - - -

10,484,838 827,200 474,066 694,708

Non-current interest-bearing loans and borrowings

Lease liabilities 547,648 603,686 359,115 603,686

Total interest-bearing loans and borrowings 11,032,486 1,430,886 833,181 1,298,394

Other financial liabilities at amortised cost, other than interest-bearing loans and borrowings

Trade and other payables 160,389,723 186,675,062 35,493,363 23,158,620

Total financial liabilities at amortised cost 160,389,723 186,675,062 35,493,363 23,158,620


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19. Financial assets and financial liabilities (cont’d)

19.3 Fair values

(a) Determination of fair value

Financial instruments that are not carried at fair value and whose carrying amounts are reasonable approximation of fair value

The following are classes of financial instruments that are not carried at fair value and whose carrying amounts are reasonable approximation of fair value:

Note

Trade and other receivables (current) 20 Trade and other payables (current and non-current) 26 Cash and short-term deposits 24 Interest-bearing loans and borrowings (current and non-current) 25

The carrying amounts of these financial assets and liabilities are reasonable approximation of fair values, due to their short-term and interest-bearing nature. In addition to that, trade receivables and trade payables are subject to normal trade credit terms while the current portion of loans and borrowings has an insignificant impact of discounting.

Loans and borrowings

The fair value of these financial instruments are estimated by discounting expected future cash flows at market incremental lending rate for similar types of lending, borrowing or leasing arrangements at the reporting date.

(b) Fair value hierarchy

The Group and the Company classify fair value measurement using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

Level 1 - Quoted prices in active markets for identical assets or liabilities;

Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly; and

Level 3 - Inputs for the asset or liability that are not based on observable market data (unobservable inputs)

The following table provides the fair value measurement hierarchy of the Group’s and the Company’s assets and liabilities.

Quantitative disclosures of the fair value measurement hierarchy as at 31 December 2019 and 31 December 2018 were as follows:

Date of valuation Level 1 Level 2 Level 3 Total RM RM RM RM Group

Assets measured at fair value: Short term funds 31 December 2019 38,079,135 - - 38,079,135 31 December 2018 72,419,095 - - 72,419,095

Company

Assets measured at fair value: Short term funds 31 December 2019 31,806,784 - - 31,806,784 31 December 2018 47,311,780 - - 47,311,780

There has been no transfers between the fair value hierarchy during the financial year.




19.4 Financial instruments risk management objectives and policies

The Group and the Company are exposed to financial risks arising from their operations and the use of financial instruments. The Group’s and the Company’s principal financial instruments comprise bank overdrafts, borrowings, short term funds, cash and short-term deposits. The main purpose of these financial instruments is to manage the Group’s funding and liquidity requirements. The Group and the Company have other financial assets and liabilities such as trade receivables and trade payables, which arise directly from their operations.

The Board of Directors with the assistance of professionals and advisers as Internal Auditors, Management Executive Committee and Risk Management Committee has the overall responsibility for the establishment and oversight of the Group’s risk management framework. The Management Executive Committee, represented by the Group Managing Director, Group Executive Director, Executive Director, Group Chief Financial Officer, Senior General Manager (Group Commercial and Project) and Senior General Manager (Group Manufacturing – Business) are the top management responsible for the implementation of decisions and policies formulated by the Board. The Risk Management Committee comprising Executive Directors and senior management staff who are responsible under their respective scope of work for the day-to-day operations carry out risk identification, evaluate, monitor and formulate mitigation strategies on risks identified and periodically review risk management processes and policies. The audit committee provides independent oversight to the effectiveness of the risk management process.

The key financial risks include credit risk, liquidity risk, interest rate risk and market price risk.

The following sections provide details regarding the Group’s and Company’s exposure to the above-mentioned financial risks and the objective, policies and processes for the management of these risks.

(a) Credit risk

Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments.

The Group’s and the Company’s objectives are to seek continual revenue growth while minimising losses incurred due to increased credit risk exposure. The Group and the Company trade only with recognised and creditworthy third parties. It is the Group’s and the Company’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivables’ balances are monitored on an ongoing basis to ensure that the Group’s and the Company’s exposure to bad debts is not significant. The Group and the Company have in place a policy and procedure for extending credit terms and the collection of overdue receivables from their customers.

Exposure to credit risk

At the end of the reporting period, the Group’s and the Company’s maximum exposure to credit risk is represented by the carrying amount of each class of financial assets recognised in the statements of financial position.

Credit risk concentration profile

The Group’s and the Company’s exposure to credit risk is influenced by the individual characteristics of each customer. The receivable balance consists of business customers which are spread across a diverse range of industries. The Group and the Company determine concentration of credit risk by monitoring the industry sector profile of their trade receivables on an ongoing basis.

At the end of the reporting period, approximately:

- 77% (2018: 92%) of the Group’s trade receivable and contract assets were due from 2 major customers which contributed to 51% (2018: 80%) of the Group’s revenue.

- 61% (2018: 27%) of the Company’s trade receivable and contract assets were due from 2 major customers which contributed to 69% (2018: 47%) of the Company’s revenue.

- 1% and 37% (2018: 1% and 69%) of the Group’s and Company’s trade and other receivables respectively, were balances with related parties.


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19.4 Financial instruments risk management objectives and policies (cont’d)

(a) Credit risk (cont’d)

Financial assets that are neither past due nor impaired

Information regarding trade receivables that are neither past due nor impaired is disclosed as below:

Deposits with banks and other financial institutions, short term funds that are neither past due nor impaired are placed with or entered into with reputable financial institutions or companies with high credit ratings and no history of default.

Ageing analysis of trade receivables The ageing analysis of the Group’s and the Company’s trade receivables is as follows:


Neither past due nor impaired 51,511,392 15,916,187 32,473,071 6,817,892

1 to 30 days past due not impaired 2,255,519 1,192,350 1,455,329 3,625,648 31 to 60 days past due not impaired 394,777 118,216 7,007,531 330,516 61 to 90 days past due not impaired 1,253,819 639,453 30,553 264,242 91 to 120 days past due not impaired 1,551,962 487,130 813,083 100,000 More than 120 days past due not impaired 6,564,523 2,209,416 7,226,056 7,729,989

12,020,600 4,646,565 16,532,552 12,050,395 Impaired 314,854 - 314,854 -

63,846,846 20,562,752 49,320,477 18,868,287

(b) Liquidity risk

Liquidity risk is the risk that the Group or the Company will encounter difficulty in meeting their financial obligations as they fall due. The Group’s and the Company’s exposure to liquidity risk arises primarily from mismatches of the maturities of financial assets and liabilities. The Group’s and the Company’s objective is to maintain a balance between continuity of funding and flexibility through the use of stand-by credit facilities.

The Group and the Company manage their liquidity risk by maintaining adequate reserves, access to a number of sources of banking facilities which are sufficient to meet anticipated funding requirements, and reserve borrowing facilities by continuously monitoring its forecasts and actual cash flows and matching the maturity profiles of financial assets and liabilities.

At the end of the reporting period, approximately 95% (2018: 58%) of the Group’s loans and borrowings (Note 25) will mature within one year based on the carrying amount reflected in the financial statements. 57% (2018: 54%) of the Company’s loans and borrowings will mature within one year after the reporting period.

Analysis of financial instruments by remaining contractual maturities

The table below summarises the maturity profile of the Group’s and the Company’s liabilities at the end of the reporting period based on contractual undiscounted repayment obligations.





(b) Liquidity risk (cont’d)

Analysis of financial instruments by remaining contractual maturities (cont’d)

Within One to one year five years Total RM RM RM

2019

Group

Financial liabilities

Trade and other payables 154,601,600 8,809,101 163,410,701 Interest-bearing loans and borrowings 10,962,489 566,820 11,529,309

Total undiscounted financial liabilities 165,564,089 9,375,921 174,940,010

Company


Trade and other payables 35,783,337 - 35,783,337 Interest-bearing loans and borrowings 508,780 368,126 876,906

Total undiscounted financial liabilities 36,292,117 368,126 36,660,243

2018

Group


Trade and other payables 186,066,963 3,778,274 189,845,237 Interest-bearing loans and borrowings 871,620 629,099 1,500,719

Total undiscounted financial liabilities 186,938,583 4,407,373 191,345,956

Company


Trade and other payables 23,572,422 - 23,572,422 Interest-bearing loans and borrowings 736,963 629,099 1,366,062 Total undiscounted financial liabilities 24,309,385 629,099 24,938,484


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(c) Interest rate risk

Interest rate risk is the risk that the future cash flows of the Group’s and the Company’s financial instruments will fluctuate because of changes in market interest rates.

The Group’s and the Company’s exposure to market risk for changes in interest rates relates primarily to the short term deposits with licensed banks and floating rate advances given to/by related parties.

Sensitivity analysis for interest rate risk

At the end of the reporting period, if interest rates had been 25 basis points higher/lower, with all other variables held constant, the Group’s and the Company’s profit net of tax would have been RM46,524 (2018: RM4,021) lower/higher and RM23,127 (2018: RM32,632) higher/lower, arising mainly as a result of higher/lower interest expense/interest income from advances given by/to related parties.

(d) Market price risk

Market price risk is the risk that the fair value or future cash flows of the Group’s and the Company’s financial instruments will fluctuate because of changes in market prices (other than interest or exchange rates).

The Group and the Company are exposed to market price risk and the risk of impairment in the value of investments held. The Group and the Company manage the risk of impairment by evaluating investment opportunities, continuously monitoring the performance of investments held and assessing market risk relevant to which the investments operate.

At the end of the reporting period, 100% (2018: 100%) of the Group’s and the Company’s short term funds are investment in money market funds that invest in highly liquid assets, which are readily convertible to cash.

Sensitivity analysis for short term funds’ price risk

At the end of the reporting period, if prices for short term funds increase by 5% with all other variables being held constant, the Group’s and the Company’s profit net of tax will be RM1,903,957 (2018: RM3,620,955) and RM1,590,339 (2018: RM2,365,589) higher as a result of higher fair value gain on fair value through profit or loss investments in short term funds. A 5% decrease in the underlying short term funds’ prices would have had the equal but opposite effect to the amounts shown above.

19.5 Changes in liabilities arising from financing activities


At 1 January 1,430,886 4,705,494 1,298,394 4,418,891 Effect of adoption of MFRS 16 (Note 2.2) 102,740 - - - Arising from acquisition of a subsidiary - 47,846 - - Acquisition of new leases (Note 25(a)) 746,234 - 282,128 - Proceeds from bankers’ acceptances 9,730,000 - - - Repayment of principal lease liabilities (Note 25(a)) (977,374) (3,322,454) (747,341) (3,120,497)

At 31 December 11,032,486 1,430,886 833,181 1,298,394



20. Trade and other receivables Group Company 2019 2018 2019 2018 RM RM RM RM

Trade receivables

Third parties 63,188,919 19,720,532 32,529,031 5,587,336 Retention sums on construction contracts (Note 21) 294,774 494,774 294,774 494,774 Amounts due from - associates 363,153 347,446 363,153 347,446 - subsidiaries - - 16,133,519 12,438,731

63,846,846 20,562,752 49,320,477 18,868,287 Allowance for expected credit loss (314,854) - (314,854) -

Trade receivables, net 63,531,992 20,562,752 49,005,623 18,868,287

Other receivables

Amounts due from - associates - 1,227 - 1,227 - subsidiaries - - 4,063,050 3,887,966 Sundry receivables 2,531,520 5,985,658 163,303 177,617 Deposits 1,746,068 1,260,629 1,607,594 1,176,568

4,277,588 7,247,514 5,833,947 5,243,378

Total trade and other receivables 67,809,580 27,810,266 54,839,570 24,111,665

(a) Trade receivables

Trade receivables are generally non-interest bearing except for the amounts due from subsidiaries and associates which earn interest ranging from 3.91% to 4.20% (2018: 3.92%) per annum.

The Group’s and the Company’s normal trade credit term range from 30 to 60 days (2018: 30 to 60 days). Other credit terms are assessed and approved on a case-by-case basis. They are recognised at their original invoice amounts which represent their fair values on initial recognition.

The information about the credit exposures are disclosed in Note 19.

Receivables that are neither past due nor impaired

Trade receivables that are neither past due nor impaired are creditworthy debtors with good payment records with the Group and the Company.

None of the Group’s and the Company’s trade receivables that are neither past due nor impaired have been renegotiated during the financial year.

Receivables that are past due but not impaired

The Group and the Company have trade receivables amounting to RM12,020,600 (2018: RM4,646,565) and RM16,532,552 (2018: RM12,050,395) respectively, that are past due at the end of the reporting period but not impaired as management is confident in receiving collection from these receivables albeit in the near future.


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20. Trade and other receivables (cont’d)

(a) Trade receivables (cont’d)

Receivables that are impaired

Set out below is the movement in the allowance for expected credit losses of trade receivables: Group Company 2019 2018 2019 2018 RM RM RM RM Movement in allowance accounts: At 1 January - 2,296 - 2,155 Charge for the year (Note 10) 314,854 6,686 314,854 6,405 Unwinding of discount (Note 8) - (8,982) - (8,560)

At 31 December 314,854 - 314,854 -

Trade receivables that are individually determined to be impaired at the reporting date relate to debtors that are in significant financial difficulties and have defaulted on payments or debtors that have usually settled their debts beyond the prescribed credit terms. These receivables are not secured by any collateral or credit enhancements.

(b) Other receivables

Other receivables of the Group and of the Company are unsecured, receivable on demand and non-interest bearing except for amounts due from subsidiaries and associates amounting to RM4,063,050 (2018: RM3,889,193), which bear interest ranging from 3.91% to 4.20% (2018: 3.92%) per annum.

21. Contract assets Group Company 2019 2018 2019 2018 RM RM RM RM

Aggregate costs incurred to date 815,502,411 619,098,342 79,579,325 729,538 Attributable profit less recognised losses 115,203,775 79,622,023 21,608,034 -

930,706,186 698,720,365 101,187,359 729,538 Less: Progress billings (789,542,372) (545,077,208) (94,246,302) -

141,163,814 153,643,157 6,941,057 729,538

Presented as: Contract assets 141,163,814 153,643,157 6,941,057 729,538

Retention sums on construction contracts included in: - trade receivables (Note 20) 294,774 494,774 294,774 494,774 - trade payables (Note 26) 10,261,218 6,610,021 1,426,425 372,651

The Group and the Company only deal with creditworthy customers. Historically, the Group and the Company have not encountered any material default by these customers. Consequently, no allowance for expected credit loss was recorded for contract asset as at reporting date.



22. Other current assets Group Company 2019 2018 2019 2018 RM RM RM RM

Tax recoverable 811,254 4,043,529 - 1,542,712 Prepaid operating expenses 97,407 4,352 11,284 -

908,661 4,047,881 11,284 1,542,712

23. Short term funds Carrying amount/Market value of quoted investments Group Company 2019 2018 2019 2018 RM RM RM RM

Current

Fair value through profit or loss Short term funds 38,079,135 72,419,095 31,806,784 47,311,780

Short term funds are investments in money market funds in Malaysia. These funds invest in highly liquid assets which are readily convertible to cash.

24. Cash and short-term deposits

For the purpose of the statements of cash flows, cash and cash equivalents comprise the following at the end of the reporting period:


Short-term deposits with licensed banks 25,500,000 46,400,000 - 14,000,000 Cash at banks and on hand 47,867,576 27,720,425 10,821,455 9,139,997

Cash and cash equivalents 73,367,576 74,120,425 10,821,455 23,139,997

Certain amounts of cash at banks earn interest at floating rates based on daily bank deposits rates. Short-term deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group and of the Company and earn interest at the respective short-term deposits rates. The weighted average effective interest rates as at 31 December 2019 for the Group and the Company were 3.00% (2018: 2.86%) and Nil (2018: 2.60%) per annum, respectively.


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25. Interest-bearing loans and borrowings Group Company Maturity 2019 2018 2019 2018 RM RM RM RM

Current

Secured: Lease liabilities* 2019 - 2020 631,004 827,200 455,598 694,708

Unsecured: Bankers’ acceptances 2020 9,730,000 - - - Lease liabilities (Note 25(a)) 2020 123,834 - 18,468 -

9,853,834 - 18,468 -

Total current 10,484,838 827,200 474,066 694,708

Non-current

Secured: Lease liabilities* 2020 - 2022 510,112 603,686 357,994 603,686

Unsecured: Lease liabilities (Note 25(a)) 2021 37,536 - 1,121 -

Total non-current 547,648 603,686 359,115 603,686

Total loans and borrowings 11,032,486 1,430,886 833,181 1,298,394

* The lease liabilities of the Group and of the Company are secured by a charge over the leased assets (Note 14).

The remaining maturities of the loans and borrowings as at 31 December 2019 are as follows:


Within one year 10,484,838 827,200 474,066 694,708 More than one year and less than five years 547,648 603,686 359,115 603,686

11,032,486 1,430,886 833,181 1,298,394

The interest rates of the Group and of the Company are as follows:

Group Company 2019 2018 2019 2018 % % % %

Bankers’ acceptances 3.90 - 3.93 - - - Lease liabilities 4.32 - 4.92 4.51 - 5.32 4.66 - 4.92 4.51 - 5.32



25. Interest-bearing loans and borrowings (cont’d)

(a) Lease liabilities

The movement of lease liabilities during the financial year is as follows:

Group Company 2019 2019 RM RM

At 1 January 1,430,886 1,298,394 Effect of adoption of MFRS 16 102,740 -

Additions 746,234 282,128 Interest charged (Note 7) 136,934 57,142 Payment of: - Principal (977,374) (747,341) - Interest (136,934) (57,142)

At 31 December 1,302,486 833,181

The expenses relating to payments not included in the measurement of the lease liabilities are as follows:

Group Company 2019 2019 RM RM

Depreciation of right-of-use assets (Note 14(iii)) 2,290,758 1,870,222 Interest expense on lease liabilities (Note 7) 136,934 57,142 Expenses relating to leases of low value assets (Note 10) 8,680 - Expenses relating to short term leases (Note 10) 1,367,155 742,698

The Group and the Company had total cash outflows for leases amounting to RM2,490,143 and RM1,547,181 respectively in 2019.

There were no leases with residual value guarantee or leases which have yet to commence of which the Group and the Company have committed.

The operating lease commitments as at 31 December 2018 is reconciled to arrive at the lease liabilities as at 1 January 2019 as follows:

Group Company RM RM

Operating lease commitments as at 31 December 2018 161,100 -

Weighted average incremental borrowing rate as at 1 January 2019 4.69% p.a. 4.69% p.a. Discounted using the lessee’s incremental borrowing rate at the date of initial application 102,740 -

Lease liabilities recognised as at 1 January 2019 102,740 -

At 31 December 2019, the Group and the Company also committed to short-term leases amounting to RM381,500 and RM238,929, respectively.


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26. Trade and other payables Group Company 2019 2018 2019 2018 RM RM RM RM

Current

Trade payables

Third parties 62,176,757 56,140,620 16,178,067 2,821,815 Related parties 74,126,532 90,320,756 - - Retention sums on construction contracts (Note 21) 1,452,117 3,324,061 1,426,425 372,651 Amounts due to subsidiaries - - 7,397,288 10,556,173

137,755,406 149,785,437 25,001,780 13,750,639

Other payables

Related party - 19,367,835 - - Sundry payables 8,881,730 10,096,845 7,271,931 7,036,547 Accruals 4,943,486 4,138,985 3,219,652 2,371,434

13,825,216 33,603,665 10,491,583 9,407,981

151,580,622 183,389,102 35,493,363 23,158,620

Non-current

Trade payables

Retention sums on construction contracts (Note 21) 8,809,101 3,285,960 - -

Total trade and other payables 160,389,723 186,675,062 35,493,363 23,158,620

(a) Trade payables

Related parties refer to companies related to a non-controlling shareholder of a subsidiary.

Trade payables are generally non-interest bearing, except for amounts due to related parties and subsidiaries which bear interest at rates ranging from 3.91% to 6.00% (2018: 3.92% to 6.00%) per annum. The normal trade credit terms granted to the Group and the Company range from 30 to 90 days (2018: 30 to 90 days).

(b) Other payables

These amounts are unsecured, repayable on demand and non-interest bearing except for an amount due to a related party which bear interest at 6.00% (2018: 6.00%) per annum.

27. Issued capital Group and Company Number of ordinary shares Amount 2019 2018 2019 2018 RM RM

Issued and fully paid

At 1 January and 31 December 257,792,000 257,792,000 128,896,000 128,896,000

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per

share at meetings of the Company. All the ordinary shares rank equally with regards to the Company’s residual assets.



28. Commitments Group Company 2019 2018 2019 2018 RM RM RM RM

Capital commitments

Capital expenditure as at the end of the reporting period is as follows:

Approved and contracted for: Property, plant and equipment 14,332,310 7,283,604 14,320,010 7,025,720

Approved but not contracted for: Property, plant and equipment 10,056,137 30,000,000 10,056,137 30,000,000

29. Contingencies

Material litigation

The material litigation between KKB Builders Sdn Bhd (a wholly-owned subsidiary of KKB Engineering Berhad) and Global Upline Sdn. Bhd (“GUSB”) has been fully concluded.

GUSB has fully paid the agreed settlement sum of RM4 million and fulfilled the terms and conditions of the amicable settlement reached between both parties per the Arbitration Award dated 31 July 2018.

Save as disclosed above, there were no other pending material litigations against the Group which might materially and adversely affect the Group’s financial position.

30. Related party transactions

(a) Sale and purchase of goods and services

In addition to the related party information disclosed elsewhere in the financial statements, the following significant transactions between the Group and the Company and related parties took place at terms agreed between the parties during the financial year:


(i) Transactions with subsidiaries:

Income

Sales of goods to: Harum Bidang Sdn. Bhd. 869,526 4,558,895 KKBWCT Joint Venture Sdn. Bhd. 5,572,684 4,410,099 OceanMight Sdn. Bhd. 56,262,193 21,277,201 Rental income received from: KKB Universal Roofing (Sarawak) Sdn. Bhd. 12,000 12,000 Harum Bidang Sdn. Bhd. 36,000 36,000 OceanMight Sdn. Bhd. 219,783 193,443 Interest income received from: KKB Industries (Sabah) Sdn. Bhd. 354,500 241,172 KKB Universal Roofing (Sarawak) Sdn. Bhd. 112,137 104,227 Optima Line Engineering Sdn. Bhd. 47,703 44,411 HB Pipes Sdn. Bhd. 60 54 OceanMight Sdn. Bhd. - 387,684 Sale of motor vehicle to: OceanMight Sdn. Bhd. - 1,000


121 A N N U A L R E P O R T 2 0 1 9

30. Related party transactions (cont’d)

(a) Sale and purchase of goods and services (cont’d)

In addition to the related party information disclosed elsewhere in the financial statements, the following significant transactions between the Group and the Company and related parties took place at terms agreed between the parties during the financial year: (cont’d)


(i) Transactions with subsidiaries: (cont’d.)

Expenditure

Purchases from: Harum Bidang Sdn. Bhd. 55,276,724 14,080,344 KKB Universal Roofing (Sarawak) Sdn. Bhd. 5,105 10,433 KKB Industries (Sabah) Sdn. Bhd. 114,260 - Rental expense paid to: Harum Bidang Sdn. Bhd. - 16,000 OceanMight Sdn. Bhd. - 4,800 Short term lease expense paid to: OceanMight Sdn. Bhd. 50,410 - Interest expense paid to: Harum Bidang Sdn. Bhd. 449,883 132,119 KKB Builders Sdn. Bhd. 113,014 149,022


(ii) Transactions with an associate, Edisi Optima Sdn. Bhd.:

Income

Sale of fabricated and galvanised steel products 21,144 21,131 21,144 21,131 Provision of miscellaneous services such as machineries/ equipment, labour etc 1,047,106 389,372 1,047,106 389,372 Rental income 24,000 24,000 - -

Expenditure

Cost of miscellaneous services such as machineries/ equipment, labour etc 45,119 16,114 45,119 16,114







(iii) Transactions with a former associate, OceanMight Sdn. Bhd.:

Income

Sales of fabricated/galvanised steel products, structural steel works and other related products - 36,603 - 36,603 Rental income - 16,857 - 16,857 Interest income - 46,403 - 46,403

Expenditure

Cost of miscellaneous services such as machineries/equipment, labour etc - 297 - 297

(iv) Transactions with subsidiaries of an investor, Cahya Mata Sarawak Berhad:

Income

Sales of steel pipes and pipe fittings: CMS Infra Trading Sdn. Bhd. 4,505,575 31,690,955 - - Sales of fabricated/galvanised steel products: CMS Concrete Products Sdn. Bhd. 1,346 - 1,346 -

(v) Transactions with companies related to a non-controlling shareholder of a subsidiary:

Expenditure

Interest expense paid to: WCT Berhad 2,941,206 1,302,750 - - WCT Equity Sdn. Bhd. 122,261 61,585 - -

Purchases from: WCT Berhad 132,637,503 142,612,662 - -


123 A N N U A L R E P O R T 2 0 1 9




(vi) Transactions with companies in which certain directors (*) of the Company have substantial financial interest and/or are also directors:


Expenditure Rental expense paid to: KKB Development Sdn. Bhd.* - 71,400 - 71,400 KKB Realty Sdn. Bhd.* - 46,600 - 31,600 Sepang Kaya Sdn. Bhd.* - 125,895 - 125,895 Short term lease expense paid to: KKB Development Sdn. Bhd.* 71,400 - 71,400 - KKB Realty Sdn. Bhd.* 40,000 - 10,000 - Sepang Kaya Sdn. Bhd.* 130,832 - 130,832 -

* Dato Kho Kak Beng, Kho Pok Tong and Kho Poh Lin

(vii) Transactions with a director: Group Company 2019 2018 2019 2018 RM RM RM RM

Expenditure Rental expense paid to: Dato Kho Kak Beng - 73,832 - 28,800 Short term lease expense paid to: Dato Kho Kak Beng 76,800 - 28,800 -

(viii) Transactions with a person connected with certain directors of the Company:


Expenditure

Rental expense paid to: Kho Siew Lan - 19,200 - 19,200 Short term lease expense paid to: Kho Siew Lan 19,200 - 3,200 -




(b) Compensation of key management personnel

The remuneration of directors and other member of key management during the year was as follows:


Short-term employee benefits 8,059,406 5,689,906 6,818,636 5,660,161 Post-employment benefits: Defined contribution plan 1,008,472 622,611 859,675 601,002

9,067,878 6,312,517 7,678,311 6,261,163

Included in the total key management personnel are: Directors’ remuneration 6,131,264 5,057,029 5,643,729 4,952,663

31. Dividends 2019 2018 Sen Sen per share RM per share RM

Recognised during the financial year:

Dividends on ordinary shares:

- First and final single tier dividend for year 2017 - - 2.00 5,155,840 - First and final single tier dividend for year 2018 4.00 10,311,680 - - 10,311,680 5,155,840

Proposed but not recognised as a liability as at 31 December:

Dividends on ordinary shares subject to shareholders’ approval at the AGM: - First and final single tier dividend for year 2018 - - 4.00 10,311,680 - First and final single tier dividend for year 2019 6.00 15,467,520 - - 15,467,520 10,311,680

At the forthcoming Annual General Meeting, a first and final single tier dividend in respect of the financial year ended 31 December 2019, of 6.00 sen per ordinary share, amounting to a dividend payable of RM15,467,520 will be proposed for shareholders’ approval. The financial statements for the current financial year do not reflect this proposed dividend. Such dividend, if approved by the shareholders, will be accounted for in equity as an appropriation of retained earnings in the financial year ending 31 December 2020.


125 A N N U A L R E P O R T 2 0 1 9

32. Non-adjusting events after the reporting period

32.1 Covid-19

The outbreak of the novel coronavirus (“Covid-19”) in January 2020 has evolved into a global pandemic, adversely affecting economies worldwide due to the imposition of travel restrictions, constraints on the people’s movement and the suspension of many business operations to curb the spread of Covid-19 virus.

The threats posed by the Covid-19 outbreak continue to spiral and many businesses have been crippled by the loss in earnings and disruption in the supply chains. This has also resulted in significant volatility in the worldwide financial and commodities markets. The Group and the Company are not spared from the vulnerabilities faced by many businesses.

Amidst these unprecedented times of uncertainty and challenges ahead, the Directors expect that the Group’s and the Company’s operating results, cash-flows and financial condition will be impacted. The Group has taken a number of measures to monitor and prevent the effects of the Covid-19 virus such as safety and health measures of its employees (social distancing and almost all employees are working from home). In compliance with the Movement Control Order (MCO) announced by the Honourable Prime Minister to curb the spread of Covid-19, all operational activities within the Group are maintained at a very minimal scale. Accordingly, this will result in reduction in productivity and minimum progress billings for the on-going contracts and hence, affecting the Group’s revenue and operating results.

However, as the magnitude and duration of the spread of Covid-19 remain uncertain, the impact of Covid-19 to the Group’s business and financial results cannot be ascertained accurately at this stage

The Directors will continue to assess health risks versus economic losses, wherever possible, and adhere to all directives or rules issued by the Government; State and various relevant authorities and operate in the best and safest possible way without jeopardising the health of employees.

32.2 Pan Borneo project novation agreement

A subsidiary, KKBWCT Joint Venture Sdn Bhd (“KKBWCT JV”), is involved in the Pan Borneo project which involves specifically the completion of the road of approximately 64 km in length between Sg Arip Bridge to Bintulu Airport Junction, in accordance with the terms and conditions contained in the Works Package Contract 09 (hereinafter referred to as the “Works”).

In the previous financial years, the Government of Malaysia, represented by the Ministry of Works (“the Federal Government”), the State Government of Sarawak and Lebuhraya Borneo Utara Sdn Bhd (collectively “the PDP”), the Federal Government and the State Government of Sarawak (collectively “the Owner”), had appointed the PDP as the project delivery partner to implement, manage and deliver the development of Phase 1 Highway. The PDP, in turn, had appointed KKBWCT JV as the main contractor for the Works on 25 July 2016.

On 20 September 2019, the Ministry of Works, vide a notice of termination (hereinafter referred to as the “Notice of Termination”) gave notice to the PDP that the Project Delivery Partner Agreement dated 28 September 2016 will be terminated on grounds of national interest, and such termination will take effect on 20 February 2020.

Subsequent to the issuance of the Notice of Termination to the PDP and by virtue of the terms and conditions of the Works, the PDP novated to the Federal Government and the Federal Government accepted the novation of all rights, liabilities, benefits, interests, duties and obligations under the Works, subject to the terms and conditions of the novation agreement to be entered into between the Federal Government, the PDP and KKBWCT JV (“the Novation Agreement”).

The Novation Agreement was executed on 19 Feb 2020.

The Directors, having considered the terms and conditions of the Novation Agreement, have unanimously concluded that the Novation Agreement will not have an impact on the financial statements of the Group.

33. Authorisation of financial statements for issue

The financial statements for the year ended 31 December 2019 were authorised for issue by the Board in accordance with a resolution of the directors on 30 April 2020.



(i) Recurrent Related Party Transactions of a Revenue or Trading Nature

In accordance with Section 3.1.5 of Practice Note 12 and Paragraph 10.09(2)(b) of Main Market Listing Requirements of Bursa Malaysia Securities Berhad, a breakdown of the aggregate value of recurrent related party transactions conducted during the financial year ended 31 December 2019 pursuant to the Shareholder Mandate are disclosed as follows:

TYPE OF THE RECURRENT RELATED PARTY TRANSACTIONS MADE NAME OF THE RELATED PARTIES

ACTUAL VALUE OF RECURRENT RELATED PARTY TRANSACTIONS

MADE DURING THE FINANCIAL YEAR

ENDED 31 DECEMBER 2019

RM

Sales of fabricated/galvanised steel products Edisi Optima Sdn Bhd (“EOSB”)* 21,144

Provision of miscellaneous services such as machineries/equipment, labour etc

Edisi Optima Sdn Bhd (“EOSB”)* 1,047,106

Payment of cost of miscellaneous services such as machineries/equipment, labour etc

Edisi Optima Sdn Bhd (“EOSB”)* 45,119

Sub-Total 1,113,369

Sales of mild steel pipes, mild steel mechanical couplings and pipe specials

CMS Infra Trading Sdn Bhd (“CMSIT”)**

4,505,575

Sales of fabricated/galvanised steel products CMS Concrete Products Sdn Bhd (“CMSCP”)**

1,346

Sub-Total 4,506,921

Sales of fabricated/galvanised steel products, structural steel works and other related products

OceanMight Sdn Bhd (“OMSB”)*** 56,041,167

Rental of yard facilities including machineries/equipment, factories and office building

OceanMight Sdn Bhd (“OMSB”)*** 219,783

Provision of miscellaneous services such as machineries/equipment/facilities, labour/sub-contract works etc

OceanMight Sdn Bhd (“OMSB”)*** 221,026

Sub-Total 56,481,976

Relationships of the Related Parties with KKB Group:

* Dato’ Anwarrudin Bin Ahamad Osman who is a shareholder of KKB, is also a shareholder and Director of Edisi Optima Sdn Bhd.

** Subsidiaries of Cahya Mata Sarawak Berhad (“CMSB”), a major shareholder of KKB, CMSIT and CMSCP are persons connected with CMSB. Mr Syed Hizam Alsagoff who is a Director of KKB is the nominee of CMSB and person connected with CMSB.

Datuk Syed Ahmad Alwee Alsree resigned as Director of KKB on 3 December 2019 and Syed Hizam Alsagoff redesignated as Director of KKB on 4 December 2019.

*** Dato’ Anwarrudin Bin Ahamad Osman is a Director of OMSB. Dato’ Anwarrudin Bin Ahamad Osman is also a shareholder and Director of EOSB. EOSB is a shareholder of OMSB. Dato’ Anwarrudin has indirect interest in OMSB via EOSB pursuant to Section 8 of the Companies Act 2016.

(ii) Options, Warrants or Convertible Securities

There were no options, warrants or convertible securities issued or exercised during the financial year ended 31 December 2019.

OTHER DISCLOSURES

127 A N N U A L R E P O R T 2 0 1 9

(iii) Non-Audit Fees

The non-audit fees paid to the external auditors during the financial year ended 31 December 2019 amounted to RM69,800.

(iv) Variation in Results

There were no variances of 10% or more for the audited results of the Group from the unaudited results as announced on 18 February 2020.

(v) Share Buy-Backs

The Company did not undertake any share buy-back exercise for the financial year ended 31 December 2019.

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

The Company did not sponsor any ADR or GDR programme during the financial year ended 31 December 2019.

(vii) Sanctions and/or Penalties Imposed

There were no sanctions and/or penalties imposed by the relevant regulatory bodies on the Company and its subsidiaries, Directors or Management during the financial year ended 31 December 2019.

(viii) Profit Guarantee

No profit guarantee was provided by the Company and its subsidiaries during the financial year ended 31 December 2019.

(ix) Status of Utilisation of Proceeds raised from Corporate Proposal

For the financial year ended 31 December 2019, there were no proceeds raised by the Company from any corporate proposals.

(x) Material Contracts

There were no material contracts of the Group, involving Directors’ interest and major shareholders’ interest, entered into during the financial year or still subsisting as at the end of the financial year ended 31 December 2019.

(xi) Revaluation Policy

The Group did not adopt any revaluation policies on landed properties for the financial year ended 31 December 2019.

OTHER DISCLOSURES (CONT’D)


Issued Share Capital : RM128,896,000

Total number of Issued Shares : 257,792,000

Class of Share : Ordinary Shares

Voting Rights : 1 vote per share

Analysis of Holdings

Size of Holdings No. of Holders Total Holdings % Less than 100 shares 68 3,178 0.00 100 – 1,000 shares 374 254,135 0.10 1,001 – 10,000 shares 1,498 7,759,779 3.01 10,001 – 100,000 shares 605 16,783,228 6.51 100,001 to less than 5% of issued shares 76 58,092,960 22.54 5% and above of issued shares 3 174,898,720 67.84 -------------- --------------------------- -------------- Total 2,624 257,792,000 100.00 ========= ========= ========= =========

List of Substantial Shareholders

Names Direct Interest % Indirect Interest %

1. KHO KAK BENG HOLDING COMPANY SDN BHD 110,769,520 42.97 - - 2. CAHYA MATA SARAWAK BERHAD 51,680,000 20.05 - - 3. LAMAN SATRIA SDN BHD 14,400,000 5.59 - - 4. CHAI WOON CHEW 435,720 0.17 14,400,000# 5.59 5. DATO KHO KAK BENG 4,742,480 1.84 110,769,520* 42.97 6. KHO POK TONG 734,600 0.28 110,769,520* 42.97 7. KHO POH LIN 608,500 0.24 110,769,520* 42.97 8. DATIN LIEW MOI FAH 296,000 0.11 110,769,520* 42.97 9. KHO POH JOO 178,980 0.07 110,769,520* 42.97

# Deemed interested by virtue of his interest in Laman Satria Sdn Bhd * Deemed interested by virtue of his/her substantial interest in Kho Kak Beng Holding Company Sdn Bhd

Directors’ Interest

Names Direct Interest % Indirect Interest %

1. DATO KHO KAK BENG 4,742,480 1.84 111,244,500* 43.152. KHO POK TONG 734,600 0.28 110,769,520+ 42.973. KHO POH LIN 608,500 0.24 110,769,520+ 42.974. CHAI WOON CHEW 435,720 0.17 14,400,000¥ 5.595. DATIN MARY SA’DIAH BINTI ZAINUDDIN - - - -6. SYED HIZAM ALSAGOFF - - - -7. DR ARJUNAN SUBRAMANIAM - - - -8. LAU NAI PEK - - - -9. YONG VOON KAR - - - -

* Deemed interested by virtue of his substantial interest in Kho Kak Beng Holding Company Sdn Bhd and the interest of his spouse and child in the Company pursuant to Section 8 and Section 59(11)(c) of the Companies Act 2016 respectively

+ Deemed interested by virtue of his/her substantial interest in Kho Kak Beng Holding Company Sdn Bhd¥ Deemed interested by virtue of his interest in Laman Satria Sdn Bhd

ANALYSIS OF SHAREHOLDINGS AS AT 22 APRIL 2020

129 A N N U A L R E P O R T 2 0 1 9

ANALYSIS OF SHAREHOLDINGS AS AT 22 APRIL 2020 (CONT’D)

Thirty Largest Shareholders

Names Holdings No. %

1. KHO KAK BENG HOLDING COMPANY SDN BHD 108,818,720 42.21 2. CAHYA MATA SARAWAK BERHAD 51,680,000 20.05 3. LAMAN SATRIA SDN BHD 14,400,000 5.59 4. PUI CHENG WUI 12,620,100 4.90 5. WONG CHONG SEN 5,000,000 1.94 6. DATO KHO KAK BENG 4,576,480 1.78 7. CITIGROUP NOMINEES (TEMPATAN) SDN BHD GREAT EASTERN LIFE ASSURANCE (MALAYSIA) BERHAD (LGF) 3,938,300 1.53 8. CITIGROUP NOMINEES (TEMPATAN) SDN BHD GREAT EASTERN LIFE ASSURANCE (MALAYSIA) BERHAD (LBF) 3,574,700 1.39 9. PUI BOON HEAN 2,711,300 1.05

10. TAN HEONG MING 2,404,000 0.93 11. KHO KAK BENG HOLDING COMPANY SDN BHD 1,950,800 0.76

12. CITIGROUP NOMINEES (TEMPATAN) SDN BHD EMPLOYEES PROVIDENT FUND BOARD (PHEIM) 1,021,300 0.40

13. CITIGROUP NOMINEES (ASING) SDN BHD UBS AG 947,600 0.37

14. ARTHUR WON G FUI ONN 900,000 0.35

15. CITIGROUP NOMINEES (TMPATAN) SDN BHD GREAT EASTERN TAKAFUL BERHAD (MEKAR) 825,100 0.32

16. HLIB NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES ACCOUNT FOR CHAN YEU WAI 824,800 0.32

17. YONG AI TING 756,000 0.29

18. HSBC NOMINEES (TEMPATAN) SDN BHD HSBC (M) TRUSTEE BHD FOR MANULIFE INVESTMENT PROGRESS FUND (4082) 735,800 0.29

19. KHO POK TONG 710,600 0.28

20. KHO POH LIN 608,500 0.24

21. LAW SOOK TENG 526,000 0.20

22. TAN SING MEE 500,000 0.19

23. TAN JIN KOK 463,000 0.18 24. ALLIANCEGROUP NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES ACCOUNT FOR YEONG YOK HOONG (7003189) 460,000 0.18


Names Holdings No. % 25. LIM LI HUI 446,900 0.17

26. PUI BOON KENG 430,200 0.17

27. HLB NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES ACCOUNT FOR GAN WAH LOON 418,400 0.16

28. LIM JOO YOKE 415,200 0.16

29. RHB NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES ACCOUNT FOR LEW TEK KONG 400,000 0.16

30. HSBC NOMINEES (TEMPATAN) SDN BHD HSBC (M) TRUSTEE BHD FOR MANULIFE INVESTMENT AL-FAID (4389) 390,800 0.15

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ANALYSIS OF SHAREHOLDINGS AS AT 22 APRIL 2020 (CONT’D)

131 A N N U A L R E P O R T 2 0 1 9

LIST OF PROPERTIES AS AT 31 DECEMBER 2019

Location Land Area Tenure DescriptionAge of

BuildingNet Book

Value(RM’000)

Date of Revaluation/ Acquisition *

KKB ENGINEERING BERHADReg. No.: 197601000528 (26495-D)Lot 777, Block 5Muara Tebas Land DistrictKuching, Sarawak

68.2 Acres Leasehold Expiring in

2058

- Land - Office & Factory Building

21 years 43,856 15.04.2008*

KKB INDUSTRIES (SABAH) SDN BHD Reg. No.: 200401036627 (675138-T)No. 11-13, Jalan 1G KKIP SelatanLots 13, 14, & 15 (IZ 4)Kota Kinabalu Industrial ParkKota Kinabalu, Sabah


2098

- Land- Office & Factory

Building

14 years 11 months

11,014 29.01.2005*

KKB ENGINEERING BERHADReg. No.: 197601000528 (26495-D)Lot 2045, Section 66, Jalan KilangBintawa Industrial EstateKuching, Sarawak


2044

- Land - Factory Building

26 years 7,487 31.12.1999

HARUM BIDANG SDN BHDReg. No.: 199601035034 (407387-U)Lot 1382, Block 7Muara Tebas Land DistrictKuching, Sarawak


2060

- Land - Office & Factory

Building

19 ½ years 3,195 31.12.1999



2034


Building

25 years 1,893 31.12.1999



2043


Building

34 years 1,497 31.12.1999

HB PIPES SDN BHDReg. No.: 197901003653 (48210-A)Lot 893, Block 7Muara Tebas Land DistrictKuching, Sarawak


2053

- Land - 1,499 17.01.2003*



2036


23 years 1,013 31.12.1999

KKB UNIVERSAL ROOFING (SARAWAK) SDN BHDReg. No.: 197801005879 (43031-T)Lot 1382, Section 66, Jalan KilangBintawa Industrial EstateKuching, Sarawak


2040


39 years 1,045 31.12.1999

OPTIMA LINE ENGINEERING SDN BHDReg. No.: 199701024514 (440012-H)Lot 1111, Block 7Muara Tebas Land DistrictKuching, Sarawak


2058


Building

19 years 1,041 31.12.1999


Location Land Area Tenure DescriptionAge of

BuildingNet Book

Value(RM’000)

Date of Revaluation/ Acquisition *

KKB ENGINEERING BERHADReg. No.: 197601000528 (26495-D)701, Block AKelana Business Centre97, Jalan SS7/2Petaling Jaya, Selangor


2092

- Office Building 24 years 299 31.12.1999

KKB ENGINEERING BERHADReg. No.: 197601000528 (26495-D)Lot 1455, Block 7Parcel No. B-1-9A & 9BB-2-9A & 9B, B-3-9A & 9BMuara Tebas Land DistrictKuching, Sarawak


2059

- Staff Quarters 18 years 241 2.10.2000*

KKB INDUSTRIES (SABAH) SDN BHD Reg. No.: 200401036627 (675138-T)Lot No. B202-02-03 (2-1-3)Ground Floor, Block 202Seri Maju ApartmentJalan SepanggarKuala MenggatalKota Kinabalu, Sabah

0.014 Acres Parent Title Expiring in

2081

- Staff Quarters 9 years 9 months

59 12.04.2010*

KKB INDUSTRIES (SABAH) SDN BHD Reg. No.: 200401036627 (675138-T)Lot No. B201-05-19Third Floor, Block B201Seri Maju ApartmentJalan SepanggarKuala MenggatalKota Kinabalu, Sabah

0.014 Acres Parent Title Expiring in

2081

- Staff Quarters 9 years9 months

56 12.04.2010*

LIST OF PROPERTIES AS AT 31 DECEMBER 2019 (CONT’D)

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