Karex Annual Report, 2014 476v6

KAREX BERHAD (1018579-U)

www.karex.com.my

Karex_AR14_Cover.indd 1

ANNUAL REPORT 2014

KAREX BERHAD (1018579-U) PTD 7906 & 7907, Taman Pontian Jaya Batu 34, Jalan Johor 82000 Pontian Johor, Malaysia Tel: +607 687 8833 Fax: +607 686 2657

MAKING OUR MARK ANNUAL REPORT 2014

KAREX BERHAD (1018579-U)

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WHAT’S

I

RATIONALE Karex Berhad is making its mark across the globe with high quality and innovative products. From humble beginnings as a family business, Karex has grown from strength to strength and today is the largest condom manufacturer in the world. We produce 4 billion pieces of condoms per year and supply our condoms to regions across Asia, Africa, America and Europe. Our products are made to stringent standards and continue to meet the changing needs of consumers today.

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002 Corporate Information 004 Financial Highlights 008 Chairman’s Statement 014 CEO’s Statement 024 Board of Directors 026 Profile of Board of Directors 034 CEO’s Profile 036 Statement on Corporate Governance 042 Additional Compliance Information

008 Chairman’s Statement

014 CEO’s Statement

INSIDE 044 Audit Committee Report 050 Statement on Risk Management and Internal Control 052 Financial Statements 109 List of Properties 110 Analysis of Shareholdings 112 Thirty Largest Shareholders 113 Notice of Annual General Meeting

Form of Proxy

Go online to our website at:

www. KAREX. com.my

026 Profile of Board of Directors

052 Financial Statements

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002

KAREX Berhad

Annual Report 2014

CORPORATE BOARD OF DIRECTORS

AUDIT COMMITTEE

Tan Sri Dato’ Seri Utama Arshad bin Ayub Chairman/Independent Non-Executive Director

Wong Yien Kim Chairman Independent Non-Executive Director

Dato’ Dr. Ong Eng Long @ Ong Siew Chuan Senior Independent Non-Executive Director Goh Siang Senior Executive Director Goh Leng Kian Executive Director Goh Yen Yen Executive Director

Tan Sri Dato’ Seri Utama Arshad bin Ayub Member Independent Non-Executive Director Dato’ Dr. Ong Eng Long @ Ong Siew Chuan Member Senior Independent Non-Executive Director Law Ngee Song Member Independent Non-Executive Director

Lam Jiuan Jiuan Non-Independent Non-Executive Director Wong Yien Kim Independent Non-Executive Director Law Ngee Song Independent Non-Executive Director

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Making Our Mark

INFORMATION REMUNERATION COMMITTEE

MANAGEMENT OFFICE

Tan Sri Dato’ Seri Utama Arshad bin Ayub Chairman Independent Non-Executive Director

PTD 7906 & 7907, Taman Pontian Jaya Batu 34, Jalan Johor 82000 Pontian Johor Malaysia Tel : +607-687 8833 Fax : +607-686 2657 Email : [email protected]

Law Ngee Song Member Independent Non-Executive Director Goh Yen Yen Member Executive Director NOMINATION COMMITTEE Law Ngee Song Chairman Independent Non-Executive Director Wong Yien Kim Member Independent Non-Executive Director Lam Jiuan Jiuan Member Non-Independent Non-Executive Director COMPANY SECRETARIES Lim Lee Kuan (MAICSA 7017753) Anna Lee Ai Leng (LS 0009729) ED OFFICE 10th Floor, Menara Hap Seng No. 1 & 3 Jalan P. Ramlee 50250 Kuala Lumpur, Malaysia Tel : +603-2382 4288 Fax : +603-2382 4170

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SHARE REGISTRAR Symphony Share Registrars Sdn. Bhd. (378993-D) Level 6, Symphony House Pusat Dagangan Dana 1 Jalan PJU 1A/46 47301 Petaling Jaya Selangor Darul Ehsan, Malaysia Tel : +603-7841 8000 Fax : +603-7841 8151/8152 AUDITORS Messrs. KPMG [AF 0758] Chartered ants Level 14, Menara Ansar, 65, Jalan Trus, 80000 Johor Bahru Johor, Malaysia Tel : +607-224 2870 Fax : +607-224 8055 BANKERS Bangkok Bank Public Company Limited Hong Leong Bank Berhad HSBC Bank Malaysia Berhad RHB Bank Berhad STOCK EXCHANGE LISTING Main Market of Bursa Malaysia Securities Berhad Stock Name : KAREX Stock Code : 5247

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004

KAREX Berhad

Annual Report 2014

FINANCIAL HIGHLIGHTS Financial year ended 30 June 2012 Financial Performance (RM’000) (i) Revenue (ii) Profit before tax (iii) Profit attributable to Owners of the Company

(a)

2013

(a)

2014

188,751 14,530 12,016

231,389 36,144 29,028

285,332 54,428 45,168

163,947 79,094 117,457

223,406 108,397 146,678

289,864 223,332 203,549

91,569 57,375 79,094

99,010 57,375 108,397

51,664 101,250 223,332

3.49 0.23

8.43 0.31

11.77 0.55

(b)

Financial Position (RM’000) Assets (i) Total tangible assets (ii) Net assets (iii) Current assets Liabilities and Shareholders’ Funds (RM’000) (i) Current liabilities (ii) Paid-up share capital (iii) Shareholders’ funds Per Share (i) Basic earning (sen)* (ii) Net assets (RM)** * Based on weighted average number of shares issued (‘000) ** Based on number of shares issued (‘000) Financial Ratios (i) Return on total tangible assets(%) (ii) Return on shareholders’ funds (%) (iii) Current ratio (times) (iv) Gearing ratio (times) (v) Gearing ratio net of cash (times)

(a)

344,250 344,250

7% 15% 1.28 0.46 0.35

(c) (c)

344,250 344,250

(c) (c)

383,696 405,000

13% 27% 1.48 0.47 0.09

16% 20% 3.94 0.10 N/A

(d)

(e)

The figures as stated above for the financial years ended 30 June 2012 to 2013 are consistent with the proforma consolidated financial information as disclosed in our Prospectus dated 11 October 2013. The proforma consolidation financial information have been prepared based on the assumption that the acquisition of subsidiaries have been in existence since the financial year 2012 and before the completion of Initial Public Offerings and Bonus Issue (as detailed in note 24 of the audited financial statements). The ing principles and bases applied are consistent with those adopted by Karex Group for the financial year ended 30 June 2014.

(b) The figures for financial year 2014 as stated above are based on a complete year’s basis, whereas the audited financial statements reflect the financial results from the effective date of acquisition i.e., 23 September 2013 (refer page 063, Statement of Profit or Loss). (c) Restated to reflect the retrospective adjustments arising from the bonus issue completed in the financial year ended 30 June 2014 in accordance with “MFRS 133, Earnings per Share” (d)

After the completion of Acquisitions of subsidiaries, Initial Public Offerings and Bonus Issue (as detailed in note 24 of the audited financial statements).

(e) No disclosure of gearing ratio net of cash (times) as the Group is in a net positive cash flow position as at 30 June 2014.

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Making Our Mark

Revenue (RM’000)

300,000

285,332

Profit before tax (RM’000)

60,000

54,428

231,389

200,000

40,000

188,751

100,000

0

20,000

2012

2013

2014

0

Profit attributable to Owners of the Company (RM’000)

50,000

45,168

36,144

14,530

2012

2013

2014

Basic earning per share (sen)

15.00 11.77

40,000 10.00

29,028

30,000 20,000

5.00

12,016

8.43

3.49

10,000 0

2012

2013

2014

0

2012

2013

Net assets per share (RM)

Net assets (RM’000)

0.60

300,000

2014

0.55

223,332

0.40

200,000

0.23

108,397

100,000

0

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0.20

79,094

2012

0.31

2013

2014

0

2012

2013

2014

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DRIVING

INNOVATION We design and develop our primary manufacturing machines in-house, and this allows us to constantly customise and produce new products in accordance with the changing needs of consumers. This in turn gives us a competitive edge in the market.

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008

KAREX Berhad

Annual Report 2014

I am delighted and honored to welcome you as a shareholder in Karex and to present to you the inaugural annual report following listing of Karex.

Tan Sri Dato’ Seri Utama Arshad bin Ayub Chairman/Independent Non-Executive Director

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Making Our Mark

CHAIRMAN’S

STATEMENT

Dear va lued sha reholde Karex B rs, e r h a d ( “Karex” Main Ma r k e t o f Bursa M) was listed on Berhad th public o on 6 November alaysia Securiti e ordinaryffering involved 2013. The initia es l 40,500,0 shares which c 67,500,000 sale of 2 00 new shares omprises of demand 7,000,000 exist and an offer for over sub for the initial puing shares. Tota listing ex scribed by 14.2 blic offering wa l million a ercise raised c times and the s lo t RM1.85 per sharse to RM75 e.

RM75 Million

The listing exercise raised

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KAREX Berhad

Annual Report 2014

Chairman’s Statement FINANCIAL PERFORMANCE Karex recorded a stellar financial performance for the financial year ended (“FYE”) 2014, ing a strong double digit growth for both top and bottom lines. Our company reported a revenue of RM285.3 million, representing a 23.3% growth from the last financial year. The increase in revenue was largely attributed to the higher condoms sales achieved as a result of new capacity expansion. Karex bottom line margin improved remarkably with profit after tax growing by 55.9% to RM45.2 million from RM29.0 million in the preceding year. This was due to the increase

in sales of better margin products, lower effective tax rate, favourable latex prices as well as strengthening of US Dollar against Ringgit Malaysia. Our company continues to maintain a healthy cash and cash equivalents of RM85.6 million as a result of the proceeds raised from IPO as well as good cash flow from operations. Gearing ratio improved from 0.47 times in the previous year to 0.10 times in the current year. As at 30 June 2014, Karex is in a net cash position.

Cash and cash equivalents of

RM85.6 Million

as a result of the proceeds raised from IPO as well as good cash flow from operations.

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Making Our Mark

CORPORATE DEVELOPMENTS

DIVIDEND

During the FYE 2014, the Company proposed a bonus issue to reward shareholders and to improve the marketability and tradability of its shares in the market. 135,000,000 bonus shares were issued on the basis of 1 bonus shares for every 2 Karex shares held. To date, our company’s total enlarged shares issued is 405,000,000 shares.

In conjunction with the dividend policy, the Board is pleased to propose a final single tier dividend of 2.5 sen per share for the financial year ended 2014 subject to the approval of shareholders at the forthcoming Second Annual General Meeting.

At the same time, Karex has also adopted a dividend policy where the Company will endeavour to distribute a minimum of 25% of its annual profit attributable to shareholders with effect from the FYE 30 June 2014.

PROSPECTS

Lastly, it is my pleasure to inform you that our company had on 3 October 2014 completed the acquisition of 55% stake in Global Protection Corp. (“GP”), owner of the fourth largest brand in the United States of America. This acquisition marks the beginning of an exciting journey for our company towards creating a world renowned brand.

Karex recorded a stellar financial performance for the FYE 2014, ing a strong double digit growth for both top and bottom lines.

The global demand for condoms is expected to rise in tandem with population growth and this will augur well for Karex as the world’s largest condom manufacturer. Moving forward, I believe that 2015 will be an exciting year for Karex.

APPRECIATION Our historical 2014 would not have been possible without the tireless and concerted effort of all our staff in the Group. I would also like to extend my heartfelt appreciation to our customers, business associates, government bodies, analysts and of the media for their steadfast . A special mention must be accorded to my fellow Board for their wisdom and insightfulness throughout the year. I would like to take this opportunity to thank GP for making this deal a success and at the same time welcome them on board. Finally to all our shareholders, thank you for placing your trust and faith in Karex.

Gearing ratio

0.10 times

Revenue growth

23.3%

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PO

PRO

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OWERING

ODUCTIVITY

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Starting off as a family business, today we have a workforce of 2,138 employees over 3 manufacturing facilities situated across Johor, Selangor and Hat Yai, Thailand. With the dedication of our committed employees, we have reached a milestone capacity to produce 4 billion pieces of condoms per annum, making us the largest condom manufacturer in the world and we’re not stopping there.

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014

KAREX Berhad

Annual Report 2014

Against this backdrop, Karex was successfully listed on 6 November 2013 and was one of the best IPO performer on Bursa Malaysia Securities Berhad in year 2013. Share price increased by an impressive 126% as at 31 December 2013. Our overall performance for FYE 2014 was remarkable, ing a profit after tax of RM45.2 million on the back of RM285.3 million revenue, with this I will begin my operational review.

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Making Our Mark

CEO’s STATEMENT

126%

Share price increased

ers, d l o h e r a Dear Sh umption s n o c m o of nd Global co trong on the back is s it remained lation growth and With . u rapid pop continue growing ess to ren expected tened public awa nning the heigh ms aids family pla lly a o that cond tects against Sexu e will , ther s n and pro o i t c e f ms. ted In Transmit demand for condo be huge

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016

KAREX Berhad

Annual Report 2014

CEO’s Statement Operational Review By 2018, global condom consumption is projected to be 38.2 billion pieces ing a compounded annual growth rate of 9%. The condom market is largely driven by emerging economies such as Asia, Middle East and Africa. The robust economic activity, young demographics and limited condoms s in these regions provides ample opportunities for growth. In addition, the two most populated countries in the world such as China and India are growing rapidly on the back of a steady economy. Latex price movement is on a downward trend this year, hovering around RM5.05/kg for FYE 2014. This represents a 15.6% decline as compared to an average of RM5.98/kg in FYE 2013. We foresee that latex prices will reduce further due to the rubber stockpile issue in Thailand, the main producer of rubber in the world.

Meanwhile, RM/USD exchange rate has also improved by 5.2% from an average of RM3.08/USD in FYE 2013 to an average of RM3.24/USD in FYE 2014. The lower latex price and strengthening of US Dollar (“USD”) against Ringgit Malaysia (“RM”) have benefited Karex in of margins improvement for the financial year under review. RM 3.5

RM/USD Price Movement for the FYE 2013

3.0

Latex Price Chart for the FYE 2013

6.2.13

5.2.13

4.2.13

3.2.13

2.2.13

1.2.13

12.2.12

11.2.12

10.2.12

9.2.12

7.2.12

800

8.2.12

2.5

Sen

RM 3.5

700

RM/USD Price Movement for the FYE 2014

600

500

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Jun-14

May-14

Apr-14

Mar-14

Feb-14

Jan-14

Dec-13

Nov-13

Oct-13

Sep-13

Aug-13

Jul-13

Jun-13

400

6.1.14

5.1.14

4.1.14

3.1.14

2.1.14

1.1.14

12.1.13

11.1.13

10.1.13

Latex Price Chart for the FYE 2014

9.1.13

3.0

600

8.1.13

Sen

7.1.13

Jun-13

May-13

Apr-13

Mar-13

Feb-13

Jan-13

Dec-12

Nov-12

Oct-12

Sep-12

Aug-12

Jul-12

Jun-12

500

During the financial year under review, we have expanded our manufacturing capacity from 3 billion pieces per annum to 4 billion pieces per annum via our Port Klang, Selangor and Hat Yai, Thailand factories. Port Klang being our smallest factory with a manufacturing capacity of 300 million pieces of condom now have 500 million additional capacity. We have purchased the plant next door for expansion purposes and currently our Port Klang factory stands on a 87,120 sq ft land. Over at Hat Yai factory, we have also expanded next door, installing 500 million additional capacity bringing current manufacturing capacity to 1.2 billion pieces per annum from 800 pieces previously on 135,141 sq ft of land.

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017

Making Our Mark

FINANCIAL REVIEW Karex posted a strong FYE 2014 performance, with revenue growing from RM231.4 million to RM285.3 million, increasing by 23.3% year-on-year, while the Group recorded a profit from operations of RM55.2 million in the current year, representing a 43.4% increase from RM38.5 million in the last financial year. The Group recorded an outstanding 3 years CAGR of 23% on its revenue, 80% on its profit from operations and 94% on its profit after tax.

Profit from Operations (RM million)

Revenue (RM million)

CAGR=23%

300

Profit After Tax (RM million)

CAGR=80%

60

200

40

30

100

20

10

0

2012

2013

0

2014

2012

2013

CAGR=94%

50

-10

2014

2012

2013

2014

Condoms remain as the dominant revenue contributor over the last 3 years, contributing towards more than 90% of revenue. For FYE 2014, condoms contributed 93% of revenue while contribution from catheters decline to 3%, revenue from probe cover and lubricating jelly stood at 4% as compared to the preceding year. Sales of probe cover remained stable, while sales of lubricating jelly has been on an upward trend as it serves as a complementary product to condoms.

5%

91%

2012

Catheters Probe Covers & Lubricating Jelly Condoms

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5%

4%

90%

3% 5%

2013

Catheters Probe Covers & Lubricating Jelly Condoms

93%

4%

2014

Catheters Probe Covers & Lubricating Jelly Condoms

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KAREX Berhad

Annual Report 2014

CEO’s Statement

In of geographical breakdown, Asia region continue to be the revenue driver contributing around 30% of the Group’s total revenue in the last 3 years. Revenue from Europe, America, Africa and Asia regions were 9%, 23%, 33% and 35% respectively for FYE 2014. The America region ed the highest growth rate among all the regions, growing by 52.8% from the previous financial year as a result of the new product launch in conjunction with the 2014 FIFA World Cup.

22%

2012

9%

14%

18%

16%

23%

2013

2014

35%

29% 31%

37%

33%

33%

Europe RM29.4m Asia RM55m Africa RM62.4m America RM41.9m

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Europe RM32.8m Asia RM85.2m Africa RM71.2m America RM42.2m

Europe RM25.4m Asia RM101.1m Africa RM94.3m America RM64.5m

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Making Our Mark

019

MOVING FORWARD Our capacity expansion plan, will continue throughout 2015 and 2016. By then, we expect our manufacturing capacity to reach 6 billion pieces per annum. To facilitate the expansion plan, we have acquired a piece of 18 acres land in Pontian, Johor to build a new factory to cater for the expansion plan. This new factory will embrace environmental and sustainability measures far beyond those required by state or national laws. When the new Pontian factory is completed, it will be our largest factory in the Group with a manufacturing capacity of 4 billion pieces per annum. Machines from the old Pontian factory will be moved to the new Pontian factory in stages to avoid disruption in our operations. The remaining 2 billion manufacturing capacity will be from Port Klang, Selangor and Hat Yai, Thailand factory respectively.

Karex is vying for green building certification by the US Green Building Council making it part of an elite group of 300 manufacturing facilities in Asia that are certified or waiting for certification through its rating tool, called Leadership in Energy and Environmental Design, or LEED. In addition, the factory is aspiring to attain certification under the Malaysian Green Building Index (“GBI”) for the industrial category. The extensive plans for conservation of resources will undoubtedly result in higher productivity and lower costs to the consumers. Reducing the environmental footprint of the new Pontian factory requires serious consideration by all design professionals engaged on the project from the planners, architects, environmentally sustainable design consultants, structural engineers, mechanical and electrical engineers as well as the process engineers. At the heart of each decision throughout the design process was the aim of reducing Karex’s dependence on natural resources.

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020

KAREX Berhad

Annual Report 2014

CEO’s Statement

The new factory will sport an ambitious one megawatt roof mounted solar array significantly reducing its reliance on power from the grid. ive cooling is enabled by sun-shading fins incorporated as key architectural elements to lower the heat load on the building fabric, thus reducing cooling / conditioning requirements while allowing penetration of daylight. Whereas the choice of the refrigerants used in cooling systems as well as the agents in firefighting systems is strictly governed by their low impact on the environment particularly ozone depletion and global warming potential. Consumption of potable water is significantly reduced by the collection of rainwater and condensate water from cooling process to be used for flushing toilets and cleaning purposes. No potable water is used for landscape irrigation which is taken care of by the reuse of water recycled from treated wastewater. Besides applying for the GBI and LEED certifications, Karex is also moving more of the Group’s operations towards automation especially in this new Pontian factory to improve overall efficiency. Additionally, this new factory is also poised to be the centre of innovation for Karex as the

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Group strives towards building better products and technology for their customers. We made announcement on August 2014 to acquire a 55% stake in Global Protection Corp. (“GP”). GP is the owner of the ONE brand condoms, the fourth largest brand in the US. With over 1,000 customers and access to more than 25,000 stores in the US and Canada, we believe that the acquisition of GP will serve as a complement to our existing own brand manufacturing products. In addition, the distribution agreement will grant Karex the exclusive rights to become the sole distributor of ONE brand condom as well as selected condom brands in certain countries in Asia (including China), North Africa and selected countries in the Middle East. I am now pleased to inform that Karex has successfully completed the acquisition on 3 October 2014. ONE is an established brand in US and Canada since 2004, and has been very well-received especially by the younger generation today due to its unique product innovations and creative marketing techniques. We are very excited to be given this opportunity to work along with GP, we believe that this is only the beginning towards a greater journey for us in Karex.

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Making Our Mark

021

CORPORATE SOCIAL RESPONSIBILITY (“CSR”) As a public listed company, Karex is aware of its commitment towards sound corporate governance and ability, responsible business management, adhere to the sensitivities of the community around and remain conscious to environmental needs and creating sustainable economic growth. Karex aims to contribute and provide real benefit to the community to make the community as a whole a better place to live and conduct business. During the year under review, we have ed benevolent and charitable causes on an ad hoc basis through monetary assistance and sponsorship to promote community activities. In addition, we have also made financial contributions in of several charitable events and will continue to promote CSR based on our corporate philosophy of ing our community. Besides that. Karex collaborated with the local charitable association to provide working opportunity to the less fortunate. We also believe in providing single parent families and low income group with love, motivation and hope to improve their lives through education. Through various education funds, Karex has committed to assist these target groups on an on-going basis.

APPRECIATION On behalf of the Board of directors, management and employees at Karex, I would like to extend my gratitude towards our valued customers and business associates for their continuous throughout these years. To our bankers, financiers, advisors, institutional and retail investors, we thank you for your confidence in Karex. We will commit ourselves to create sustainable shareholder value and solid financial performance. My heartfelt appreciation also goes to our Board of Directors for their guidance, advice and insight in steering the company forward.

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DELIVERING

QUANTITY Our products are designed for pleasure and total reliability. Our condoms, catheters and other medical products are manufactured and tested to the highest standards of quality to ensure maximum protection, safety and customer satisfaction.

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024

KAREX Berhad

Annual Report 2014

BOARD OF

DIRECTORS

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025

Making Our Mark

From left to right:

Dato’ Dr. Ong Eng Long @ Ong Siew Chuan, Lam Jiuan Jiuan, Goh Siang, Law Ngee Song, Goh Leng Kian, Tan Sri Dato’ Seri Utama Arshad bin Ayub, Wong Yien Kim, Goh Yen Yen

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026

KAREX Berhad

Annual Report 2014

Profile of Board of Directors Tan Sri Dato’ Seri Utama Arshad bin Ayub Malaysian, aged 86 Chairman/Independent Non-Executive Director Tan Sri Dato’ Seri Utama Arshad was appointed to the Board on 30 November 2012 as our Chairman and Independent Non-Executive Director. He is the Chairman of the Remuneration Committee and a member of the Audit Committee. Tan Sri Dato’ Seri Utama Arshad has a distinguished career in the Malaysian Civil Service, where he have held various senior positions in various Ministries in the Malaysian Government from 1958 till 1983, including serving as Deputy Governor of Bank Negara Malaysia (1975 – 1977), Deputy Director General in the Economic Planning Unit of the Prime Minister’s Department (1977 – 1978) and as Secretary General in the Ministry of Primary Industries (1978), Ministry of Agriculture (1979 – 1981) and Ministry of Land and Regional Development (1981 – 1983). He was also a Member of Justice Harun’s Salaries Commission for statutory bodies.

Presently, Tan Sri Dato’ Seri Utama Arshad sits on the Board of Directors of the various public listed companies namely Malayan Flour Mills Berhad, Tomypak Holdings Berhad, KULIM (M) Berhad, Top Glove Corporation Berhad and Bistari Johor Berhad. He is also a member of the Board of PFM Capital Sdn Bhd, Ladang MOCCIS Sdn Bhd, Zalaraz Sdn Bhd (a family company) and Nakagawa Rubber Industries Sdn Bhd. He has attended all the Board Meetings held during the financial year ended 30 June 2014. He does not have any family relationship with any Director and/or Major Shareholder of the Company and has no conflict of interest with the Company. He has not been convicted of any offences within the past 10 years other than traffic offences, if any. The details of his interest in the securities of the Company is set out in the Analysis of Shareholdings on page 111 of this Annual Report.

Tan Sri Dato’ Seri Utama Arshad is Chairman of Board Directors of University Malaya, Pro Chancellor of Universiti Teknologi MARA (UiTM), Chancellor of KPJ Healthcare University College (KPJUC) and Chancellor of INTI International University (INTI IU). He is a Governor of Tuanku Jaafar College, Chairman of PINTAR Foundation, Trustee of AmanahRaya Berhad Foundation, Chairman of Bistari Johor Berhad, Chairman of Lembaga Bersekutu Pemegang Amanah Pengajian Tinggi Islam Malaysia, Director of Lion Education Foundation, Patron of Arshad Ayub Foundation, Adviser of Yayasan Budiman (YBUiTM) and a member of Tun Razak Foundation, Pak Rashid Foundation, Lung Foundation of Malaysia and Advisor of Malaysian Malay Businessman And Industrialists Association (PERDASAMA). Tan Sri Dato’ Seri Utama Arshad graduated with a Diploma in Agriculture from College of Agriculture, Serdang, Selangor in 1954 and later obtained a Bachelor of Science (Honours) Economics and Statistics from University of Wales, Aberystwyth, United Kingdom in 1958. In 1964, he obtained a postgraduate Diploma in Business istration from Management Development Institute (now IMD), Lausanne, Switzerland.

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027

Making Our Mark

Goh Siang Malaysian, aged 64 Senior Executive Director Goh Siang was appointed to the Board on 30 November 2012 as our Senior Executive Director. He has over 35 years of experience in the rubber and latex industry. Goh Siang has gained substantial amount of experience since 1976 via his engagement with the General Rubber Goods Division in Dunlop Ltd, Manchester, UK, for two (2) years. After his stint in the UK, Goh Siang ed Ban Seng Hong Sdn Bhd as a General Manager in 1978, where he was in charge of overseeing the production of “Standard Malaysian Rubber” and marketing function of the company. Since 1990, Goh Siang has been with our Group. He is involved in the planning, organising and charting our Group’s direction in the manufacturing, sales and marketing of condoms and other medical disposable products worldwide; the marketing and logistic of international business transactions; and the planning and organising of latex condom and catheter manufacturing plants. Goh Siang graduated with a Bachelor of Science Degree with Honours in Chemical Engineering and a Master of Science in Polymer Technology from the Loughborough University of Technology, UK in 1975. He has attended all the Board Meetings held during the financial year ended 30 June 2014. Goh Leng Kian, Goh Yen Yen and Lam Jiuan Jiuan are his siblings. He has not been convicted of any offences within the past 10 years other than traffic offences, if any. The details of his interest in the securities of the Company is set out in the Analysis of Shareholdings on page 111 of this Annual Report.

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028

KAREX Berhad

Annual Report 2014

Profile of Board of Directors

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Making Our Mark

Goh Leng Kian Malaysian, aged 59 Executive Director, Technical and R&D Goh Leng Kian was appointed to the Board on 27 September 2012 as our Executive Director in Technical and R&D. His specialist experience in the condom and latex dipping industries spans over 20 years. Goh Leng Kian’s experience includes the establishment of the condom and catheter manufacturing plants, exposing him to a wide spectrum of roles including the supervision and management for the detail design, construction, installation, commissioning and testing of all related equipment, systems as well as the facilities of the projects. He also has over 30 years of experience in the rubber and latex industry. Goh Leng Kian’s career started in 1980 with Ban Seng Hong Sdn Bhd as a Mechanical Engineer, where he is in charge of the engineering unit for the company’s rubber processing facilities. He ed our Group in 1988. He is

Goh Yen Yen Malaysian, aged 71 Executive Director, istration Goh Yen Yen was appointed to the Board on 30 November 2012 as our Executive Director in istration with over 20 years of experience in handling human resource, finance and istration system, internal quality auditing and also hands-on experience in budget, control and overhead cost and capital expenditure. She is a member of the Remuneration Committee.

Karex_AR2014.indb 29

029

currently responsible for overseeing our Group’s manufacturing facilities, including production and technical matters. This includes the construction and development of our condom dipping lines, ET and foiling machines, R&D activities such as improving the dipping process, new automation to improve production efficiency and product quality and overall yield of the factories as well as sourcing of new packaging machinery. Goh Leng Kian graduated with a Bachelor of Science Degree with Honours in Mechanical Engineering from the Loughborough University of Technology, UK in 1979. He has attended all the Board Meetings held during the financial year ended 30 June 2014. Goh Siang, Goh Yen Yen and Lam Jiuan Jiuan are his siblings. He has not been convicted of any offences within the past 10 years other than traffic offences, if any. The details of his interest in the securities of the Company is set out in the Analysis of Shareholdings on page 111 of this Annual Report.

She graduated with a Bachelor Degree of Art in Geography with Honours from the University of Malaya in 1969. Prior to ing Karex in 1996, she was a teacher in various secondary schools in Johor for 26 years. She has attended all the Board Meetings held during the financial year ended 30 June 2014. Goh Siang, Goh Leng Kian and Lam Jiuan Jiuan are her siblings. She has not been convicted of any offences within the past 10 years other than traffic offences, if any. The details of her interest in the securities of the Company is set out in the Analysis of Shareholdings on page 111 of this Annual Report.

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030

KAREX Berhad

Annual Report 2014

Profile of Board of Directors Lam Jiuan Jiuan Australian, aged 62 Non-Independent Non-Executive Director Lam Jiuan Jiuan was appointed to the Board on 30 November 2012 as our Non-Independent Non-Executive Director. She is the Chairperson of the Risk Management Committee and a member of the Nomination Committee. She brings with her, a vast 35 years of experience from the financial and corporate management industry. Lam Jiuan Jiuan started out in 1976, where she ed the Commercial Banking Company of Sydney, as a management trainee, where she gained a wide spectrum of retail banking experience before moving on to Tricontinental Australia Limited in 1978. In 1979, she moved to Hong Kong and ed Toronto Dominion Bank in its Asia and Australasia Division as a Regional Credit Manager, responsible for credit approvals of banks/ corporate and monitoring country limits. In 1986, she ed the Canadian Imperial Bank of Commerce for three (3) years as the Corporate Marketing Manager in charge of major public listed companies and as well as corporate company s. In 1989, she ed Barclays Bank PLC and she is currently a senior banker in Barclays Bank PLC’s international private banking division. She graduated with a Bachelor of Economics majoring in ing and Commercial Laws from the University of Sydney, Australia in 1976. She is also a Fellow of Certified Public ant Australia as well as a member of the Hong Kong ed Financial Planners. She has attended all the Board Meetings held during the financial year ended 30 June 2014. Goh Siang, Goh Yen Yen and Goh Leng Kian are her siblings. She has not been convicted of any offences within the past 10 years other than traffic offences, if any. The details of her interest in the securities of the Company is set out in the Analysis of Shareholdings on page 111 of this Annual Report.

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031

Making Our Mark

Wong Yien Kim Malaysian, aged 60 Independent Non-Executive Director Wong Yien Kim was appointed to the Board on 30 November 2012 as our Independent Non-Executive Director. He is the Chairman of the Audit Committee and member of the Nomination Committee. He recently retired as Senior General Manager Finance of Kumpulan Perangsang Selangor Berhad. He was also the Vice President, Finance of Kumpulan Darul Ehsan Berhad from 1 January 2000 to 9 May 2011. In addition, between 2007 to 2013, he served as a member of the Board, the audit committee and the investment committee of Taliworks Corporation Berhad. Wong Yien Kim has been a member of the Malaysian Institute of ants and the Institute of Chartered ants England and Wales since 1982. He has attended all the Board Meetings held during the financial year ended 30 June 2014. He does not have any family relationship with any Director and/or Major Shareholder of the Company and has no conflict of interest with the Company. He has not been convicted of any offences within the past 10 years other than traffic offences, if any. The details of his interest in the securities of the Company is set out in the Analysis of Shareholdings on page 111 of this Annual Report.

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032

KAREX Berhad

Annual Report 2014

Profile of Board of Directors Law Ngee Song Malaysian, aged 48 Independent Non-Executive Director Law Ngee Song was appointed to the Board on 30 November 2012 as our Independent Non-Executive Director. He is the Chairman of the Nomination Committee, a member of the Audit Committee and Remuneration Committee. Law Ngee Song graduated from Australia National University with a Bachelor of Commerce degree and Bachelor of Laws degree in 1987 and 1989 respectively. He was itted as Advocate and Solicitor, High Court of Malaya in 1991. Law Ngee Song practiced as a legal assistant in Allen & Gledhill from 1991 to 1995 and was subsequently promoted to partner of the firm in 1995. He ed Nik, Saghir & Ismail in 1996 and has been a partner since. Law Ngee Song has been on the board of directors of Evergreen Fibreboard Berhad since 2007 and has been serving as the chairman of the board since 2010. He is also a non-executive independent director of AngloEastern Plantations PLC, a company listed on the London Stock Exchange. He has attended all the Board Meetings held during the financial year ended 30 June 2014. He does not have any family relationship with any Director and/or Major Shareholder of the Company and has no conflict of interest with the Company. He has not been convicted of any offences within the past 10 years other than traffic offences, if any. The details of his interest in the securities of the Company is set out in the Analysis of Shareholdings on page 111 of this Annual Report.

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Making Our Mark

033

Dato’ Dr. Ong Eng Long @ Ong Siew Chuan Malaysian, aged 70 Senior Independent Non-Executive Director Dato’ Dr. Ong Eng Long was appointed to the Board on 29 July 2013 as our Independent Non-Executive Director and also a member of the Audit Committee and Risk Management Committee. He graduated from University of Malaya with a Bachelor of Science (Hons) Degree in 1969 and obtained a PhD from Queen Mary College, London in 1973. He started off at the Rubber Research Institute of Malaysia (“RRIM”) as a Senior Research Officer in 1973. He has held different positions in RRIM up to 1998 when it merged with two (2) other organisations to form the Malaysian Rubber Board. He was the former Deputy Director General of the Malaysian Rubber Board from 1998 to May 2001 and the former Deputy CEO of Malaysian Rubber Export Promotion Council from 2001 to 2008. Dato’ Dr. Ong Eng Long has been the Technical Adviser for Kossan Rubber Industries Bhd since July 2008, the Chairman of ISO/TC 157 Non-Systemic Contraceptives and STI Barrier Prophylactics since 2007 and the Chairman of ISO/TC 45 SC4 Rubber Products Other Than Hoses since 2005. ISO/TC 157 is the technical committee that is responsible for, amongst others, the international condom standards while ISO/TC 45 is responsible for, also amongst others, international rubber glove standards. He has been involved with standards development for the past two (2) decades. Dato’ Dr. Ong has more than 150 publications in areas of rubber physics and latex dipped products. Dato’ Dr. Ong Eng Long is the President of both Institute of Chemistry, Malaysia and the Malaysian Rubber Product Manufacturers’ Association. He has attended all the Board Meetings held during the financial year ended 30 June 2014. He does not have any family relationship with any Director and/or Major Shareholder of the Company and has no conflict of interest with the Company. He has not been convicted of any offences within the past 10 years other than traffic offences, if any. The details of his interest in the securities of the Company is set out in the Analysis of Shareholdings on page 111 of this Annual Report.

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034

KAREX Berhad

Annual Report 2014

CEO’s PROFILE Goh Miah Kiat Malaysian, aged 36 Chief Executive Officer Goh Miah Kiat was appointed as our Chief Executive Officer on 29 July 2013. He became an integral part of our Group since 1999 and for over 10 years, he has been overseeing the marketing and logistics, international business dealings, brand development and coordination activities. He is a member of the Risk Management Committee. Goh Miah Kiat has been acting as a representative of Malaysia in TC 157 (the technical committee for the standardisation of non-systemic contraceptives and STI barrier prophylactics) since year 2000. Throughout his career, Goh Miah Kiat has actively contributed to the development and promotion of condoms in Malaysia. He played a part in the development of the following: 1. Global Condom Standard, ISO 4074; 2. MS ISO 16037:2010 in association with SIRIM, Malaysia; and 3. ISCR/TC 8 - Non-Systematic Contraceptives and STI Barrier Prophylactics that contributed the development of the Malaysian Condom Standard Goh Miah Kiat graduated with a Bachelor’s Degree in Economics and Management from the University of Sydney in 1999. He is currently a member of the Board of Trustee, member of the Marketing Committee and member of the Scholarship Committee in the Malaysian Rubber Export Promotional Council. He is the nephew of Goh Siang, Goh Yen Yen, Goh Leng Kian and Lam Jiuan Jiuan, the Board of the Company. The details of his interest in the securities of the Company is set out on page 112 of this Annual Report.

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035

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036

KAREX Berhad

Annual Report 2014

STATEMENT ON CORPORATE GOVERNANCE The Board of Directors (“the Board”) of Karex Berhad (“Karex” or “The Company”) has adopted the principles and the best practices prescribed in the Malaysian Code on Corporate Governance 2012 (“the Code”) in managing and directing the board matters and business of the Group for the financial year. It believes that good corporate governance would result in sustainable long term growth, safeguard the interest of all stakeholders, and enhance shareholders’ value and the Company’s financial performance. In drafting this Statement, the Board has conducted a review to benchmark its current practices and proceedings against the principles and recommendations in the Code. The result of this review is used as the basis for the Board in describing the application of the Principles and the extent of compliance with the Best Practices advocated in the Code.

The Board has set the management authority limit and retained its authority of approval on significant matters. The Board has also formalised its responsibilities and functions as well as the division of responsibilities and powers between the Board and Management and the Board Committees in its Board Charter. This Board Charter also provides a basis to the Board in assessing its own performance and that of its individual directors.

BOARD OF DIRECTORS It is the overall governance responsibilities of the Board to lead and control the Group. The Board plans the strategic direction, development and control of the Group and has embraced the responsibilities listed in the Code, which facilitate effective discharge of the Board’s stewardship and fiduciary responsibilities. The Executive Directors and Chief Executive Officer (“CEO”) are responsible for making and implementing operational and corporate decisions while the Non-Executive Directors balance the board ability by providing their independent views, advice and judgment in safeguarding the interests of the shareholders.

The Board s gender diversity and female participation in the board. Presently, the Board has two (2) female directors. The Board has noted the various board policies recommended in the Code and would define and adopt these policies in due course in order to further strengthen its governance functionality. The Board observes the Directors’ Code of Conduct established by the Companies Commission of Malaysia (“CCM”) which can be viewed from CCM’s website at www. ssm.com.my.

There is a clear division of responsibilities between the Chairman, Executive Directors and CEO to ensure that there is a balance of power and authority. The Chairman position is held by an Independent Non-Executive Director. The Chairman is responsible for the board effectiveness and conduct whilst the Executive Directors and CEO have the overall responsibilities over the Group’s operating units, organisational effectiveness and implementation of Board policies and decisions.

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037

Making Our Mark

BOARD COMPOSITION AND COMMITTEES The present composition of the Board includes sufficient number of independent, executive and non-executive directors as prescribed by the requirements of paragraph 15.02 of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad (“MMLR”) to facilitate effective and independent decision making and balance of power. Presently, the Board has eight (8) comprising three (3) Executive Directors, four (4) Independent Non-Executive Directors and one (1) Non-Independent Non-Executive Director. The Board’s composition complies with MMLR which require one-third of Board to be independent directors to reflect fairly the interests of the minority shareholders of the Company. The Board have diverse backgrounds and experiences in various fields. Collectively, they bring a broad range of skills, experience and knowledge relevant to directing and managing the Group’s businesses. Descriptions of the background of each director are presented on page 026 to 033 as well as published on the corporate website www. karex.com.my for shareholders’ reference. The Board has delegated specific responsibilities to the respective committees of the Board namely the Audit Committee, Nomination Committee and Remuneration Committee. In addition, subsequent to the current financial year, the Board has formed the Risk Management Committee to oversee and implement the risk management framework in the Group. of reference of the Risk Management Committee will be defined accordingly to empower this committee to carry out its functions effectively. The Board Committees deliberate and examine issues in accordance to their of reference and report to the Board on significant matters that require the Board’s attention and approval.

Audit Committee (“AC”) The AC comprises solely Independent Non-Executive Directors. The responsibilities, composition, of reference and activities of the Committee are outlined in this Annual Report under the section of Audit Committee Report.

Nomination Committee (“NC”) The NC is established and maintained to ensure that there are formal and transparent procedures for the appointment of new directors to the Board and for the performance appraisal

Karex_AR2014.indb 37

of directors. The current comprising majority of Independent Non-Executive Directors are as follows: Chairman : Law Ngee Song Member : Wong Yien Kim Member : Lam Jiuan Jiuan Functionally, the NC is responsible for reviewing and making recommendation of any appointments to the Board for approval based on the size of the Board, the mix of skills and experience and other qualities of the candidates. The NC assists the Board in reviewing the composition of the board annually and ensures that the current composition of the board functions competently. During the financial year, NC conducted a meeting on 14 November 2013. In this meeting, the NC: i. ii.

Reviewed and adopted the of reference of the Committee; and Reviewed and recommend to the Board for appointment of an additional member in the Committee.

The NC will ister and review the first annual performance and its assessment criteria for the Board, Board Committee and individual director in the coming financial year.

Remuneration Committee (“RC”) The RC is responsible for reviewing and recommending to the Board the remuneration policy and remuneration packages of Directors. The of RC are as follows: Chairman : Tan Sri Dato’ Seri Utama Arshad bin Ayub Member : Law Ngee Song Member : Goh Yen Yen The remuneration packages of the Company’s Executive and Non-Executive Directors are determined by the Board as a whole. The respective Directors shall abstain from participating in the decision making in respect of his or her remuneration. RC meeting is held at least once a year. During the financial year, one (1) RC meeting was held on 14 November 2013 to adopt its of reference and to review the directors’ fees and meeting allowance.

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038

KAREX Berhad

Annual Report 2014

Statement on Corporate Governance Re-election of Directors The Company’s Articles of Association stipulates that all Board who are appointed by the Board shall retire and be subject to election by shareholders at the immediate Annual General Meeting. The Company’s Articles of Association also provides that at least one-third (1/3) of the Directors shall retire by rotation at each Annual General Meeting and that all Directors shall retire once in every three (3) years. A retiring Director shall be eligible for re-election. Directors who are above seventy (70) years of age are required to offer themselves for re-appointment annually in accordance with Section 129(6) of the Companies Act, 1965.

THE COMPANY SECRETARY All Board have unrestricted access to the advice and services of the Company Secretary for the purposes of the Board’s affairs and the business. The appointment and removal of Company Secretary or Secretaries of the Board shall be the prerogative of the Board as a whole. The Company Secretary appointed should be suitably qualified and competent in order to the Board in carrying out its role and responsibilities. The Company Secretary is responsible for ensuring that Board procedures are followed, the applicable rules and regulations for the conduct of the affairs of the Board are complied with and all matters associated with the maintenance of the Board are performed effectively. In addition, the Company Secretary ensures minutes are duly entered into the books for all resolutions and proceedings of all meetings of the Board. These minutes of meetings record the decisions taken and the views of individual Board . Such minutes are signed by Chairman of the meeting at which the proceedings are held or by the Chairman of the next succeeding meeting.

SUPPLY OF INFORMATION The agenda for Board meetings and the relevant reports and information for the Board’s consideration are forwarded to all prior to the Board meetings. Management is invited to provide further information and clarification on issues raised by the Board during their deliberations and decision makings in the meetings.

Karex_AR2014.indb 38

The Board has unrestricted and timely access to all information necessary for the discharge of its responsibilities. All Directors also have access to the services and advice of management staff and other independent professionals, at the expense of the Group in the discharge of their duties.

BOARD INDEPENDENCE Independence is important for ensuring objectivity and fairness in board’s decision making. All Independent Directors of the Board comply with the criteria of ‘independent directors’ as prescribed in MMLR. The roles and responsibilities of the Chairman and Executive Directors are separated and the Chairman of the Board is an Independent Director. In accordance with the best practices in corporate governance, the Board has identified Dato’ Dr. Ong Eng Long @ Ong Siew Chuan, a member of the Audit Committee as the Senior Independent Non-Executive Director of the Board to whom concerns of shareholders and other stakeholder may be conveyed. Going forward, in order to uphold independence of Independent Directors, the Board has adopted the following policies:i.

Subject to Board justification and shareholders’ approval, tenure of Independent Directors should not exceed a cumulative term of nine (9) years; and

ii. Annual assessment of independence of its Independent Directors focusing on events that would affect the ability of Independent Directors to continue bringing independent and objective judgment to board deliberation and the regulatory definition of Independent Directors. An Independent Director may continue to serve the Board subject to re-designation of the Independent Director as a Non-Independent Director. In the event the Board intends to retain the Independent Director as an Independent Director after servicing a cumulative term of nine (9) years, the Board will provide justification for its decision and seek shareholders’ approval.

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039

Making Our Mark

BOARD COMMITMENT The underlying factors of Directors’ commitment to the Group are devotion of time and continuous improvement of knowledge and skill sets. The Board meets at least every quarter and on other occasions, as and when necessary, to inter-alia approve quarterly financial results, statutory financial statements, the Annual Report, business plans and budgets as well as to review the performance of the company and its operating subsidiaries, governance matters and other business development matters. Board papers are circulated to the Board prior to the Board meetings so as to provide the Directors with relevant and timely information to enable them to have proper deliberation on issues raised during Board meetings and to discharge their individual responsibilities with reasonable due care, skills and diligence. Individual of the Board are required to inform the Board before accepting the new appointment and to communicate the time he/she expects to spend of the new appointment. During the financial year, the Board met three (3) times and details of each director’s attendance are as follows:-

Directors

Number of meetings attended

Tan Sri Dato’ Seri Utama Arshad bin Ayub (Chairman, Independent Non-Executive Director)

3/3

Dato’ Dr. Ong Eng Long @ Ong Siew Chuan (Senior Independent Non-Executive Director) Goh Siang (Senior Executive Director) Goh Leng Kian (Executive Director) Goh Yen Yen (Executive Director) Lam Jiuan Jiuan (Non-Independent Non-Executive Director) Wong Yien Kim (Independent Non-Executive Director) Law Ngee Song (Independent Non-Executive Director)

3/3

During the financial year, the Directors have attended the following conferences and training programmes: Directors

Training/Seminars/Forum

Tan Sri Dato’ Seri Utama Arshad bin Ayub

• Nominating Committee Program organised by Bursa Malaysia

Dato’ Dr. Ong Eng Long @ Ong Siew Chuan

• Mandatory Accreditation • Programme Asian Latex Conference - Kochi, India Global Rubber Conference • Palembang, Indonesia 3rd National Rubber Economic Conference (NREC) 2013 - Kuala Lumpur.

Goh Siang

• Mandatory Accreditation Programme • G l o b a l R u b b e r C o n f e r e n c e , Palembang, Indonesia

Goh Leng Kian

• Mandatory Accreditation Programme • Awareness on Malaysian Medical Device Act 2012

Goh Yen Yen

• Mandatory Accreditation Programme • GST Seminar for LMW

Lam Jiuan Jiuan

• • • • • • • • •

Wong Yien Kim

• Managing Value and Accelerating Growth

Law Ngee Song

• Nominating Committee Program organised by Bursa Malaysia

3/3 3/3 3/3 3/3 3/3 3/3

The Directors recognise the needs to attend training to enable them to discharge their duties effectively. The training needs of each Director would be identified and proposed by the individual Directors or NC.

Barclays Asia Forum Understanding Balance Sheet Mandatory Accreditation Programme Multi Asset Class Funds at Barclays Barclays H1 Investment Roadshow  Withers Seminar- International Probate – When is a Will not a Will Withers – UK budget Cross Border Compliance Training Singapore • Cross Border Compliance Training China • Credit Workshop • Citizenship Lens training

All Directors have completed the Mandatory Accreditation Program as required by Bursa Malaysia Securities Berhad.

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040

KAREX Berhad

Annual Report 2014

Statement on Corporate Governance DIRECTORS’ REMUNERATION Executive Directors are remunerated based on the Group’s performance, market conditions and their responsibilities whilst the remuneration of the Non-Executive Directors is determined in accordance with their experience and level of responsibilities assumed in committees and the board. The aggregate remuneration of the Directors of the Company for the year ended 30 June 2014 is as follows:Executive Non-Executive Director Director (RM’000) (RM’000) Salaries, Bonus, EPF, Others Fees Other Emoluments Total

985

–

– 55

275 –

1,040

275

The number of Directors whose income falls within the following bands is set out as follows:

Remuneration Band 50,000 and below 50,000 to 100,000 200,000 to 300,000 400,000 to 500,000

Executive Directors

Non-Executive

– – 1 2

4 1 – –

As part of the Audit Committee review processes, the Audit Committee has obtained assurance from the External Auditors confirming that they are, and have been, independent throughout the conduct of the audit engagement in accordance with the of all relevant professional and regulatory requirements. Annually, the Audit Committee also reviews the appointment, performance and remuneration of the External Auditors before recommending them to the shareholders for re-appointment in the AGM. The Audit Committee would convene meeting with the External Auditors and Internal Auditors without the presence of the Executive Directors and employees of the Group as and when necessary.

RISK MANAGEMENT The Board acknowledges that a sound risk management framework is an integral part of good management practices. Risk is inherent in all business activities. The risk management objective of the Board is to ensure that there are structural means to identify, prioritise and manage the risks involved in all the Group’s activities and to balance between the cost of managing and treating risks, and the anticipated benefits that will be derived. Quarterly management meetings are called and used by the Executive Directors and CEO as a mean of communication and channel which facilitate whistleblowing apart from reviewing, monitoring and deciding on the business development, changes and actions to ensure businesses are under control, at these meetings.

FINANCIAL REPORTING The Board is responsible to ensure that the quarterly financial reporting and announcements of the Company presents a true and fair view and assessment of the Group’s financial position, performance and prospects. The Board ensures that the Group’s financial statements are drawn up in accordance with the provisions of the Companies Act, 1965 and applicable approved ing standards. The Board is assisted by the Audit Committee in reviewing and scrutinising the information in of the overall accuracy, adequacy and completeness of disclosure and ensuring the Group’s financial statements comply with applicable financial reporting standards.

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The Board has established an internal audit function which is currently outsourced to a professional firm. Functionally, the Internal Auditors report to the Audit Committee directly and they are responsible for conducting reviews and appraisals of the effectiveness of the governance, risk management and internal controls and processes within the Group. Further details of the Group’s state of risk management and internal control systems are reported in the Statement on Risk Management and Internal Control on pages 050 to 051.

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041

Making Our Mark

CORPORATE DISCLOSURE

SHAREHOLDERS’ RIGHT

Corporate disclosure and information are important for investors and shareholders. The Board is advised by the management, the Company Secretary and the External and Internal Auditors on the contents and timing of disclosure requirements of the MMLR on the financial results and various announcements. The management is invited to attend the Board and Audit Committee meetings and to provide explanations to the Board on the operations of the Group.

Transparency and ability are important in communication of the Group’s performance and major developments with the Company’s shareholders, stakeholders and investors. Accordingly, the Board ensures that there is timely release of quarterly financial results, circulars, Annual Reports, corporate announcement and press releases. In addition to the various announcements made during the period, information on the Company is available on the Company’s website at www.karex.com.my. The Board would also respond to meetings with institutional shareholders, analysts and of the press to convey information regarding the Group’s performance and strategic direction as and when requested.

The Group leverages on its corporate website to disseminate and add depth to its communication with the public. News alert feature in the website is available for public community. All ed Karex’s web s of this alert will be notified of the Group’s latest news. The board charter was formalised and published on its present corporate website.

SUSTAINABILITY Promoting sustainability is the corporate responsibilities of the Group. The Board requires its business units to promote appropriate environmentally friendly practices in the Group within business, industry and regulatory environment in which the Group’s businesses operate in. Towards this end, the Group is constructing the first largest green condom manufacturing facility in the world. Going forward, the Group will carry on more efforts to further increase its commitment to corporate social responsibility for its employees.

General meeting is an important avenue through which shareholders can exercise their rights. The Board would ensure suitability of venue and timing, effective publicity of general meeting event, the quality of the annual report as well as undertake other measures to encourage shareholders’ attendance and participation in the meetings. Shareholders are reminded that they have the right to demand a poll vote at general meetings. Also, poll voting is mandated for related party transactions that require specific shareholders’ approval.

COMPLIANCE STATEMENT The Board has taken steps to ensure that the Group has implemented as far as possible the Principles and Recommendations of the MCCG 2012 in all material aspects, save as disclosed therein. This statement is issued in accordance with a resolution of the Board dated 22 September 2014.

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042

KAREX Berhad

Annual Report 2014

ADDITIONAL COMPLIANCE INFORMATION The following information is provided in accordance with Paragraph 9.25 of the Main Market Listing Requirements (“MMLR”) of Bursa Malaysia Securities Berhad as set out in Appendix 9C for the financial year ended 30 June 2014 (“financial year”), unless otherwise stated: 1. Utilisation of Proceeds The gross proceeds raised from the Public Issue amounting to RM74.93 million. As at 30 September 2014, the status of the utilisation of the proceeds raised from the Public Issue are as follows:-

Purposes

Proposed utilisation RM’000

Actual utilisation RM’000

Deviations RM’000

Balance RM’000

Intended timeframe for utilisation

Research and Development Capital expenditure Working capital Repayment of bank borrowing Listing expenses

4,000 41,750 13,675

(1,209) (16,448) (3,192)

– – (728)(2)

2,791 25,302 9,755

Within 36 months Within 36 months Within 36 months

10,000 5,500

(10,000) (6,228)

– 728(2)

– –

Within 6 months Within 6 months

Total gross proceeds

74,925

(37,077)

–



(1)



(2)

37,848

The proposed utilisation of proceeds as disclosed above should be read in conjunction with the Prospectus of the Company dated 11 October 2013. Actual listing expenses incurred were more than the estimated listing expenses by approximately RM0.7 million mainly due to higher professional fee charges as well as other incidental costs incurred in connection to the listing exercise. In accordance to the Prospectus dated 11 October 2013, the excess of listing expenses shall be funded out of the portion allocated for working capital purposes.

2. Share Buy-Back The Company did not have a scheme to buy back its own shares during the financial year. 3. Options, Warrants or Convertible Securities The Company did not have options, warrants or convertible securities during the financial year. 4. Depository Receipt programme The Company did not sponsor any depository receipt programme during the financial year. 5. Sanctions and/or Penalties There were no public sanctions and/or penalties imposed on the Company or its subsidiaries, Directors or Management by the relevant regulatory bodies during the financial year.

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043

Making Our Mark

6. Non-Audit Fees The amount of non-audit fees paid to external auditors by the Group and the Company respectively for the financial year are as follows:Group/Company RM’000 Non-audit fees paid to KPMG Malaysia

455

Services rendered by KPMG are not prohibited by regulatory and other professional requirements, and are based on globally practiced guidelines on auditors’ independence. 7. Variation of Results There was no deviation of 10% or more between the results of the financial year ended 30 June 2014 as per the audited financial statements and the unaudited results previously announced. 8. Profit Guarantee The Company did not make any arrangement during the financial year which requires profit guarantee. 9. Material Contracts Involving Directors’ and Major Shareholders’ Interests There was no material contracts entered into by the Company and/or its subsidiaries involving Directors’ and Major Shareholders’ interests subsisting as at 30 June 2014. 10. Recurrent Related Party Transactions The recurrent related party transaction of revenue nature incurred by the Group for the financial year did not exceed the threshold prescribed under Paragraph 10.09(1) of the MMLR.

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044

KAREX Berhad

Annual Report 2014

AUDIT COMMITTEE REPORT

The Board of Directors of Karex Berhad (“the Board”) is pleased to present the Audit Committee Report for the financial year ended 30 June 2014.

The AC met three (3) times during the financial year ended 30 June 2014 and the details of their attendance are as follows: Name of Director

COMPOSITION AND MEETINGS As at the date of this Annual Report, the Audit Committee (“AC”) comprises four (4) Directors as follows: Chairman Wong Yien Kim – Independent Non-Executive Director Tan Sri Dato’ Seri Utama Arshad bin Ayub – Independent Non-Executive Director Dato’ Dr. Ong Eng Long @ Ong Siew Chuan – Senior Independent Non-Executive Director

Attendance

Wong Yien Kim – Chairman Independent Non-Executive Director

3/3

Tan Sri Dato’ Seri Utama Arshad bin Ayub – Member Independent Non-Executive Director

3/3

Dato’ Dr. Ong Eng Long @ Ong Siew Chuan – Member Senior Independent Non-Executive Director

2/2

Law Ngee Song – Member Independent Non-Executive Director

3/3

Law Ngee Song – Independent Non-Executive Director

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Karex_AR2014.indb 45

045

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046

KAREX Berhad

Annual Report 2014

Audit Committee Report The AC Chairman, Wong Yien Kim, is a fellow member of the Malaysian Institute of ants and the Institute of Chartered ants England and Wales. Accordingly, the Company complies with Paragraph 15.09(1)(c)(ii)(bb) of the Main Market Listing Requirements (MMLR).

2. Meetings

The Board assesses the performance of the AC and its through an annual Board Committee effectiveness evaluation and is satisfied that they are able to discharge their functions, duties and responsibilities in accordance with the of Reference (“TOR”) of the AC which are available on Karex’s website, thereby ing the Board in ensuring appropriate Corporate Governance (“CG”) standards within the Group.

The AC shall meet at least four (4) times in each financial year or more frequently as circumstances required with notice of issues to be discussed or shall record its conclusions in discharging its duties and responsibilities. The quorum for a meeting shall be no less than two (2) , provided that the majority of present shall be Independent Non-Executive Directors.



Upon request of any member of the Committee, the external auditors or internal auditors, the Chairman of the Committee shall convene a meeting of the Committee to consider matters which should be brought to the attention of the directors or shareholders.

Details of the of the AC are contained in the Profile of Directors as set out on pages 026 to 033 of this Annual Report.



The AC may invite any member from the Management, the head of finance and the representatives of the internal auditors and the external auditors to attend the meeting. The Committee should also meet with the external auditors without Executive Board present at least twice a year.



The Company Secretary is responsible for distributing the agenda of the meetings and relevant information to the AC well in advance of their meetings, and recording the proceedings of the AC meetings.



Minutes of each meeting shall be kept and distributed to each member of the AC.

SUMMARY OF OF REFERENCE 1. Composition



The of the AC shall be appointed by the Board and consists of at least three . All the Committee must be non-executive directors, with a majority of them being independent directors to fully comply with paragraph 15.09 of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad. All of the Audit Committee should be financially literate and at least one of the of the Committee must: a. be a member of the Malaysian Institute of ants; or b. have at least three (3) years working experience and • must have ed the examinations specified in Part 1 of the 1st Schedule of the ants Act, 1967; or • must be a member of the associates of ants specified in Part II of the 1st Schedule of the ants Act, 1967; and c. fulfill such other qualifications and/or experience as approved by Bursa Malaysia Securities Berhad.



In the event of any vacancy in the Audit Committee, the Company shall fill in the vacancy not later than three (3) months.

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3. Key Functions and Responsibilities

The key functions and responsibilities of the AC are as follows: a. Risk Management & Internal Control i.

Review the adequacy of and to provide independent assurance to the Board on the effectiveness of the Company’s risk management and risk assurance process.

ii.

Evaluate the quality and effectiveness of the Company’s Internal Control system and management information systems, including compliance with applicable laws, rules, corporate governance requirements and guidelines.

iii. Recommend to the Board the Director’s Statement on Risk Management and Internal Control and any changes to the said Statement.

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b. Financial Reporting i.

• Any changes in or implementation of ing policies and practices; • Significant or material adjustments with financial impact arising from the audit; • Significant unusual events or exceptional activities; • F i n a n c i a l d e c i s i o n - m a k i n g w i t h t h e presumptions of significant judgments; • The going concern assumptions; and • The appropriateness of management’s selection of ing policies and disclosures in compliance with approved ing standards, stock exchange and other regulatory requirements. ii.

ii.

Recommend the appointment or re-appointment of the external auditors and audit fee to your Board, after reviewing the suitability, resources, competency and independence of external auditors and the ing firm. Make appropriate recommendations to your Board on matters of resignation, dismissal or cessation of office of the external auditors and secure the reason of such resignation, dismissal or cessation of office.

i.

Review the adequacy of the scope, functions, competency, resources and authority of the internal audit function in carrying out its work.

ii.

Review the risk-based internal audit plans and programmes.

iii. Ensure co-ordination between the internal and external auditors. iv. Review the major findings reported by internal audit and follow up on management’s implementation of the recommended actions. v.

Annually assess performance of services provided by the internal audit function.

e. Significant Related Party Transactions

Review and recommend to the Board matters regarding Significant Related Party Transactions including disclosures, values of mandates and situations involving potential conflict of interest that may arise within the Company, including any transaction, procedure or course of conduct that raises questions on management integrity.

f.

Other Matters

Propose best practices on disclosure in financial results and annual reports of the Company in line with the principles set out in the Malaysian Code of Corporate Governance, other applicable laws, rules, directives and guidelines.

c. External Audit i.

d. Internal Audit

Review the quarterly results and annual financial statements before recommendation to the Board for approval for release to Bursa Malaysia Securities Berhad, focusing particularly on:

i.

To report to Bursa Malaysia Securities Berhad, if the AC views that a matter resulting in a breach of the MMLR reported by the AC to the Board has not been satisfactorily resolved by the Board.

ii.

To highlight such matters as the AC considers appropriate or as defined by the Board from time to time.

iii. To announce to Bursa Malaysia Securities Berhad, if there is any related party transactions which exceed the Shareholder Mandate and provide full reason and detailed explanations.

iii. Review and discuss the nature and scope of the external audit strategy and plan for the year. iv. Review and discuss issues arising from external auditors’ interim and final letters of recommendation to management, including management responses and the external auditor’s evaluation of the system of internal control and any other matters the external auditor may wish to discuss (in the absence of Management, if required).

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048

KAREX Berhad

Annual Report 2014

Audit Committee Report 4. Rights The AC is accorded with the following rights in the performance of its duties and responsibilities:i.

has the explicit authority to investigate any matter within its of reference;

ii.

has full and unrestricted access to any information and resources which are required to perform its duties;

iii. be able to obtain, if it considers necessary, external independent professional advice; iv. be able to invite outsiders with relevant experience and expertise to attend meeting if necessary; v. be able to convene meetings with the external auditors, internal auditors or both, excluding the attendance of other Directors and employees, whenever deemed necessary; vi. be given full report upon completion of the internal audit reviews to be taken from time to time; vii. has direct communication channels with the external auditors and internal auditors; viii. be able to make prompt reports to Bursa Malaysia Securities Berhad or such other names(s) as may be adopted by Bursa Malaysia Securities Berhad, when the AC is of the view that a matter reported by it to the Board of Directors has not been satisfactorily resolved resulting in a breach of the MMLR; and ix. be authorised to resolutions in writing and by circular provided always that such resolution(s) shall be executed by all . Any such resolution(s) may consist of several documents in like form, each signed by one or more of the AC.

SUMMARY OF ACTIVITIES OF THE AC In accordance with the of Reference of the AC, the following activities were undertaken by the AC during the financial year ended 30 June 2014, including the deliberation on and review of: i.

the unaudited quarterly financial statements of the Group to ensure adherence to the regulatory reporting requirements and appropriate resolution prior to submission to the Board of Directors for approval.

ii. the audit plan of the external auditors in of their scope of audit prior to their commencement of their annual audit. iii. the related party transactions to ensure that they were not detrimental to the interests of the minority shareholders. iv. t h e i n t e r n a l a u d i t r e p o r t w h i c h o u t l i n e d t h e recommendations towards correcting areas of weaknesses and ensured that there were management action plans established for the implementation of the internal auditors’ recommendations. v. the adequacy and effectiveness of the Group’s internal control system and report to the Board. vi. the adequacy of the scope, functions, competency and resources of the internal audit function, and the internal audit programme and results of the internal audit process to ensure the appropriate actions are taken of the recommendations of the internal audit function. vii. the necessary trainings attended by of the AC, which are as set out on page 039 of this Annual Report.

5. Review of AC The Board shall review the term of office and performance of the AC and each of its at least once every three (3) years to determine whether the AC and its have carried out their duties in accordance with their of reference.

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049

Subsequent to financial year ended 30 June 2014, the AC carried out the following activities, including the deliberation on and review of: i.

the annual audited financial statements of the Company and of the Group prior to the submission to the Board of Directors for consideration and approval.

ii.

the AC report, Statement of Corporate Governance and Statement of Risk Management and Internal Control before recommending to the Board of Directors for their approval, for inclusion in the Annual Report.

iii. the audit reports from the external auditors in relation to audit and ing matters arising from the statutory audit; matters arising from the audit of the Group in meetings with the external auditors without the presence of the executive Board and management. iv. the re-appointment of external auditors and their audit fees, after taking into consideration the independence and objectivity of the external auditors and the cost effectiveness of their audit, before the recommendation to the Board of Directors for approval.

INTERNAL AUDIT FUNCTION The Group’s internal audit function is outsourced to an independent professional firm named IA Essential Sdn. Bhd. to assist the AC in discharging its duties and responsibilities in respect of reviewing the adequacy and effectiveness of the Group’s risk management and internal control systems. The internal audit function is independent and not related to the Group’s External Auditors. The Internal Auditors evaluates significant processes and assess their effectiveness. During the financial year ended 30 June 2014, the areas audited are in accordance with the internal audit plan approved by AC. Internal audit reports were issued to the AC and tabled in the AC meetings on quarterly basis. The reports were also issued to the respective operations management, incorporating audit recommendations and management’s responses with regards to any audit findings on the weaknesses in the systems and controls of the operations. The Internal Auditors also follows up with management on the implementation of the agreed audit recommendations. The total costs incurred for internal audit function of the Group for the financial year ended 30 June 2014 was amounted to RM45,500. The report is made in accordance with the resolution of the Board of Directors dated 22 September 2014.

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050

KAREX Berhad

Annual Report 2014

STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL The Board of Directors (“the Board”) is pleased to present its Statement on Risk Management and Internal Control for the financial year ended 30 June 2014. This Statement is prepared pursuant to paragraph 15.26(b) of the Main Market Listing Requirements and is guided by the “Statement on Risk Management and Internal Control – Guidelines for Directors of Listed Issuers” (“the Guideline”) endorsed by Bursa Malaysia Securities Berhad.

BOARD’S RESPONSIBILITY The Board acknowledges their responsibility to maintain a sound and effective risk management framework and internal control system in order to safeguard the shareholders’ investment and Group’s assets. The Board also understands the principal risks of the business that the Group is engaged in and accepts that business decisions require the balancing of risk and return in order to maximise return to the shareholders. Principally, the Guideline suggests the Board to: • Embed risk management in all aspects of the Group’s activities, which also encomes subsidiaries of the Company; and • Review risk management framework, processes, responsibilities and assessing whether the present policies and systems provide reasonable assurance that risk is managed appropriately.

RISK MANAGEMENT AND INTERNAL CONTROLS The Group’s risk management is driven by Executive Directors, Chief Executive Officer (“CEO”) and senior management of the Group. These executives and management are responsible for identifying, evaluating, monitoring and managing risks and have embedded and carried out these risk management processes as part of their operating and business management processes. Upon listing, management has conducted a risk assessment focusing on the expansion of plant’s capacities and automation and the new products development and markets. Several action points were concluded in this assessment and the outcomes of the risks were reported to the Board. In addition, subsequent to the current financial year, the Board has formed the Risk Management Committee to oversee and implement the risk management framework in the Group. The Risk Management Committee will conduct periodic meetings

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to ensure that risk matters relevant to the Group are identified, evaluated and managed properly to mitigate those risks affecting the achievements of the Group’s business objectives. At operational level, the CEO and the respective heads of department conduct quarterly management meetings with the management . The objective of these meetings is to ensure that decisions, business objectives and operational performance targets are communicated, understood and executed by the line management. These meetings also enable senior management to monitor and enforce controls at the line management levels and strategise action plans to address operational issues. In term of the management quality control, the key subsidiaries of the Group continue to maintain the certification under the ISO9001:2008 and ISO13485:2003 Quality Management Systems (“QMS”). The QMS forms the fundamental basis of the operational procedures in production processes. Internal quality audits are carried out and independent surveillance audits are conducted by external certification body to provide assurance of compliance with the ISO requirements. The Board recognises the importance of maintaining a control conscious culture throughout the Group. The Group’s organisation chart outlines the responsibilities, ability and hierarchical structure of reporting lines. The structure establishes a clear reporting line for approval and authority limits of the Board, top executives, CEO and heads of department for the transactions undertaken in the Group.

BOARD REVIEW MECHANISM The Audit Committee is instituted by the Board to ensure the objectivity of the review of the systems of internal control in the Group. In order to enhance the effectiveness of the risk management and internal control system, the Audit Committee is assisted by an external consultant, IA Essential Sdn. Bhd. (“Internal Auditor”), who is independent of the Group’s activities or operations to assess the adequacy and effectiveness of control of the selected key functions on quarterly basis. In addition, the Audit Committee obtains s from the External Auditors on the risk and control issues identified during the course of their statutory audit. Areas for improvement identified by the auditors are addressed by the Board and Audit Committee to ensure that the integrity of internal controls can be enhanced in the future. None of the weaknesses have resulted in any material losses,

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contingencies or uncertainties that would require mention in the Company’s Annual Report. Management continues to take measures to strengthen the internal control environment from time to time based on the recommendation proposed by the auditors. The Audit Committee reviews and deliberates on the interim financial results and the annual financial statements, through necessary enquiries with the management during the presentation by the management on a quarterly and annual basis, and via their understanding of the Group’s business development and financial performance of the subsidiaries, as well as comments received from both external and internal auditors, if any. Thereafter, the interim and annual financial results/statements are recommended to the Board for review and release to the public.

MANAGEMENT RESPONSIBILITIES AND ASSURANCE In accordance to the Bursa’s Guidelines, management is responsible to the Board for: • identifying risks relevant to the business of the Group’s objectives and strategies; • deg, implementing and monitoring the risk management framework in accordance with the Group’s strategic vision and overall risk appetite; and • identifying changes to risk or emerging risks, responding appropriately and promptly bringing these to the attention of the Board. The Board has received assurance from the CEO and Chief Financial Officer that to the best of their knowledge that the Group’s risk management and internal control systems are operating adequately and effectively, in all material aspects.

BOARD ASSURANCE AND LIMITATION The Board confirms that the process for identifying, evaluating and managing significant risks in the Group is on-going. For the financial year under review, there was no material loss resulted from significant control weaknesses. The Board is satisfied that the existing level of systems of internal control and risk management are adequate and effective to enable the Group to attain a balanced achievement of its business objectives and operation efficiency and effectiveness.

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While, the Board wishes to reiterate that risk management and systems of internal control would be continuously improved in line with the evolving business development, it should be noted that all risk management systems and systems of internal control could only manage rather than eliminate risks of failure to achieve business objectives. Therefore, these systems of internal control and risk management in the Group could only provide reasonable but not absolute assurance against material misstatements, frauds and losses.

REVIEW OF STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL BY EXTERNAL AUDITORS The external auditors have reviewed this Statement on Risk Management and Internal Control pursuant to the scope set out in Recommended Practice Guide (“RPG”) 5 (Revised), Guidance for Auditors on Engagements to Report on the Statement on Risk Management and Internal Control included in the Annual Report issued by the Malaysian Institute of ants (“MIA”) for inclusion in the annual report of the Group for the year ended 30 June 2014, 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: a.

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

b. is factually inaccurate. RPG 5 (Revised) 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 Board of Directors and management thereon. The auditors are also not required to consider whether the processes described to deal with material internal control aspects of any significant problems disclosed in the annual report will, in fact, remedy the problems.

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FINANCIAL STATEMENTS 054 Directors’ Report 058 Statement by Directors 059 Statutory Declaration 060 Independent Auditors’ Report 062 Statements of Financial Position 063 Statements of Profit or Loss 064 Statements of Profit or Loss and Other Comprehensive Income 065 Consolidated Statement of Changes in Equity 066 Statement of Changes in Equity 067 Statements of Cash Flows 069 Notes to the Financial Statements

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054

KAREX Berhad

Annual Report 2014

DIRECTORS’ REPORT For the year ended 30 June 2014

The Directors have pleasure in presenting their report and the audited financial statements of the Group and of the Company for the financial year ended 30 June 2014.

PRINCIPAL ACTIVITIES The principal activity of the Company consists of investment holding. The principal activities of the subsidiaries are disclosed in Note 4 to the financial statements. There has been no significant change in the nature of these activities during the financial year.

RESULTS

Profit for the year

Group RM’000

Company RM’000

34,585

15,981

RESERVES AND PROVISIONS There were no material transfers to or from reserves and provisions during the financial year under review except as disclosed in the financial statements.

DIVIDENDS No dividend has been paid by the Company since the end of the previous financial period. The Directors proposed a final single tier dividend of 2.5 sen per ordinary share totalling RM10,125,000, subject to the approval of the shareholders at the forthcoming Annual General Meeting. These financial statements do not reflect this proposed final dividend, which will be ed for in the shareholders’ equity as an appropriation of retained earnings in the year ending 30 June 2015.

DIRECTORS OF THE COMPANY Directors who served since the date of the last report are: Tan Sri Dato’ Seri Arshad bin Ayub Dato’ Dr. Ong Eng Long @ Ong Siew Chuan Mr. Goh Siang Mr. Goh Leng Kian Ms. Goh Yen Yen Ms. Lam Jiuan Jiuan Mr. Wong Yien Kim Mr. Law Ngee Song

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DIRECTORS’ INTERESTS IN SHARES The interests and deemed interests in the shares of the Company and of its related corporations (other than wholly-owned subsidiaries) of those who were Directors at financial year end (including the interests of the spouses or children of the Directors who themselves are not Directors of the Company) as recorded in the of Directors’ Shareholdings are as follows: Number of ordinary share of RM0.25 each

Name of Directors

Interest

Company Tan Sri Dato’ Seri Arshad Direct bin Ayub Dato’ Dr. Ong Eng Long Direct @ Ong Siew Chuan Mr. Goh Siang Direct Deemed(1) Mr. Goh Leng Kian Direct Deemed(1) Ms. Goh Yen Yen Direct Deemed(1) Ms. Lam Jiuan Jiuan Direct Deemed(2) Mr. Wong Yien Kim Direct Mr. Law Ngee Song Direct

At 1 July 2013/ Date of appointment

Before listing*

Adjustments after listing**

Bonus issue***

Sold

At 30 June 2014

–

–

100,000

50,000

–

150,000

–

–

100,000

50,000

–

150,000

– – 4 – – – – – – –

10,280,586 94,500,000 14,080,586 94,500,000 10,830,543 94,500,000 8,930,543 98,300,000 – –

(3,275,000) – (3,275,000) – (3,275,000) – (3,275,000) – 100,000 100,000

3,502,793 47,250,000 5,402,795 47,250,000 3,777,771 47,250,000 2,827,771 49,150,000 50,000 50,000

– – – – – – – – (50,000) –

10,508,379 141,750,000 16,208,385 141,750,000 11,333,314 141,750,000 8,483,314 147,450,000 100,000 150,000

* Incorporates effects of Acquisitions (see Note 23(i)) and Transfer of Shares ** Incorporates effects of Acquisitions, Transfer of Shares and the Initial Public Offering (“IPO”) *** Bonus issue credited as fully paid up shares on the basis of 1 Bonus Share for every 2 shares held by the Company’s shareholders (1) Deemed interested by virtue of his/her equity interest in Karex One Limited (2) Deemed interested by virtue of her equity interest in AJNA Holdings Limited and Karex One Limited By virtue of their substantial interests in the shares of the Company, Mr. Goh Siang, Mr. Goh Leng Kian, Ms. Goh Yen Yen and Ms. Lam Jiuan Jiuan are also deemed interested in the ordinary shares of the wholly-owned subsidiaries during the financial year to the extent that Karex Berhad has an interest.

DIRECTORS’ BENEFITS Since the end of the previous financial period, no Director of the Company has received nor become entitled to receive any benefit (other than a benefit included in the aggregate amount of emoluments received or due and receivable by Directors as shown in the financial statements or the fixed salary of a full time employee of the Company or of related corporations) by reason of a contract made by the Company or a related corporation with the Director or with a firm of which the Director is a member, or with a company in which the Director has a substantial financial interest other than certain Directors who have significant financial interest in companies which traded with certain companies in the Group in the ordinary course of business. There were no arrangements during and at the end of the financial year which had the object of enabling Directors of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate.

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056

KAREX Berhad

Annual Report 2014

Directors’ Report For the year ended 30 June 2014

ISSUE OF SHARES During the financial year, the Company issued: a) 229,499,992 new ordinary shares of RM0.25 each at par as the total consideration of RM57,375,000 for Acquisitions disclosed in Note 23(i); b) 40,500,000 new ordinary shares of RM0.25 each as part of the Initial Public Offering at RM1.85 per ordinary share; and c) Bonus issue of 135,000,000 new ordinary shares of RM0.25 each (“Bonus Share”) credited as fully paid up on the basis of one (1) bonus share for every two (2) shares held by the shareholders of the Company. There were no other changes in the authorised, issued and paid-up capital of the Company during the financial year.

OPTIONS GRANTED OVER UNISSUED SHARES No options were granted to any person to take up unissued shares of the Company during the financial year.

OTHER STATUTORY INFORMATION Before the financial statements of the Group and of the Company were made out, the Directors took reasonable steps to ascertain that: i)

all known bad debts have been written off and adequate provision has been made for doubtful debts, and

ii)

any current assets which were unlikely to be realised in the ordinary course of business have been written down to an amount which they might be expected so to realise.

At the date of this report, the Directors are not aware of any circumstances: i)

that would render the amount written off for bad debts or the amount of the provision for doubtful debts in the Group and in the Company inadequate to any substantial extent, or

ii)

that would render the value attributed to the current assets in the financial statements of the Group and of the Company misleading, or

iii) which have arisen which render adherence to the existing method of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate, or iv) not otherwise dealt with in this report or the financial statements, that would render any amount stated in the financial statements of the Group and of the Company misleading.

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057

OTHER STATUTORY INFORMATION At the date of this report, there does not exist: i)

any charge on the assets of the Group or of the Company that has arisen since the end of the financial year and which secures the liabilities of any other person, or

ii)

any contingent liability in respect of the Group or of the Company that has arisen since the end of the financial year.

No contingent liability or other liability of any company in the Group has become enforceable, or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the Directors, will or may substantially affect the ability of the Group and of the Company to meet their obligations as and when they fall due. In the opinion of the Directors, the financial performance of the Group and of the Company for the financial year ended 30 June 2014 have not been substantially affected by any item, transaction or event of a material and unusual nature nor has any such item, transaction or event occurred in the interval between the end of that financial year and the date of this report.

AUDITORS The auditors, Messrs KPMG, have indicated their willingness to accept re-appointment.

Signed on behalf of the Board of Directors in accordance with a resolution of the Directors:

Goh Leng Kian

Goh Yen Yen

Johor Bahru Date: 22 September 2014

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058

KAREX Berhad

Annual Report 2014

STATEMENT BY DIRECTORS pursuant to Section 169(15) of the Companies Act, 1965

In the opinion of the Directors, the financial statements set out on pages 062 to 107 are drawn up in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the Companies Act, 1965 in Malaysia so as to give a true and fair view of the financial position of the Group and of the Company as of 30 June 2014 and of their financial performance and cash flows for the financial year then ended. In the opinion of the Directors, the information set out in Note 25 on page 108 to the financial statements has been compiled in accordance with Guidance on Special Matter No. 1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosures Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, issued by the Malaysian Institute of ants, and presented based on the format prescribed by Bursa Malaysia Securities Berhad.

Signed on behalf of the Board of Directors in accordance with a resolution of the Directors:

Goh Leng Kian

Goh Yen Yen

Johor Bahru Date: 22 September 2014

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059

STATUTORY DECLARATION pursuant to Section 169(16) of the Companies Act, 1965

I, Goh Chok Siang, the officer primarily responsible for the financial management of KAREX BERHAD, do solemnly and sincerely declare that the financial statements set out on pages 062 to 108 are, to the best of my knowledge and belief, 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 above named in Johor Bahru in the State of Johor on 22 September 2014.

Goh Chok Siang

Before me:

NORANI BT HJ KHALID Commissioner For Oaths J-140

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060

KAREX Berhad

Annual Report 2014

INDEPENDENT AUDITORS’ REPORT to the of Karex Berhad (Company No. 1018579-U) (Incorporated in Malaysia)

REPORT ON THE FINANCIAL STATEMENTS We have audited the financial statements of Karex Berhad, which comprise the statements of financial position as at 30 June 2014 of the Group and of the Company, and the statements of profit or loss, profit or loss and other comprehensive income, changes in equity and cash flows of the Group and of the Company for the year then ended, and a summary of significant ing policies and other explanatory information, as set out on pages 062 to 107. Directors’ Responsibility for the Financial Statements The Directors of the Company are responsible for the preparation of financial statements so as to give a true and fair view in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia. The Directors are also responsible for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation of financial statements that give a true and fair view 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 entity’s internal control. An audit also includes evaluating the appropriateness of ing policies used and the reasonableness of ing estimates made by the Directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements give a true and fair view of the financial position of the Group and of the Company as of 30 June 2014 and of their financial performance and 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, 1965 in Malaysia.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report the following: (a) In our opinion, the ing and other records and the s required by the Act to be kept by the Company and its subsidiaries of which we have acted as auditors have been properly kept in accordance with the provisions of the Act. (b) We have considered the s and the auditors’ reports of the subsidiary of which we have not acted as auditors, which are indicated in Note 4 to the financial statements. (c) We are satisfied that the s of the subsidiaries that have been consolidated with the Company’s financial statements are in form and content appropriate and proper for the purposes of the preparation of the financial statements of the Group and we have received satisfactory information and explanations required by us for those purposes. (d) The audit reports on the s of the subsidiaries did not contain any qualification or any adverse comment made under Section 174(3) of the Act.

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OTHER REPORTING RESPONSIBILITIES Our audit was made for the purpose of forming an opinion on the financial statements taken as a whole. The information set out in Note 25 on page 108 to the financial statements has been compiled by the Company as required by the Bursa Malaysia Securities Berhad Listing Requirements and is not required by the Malaysian Financial Reporting Standards or International Financial Reporting Standards. We have extended our audit procedures to report on the process of compilation of such information. In our opinion, the information has been properly compiled, in all material respects, in accordance with the Guidance on Special Matter No. 1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosures Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, issued by the Malaysian Institute of ants and presented based on the format prescribed by Bursa Malaysia Securities Berhad.

OTHER MATTERS This report is made solely to the of the Company, as a body, in accordance with Section 174 of the Companies Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report.

KPMG Firm Number: AF 0758 Chartered ants

Tan Teck Eng Approval Number: 2986/05/16 (J) Chartered ant

Johor Bahru Date: 22 September 2014

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062

KAREX Berhad

Annual Report 2014

STATEMENTS OF FINANCIAL POSITION As at 30 June 2014

Note

Group 2014 RM’000

2014 RM’000

2013 RM’000

3 4 5

86,173 – 142

– 124,028 –

– – –

86,315

124,028

–

40,470 77,487 85,592

– 32,357 49,534

– 945 –*

Total current assets

203,549

81,891

945

Total assets

289,864

205,919

945

Equity Share capital Reserves

101,250 122,082

101,250 104,400

–* (632)

Assets Property, plant and equipment Investments in subsidiaries Deferred tax assets Total non-current assets Inventories Trade and other receivables Cash and cash equivalents

6 7 8

Company

Total equity attributable to owners of the Company/Total equity

9

223,332

205,650

(632)

Liabilities Loans and borrowings (secured) Deferred tax liabilities

10 5

10,380 4,488

– –

– –

14,868

–

–

38,887 11,214 1,563

173 – 96

1,577 – –

Total current liabilities

51,664

269

1,577

Total liabilities

66,532

269

1,577

289,864

205,919

945

Total non-current liabilities Trade and other payables, including derivatives Loans and borrowings (secured) Taxation

Total equity and liabilities

11 10

* Represent RM2.00

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

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063

Making Our Mark

STATEMENTS OF PROFIT OR LOSS For the year ended 30 June 2014

Note

Group 1.7.2013(1) to 30.6.2014 RM’000

1.7.2013 to 30.6.2014 RM’000

Company 27.9.2012 to 30.6.2013 RM’000

Revenue Goods sold Dividend income

219,927 –

– 17,371

– –

Cost of goods sold

219,927 (155,952)

17,371 –

– –

Gross profit Other income Distribution expenses istrative expenses Other expenses

63,975 365 (9,125) (9,926) (3,519)

17,371 – – (865) (1,961)

– – – (632) –

Results from operating activities

41,770

14,545

(632)

Finance income Finance costs

1,332 (1,561)

1,565 –

– –

(229)

1,565

–

Net finance (costs)/income Profit/(Loss) before tax

12

41,541

16,110

(632)

Tax expense

13

(6,956)

(129)

–

34,585

15,981

(632)

Profit/(Loss) for the year/period

Basic and diluted earnings per ordinary share (sen)

(1)

14

11.36

As the Acquisitions (as detailed in note 23 (i)) were completed on 23 September 2013, the Group did not consolidate the financial performance of these subsidiaries from 23 September 2013 to 30 September 2013 due to impracticability of an ing cut-off date other than month end and the effect is not significant to the results for financial year ended 30 June 2014. The Group has consolidated the results from 1 October 2013 onwards. If the Group has existed since the last financial year, management estimate that the consolidated results would be as disclosed in note 23 (ii).

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

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064

KAREX Berhad

Annual Report 2014

STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the year ended 30 June 2014

Group 1.7.2013(1) to 30.6.2014 RM’000

1.7.2013 to 30.6.2014 RM’000

Company 27.9.2012 to 30.6.2013 RM’000

34,585

15,981

(632)

(922)

–

–

Total comprehensive income/(expense) for the year/period

33,663

15,981

(632)

Total comprehensive income/(expense) attributable to: Owners of the Company/ Total comprehensive income/(expense) for the year/period

33,663

15,981

(632)

Profit/(Loss) for the year/period Other comprehensive expense, net of tax Items that are or may be reclassified subsequently to profit or loss Foreign currency translation differences for foreign operations/ Other comprehensive expense for the year, net of tax

(1)

As the Acquisitions (as detailed in note 23(i)) were completed on 23 September 2013, the Group did not consolidate the financial performance of these subsidiaries from 23 September 2013 to 30 September 2013 due to impracticability of an ing cut-off date other than month end and the effect is not significant to the results for financial year ended 30 June 2014. The Group has consolidated the results from 1 October 2013 onwards. If the Group has existed since the last financial year, management estimate that the consolidated results would be as disclosed in note 23(ii).

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

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065

Making Our Mark

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2014

Attributable to owners of the Company

Non-distributable Merger Translation reserve reserve RM’000 RM’000

(Accumulated losses)/ Distributable Retained Other earnings reserve RM’000 RM’000

Total equity RM’000

Share capital RM’000

Share RM’000

–*

–

–

–

–

(632)

(632)

57,375 10,125 – 33,750

– 64,800 (5,510) (33,750)

63,511 – – –

– – – –

– – – –

– – – –

120,886 74,925 (5,510) –

101,250

25,540

63,511

–

–

–

190,301

Foreign currency translation differences for foreign operations/ Total other comprehensive expense for the year Profit for the year

– –

– –

– –

(922) –

– –

– 34,585

(922) 34,585

Total comprehensive (expense)/ income for the year Transfer of reserve

– –

– –

– –

(922) –

– 718

34,585 (718)

33,663 –

101,250

25,540

63,511

(922)

718

33,235

223,332

Note Group At 1 July 2013 Contributions by and distributions to owners of the Company Effect arising from the Acquisitions Public issue of shares Share issue expenses Bonus Issue Total transactions with owners of the Company

At 30 June 2014

23(i)

* This represent RM2.00 for 8 ordinary shares of RM0.25 each.

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

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066

KAREX Berhad

Annual Report 2014

STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2014

Note

Attributable to owners of the Company (Accumulated losses)/ Non-distributable Distributable Retained Merger Share Share earnings reserve capital RM’000 RM’000 RM’000 RM’000

Total equity RM’000

Company At date of incorporation Loss and total comprehensive expense for the period

–*

–

–

–

–

–

–

–

(632)

(632)

At 30 June 2013

–*

–

–

(632)

(632)

57,375 10,125 – 33,750

– 64,800 (5,510) (33,750)

63,511 – – –

– – – –

120,886 74,925 (5,510) –

101,250

25,540

63,511

–

190,301

–

–

–

15,981

15,981

101,250

25,540

63,511

15,349

205,650

Contributions by and distributions to owners of the Company Effect arising from the Acquisitions Public issue of shares Share issue expenses Bonus Issue Total transactions with owners of the Company Profit and total comprehensive income for the year At 30 June 2014

23(i)

* This represent RM2.00 for 8 ordinary shares of RM0.25 each.

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

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067

Making Our Mark

STATEMENTS OF CASH FLOWS For the year ended 30 June 2014

Note

Group 1.7.2013 to 30.6.2014 RM’000

Company 27.9.2012 1.7.2013 to to 30.6.2013 30.6.2014 RM’000 RM’000

CASH FLOWS FROM OPERATING ACTIVITIES 41,541

16,110

(632)

2,006 5,132 72 1,561 (93) 720 (1,332) 328

– – – – – – (1,565) –

– – – – – – – –

49,935 5,322 (19,239) (2,903)

14,545 – (34,109) (1,404)

(632) – (945) 1,577

Cash generated from/(used in) operations Tax paid

33,115 (7,539)

(20,968) (33)

– –

Net cash from/(used in) operating activities

25,576

(21,001)

–

(9,914) 19,151 129 1,332

– – – 1,120

– – – –

10,698

1,120

–

Profit/(Loss) before tax Adjustments for:Allowance for slow moving inventories Depreciation Fair value loss on derivative instruments Finance costs Gain on disposal of property, plant and equipment Impairment loss on trade receivables Interest income Unrealised loss on foreign exchange Operating Changes Changes Changes

profit/(loss) before changes in working capital in inventories in trade and other receivables in trade and other payables

CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of: – property, plant and equipment – subsidiaries, net cash and cash equivalents acquired Proceeds from disposal of property, plant and equipment Interest received Net cash from investing activities

16 23(i)

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

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068

KAREX Berhad

Annual Report 2014

Statements of Cash Flows For the year ended 30 June 2014

Group 1.7.2013 to 30.6.2014 RM’000

Company 27.9.2012 1.7.2013 to to 30.6.2013 30.6.2014 RM’000 RM’000

CASH FLOWS FROM FINANCING ACTIVITIES Interest paid Repayments of: – term loans – finance lease liabilities – bankers’ acceptance Drawdown of term loans Proceed from public issue of shares Payment for share issue expenses Increase in pledged deposits with licensed banks

(1,796)

–

–

(2,116) (1,476) (24,487) 2,246 74,925 (5,510) (827)

– – – – 74,925 (5,510) –

– – – – – – –

Net cash from financing activities

40,959

69,415

–

(53)

–

–

77,180

49,534

–

Effect of exchange rate fluctuations on cash held Net increase in cash and cash equivalents Cash and cash equivalents at 1 July/date of incorporation Cash and cash equivalents at 30 June

–* 77,180

–* 49,534

–* –*

Cash and cash equivalents included in the statements of cash flows comprise the following statements of financial position amounts: Cash and bank balances Fixed deposits with licensed banks Deposits with other corporation

29,237 11,343 45,012

2,407 2,115 45,012

–* – –

Less: Pledged deposits

85,592 (8,412)

49,534 –

–* –

77,180

49,534

–*

* Represent RM2.00

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

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Making Our Mark

069

NOTES TO THE FINANCIAL STATEMENTS Karex Berhad is a public limited liability company, incorporated and domiciled in Malaysia and listed on the Main Market of Bursa Malaysia Securities Berhad. The addresses of the principal place of business and ed office of the Company are as follows: Principal place of business PTD 7906 & 7907 Taman Pontian Jaya Batu 34, Jalan Johor 82000 Pontian Johor Malaysia ed office 10th Floor, Menara Hap Seng No. 1 & 3, Jalan P. Ramlee 50250 Kuala Lumpur Malaysia The consolidated financial statements of the Company as at and for the year ended 30 June 2014 comprise the Company and its subsidiaries (together referred to as the “Group” and individually referred to as “Group entities”). The financial statements of the Company as at and for the financial year ended 30 June 2014 do not include other entities. The principal activity of the Company consists of investment holding. The principal activities of the subsidiaries are disclosed in Note 4. These financial statements were authorised for issue by the Board of Directors on 22 September 2014.

1. BASIS OF PREPARATION (a) Statement of compliance 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 and the Companies Act, 1965 in Malaysia. The following are ing standards, amendments and interpretations that have been issued by the Malaysian ing Standards Board (“MASB”) but have not been adopted by the Group and the Company: MFRSs, Interpretations and amendments effective for annual periods beginning on or after 1 January 2014 Amendments to MFRS 10, Consolidated Financial Statements: Investment Entities Amendments to MFRS 12, Disclosure of Interests in Other Entities: Investment Entities Amendments to MFRS 127, Separate Financial Statements (2011): Investment Entities Amendments to MFRS 132, Financial Instruments: Presentation – Offsetting Financial Assets and Financial Liabilities • Amendments to MFRS 136, Impairment of Assets – Recoverable Amount Disclosures for Non-Financial Assets • Amendments to MFRS 139, Financial Instruments: Recognition and Measurement – Novation of Derivatives and Continuation of Hedge ing • IC Interpretation 21, Levies

• • • •

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070

KAREX Berhad

Annual Report 2014

Notes to the Financial Statements 1. BASIS OF PREPARATION (CONTINUED) (a) Statement of compliance (continued) MFRSs, Interpretations and amendments effective for annual periods beginning on or after 1 July 2014 • Amendments to MFRS 1, First-time Adoption of Malaysian Financial Reporting Standards (Annual Improvements 2011-2013 Cycle) • Amendments to MFRS 2, Share-based Payment (Annual Improvements 2010-2012 Cycle) • Amendments to MFRS 3, Business Combinations (Annual Improvements 2010-2012 Cycle and 2011-2013 Cycle) • Amendments to MFRS 8, Operating Segments (Annual Improvements 2010-2012 Cycle) • Amendments to MFRS 13, Fair Value Measurement (Annual Improvements 2010-2012 Cycle and 2011-2013 Cycle) • Amendments to MFRS 116, Property, Plant and Equipment (Annual Improvements 2010-2012 Cycle) • Amendments to MFRS 119, Employee Benefits – Defined Benefit Plans: Employee Contributions • Amendments to MFRS 124, Related Party Disclosures (Annual Improvements 2010-2012 Cycle) • Amendments to MFRS 138, Intangible Assets (Annual Improvements 2010-2012 Cycle) • Amendments to MFRS 140, Investment Property (Annual Improvements 2011-2013 Cycle) MFRSs, Interpretations and amendments effective for annual periods beginning on or after 1 January 2016 • • • •

MFRS 14, Regulatory Deferral s Amendments to MFRS 116 and MFRS 138, Clarification of Acceptable Methods of Depreciation and Amortisation Amendments to MFRS 11, ing for Acquisitions of Interests in t Operations Amendments to MFRS 116 and MFRS 141, Agriculture: Bearer Plants

MFRSs, Interpretations and amendments effective for annual periods beginning on or after 1 January 2017 • MFRS 15, Revenue from Contracts with Customers MFRSs, Interpretations and amendments effective from a date yet to be confirmed • • • •

MFRS 9, Financial Instruments (2009) MFRS 9, Financial Instruments (2010) MFRS 9, Financial Instruments – Hedge ing and Amendments to MFRS 9, MFRS 7 and MFRS 139 Amendments to MFRS 7, Financial Instruments: Disclosures – Mandatory Effective Date of MFRS 9 and Transition Disclosures

The Group and the Company plan to apply the abovementioned standards, amendments and interpretations in the respective financial year when the above standards, amendments and interpretations become effective. The initial application of these standards, amendments and interpretations are not expected to have any material financial impacts to the current and prior periods financial statements of the Group and the Company upon their first adoption except as mentioned below: MFRS 15, Revenue from Contracts with Customers The adoption of MFRS 15 may result in a change in the ing for revenue by the Group and the Company. The Group and the Company are currently assessing the impact of adopting MFRS 15. (b) Basis of measurement These financial statements have been prepared on the historical cost basis other than as disclosed in Note 2.

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071

1. BASIS OF PREPARATION (c) Functional and presentation currency These financial statements are presented in Ringgit Malaysia (“RM”), which is the Company’s functional currency. All financial information is presented in RM and has been rounded to the nearest thousand, unless otherwise stated. (d) Use of estimates and judgements The preparation of the financial statements in conformity with MFRSs requires management to make judgements, estimates and assumptions that affect the application of ing policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to ing estimates are recognised in the period in which the estimates are revised and in any future periods affected. There are no significant areas of estimation uncertainty and critical judgements in applying ing policies that have significant effect on the amounts recognised in the financial statements.

2. SIGNIFICANT ING POLICIES

The ing policies set out below have been applied consistently to the periods presented in these financial statements and have been applied consistently by the Group entities, unless otherwise stated. (a) Basis of consolidation (i) Subsidiaries

Karex_AR2014.indb 71



Subsidiaries are entities, including structured entities, controlled by the Company. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.



Control exists when the Group 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.



Potential voting rights are considered when assessing control only when such rights are substantive.



The Group considers it has de facto power over an investee when, despite not having the majority of voting rights, it has the current ability to direct the activities of the investee that significantly affect the investee’s return.



Investments in subsidiaries are measured in the Company’s statement of financial position at cost less any impairment losses, unless the investment is classified as held for sale or distribution. The cost of investments includes transaction costs.

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072

KAREX Berhad

Annual Report 2014

Notes to the Financial Statements 2. SIGNIFICANT ING POLICIES (CONTINUED) (a) Basis of consolidation (continued) (ii) Business combinations

Business combinations are ed for using the acquisition method from the acquisition date, which is the date on which control is transferred to the Group.



For new acquisitions, the Group measures the cost of goodwill at the acquisition date as: • the fair value of the consideration transferred; plus • the recognised amount of any non-controlling interests in the acquiree; plus • if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less • the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.



When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.



For each business combination, the Group elects whether it measures the non-controlling interests in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets at the acquisition date.



Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred.

(iii) Acquisitions of non-controlling interests

The Group treats all changes in its ownership interest in a subsidiary that do not result in a loss of control as equity transactions between the Group and its non-controlling interest holders. Any difference between the Group’s share of net assets before and after the change, and any consideration received or paid, is adjusted to or against Group reserves.

(iv) Restructuring among common shareholders

During a restructuring where the combining entities are controlled by the same parties both before and after the combination, book value ing is applied. The assets and liabilities acquired are recognised in the consolidated financial statements at their respective carrying amounts without restatement. The difference between the cost of acquisition and the nominal value of the shares acquired together with any other reserves of the combining entities are taken to merger reserve (or adjusted against any suitable reserve in the case of debit differences). The other components of equity of the acquired entities are added to the same components within group equity.

(v) Loss of control

Karex_AR2014.indb 72

Upon the loss of control of a subsidiary, the Group derecognises the assets and liabilities of the former subsidiary, any non-controlling interests and the other components of equity related to the former subsidiary from the consolidated statement of financial position. Any surplus or deficit arising on the loss of control is recognised in profit or loss. If the Group retains any interest in the former subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently, it is ed for as an equity ed investee or as an available-for-sale financial asset depending on the level of influence retained.

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073

2. SIGNIFICANT ING POLICIES (a) Basis of consolidation (vi) Non-controlling interests

Non-controlling interests at the end of the reporting period, being the equity in a subsidiary not attributable directly or indirectly to the equity holders of the Company, are presented in the consolidated statement of financial position and statement of changes in equity within equity, separately from equity attributable to the owners of the Company. Non-controlling interests in the results of the Group is presented in the consolidated statement of profit or loss and other comprehensive income as an allocation of the profit or loss and the comprehensive income for the year between non-controlling interests and owners of the Company.



Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance.

(vii) Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.

(b) Foreign currency (i) Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of the Group entities at exchange rates at the dates of the transactions.



Monetary assets and liabilities denominated in foreign currencies at the end of the reporting period are retranslated to the functional currency at the exchange rate at that date.



Non-monetary assets and liabilities denominated in foreign currencies are not retranslated at the end of the reporting date, except for those that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined.



Foreign currency differences arising on retranslation are recognised in profit or loss, except for differences arising on the retranslation of available-for-sale equity instruments or a financial instrument designated as a hedge of currency risk, which are recognised in other comprehensive income.

(ii) Operations denominated in functional currencies other than Ringgit Malaysia

Karex_AR2014.indb 73



The assets and liabilities of operations denominated in functional currencies other than RM, including goodwill and fair value adjustments arising on acquisition, are translated to RM at exchange rates at the end of the reporting period, which are treated as assets and liabilities of the Company. The income and expenses of foreign operations, excluding foreign operations in hyperinflationary economies, are translated to RM at exchange rates at the dates of the transactions.



Foreign currency differences are recognised in other comprehensive income and accumulated in the foreign currency translation reserve (“FCTR”) in equity. However, if the operation is a non-wholly-owned subsidiary, then the relevant proportionate share of the translation difference is allocated to the non-controlling interests. When a foreign operation is disposed of such that control, significant influence or t control is lost, the cumulative amount in the FCTR related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal.

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074

KAREX Berhad

Annual Report 2014

Notes to the Financial Statements 2. SIGNIFICANT ING POLICIES (CONTINUED) (b) Foreign currency (continued) (ii) Operations denominated in functional currencies other than Ringgit Malaysia (continued)

When the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interests. When the Group disposes of only part of its investment in an associate or t venture that includes a foreign operation while retaining significant influence or t control, the relevant proportion of the cumulative amount is reclassified to profit or loss.



In the consolidated financial statements, when settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign exchange gains and losses arising from such a monetary item are considered to form part of a net investment in a foreign operation and are recognised in other comprehensive income, and are presented in the FCTR in equity.

(c) Financial instruments (i) Initial recognition and measurement

A financial asset or a financial liability is recognised in the statement of financial position when, and only when, the Group or the Company becomes a party to the contractual provisions of the instrument.



A financial instrument is recognised initially, at its fair value plus, in the case of a financial instrument not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial instrument.



An embedded derivative is recognised separately from the host contract and ed for as a derivative if, and only if, it is not closely related to the economic characteristics and risks of the host contract and the host contract is not categorised at fair value through profit or loss. The host contract, in the event an embedded derivative is recognised separately, is ed for in accordance with policy applicable to the nature of the host contract.

(ii) Financial instrument categories and subsequent measurement

The Group and the Company categorise financial instruments as follows:



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

Fair value through profit or loss category comprises financial assets that are held for trading, including derivatives (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument) or financial assets that are specifically designated into this category upon initial recognition.



Derivatives that are linked to and must be settled by delivery of unquoted equity instruments whose fair values cannot be reliably measured are measured at cost.



Other financial assets categorised as fair value through profit or loss are subsequently measured at their fair values with the gain or loss recognised in profit or loss.

(b) Loans and receivables

Karex_AR2014.indb 74



Loans and receivables category comprises debt instruments that are not quoted in an active market.



Financial assets categorised as loans and receivables are subsequently measured at amortised cost using the effective interest method.

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075

Making Our Mark

2. SIGNIFICANT ING POLICIES (c) Financial instruments (ii) Financial instrument categories and subsequent measurement

Financial assets (c) Available-for-sale financial assets

Available-for-sale category comprises investment in equity and debt securities instruments that are not held for trading.



Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost. Other financial assets categorised as available-forsale are subsequently measured at their fair values with the gain or loss recognised in other comprehensive income, except for impairment losses, foreign exchange gains and losses arising from monetary items and gains and losses of hedged items attributable to hedge risks of fair value hedges which are recognised in profit or loss. On derecognition, the cumulative gain or loss recognised in other comprehensive income is reclassified from equity into profit or loss. Interest calculated for a debt instrument using the effective interest method is recognised in profit or loss.



All financial assets, except for those measured at fair value through profit or loss, are subject to review for impairment (see Note 2(h)(i)).



Financial liabilities



All financial liabilities are subsequently measured at amortised cost other than those categorised as fair value through profit or loss.



Fair value through profit or loss category comprises financial liabilities that are derivatives (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument) or financial liabilities that are specifically designated into this category upon initial recognition.



Derivatives that are linked to and must be settled by delivery of equity instruments that do not have a quoted price in an active market for identical instruments whose fair values cannot be reliably measured are measured at cost.



Other financial liabilities categorised as fair value through profit or loss are subsequently measured at their fair values with the gain or loss recognised in profit or loss.

(iii) Financial guarantee contracts

Karex_AR2014.indb 75



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 in accordance with the original or modified of a debt instrument.



Fair value arising from financial guarantee contracts are classified as deferred income and is amortised to profit or loss using a straight-line method over the contractual period or, when there is no specified contractual period, recognised in profit or loss upon discharge of the guarantee. When settlement of a financial guarantee contract becomes probable, an estimate of the obligation is made. If the carrying value of the financial guarantee contract is lower than the obligation, the carrying value is adjusted to the obligation amount and ed for as a provision.

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076

KAREX Berhad

Annual Report 2014

Notes to the Financial Statements 2. SIGNIFICANT ING POLICIES (CONTINUED) (c) Financial instruments (continued) (iv) Regular way purchase or sale of financial assets

A regular way purchase or sale is a purchase or sale of a financial asset under a contract whose require delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned.



A regular way purchase or sale of financial assets is recognised and derecognised, as applicable, using trade date ing. Trade date ing refers to: (a) the recognition of an asset to be received and the liability to pay for it on the trade date, and (b) derecognition of an asset that is sold, recognition of any gain or loss on disposal and the recognition of a receivable from the buyer for payment on the trade date.

(v) Derecognition

A financial asset or part of it is derecognised when, and only when the contractual rights to the cash flows from the financial asset expire or the financial asset is transferred to another party without retaining control or substantially all risks and rewards of the asset. On derecognition of a financial asset, the difference between the carrying amount and the sum of the consideration received (including any new asset obtained less any new liability assumed) and any cumulative gain or loss that had been recognised in equity is recognised in profit or loss.



A financial liability or a part of it is derecognised when, and only when, the obligation specified in the contract is discharged or cancelled or expires. On derecognition of a financial liability, the difference between the carrying amount of the financial liability extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss.

(d) Property, plant and equipment (i) Recognition and measurement

Karex_AR2014.indb 76



Items of property, plant and equipment are measured at cost less any accumulated depreciation and any accumulated impairment losses.



Cost includes expenditures that are directly attributable to the acquisition of the asset and any other costs directly attributable to bringing the asset to working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. The cost of self-constructed assets also includes the cost of materials and direct labour. For qualifying assets, borrowing costs are capitalised in accordance with the ing policy on borrowing costs. Cost also may include transfers from equity of any gain or loss on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment.



Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.



The cost of property, plant and equipment recognised as a result of a business combination is based on fair value at acquisition date and in accordance to Note 2(p).



When significant parts of an item of property, plant and equipment have different useful lives, they are ed for as separate items (major components) of property, plant and equipment.



The gain or loss on disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and is recognised net within “other income” and “other expenses” respectively in profit or loss.

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2. SIGNIFICANT ING POLICIES (d) Property, plant and equipment (ii) Subsequent costs

The cost of replacing a component of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the component will flow to the Group or the Company, and its cost can be measured reliably. The carrying amount of the replaced component is derecognised to profit or loss. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.

(iii) Depreciation

Depreciation is based on the cost of an asset less its residual value. Significant components of individual assets are assessed, and if a component has a useful life that is different from the remainder of that asset, then that component is depreciated separately.



Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each component of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Freehold land is not depreciated. Property, plant and equipment under construction are not depreciated until the assets are ready for their intended use.



The estimated useful lives for the current and comparative periods are as follows: Long term leasehold land Short term leasehold land Buildings Plant and machinery Motor vehicles Electrical installation, renovation, equipment, furniture and fittings



62 50 50 10 – 20 6 – 10 4 – 10

years years years years years years

Depreciation methods, useful lives and residual values are reviewed at end of the reporting period and adjusted as appropriate.

(e) Leased assets (i) Finance lease

Karex_AR2014.indb 77



Leases in of which the Group or the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is ed for in accordance with the ing policy applicable to that asset.



Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent lease payments are ed for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed.

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078

KAREX Berhad

Annual Report 2014

Notes to the Financial Statements 2. SIGNIFICANT ING POLICIES (CONTINUED) (e) Leased assets (continued) (i) Finance lease (continued)

Leasehold land which in substance is a finance lease is classified as property, plant and equipment, or as investment property if held to earn rental income or for capital appreciation or for both.

(ii) Operating lease

Leases, where the Group or the Company does not assume substantially all the risks and rewards of ownership are classified as operating leases and, except for property interest held under operating lease, the leased assets are not recognised in the statement of financial position of the Group or the Company. Property interest held under an operating lease, which is held to earn rental income or for capital appreciation or both, is classified as investment property and measured using fair value model.



Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised in profit or loss as an integral part of the total lease expense, over the term of the lease. Contingent rentals are charged to profit or loss in the reporting period in which they are incurred.



Leasehold land which in substance is an operating lease is classified as prepaid lease payments.

(f) Inventories

Inventories are measured at the lower of cost and net realisable value.



Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.

The cost of inventories is measured based on first-in first-out basis, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of work-in-progress and finished goods, cost includes an appropriate share of production overheads based on normal operating capacity.

(g) Cash and cash equivalents

Cash and cash equivalents consist of cash on hand, balances and deposits with banks and highly liquid investments which have an insignificant risk of changes in fair value and are used by the Group and the Company in the management of their short term commitments. For the purpose of the statement of cash flows, cash and cash equivalents are presented net of bank overdrafts and pledged deposits.

(h) Impairment (i) Financial assets

Karex_AR2014.indb 78



All financial assets (except for financial assets categorised as fair value through profit or loss and investments in subsidiaries) are assessed at each reporting date whether there is any objective evidence of impairment as a result of one or more events having an impact on the estimated future cash flows of the asset. Losses expected as a result of future events, no matter how likely, are not recognised. For an investment in an equity instrument, a significant or prolonged decline in the fair value below its cost is an objective evidence of impairment. If any such objective evidence exists, then the impairment loss of the financial asset is estimated.



An impairment loss in respect of loans and receivables and held-to-maturity investments is recognised in profit or loss and is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance .

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079

2. SIGNIFICANT ING POLICIES (h) Impairment (i) Financial assets

An impairment loss in respect of available-for-sale financial assets is recognised in profit or loss and is measured as the difference between the asset’s acquisition cost (net of any principal repayment and amortisation) and the asset’s current fair value, less any impairment loss previously recognised. Where a decline in the fair value of an available-for-sale financial asset has been recognised in the other comprehensive income, the cumulative loss in other comprehensive income is reclassified from equity to profit or loss.



An impairment loss in respect of unquoted equity instrument that is carried at cost is recognised in profit or loss and is measured as the difference between the financial asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset.



Impairment losses recognised in profit or loss for an investment in an equity instrument classified as available for sale is not reversed through profit or loss.



If, in a subsequent period, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed, to the extent that the asset’s carrying amount does not exceed what the carrying amount would have been had the impairment not been recognised at the date the impairment is reversed. The amount of the reversal is recognised in profit or loss.

(ii) Other assets

Karex_AR2014.indb 79



The carrying amounts of other assets (except for inventories, deferred tax assets and assets arising from employee benefits) are reviewed at the end of each reporting period to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill, and intangible assets that have indefinite useful lives or that are not yet available for use, the recoverable amount is estimated each period at the same time.



For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or cash-generating units. Subject to an operating segment ceiling test, for the purpose of goodwill impairment testing, cash-generating units to which goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal reporting purposes. The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to group of cash-generating units that are expected to benefit from the synergies of the combination.



The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs of disposal. 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 or cash-generating unit.



An impairment loss is recognised if the carrying amount of an asset or its related cash-generating unit exceeds its estimated recoverable amount.



Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (group of cash-generating units) and then to reduce the carrying amount of the other assets in the cashgenerating unit (groups of cash-generating units) on a pro rata basis.

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080

KAREX Berhad

Annual Report 2014

Notes to the Financial Statements 2. SIGNIFICANT ING POLICIES (CONTINUED) (h) Impairment (continued) (ii) Other assets (continued)

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at the end of each reporting period for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount since the last impairment loss was recognised. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Reversals of impairment losses are credited to profit or loss in the financial year in which the reversals are recognised.

(i) Equity instruments Instruments classified as equity are measured at cost on initial recognition and are not remeasured subsequently. (i) Issue expenses

Costs directly attributable to the issue of instruments classified as equity are recognised as a deduction from equity.

(ii) Ordinary shares

Ordinary shares are classified as equity.

(j) Income tax

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognised in profit or loss except to the extent that it relates to a business combination or items recognised directly in equity or other comprehensive income.



Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted by the end of the reporting period, and any adjustment to tax payable in respect of previous financial years.



Deferred tax is recognised using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities in the statement of financial position and their tax bases. Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither ing nor taxable profit or loss. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the end of the reporting period.



Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.



A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at the end of each reporting period and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.



Unutilised reinvestment allowance, being tax incentives that is not a tax base of an asset, is recognised as a deferred tax asset to the extent that it is probable that the future taxable profits will be available against the unutilised tax incentive can be utilised.

Karex_AR2014.indb 80

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081

2. SIGNIFICANT ING POLICIES (k) Revenue and other income (i) Goods sold

Revenue from the sale of goods in the course of ordinary activities is measured at fair value of the consideration received or receivable, net of returns and allowances, trade discount and volume rebates. Revenue is recognised when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the customer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, and there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognised as a reduction of revenue as the sales are recognised.

(ii) Dividend income

Dividend income is recognised in profit or loss on the date that the Group’s or the Company’s right to receive payment is established, which in the case of quoted securities is the ex-dividend date.

(iii) Interest income

Interest income is recognised as it accrues using the effective interest method in profit or loss except for interest income arising from temporary investment of borrowings taken specifically for the purpose of obtaining a qualifying asset which is ed for in accordance with the ing policy on borrowing costs.

(iv) Rental income

Rental income is recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease.

(l) Borrowing costs

Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method.



Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the cost of those assets.



The capitalisation of borrowing costs as part of the cost of a qualifying asset commences when expenditure for the asset is being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation of borrowing costs is suspended or ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are interrupted or completed.



Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

(m) Employee benefits (i) Short-term employee benefits

Karex_AR2014.indb 81



Short-term employee benefit obligations in respect of salaries, annual bonuses, paid annual leave and sick leave are measured on an undiscounted basis and are expensed as the related service is provided.



A liability is recognised for the amount expected to be paid under short term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

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082

KAREX Berhad

Annual Report 2014

Notes to the Financial Statements 2. SIGNIFICANT ING POLICIES (CONTINUED) (m) Employee benefits (continued) (ii) State plans

The Group’s contributions to statutory pension funds are charged to profit or loss in the financial year to which they relate. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available.

(iii) Defined benefit plans

The Group provides for post employment retirement benefits, payable to employees under the labour laws applicable in Thailand in respect of its subsidiary incorporated in Thailand. The liability in respect of employee benefits is measured, using the projected unit credit method which is calculated in accordance with the actuarial technique. The present value of the defined benefit obligation is determined by discounting estimated future cash flows using the yield on AA credit-rated bonds which have to maturity approximating the of the related liability. The estimated future cash flows shall reflect employee salaries, turnover rate, mortality rate, length of service and other factors. Actuarial gains and losses will be recognised as income or expense in the statement of profit or loss.



As the amount involved is not material to the Group. Accordingly, no further disclosure as required by the Standard is made.

(n) Earnings per ordinary share

The Group presents basic and diluted earnings per share data for its ordinary shares (“EPS”).



Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period, adjusted for own shares held.



Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise convertible notes and share options granted to employees.

(o) Operating segments

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. An operating segment’s operating results are reviewed regularly by the chief operating decision maker, which in this case is the Chief Executive Officer of the Group, to make decisions about resources to be allocated to the segment and to assess its performance, and for which discrete financial information is available.

(p) Fair value measurement

From 1 July 2013, the Group adopted MFRS 13, Fair Value Measurement which prescribed that fair value of an asset or a liability, except for share-based payment and lease transactions, is determined as 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 measurement assumes that the transaction to sell the asset or transfer the liability takes place either in the principal market or in the absence of a principal market, in the most advantageous market.



For non-financial asset, the fair value measurement takes into 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.



In accordance with the transitional provision of MFRS 13, the Group applied the new fair value measurement guidance prospectively, and has not provided any comparative fair value information for new disclosures. The adoption of MFRS 13 has not significantly affected the measurements of the Group’s assets or liabilities other than the additional disclosures.

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Making Our Mark

3. PROPERTY, PLANT AND EQUIPMENT Electrical installation and Constructionin-progress renovation RM’000 RM’000

Land and buildings RM’000

Plant and machinery RM’000

Equipment, furniture and fittings RM’000

Motor vehicles RM’000

At 1 July 2013 Acquisitions (see Note 23(i)) Additions (see Note 16) Disposals Transfers Translation differences

– 26,581 303 – 3,444 (162)

– 77,800 3,749 (177) 3,045 (748)

– 6,029 1,380 – 314 (32)

– 4,962 187 (418) – (26)

– 10,298 424 – 84 (82)

– 5,855 6,509 – (6,887) (106)

– 131,525 12,552 (595) – (1,156)

At 30 June 2014

30,166

83,669

7,691

4,705

10,724

5,371

142,326

At 1 July 2013 Acquisitions (see Note 23(i)) Depreciation charge Disposals Translation differences

– 2,655 377 – (52)

– 36,053 3,363 (171) (514)

– 3,381 476 – (18)

– 2,871 414 (388) (11)

– 7,232 502 – (17)

– – – – –

– 52,192 5,132 (559) (612)

At 30 June 2014

2,980

38,731

3,839

2,886

7,717

–

56,153

27,186

44,938

3,852

1,819

3,007

5,371

86,173

Total RM’000

Group At cost

Accumulated depreciation

Carrying amounts At 30 June 2014

Land and buildings



Included in the carrying amounts of land and buildings are:

Land – Freehold land – Long term leasehold land – Short term leasehold land Buildings

Group 2014 RM’000 12,213 2,313 329 12,331 27,186

Security

Karex_AR2014.indb 83

The land and buildings and plant and machineries of the Group with a carrying amount of RM32,392,902 are charged to licensed banks for banking facilities granted as disclosed in Note 10.

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084

KAREX Berhad

Annual Report 2014

Notes to the Financial Statements 3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

Leased plant and machinery and motor vehicles



At 30 June, the net carrying amounts of leased assets are as follows: Group 2014 RM’000 5,033 1,291

Plant and machinery Motor vehicles

6,324

Others

Included in property, plant and equipment addition is an interest being capitalised of RM235,061.

4. INVESTMENTS IN SUBSIDIARIES Company

Unquoted shares, at cost

2014 RM’000

2013 RM’000

124,028

–

Details of the subsidiaries are as follows:

Name of entity

Principal activities

Country of incorporation

Effective ownership interest and voting interest 2014 %

2013 %

Direct subsidiaries Karex Industries Sdn. Bhd.

Manufacture and sale of condoms

Malaysia

100

–

Hevea Medical Sdn. Bhd.

Manufacturing and sale of condoms, latex probe covers and latex sleeve

Malaysia

100

–

Innolatex Sdn. Bhd.

Manufacture and sale of rubber products

Malaysia

100

–

Innolatex (Thailand) Limited*

Manufacturing and sale of condoms, rubber finger gloves, hand gloves and/or rubber products

Thailand

100

–

Malaysia

100

–

Subsidiary of Karex Industries Sdn. Bhd. Uro Technology Sdn. Bhd.

Manufacturing and sale of sterile catheters

* Audited by a member firm of KPMG International.

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Making Our Mark

5. DEFERRED TAX ASSETS/(LIABILITIES)

Recognised deferred tax assets/(liabilities)



The amounts determined after appropriate offsetting are as follows: Group 2014 RM’000 142 (4,488)

Deferred tax assets Deferred tax liabilities

(4,346)

Deferred tax liabilities and assets are offset above where there is a legally enforceable right to set off current tax assets against current tax liabilities and where the deferred taxes relate to the same taxation authority.



Deferred tax assets and liabilities are attributable to the following: Group 2014 RM’000 (5,448) 400 652 50

Property, plant and equipment – capital allowances Inventories Trade receivables Others

(4,346)

Movement in temporary differences during the year

At 1 July 2013 RM’000

Arising Recognised in profit from the or loss Acquisitions (Note 13) (Note 23(i)) RM’000 RM’000

At 30 June 2014 RM’000

Group Property, plant and equipment Inventories Trade receivables Unutilised business losses Others

Karex_AR2014.indb 85

– – – – –

(6,527) 87 352 1,728 32

1,079 313 300 (1,728) 18

(5,448) 400 652 – 50

–

(4,328)

(18)

(4,346)

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086

KAREX Berhad

Annual Report 2014

Notes to the Financial Statements 6. INVENTORIES Group 2014 RM’000 14,305 7,744 15,810 2,611

Raw materials Work-in-progress Finished goods Chemicals and factory supplies

40,470

7. TRADE AND OTHER RECEIVABLES Group 2014 RM’000

2014 RM’000

Company 2013 RM’000

70,754 84

– –

– –

70,838

–

–

6,649 –

13 32,344

945 –

6,649

32,357

945

77,487

32,357

945

Trade Trade receivables Due from related parties

Non-trade Other receivables, deposits and prepayments Due from subsidiaries

The amounts due from related parties are subject to normal trade term. The amounts due from subsidiaries includes RM10,000,000 of dividends receivable, while the remaining balance are unsecured, subject to interest at 5.0% (2013: NIL) per annum and repayable upon demand.

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Making Our Mark

8. CASH AND CASH EQUIVALENTS

Cash and bank balances Deposits with licensed banks Deposits with other corporation

Group 2014 RM’000

2014 RM’000

Company

29,237 11,343 45,012

2,407 2,115 45,012

–* – –

85,592

49,534

–*

2013 RM’000

Deposits with licensed banks of the Group of RM8,412,000 are pledged to bank as security for banking facilities granted to the Group as disclosed in Note 10. Deposits with licensed banks of the Group of RM540,485 are held in trust by Directors of the Company/a subsidiary for the Group. * Represent RM2.00

9. CAPITAL AND RESERVES Share capital Group/Company 2014 RM’000 Ordinary shares of RM0.25 each: Authorised: At 1 July/date of incorporation

500,000

2013 RM’000

100*

Group/Company Number of ordinary shares 2014 2013

2,000,000,000

200,000

Shares split

–

–

–

200,000

Increase of shares

–

499,900

–

1,999,600,000

500,000

500,000

2,000,000,000

2,000,000,000

–** – – – –

8 – 229,499,992 40,500,000 135,000,000

4 4 – – –

–**

405,000,000

8

At 30 June Issued and fully paid: At 1 July/date of incorporation Shares split Issued for Acquisitions Public issue Bonus shares issued At 30 June

–** – 57,375 10,125 33,750 101,250

* Represent 200,000 ordinary shares of RM0.50 each ** Represent RM2.00

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088

KAREX Berhad

Annual Report 2014

Notes to the Financial Statements 9. CAPITAL AND RESERVES (CONTINUED) Reserves Group 2014 RM’000

Company 2014 RM’000

2013 RM’000

33,235

15,349

(632)

25,540 63,511 (922) 718

25,540 63,511 – –

– – – –

122,082

104,400

(632)

Distributable Retained earnings/(Accumulated losses) Non-distributable Share Merger reserve Translation reserve Other reserve

Ordinary shares 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. Share Share comprises the paid on subscription of shares in the Company over and above the par value of the shares. Merger reserve The merger reserve comprises of the differences between the cost of acquisition and the nominal value of shares acquired together with any other reserves of the combining entities during the restructuring among common shareholders as stated in the ing policy Note 2(a)(iv). Translation reserve The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations. Other reserve Based on Thailand Law, the other reserve comprises of reserve fund allocated at each distribution of dividend, being at least 5% of the profit until it reaches 10% of the ed capital of the Company, and claimable upon disposal or liquidation of the foreign subsidiary by the Group.

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089

10. LOANS AND BORROWINGS (SECURED) Group 2014 RM’000 Current Term loans Bankers’ acceptances Finance lease liabilities

3,527 6,694 993 11,214

Non-current Term loans Finance lease liabilities

8,678 1,702 10,380 21,594

The bank borrowings are secured by: i) ii) iii) iv)

Legal charges over certain landed properties of the Group; Fixed and floating charges over the Group’s certain assets as disclosed in Note 3; t and several guarantee by Directors and a shareholder of the Company; and Pledge of certain fixed deposits of the Group as disclosed in Note 8.

Significant covenants A subsidiary of the Group, Karex Industries Sdn. Bhd. is subject to the following covenants: a. Maintain gearing ratios of not more than 1.5 times or 3.5 times as defined by the respective financial institutions. b. Net tangible worth of the said subsidiary shall not be less than RM30,000,000. c. The subsidiary shall not without the banks’ prior written consent, incur or assume additional indebtedness or guarantee any indebtedness (except in the ordinary course of business), alter the present ownership structure and extend loans and advances to the Directors of the Company and its related companies. d. The subsidiary shall not without the banks’ prior written consent, declare and pay dividend exceeding 50% of the profit after tax of each financial year.

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090

KAREX Berhad

Annual Report 2014

Notes to the Financial Statements 10. LOANS AND BORROWINGS (SECURED) (CONTINUED) Finance lease liabilities Finance lease liabilities are payable as follows:

Future minimum lease payments RM’000

Interest RM’000

Present value of minimum lease payments RM’000

1,137 1,814

144 112

993 1,702

2,951

256

2,695

Group 2014 RM’000

2014 RM’000

2013 RM’000

22,636

–

–

Other payables and accrued expenses Due to related parties

12,694 3,485

173 –

1,577 –

Derivatives financial liabilities

16,179 72

173 –

1,577 –

38,887

173

1,577

Group 2014 Less than one year Between one and five years

11. TRADE AND OTHER PAYABLES Company

Trade Trade payables Non-trade

The amounts due to related parties are unsecured, interest free and repayable upon demand.

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Making Our Mark

12. PROFIT/(LOSS) BEFORE TAX Group 1.7.2013 to 30.6.2014 RM’000 Profit/(Loss) before tax is arrived at after charging/(crediting) Audit fees – KPMG Malaysia – Overseas of KPMG Malaysia Allowance for slow moving inventories Depreciation Fair value loss on derivative instruments Impairment loss on trade receivables Loss on foreign exchange: – Realised – Unrealised Personnel expenses (including key management personnel): – Contributions to state plans – Wages, salaries and others Rental expense Gain on disposal of property, plant and equipment

Company 27.9.2012 1.7.2013 to to 30.6.2013 30.6.2014 RM’000 RM’000

175 70 2,006 5,132 72 720

30 – – – – –

5 – – – – –

409 328

– –

– –

1,147 33,152 1,005 (93)

– – – –

– – – –

Key management personnel compensation The key management personnel compensation are as follows: Group 1.7.2013 to 30.6.2014 RM’000 Directors: – Fees – Remunerations – Benefits

Company 27.9.2012 1.7.2013 to to 30.6.2013 30.6.2014 RM’000 RM’000

275 985 55

275 – –

– – –

Total short-term employee benefits

1,315

275

–

Other key management personnel: – Remunerations – Benefits

1,043 28

– –

– –

1,071

–

–

2,386

275

–

Other key management personnel comprises persons other than the Directors of Group entities, having authority and responsibility for planning, directing and controlling the activities of the entity either directly or indirectly.

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092

KAREX Berhad

Annual Report 2014

Notes to the Financial Statements 13. TAX EXPENSE

Recognised in profit or loss



Major components of income tax expense include: Group 1.7.2013 to 30.6.2014 RM’000

Company 27.9.2012 1.7.2013 to to 30.6.2013 30.6.2014 RM’000 RM’000

6,938 18

129 –

– –

6,956

129

–

RM’000

RM’000

RM’000

Profit/(Loss) before tax

41,541

16,110

(632)

Income tax calculated using Malaysian tax rate of 25% Non-deductible expenses Non-taxable income Effect of different tax rates in different jurisdictions Tax incentives Effect of changes in tax rate*

10,385 1,604 (217) (1,944) (2,646) (226)

4,028 661 (4,560) – – –

(158) 158 – – – –

6,956

129

–

Current tax expense Deferred tax expense

Reconciliation of tax expense

Tax expense

* The Malaysian Budget 2014 announced the reduction of corporate tax rate to 24% with effect from year of assessment 2016. Consequently, deferred tax assets and liabilities which are expected to reverse in 2016 and beyond are measured using the tax rate of 24%.

14. BASIC EARNINGS PER ORDINARY SHARE

Basic earnings per ordinary share



The calculation of basic earnings per ordinary share at 30 June 2014 was based on the profit attributable to ordinary shareholders and a weighted average number of ordinary shares outstanding, calculated as follows: Group 2014 RM’000 Profit for the year attributable to owners

Karex_AR2014.indb 92

34,585

10/24/14 5:55 PM

093

Making Our Mark

14. BASIC EARNINGS PER ORDINARY SHARE

Weighted average number of ordinary shares Group 2014 ‘000 304,471

Weighted average number of ordinary shares at 30 June

Group 2014 11.36

Basic earnings per ordinary share (sen)

Diluted earnings per ordinary share



The diluted earnings per share is the same as basic earnings per share as there are no dilutive potential ordinary shares outstanding.

15. DIVIDENDS

After the reporting period, the following dividend was proposed by the Directors. The dividend will be recognised in subsequent financial period upon approval by the owners of the Company.

2014 – Final, single tier

Sen per share

Total amount RM’000

2.5

10,125

16. ACQUISITION OF PROPERTY, PLANT AND EQUIPMENT Acquisition of property, plant and equipment represents:Group 1.7.2013 to 30.6.2014 RM’000 Current year additions Less: Amount financed by finance lease Interest capitalised

Karex_AR2014.indb 93

Company 27.9.2012 1.7.2013 to to 30.6.2013 30.6.2014 RM’000 RM’000

12,552 (2,403)

– –

– –

(235)

–

–

9,914

–

–

10/24/14 5:55 PM

094

KAREX Berhad

Annual Report 2014

Notes to the Financial Statements 17. OPERATING SEGMENTS Group

The Group’s main business activities comprise investment holding, manufacture and sale of condoms, latex probe covers, sterile catheters and other rubber products. These activities are principally located in Malaysia and Thailand. Intersegment pricing is determined based on negotiated .



Performance is measured based on segment profit before tax and interest, as included in the internal management reports that are reviewed by the Group’s Chief Executive Officer (“CEO”), who is the Group’s chief operating decision maker. Segment profit is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries.



Segment assets



The total of segment asset is measured based on all assets of a segment, as included in the internal management reports that are reviewed by the Group’s CEO. Segment total asset is used to measure the return of assets of each segment.

Segment profit

Condoms 2014 RM’000

Catheters 2014 RM’000

Probe covers, lubricating jelly and others 2014 RM’000

40,305

868

3,422

44,595

205,327

6,419

8,181

219,927

(2,006) (720)

– –

– –

(2,006) (720)

(4,920) (1,535) 1,329

(170) (26) 3

(42) – –

(5,132) (1,561) 1,332

229,277

7,841

3,199

240,317

12,048

342

162

12,552

Total 2014 RM’000

Included in the measure of segment profit are: Revenue from external customers Included in the measure of segment profit are: Allowance for slow moving inventories Impairment loss on trade receivables Not included in the measure of segment profit but provided to Chief Executive Officer: Depreciation Finance costs Finance income Segment assets Not included in the measure of segment assets are: Additions to non-current assets other than financial instruments and deferred tax assets

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095

Making Our Mark

17. OPERATING SEGMENTS

Reconciliations of reportable segment revenues, profit or loss, assets and other material items: Group 2014 RM’000 Profit or loss Total profit for reportable segments Finance costs Finance income Unallocated expenses: – Corporate expenses

44,595 (1,561) 1,332

Consolidated profit before tax

41,541

(2,825)

Total assets Total assets for reportable segments Other non-reportable segment

240,317 49,547

Consolidated total assets

289,864



Major customers



Revenue from one customer exceeding 10% of the Group’s revenue is approximately RM26.3 million.

18. FINANCIAL INSTRUMENTS 18.1 Categories of financial instruments The table below provides an analysis of financial instruments categorised as follows: (a) Loans and receivables (“L&R”); (b) Financial liabilities measured at amortised cost (“FL”); and (c) Derivatives used for hedging.

Group

Carrying amount RM’000

L&R RM’000

FL RM’000

Derivatives used for hedging RM’000

77,487 85,592

77,487 85,592

– –

– –

163,079

163,079

–

–

(38,887) (21,594)

– –

(38,815) (21,594)

(72) –

(60,481)

–

(60,409)

(72)

2014 Financial assets Trade and other receivables Cash and cash equivalents

Financial liabilities Trade and other payables, including derivatives Loan and borrowings

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10/24/14 5:55 PM

096

KAREX Berhad

Annual Report 2014

Notes to the Financial Statements 18. FINANCIAL INSTRUMENTS (CONTINUED) 18.1 Categories of financial instruments (continued)

Company

Carrying amount RM’000

L&R RM’000

FL RM’000

Derivatives used for hedging RM’000

32,357 49,534

32,357 49,534

– –

– –

81,891

81,891

–

–

(173)

–

(173)

–

2014 Financial assets Trade and other receivables Cash and cash equivalents

Financial liabilities Trade and other payables 2013 Financial assets Trade and other receivables Cash and cash equivalents

945 –*

945 –*

– –

– –

945

945

–

–

(1,577)

–

(1,577)

–

Financial liabilities Other payables * Represent RM2.00 18.2 Net gains and losses arising from financial instruments

Net gains/(losses) on: Fair value through profit or loss Loan and receivables Financial liabilities measured at amortised cost

Group 2014 RM’000

2014 RM’000

Company 2013 RM’000

(72) (125) (1,561)

– 1,565 –

– – –

(1,758)

1,565

–

18.3 Financial risk management The Group has exposure to the following risks from its use of financial instruments: • Credit risk • Liquidity risk • Market risk

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097

Making Our Mark

18. FINANCIAL INSTRUMENTS 18.4 Credit risk Credit risk is the risk of a financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group’s and the Company’s exposure to credit risk arises principally from its receivables from customers, amounts due from subsidiaries and related parties. Receivables Risk management objectives, policies and processes for managing the risk The Board of Directors is of the view that the exposure to credit risk is managed through the direct involvement of Executive Directors monitoring on an on-going basis is deemed sufficient. Exposure to credit risk, credit quality and collateral As at the end of the reporting period, the maximum exposure to credit risk arising from receivables is represented by the carrying amounts in the statement of financial position. Management has taken reasonable steps to ensure that receivables that are neither past due nor impaired are measured at their realisable values. A significant portion of these receivables are regular customers that have been transacting with the Group. The Group uses ageing analysis to monitor the credit quality of the receivables. Any receivables having significant balances past due more than 60 days, which are deemed to have higher credit risk, are monitored individually. Impairment losses The Group maintains an ageing analysis in respect of trade receivables and related parties only. The ageing of trade receivables as at the end of the reporting period was:

2014

Gross RM’000

Individual impairment RM’000

Net RM’000

51,891 9,995 2,946 8,197

– – – (2,191)

51,891 9,995 2,946 6,006

73,029

(2,191)

70,838

Group Not past Past due Past due Past due

due 0 – 30 days 31 – 60 days more than 60 days

Included in the past due more than 60 days of the Group is amount receivables from related parties of RM5,754. In determining whether additional allowance is required to be made, the Group considers financial background of the customers and related parties, past transactions and other specific reasons causing these balances to be past due more than 60 days. The customers and related parties are regular customers that have been transacting with the Group. The Group do not consider it necessary to impair further the receivable amount and is satisfied that the amount net of allowance can be recovered.

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098

KAREX Berhad

Annual Report 2014

Notes to the Financial Statements 18. FINANCIAL INSTRUMENTS (CONTINUED) 18.4 Credit risk (continued) Receivables (continued) The movements in the allowance for impairment losses of receivables during the financial year were: Group 2014 RM’000 At Acquisitions Impairment loss recognised Exchange difference

1,438 720 33

At 30 June

2,191

The allowance in respect of trade receivables is used to record impairment losses. Unless the Group is satisfied that recovery of the amount is possible, the amount considered irrecoverable is written off against the receivable directly. Inter company balances Risk management objectives, policies and processes for managing the risk The Company’s exposure to credit risk arising from unsecured advances provide to its subsidiaries. The Company monitors the financial positions of subsidiaries in assessing its credit risk. Exposure to credit risk, credit quality and collateral As at the end of the reporting period, the maximum exposure to credit risk is represented by their carrying amounts in the statement of financial position. Impairment losses As at the end of the reporting period, there was no indication that the amounts due from subsidiaries are not recoverable. Financial guarantees Risk management objectives, policies and processes for managing the risk The Company provides unsecured financial guarantees to banks in respect of banking facilities granted to a subsidiary. The Company monitors on an ongoing basis the results of the subsidiary and repayments made by the subsidiary. Exposure to credit risk, credit quality and collateral The maximum exposure to credit risk amounts to RM5,950,411 (2013: NIL) representing the outstanding banking facilities of the subsidiary as at the end of the reporting period. As at the end of the reporting period, there was no indication that the subsidiary would default on repayment. The financial guarantees have not been recognised since the fair value on initial recognition was not material.

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099

Making Our Mark

18. FINANCIAL INSTRUMENTS 18.5 Liquidity risk Liquidity risk is the risk that the Group and the Company will not be able to meet its financial obligations as they fall due. The Group’s and the Company’s exposure to liquidity risk arises principally from its various payables, loans and borrowings. The Group and the Company maintains a level of cash and cash equivalents and bank facilities deemed adequate by the management to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they fall due. Maturity analysis The table below summarises the maturity profile of the Group’s and of the Company’s financial liabilities as at the end of the reporting period based on undiscounted contractual payments:

Carrying amount RM’000

Contractual interest rate/ coupon %

Contractual cash flows RM’000

Under 1 year RM’000

1–2 years RM’000

2–5 years RM’000

More than 5 years RM’000

Group 2014 Non-derivative financial liabilities Trade and other payables Secured term loans

38,815 12,205

– 5.75 – 6.88 1.25 + BLR

38,815 14,379

38,815 4,176

– 5,387

– 2,445

– 2,371

Secured finance lease liabilities Secured bankers’ acceptance

2,695 6,694

1.98 – 3.75 2.20 – 4.88

2,886 6,694

1,094 6,694

1,570 –

222 –

– –

62,774

50,779

6,957

2,667

2,371

22,876 (22,804)

22,876 (22,804)

– –

– –

– –

62,846

50,851

6,957

2,667

2,371

60,409 Derivative financial liabilities Forward exchange contracts (gross settled): Outflow Inflow

72 –

– –

60,481 Company 2014

Karex_AR2014.indb 99

Non-derivative financial liabilities Trade and other payables

173

–

173

173

–

–

–

2013 Non-derivative financial liabilities Trade and other payables

1,577

–

1,577

1,577

–

–

–

10/24/14 5:55 PM

100

KAREX Berhad

Annual Report 2014

Notes to the Financial Statements 18. FINANCIAL INSTRUMENTS (CONTINUED) 18.6 Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates that will affect the Group’s and the Company’s financial position or cash flows. Currency risk The Group is exposed to foreign currency risk on sales and purchases that are denominated in a currency other than the functional currency of the Group. The currencies giving rise to this risk are primarily US Dollar (“USD”), Euro Dollar (“EURO”) and Great Britain Pound (“GBP”). Risk management objectives, policies and processes for managing the risk The Group uses forward exchange contracts to hedge its foreign currency risk from time to time. Most of the forward exchange contracts have maturities of less than one year after the end of the reporting period. Where necessary, the forward exchange contracts are rolled over at maturity. Exposure to foreign currency risk The Group’s exposure to foreign currency (a currency which is other than the functional currency of the Company) risk, based on carrying amounts as at the end of the reporting period was:

2014

USD RM’000

Denominated in EURO RM’000

GBP RM’000

Group Trade receivables Other receivables Cash and cash equivalents Trade payables Other payables Forward exchange contracts

69,949 116 8,825 (11,761) (1,550) (5,170)

605 – 798 (134) – –

– – 162 (9) – (17,633)

Net exposure

60,409

1,269

(17,480)

Currency risk sensitivity analysis A 10% strengthening of the Ringgit Malaysia (“RM”) against the following currencies at the end of the reporting period would have increased/(decreased) post-tax profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecasted sales and purchases.

2014

USD RM’000

Denominated in EURO RM’000

GBP RM’000

Group Profit or (loss)

(4,531)

(95)

1,311

A 10% weakening of the RM against the above currencies at the end of the reporting period would have had equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.

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Making Our Mark

18. FINANCIAL INSTRUMENTS 18.6 Market risk Interest rate risk The Group’s fixed rate borrowings are exposed to a risk of change in their fair value due to changes in interest rates. The Group’s variable rate borrowings are exposed to a risk of change in cash flows due to changes in interest rates. Short term receivables and payables are not significantly exposed to interest rate risk. Risk management objectives, policies and processes for managing the risk There is no formal hedging policy with respect to interest rate exposure. Exposure to interest rate is monitored on an ongoing basis and the Group endeavours to keep the exposure at an acceptable level. Exposure to interest rate risk The interest rate profile of the Group’s and the Company’s significant interest-bearing financial instruments, based on carrying amounts as at the end of the reporting period was:

Fixed rate instruments Financial assets Financial liabilities

Floating rate instruments Financial liabilities

Group 2014 RM’000

2014 RM’000

Company 2013 RM’000

56,355 (9,389)

47,127 –

– –

46,966

47,127

–

(12,205)

–

–

Interest rate risk sensitivity analysis (a) Fair value sensitivity analysis for fixed rate instruments

The Group and the Company does not for any fixed rate financial assets and liabilities at fair value through profit or loss, and the Group and the Company does not designate derivatives as hedging instruments under a fair valued hedged ing model. Therefore, a change in interest rates at the end of the reporting period would not affect profit or loss.

(b) Cash flow sensitivity analysis for variable rate instruments

Karex_AR2014.indb 101

A change of 100 basis points (“bp”) in interest rates at the end of the reporting period would have increased/ (decreased) the Group post-tax results by RM91,000. This analysis assumes that all other variables remained constant.

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102

KAREX Berhad

Annual Report 2014

Notes to the Financial Statements 18. FINANCIAL INSTRUMENTS (CONTINUED) 18.7 Fair value information The carrying amounts of cash and cash equivalents, short term receivables and payables and short term borrowings approximate fair values due to the relatively short term nature of these financial instruments. The carrying amounts of the finance lease liabilities approximates their fair value as there is no material change in the interest charged on similar kind of borrowings in the market. The carrying amount of the floating rate term loans approximates its fair values as its effective interest rate changes accordingly to movements in the market interest rate. No disclosure of fair value is made for amounts due from subsidiaries, as it is not practicable to determine their fair values with sufficient reliability since these balances have no fixed of repayment and is repayable upon demand. It was not practicable to estimate the fair value of the Company’s investment in unquoted shares due to the lack of comparable quoted market prices in an active market and the fair value cannot be reliably measured. The table below analyses financial instruments carried at fair value for which fair value is disclosed, together with their fair values and carrying amounts shown in the statement of financial position. Fair value of financial instruments carried at fair value Level 2 RM’000

Total fair value

Carrying amount

RM’000

RM’000

72

72

2014 Group Financial liabilities Forward exchange contracts

72

Level 1 fair value Level 1 fair value is derived from quoted price (unadjusted) in active markets for identical financial assets or liabilities that the entity can access at the measurement date. Level 2 fair value Level 2 fair value is estimated using inputs other then quoted prices included within Level 1 that are observable for the financial assets or liabilities, either directly or indirectly. Derivatives The fair value of forward exchange contracts is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate (based on AA credit-rated bonds). Level 3 fair value Level 3 fair value is estimated using unobservable inputs for the financial assets and liabilities.

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103

19. CAPITAL MANAGEMENT The Group’s objectives when managing capital is to maintain a strong capital base and safeguard the Group’s ability to continue as a going concern, so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Directors monitor and are determined to maintain an optimal debt-to-equity ratio to operate effectively with minimal external borrowings. During 2014, the Group’s strategy, was to maintain the debt-to-equity ratio at the lower end range within 0.5 to 1.0. The debt-to-equity ratio at 30 June 2014 was as follows: Group 2014 RM’000 Total borrowings (Note 10) Less: Cash and cash equivalents (Note 8)

21,594 (85,592) (63,998)

Total equity

223,332

No disclosure is made for debt-to-equity ratio as the Group is in a net positive cash flow position as at 30 June 2014. There were no changes in the Group’s approach to capital management during the financial year.

20. CAPITAL COMMITMENT Group 2014 RM’000 Property, plant and equipment Authorised but not contracted for Contracted but not provided for

Karex_AR2014.indb 103

597 1,577

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104

KAREX Berhad

Annual Report 2014

Notes to the Financial Statements 21. OPERATING LEASES Leases as lessee Group 2014 RM’000 Non-cancellable operating rentals are payable as follows: 93 371 1,686

Within one year Between one and five years More than five years

2,150 The Group has 3 leasehold agreements for 3 plots of land being used for its factory and warehouse. Under the term of the agreements, the Company has to pay annual rental fee at the amount and increasing rates stated on the agreements. The rental fees for year 2014 are RM71,148. The agreements will expire in April 2033, February 2036 and October 2042, respectively.

22. RELATED PARTIES

Identity of related parties For the purposes of these financial statements, parties are considered to be related to the Group if the Group or the Company has the ability, directly or indirectly, to control or tly control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group or the Company and the party are subject to common control or common significant influence. Related parties may be individuals or other entities. Related parties also include key management personnel defined as those persons having authority and responsibility for planning, directing and controlling the activities of the Group either directly or indirectly. The key management personnel include all the Directors of the Group, and certain of senior management of the Group. The Group has related party relationship with its subsidiaries and key management personnel. Significant related party transactions The significant related party transactions of the Group and the Company, other than key management personnel compensation (see Note 12), are as follows: Group 2014 RM’000

2014 RM’000

Company 2013 RM’000

– –

17,371 445

– –

603

–

–

A. Subsidiary Dividend income Interest income B. Entities in which certain Directors/Directors’ close family have substantial financial interest Sales of goods

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105

23. ACQUISITION OF SUBSIDIARIES

In conjunction with, and as an integral part of the listing of the Company’s shares on the Main Market of Bursa Malaysia Securities Berhad, the Company undertook the following acquisitions of entities in which certain Director and their close family have interests: (i) The acquisitions of Karex Industries Sdn. Bhd. (“KISB”), Innolatex (Thailand) Limited (“ITL”), Innolatex Sdn. Bhd. (“ISB”) and Hevea Medical Sdn. Bhd. (“HMSB”) by the Company and Uro Technology Sdn. Bhd. (“UTSB”) by KISB, for an aggregated consideration of approximately RM57.4 million were settled via the issuance of 229.5 million shares of the Company to their respective shareholders on 23 September 2013. Details of the acquisitions are as follows: (a) The Company acquired the entire issued and paid-up share capital of KISB for a purchase consideration of RM35,474,998 satisfied via the issuance of 141,899,992 shares of the Company; (b) The Company acquired the entire issued and paid-up share capital of ITL for a purchase consideration of RM12,500,000 satisfied via the issuance of 50,000,000 shares of the Company; (c) The Company acquired the entire issued and paid-up share capital of ISB for a purchase consideration of RM4,750,000 satisfied via the issuance of 19,000,000 shares of the Company; (d) The Company acquired the entire issued and paid-up share capital of HMSB for a purchase consideration of RM3,300,000 satisfied via the issuance of 13,200,000 shares of the Company; and (e) KISB acquired the remaining 40% equity interest in UTSB not already owned by KISB for a purchase consideration of RM1,350,000 satisfied via the issuance of 5,400,000 shares of the Company. (the above transactions are collectively refer to as “Acquisitions”) The Acquisitions were completed on 23 September 2013. Identifiable assets acquired and liabilities assumed: RM’000 Property, plant and equipment Deferred tax assets Inventories Trade and other receivables Tax recoverable Cash and cash equivalents Loan and borrowings Deferred tax liabilities Trade and other payables Taxation

79,333 706 47,798 58,676 131 26,736 (45,024) (5,034) (40,141) (2,295)

Net assets acquired Merger reserve

120,886 (63,511)

Consideration paid by issuance of shares of the Company

57,375

Net cash inflows arising from Acquisitions are as follows: Cash and cash equivalents acquired Less: Pledged deposits

26,736 (7,585) 19,151

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106

KAREX Berhad

Annual Report 2014

Notes to the Financial Statements 23. ACQUISITION OF SUBSIDIARIES (CONTINUED) (ii) As the Acquisitions were completed on 23 September 2013, the Group did not consolidate the financial performance of these subsidiaries from 23 September 2013 to 30 September 2013 due to impracticability of an ing cut-off date other than month end and the effect is not significant to the results for the financial year ended 30 June 2014. The Group has consolidated the results from 1 October 2013 onwards.

If the Group has existed since the last financial year, management estimate that the consolidated results would have been as follows: 2014 RM’000

2013 RM’000

285,332 (203,703)

231,389 (171,472)

Gross profit Other income Distribution expenses istrative expenses Other expenses

81,629 758 (11,558) (12,488) (3,111)

59,917 1,988 (9,698) (10,068) (3,645)

Results from operating activities

55,230

38,494

Finance income Finance costs

1,332 (2,134)

150 (2,500)

(802)

(2,350)

Profit before tax Tax expense

54,428 (9,260)

36,144 (7,116)

Profit for the year

45,168

29,028

Revenue Cost of goods sold

Net finance costs

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Making Our Mark

24. SIGNIFICANT EVENTS 24.1 In conjunction with, and as an integral part of the listing of the Company’s shares on the Main Market of Bursa Malaysia Securities Berhad, the following listing scheme was undertaken by the Company: 24.1.1 Acquisitions The acquisitions of KISB, ITL, ISB, HMSB by the Company and the remaining interest of UTSB by KISB, for an aggregated consideration of approximately RM57.4 million were settled via the issuance of approximately 229.5 million shares of the Company to their respective shareholders on 23 September 2013. Details of the Acquisitions are as disclosed in Note 23(i). 24.1.2 Initial Public Offering The Initial Public Offering (“IPO”) comprises the Institutional Offering and Retail Offering for a total of 67,500,000 shares of which 27,000,000 shares were offered for sale by the shareholders and Public Issue of 40,500,000 new shares by the Company.

Listing on Bursa Securities The Company’s entire enlarged issued and paid-up share capital of RM67,500,000 comprising 270,000,000 ordinary shares of RM0.25 each were listed on the Main Market of Bursa Malaysia Securities Berhad on 6 November 2013.

24.2 Bonus Issue

On 31 March 2014, the Company undertook a bonus issue of 135,000,000 new ordinary shares of RM0.25 each (“Bonus Shares”) credited as fully paid up on the basis of 1 Bonus Share for every 2 existing shares held.

24.3 Memorandum of Understanding

Karex_AR2014.indb 107

On 8 August 2014, the Company entered into a Memorandum of Understanding (“MoU”) with the shareholder of Global Protection Corp. (“GP”) for the purpose of the proposed acquisition of 55% of the issued and paid-up share capital in GP by the Company at a purchase consideration of USD6.6 million.

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108

KAREX Berhad

Annual Report 2014

Notes to the Financial Statements 25. SUPPLEMENTARY FINANCIAL INFORMATION ON THE BREAKDOWN OF REALISED AND UNREALISED PROFITS OR LOSSES The breakdown of the retained earnings/(accumulated losses) of the Group and of the Company as at 30 June, into realised and unrealised profits or losses, pursuant to Paragraphs 2.06 and 2.23 of Bursa Malaysia Main Market Listing Requirements, are as follows: Group 2014 RM’000

2014 RM’000

Company 2013 RM’000

Total retained earnings/(accumulated losses) of the Company and its subsidiaries: – realised – unrealised

35,427 (418)

15,349 –

(632) –

Less: Consolidation adjustments

35,009 (1,774)

15,349 –

(632) –

Total retained earnings/(accumulated losses)

33,235

15,349

(632)

The determination of realised and unrealised profits or losses is based on the Guidance of Special Matter No. 1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosures Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, issued by the Malaysian Institute of ants on 20 December 2010.

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LIST OF PROPERTIES Land area/ built up area (sq. ft.)

Description/ Existing Use

Date of acquisition

No.

Address

1.

Lot 594, Persiaran Raja Lumu Pandamaran Industrial Estate 42000 Port Klang, Selangor

43,560/47,473

3-storey building which we use as office, factory and warehouse

20/10/2003

Leasehold 99 years

September 2074

26

2,727

2.

PTD 7906, Taman Pontian Jaya Batu 34 Jalan Johor 82000 Pontian, Johor

9,354/5,460

1½ storey semi-detached building which we use as office, factory and warehouse

5/4/2000

Freehold

–

21

529

3.

PTD 7907, Taman Pontian Jaya Batu 34 Jalan Johor 82000 Pontian, Johor

10,807/5,460

1½ storey semi-detached building which we use as office, factory and warehouse

5/4/2000

Freehold

–

21

529

4.

Lot 1235, Benut 82000 Pontian, Johor

225,418/–

Vacant land

10/9/2002

Freehold

–

–

813

5.

PTD 7915, Taman Pontian Jaya Batu 34 Jalan Johor 82000 Pontian, Johor

9,720/5,460

1½ storey semi-detached building which we use as warehouse

22/2/2005

Freehold

–

21

622

6.

Lot 2767, Jalan Johor 82000 Pontian, Johor

781,335/–

Building under construction

21/10/2010

Freehold

–

–

10,508

7.

Lot 591, Persiaran Raja Lumu Pandamaran Industrial Estate, 42000 Port Klang, Selangor Darul Ehsan

43,560/28,908

1½ store building which we use as warehouse

9/3/2012

Leasehold 99 years

September 2074

23

6,483

8.

PTD 8746 Taman Perindustrian Pontian 82000 Pontian Johor

61,680/–

Vacant land

14/10/2005

Leasehold 60 years

November 2056

–

852

9.

45,047/41,925 Land Slot No.: E1-6 Export Processing Zone, Southern Industrial Estate Village 4, Tumbol Chalung, Amphur Hat Yai, Songkhla

1½ storey building which we use as office, factory and warehouse

30/4/2003

Leasehold 30 years

April 2033

9

1,203

10.

45,047/29,891 Land Slot No.: E1-7 Export Processing Zone, Southern Industrial Estate Village 4, Tumbol Chalung, Amphur Hat Yai, Songkhla

Single storey building which we use as office, factory and warehouse

9/2/2003

Leasehold 30 years

February 2036

9

1,030

11.

45,047/57,307 Land Slot No.: E1-8 Export Processing Zone, Southern Industrial Estate Village 4, Tumbol Chalung, Amphur Hat Yai, Songkhla

Single storey building which we use as warehouse

1/11/2012

Leasehold 30 years

October 2042

–

1,890

Karex_AR2014.indb 109

Tenure

Approximate Net book value age of buildings at 30 June 2014 Year of expiry (years) (RM’000)

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110

KAREX Berhad

Annual Report 2014

ANALYSIS OF SHAREHOLDINGS AS AT 1 OCTOBER 2014

Authorised Share Capital

: RM500,000,000.00 divided into 2,000,000,000 Ordinary Shares of RM0.25 each

Issued and Paid-up Share Capital : RM101,250,000 divided into 405,000,000 Ordinary Shares of RM0.25 each Class of Shares

: Ordinary Share of RM0.25 each

Voting Rights

: One vote per ordinary share

Number of Shareholders

: 3,439

DISTRIBUTION OF SHAREHOLDINGS No. of Shareholders

No. of Shareholders

Less than 100 100-1000 1,001-10,000 10,001-100,000 100,001 to less than 5% of issued shares 5% and above of issued shares

54 667 2,039 544 133 2

1.57 19.40 59.29 15.81 3.87 006

1,324 520,498 8,634,948 15,993,857 209,516,059 170,333,314

0.00 0.13 2.13 3.95 51.73 42.06

Total

3,439

100.00

405,000,000

100.00

Size of Shareholdings

No. of % of Issued Shares Share Capital

SUBSTANTIAL SHAREHOLDERS The following are the substantial shareholders of the Company according to the of Substantial Shareholders.

Name of Shareholders Karex One Limited - HSBC Nominees (Asing) Sdn Bhd (Pledged securities BNP Paribas Wealth Management Singapore for Karex One Limited) Lam Yiu Pang Albert

Direct Interest No. of Shares

%

141,750,000

35.00

28,583,314

7.06

Indirect Interest No. of Shares –

5,700,000*

% –

1.41

* Deemed interested by virtue of his interest in AJNA Holdings Limited pursuant to Section 6A of the Companies Act, 1965

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Making Our Mark

DIRECTORS’ SHAREHOLDINGS Name of Directors Tan Sri Dato’ Seri Utama Arshad bin Ayub Dato’ Dr. Ong Eng Long @ Ong Siew Chuan Goh Siang Goh Leng Kian Goh Yen Yen Lam Jiuan Jiuan Wong Yien Kim Law Ngee Song

Direct Interest No. of Shares 150,000 150,000 10,508,379 16,208,385 11,333,314 8,483,314 – 150,000

% 0.04 0.04 2.59 4.00 2.80 2.09 – 0.04

Indirect Interest No. of Shares – – 141,750,000(1) 141,750,000(1) 141,750,000(1) 147,450,000(2) – –

% – – 35.00 35.00 35.00 36.41 – –

(1)

Deemed interested by virtue of his/her equity interest in Karex One Limited pursuant to Section 6A of the Companies Act, 1965 (2) Deemed interested by virtue of her equity interest in Karex One Limited and AJNA Holdings Limited pursuant to Section 6A of the Companies Act, 1965

Karex_AR2014.indb 111

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112

KAREX Berhad

Annual Report 2014

THIRTY LARGEST SHAREHOLDERS AS AT 1 OCTOBER 2014

No. Name of Shareholders 1

2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

19 20 21 22 23 24 25 26 27 28 29 30

No. of Shares

%

HSBC NOMINEES (ASING) SDN BHD PLEDGED SECURITIES BNP PARIBAS WEALTH MANAGEMENT SINGAPORE FOR KAREX ONE LIMITED LAM YIU PANG ALBERT GOH LENG KIAN CARTABAN NOMINEES (ASING) SDN BHD SSBT FUND HG22 FOR SMALLCAP WORLD FUND, INC. GOH YIN GOH MIAH KIAT GOH YEN YEN GOH AI NOI MAYBANK NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES FOR LIM BENG GUAN GOH SIANG LAM JIUAN JIUAN HEKTAR SEMANGAT SDN BHD LIM POH CHUAN CITIGROUP NOMINEES (TEMPATAN) SDN BHD EXEMPT AN FOR AIA BHD. CITIGROUP NOMINEES (TEMPATAN) SDN BHD EMPLOYEES PROVIDENT FUND BOARD (AMUNDI) AJNA HOLDINGS LIMITED HSBC NOMINEES (ASING) SDN BHD EXEMPT AN FOR J.P. MORGAN BANK LUXEMBOURG S.A. HSBC NOMINEES (ASING) SDN BHD EXEMPT AN FOR JPMORGAN CHASE BANK, NATIONAL ASSOCIATION (NORGES BK LEND) CIMB GROUP NOMINEES (TEMPATAN) SDN BHD CIMB BANK BERHAD (EDP 2) CITIGROUP NOMINEES (TEMPATAN) SDN BHD KUMPULAN WANG PERSARAAN (DIPERBADANKAN) (KENANGA) CIMSEC NOMINEES (TEMPATAN) SDN BHD CIMB BANK FOR SIEW MUN WAI (MH7236) OMBAK TEK SDN BHD SEN BUMIJAYA SDN. BHD. CITIGROUP NOMINEES (TEMPATAN) SDN BHD ALLIANZ LIFE INSURANCE MALAYSIA BERHAD (P) HLIB NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES FOR LEE SOON KHEAN MAYBANK NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITES FOR GOH SIANG (514897060156) CIMB GROUP NOMINEES (TEMPATAN) SDN BHD CIMB COMMERCE TRUSTEE BERHAD - KENANGA GROWTH FUND MAYBANK INVESTMENT BANK BERHAD IVT (9) DB (MALAYSIA) NOMINEE (ASING) SDN BHD SSBT FUND W4B0 FOR WASATCH INTERNATIONAL OPPORTUNITIES FUND HSBC NOMINEES (ASING) SDN BHD SEB LUX FOR ABB CAPITAL SELECTION ASIAN SMALLER COMPANIES FUND

141,750,000

35.00

28,583,314 16,208,385 13,596,000

7.06 4.00 3.36

11,483,320 11,333,377 11,333,314 11,183,314 9,450,000

2.84 2.80 2.80 2.76 2.33

8,508,379 8,483,314 6,620,820 6,000,000 5,849,850

2.10 2.09 1.63 1.48 1.44

5,800,000

1.43

5,700,000 4,603,500

1.41 1.14

4,287,750

1.06

3,573,400

0.88

3,187,950

0.79

3,000,000

0.74

2,721,220 2,700,000 2,098,500

0.67 0.67 0.52

2,061,200

0.51

2,000,000

0.49

1,959,200

0.48

1,760,000

0.43

1,754,100

0.43

1,708,900

0.42

TOTAL

339,299,107

83.78

Karex_AR2014.indb 112

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113

Making Our Mark

NOTICE OF ANNUAL GENERAL MEETING NOTICE IS HEREBY GIVEN THAT the Second Annual General Meeting (“AGM”) of Karex Berhad (“Karex” or “Company”) will be held at Setia City Convention Centre, No. 1, Jalan Setia Dagang AG U13/AG, Setia Alam, Seksyen U13, 40170 Shah Alam, Selangor Darul Ehsan on Thursday, 27 November 2014 at 10.00 a.m. for the purpose of considering the following businesses:-

AGENDA

SPECIAL BUSINESS

ORDINARY BUSINESS

To consider and if thought fit, the following resolutions with or without any modifications:

1.

2.

To receive the Audited Financial Statements for the financial year ended 30 June 2014 together with the Reports of the Directors and the Auditors thereon. (Refer to Explanatory Note (a)) To re-elect the following Directors who are retiring in accordance with the Article 95 the Company’s Articles of Association, and being eligible, have offered themselves for re-election: (i)

Goh Leng Kian

(Ordinary Resolution 1)

(ii)

Lam Jiuan Jiuan

(Ordinary Resolution 2)

(iii) Law Ngee Song 3.

5.

6.



Authority to Issue Shares Pursuant to Section 132D of the Companies Act, 1965 (“the Act”)



“THAT subject to Section 132D of the Act, and approvals of the relevant governmental/regulatory authorities, the Directors be and are hereby empowered to issue shares in the Company, at any time to such persons and upon such and conditions and for such purposes as the Directors may, in their absolute discretion, deem fit, provided that the aggregate number of shares issued pursuant to this resolution does not exceed ten per centum (10%) of the issued and paid-up share capital (excluding treasury shares) of the Company for the time being and the Directors be and are also empowered to obtain the approval for the listing of and quotation for the additional shares so issued on Bursa Malaysia Securities Berhad; AND THAT such authority shall commence immediately upon the ing of this resolution and continue to be in force until the conclusion of the next Annual General Meeting of the Company.” (Ordinary Resolution 10)

(Ordinary Resolution 3)

To re-appoint the following Directors and to hold office until the conclusion of the next Annual General Meeting pursuant to Section 129(6) of the Companies Act, 1965 and being eligible, has offered themselves for re-appointment: (i)

Tan Sri Dato’ Seri Utama Arshad bin Ayub (Ordinary Resolution 4)

(ii)

Dato’ Dr. Ong Eng Long @ Ong Siew Chuan (Ordinary Resolution 5)

(iii) Goh Yen Yen 4.

7.

(Ordinary Resolution 6)

To approve the payment of Directors’ fees of RM275,000.00 for the financial year ended 30 June 2014. (Ordinary Resolution 7) To approve the payment of a final single tier dividend of 2.5 sen per ordinary share of RM0.25 each for the financial year ended 30 June 2014. (Ordinary Resolution 8) To re-appoint Messrs. KPMG as Auditors of the Company until the conclusion of the next AGM and authorise the Directors to fix their remuneration. (Ordinary Resolution 9)

Karex_AR2014.indb 113

8.

To transact any other business of which due notice shall have been given in accordance with the Companies Act, 1965.

NOTICE OF DIVIDEND ENTITLEMENT NOTICE IS HEREBY GIVEN THAT subject to the approval of the shareholders at the Second AGM, a final single tier dividend of 2.5 sen per ordinary share of RM0.25 each for the financial year ended 30 June 2014, if approved, will be paid on 22 December 2014 to holders of ordinary shares ed in the Record of Depositors of the Company at the close of business on 12 December 2014. A depositor shall qualify for entitlement to the dividend only in respect of:a)

Securities transferred into the Depositor’s Securities before 4.00 p.m. on 12 December 2014 in respect of transfers; and

b)

Securities bought on the Bursa Malaysia Securities Berhad (“Bursa Securities”) on a cum entitlement basis according to the Rules of the Bursa Securities.

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114

KAREX Berhad

Annual Report 2014

Notice of Annual General Meeting BY ORDER OF THE BOARD

LIM LEE KUAN (MAICSA 7017753) ANNA LEE AI LENG (LS 0009729) Company Secretaries

EXPLANATORY NOTES ON ORDINARY AND SPECIAL BUSINESS a)

Item 1 of the Agenda Audited Financial Statements for the financial year ended 30 June 2014.



The Audited Financial Statements under this agenda item is meant for discussion only as the provision of Section 169(1) of the Companies Act, 1965 (“the Act”) does not require a formal approval of the shareholders and hence this item is not put forward for voting.

b)

Ordinary Resolutions 4, 5 and 6 Re-appointment of Directors in accordance with Section 129(6) of the Companies Act, 1965



The re-appointment of Tan Sri Dato’ Seri Utama Arshad bin Ayub, Dato’ Dr. Ong Eng Long @ Ong Siew Chuan and Madam Goh Yen Yen, persons over the age of 70 years, as Directors of the Company to hold office until the conclusion of the next AGM of the Company shall take effect if the proposed Resolutions 4, 5 and 6 have been ed at the 2nd AGM.

c)

Ordinary Resolution 10 Authority to Issue Shares pursuant to Section 132D of the Act



The proposed Ordinary Resolution 10, if ed, will give flexibility to the Directors of the Company to issue shares up to a maximum of ten per centum (10%) of the issued share capital of the Company at the time of such issuance of shares and for such purposes as they consider would be in the best interest of the Company without having to convene separate general meetings. This authority, unless revoked or varied at a general meeting, will expire at the conclusion of the next Annual General Meeting of the Company.



This new mandate, if approved, will provide flexibility to the Company for any possible fund raising activities, including but not limited to further placement of shares, for purpose of funding current and/or future investment projects, working capital, repayment of borrowings and/or acquisition(s).

Kuala Lumpur Dated this 4th day of November 2014

Notes: 1.

2.

3.

4.

A member entitled to attend and vote at this meeting is entitled to appoint a proxy or in the case of a corporation, to appoint a duly authorised representative to attend and vote in his/her place. A proxy may but need not be a member of the Company and the provisions of Section 149(1)(b) of the Companies Act, 1965 shall not apply to the Company. The Form of Proxy shall be in writing under the hand of the appointer or of his/her attorney duly authorised in writing. If the appointer is a corporation, it must be executed under its common seal or under the hand of its officer or its attorney duly authorised on its behalf. A member may appoint two or more proxies to attend and vote at the general meeting of the Company. Where a member appoints two or more proxies, the appointment of such proxies shall not be valid unless the Member specifies the proportion of his/her shareholding to be represented by each such proxy. The Form of Proxy, together with the power of attorney (if any) under which it is signed or a duly notarial certified copy thereof, must be deposited at the ed office of the Company at 10th Floor, Menara Hap Seng, No. 1 & 3 Jalan P. Ramlee, 50250 Kuala Lumpur, Wilayah Persekutuan not less than fortyeight (48) hours before the time for holding this meeting or any adjournment thereof.

5.

Where a member of the Company is an exempt authorised nominee which holds ordinary shares in the Company for multiple beneficial owners in one securities (“Omnibus ”), there is no limit to the number of proxies which the exempt authorised nominee may appoint in respect of each Omnibus it holds.

6.

Depositors whose name appear in the Record of Depositors as at 21 November 2014 shall be regarded as of the Company entitled to attend the AGM or appoint proxies to attend and vote on his/her behalf in accordance with Articles 55(5) and 55(6) of the Company’s Articles of Association.

Karex_AR2014.indb 114

STATEMENT ACCOMPANYING NOTICE OF 2ND ANNUAL GENERAL MEETING Pursuant to Paragraph 8.27(2) of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad, there is no person seeking election as Director of the Company at this 2nd AGM.

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FORM OF PROXY

KAREX BERHAD (1018579-U) Number of Shares Held CDS No.

* I/We

NRIC No./port No./Company No of being a Member(s) of KAREX BERHAD (1018579-U), hereby appoint #THE CHAIRMAN OF THE MEETING or NRIC No./port No. of or failing him/her NRIC No./port No. of as *my/our proxy to vote for *me/us on *my/our behalf at the Second Annual General Meeting of the Company to be held at Setia City Convention Centre, No. 1, Jalan Setia Dagang AG U13/AG, Setia Alam, Seksyen U13, 40170 Shah Alam, Selangor Darul Ehsan on Thursday, 27 November 2014 at 10.00 a.m. or at any adjournment thereof and to vote as indicated below: Ordinary Resolutions

For

1

To re-elect Mr Goh Leng Kian as Director

2

To re-elect Madam Lam Jiuan Jiuan as Director

3

To re-elect Mr Law Ngee Song as Director

4

To re-appoint Tan Sri Dato’ Seri Utama Arshad bin Ayub

5

To re-appoint Dato’ Dr. Ong Eng Long @ Ong Siew Chuan

6

To re-appoint Madam Goh Yen Yen

7

To approve the payment of Directors’ fees for the financial year ended 30 June 2014

8

To approve Final Single Tier Dividend

9

To re-appoint Messrs KPMG as Auditors of the Company

10

Special Business Authority to Issue Shares Pursuant to Section 132D of the Companies Act, 1965

Against

Mark either box if you wish to direct the proxy how to vote. If no mark is made the proxy may vote on the resolution or abstain from voting as the proxy thinks fit. If you appoint two proxies and wish them to vote differently this should be specified. # If you wish to appoint other person(s) to be your proxy/proxies, kindly delete the words “The Chairman of the Meeting” and insert the name(s) of the person(s) desired. * Delete if not applicable. Signed this

day of

2014 Signature/Common Seal of Shareholder

Notes: 1.

A member entitled to attend and vote at this meeting is entitled to appoint a proxy or in the case of a corporation, to appoint a duly authorised representative to attend and vote in his/her place. A proxy may but need not be a member of the Company and the provisions of Section 149(1)(b) of the Companies Act, 1965 shall not apply to the Company.

2.

The Form of Proxy shall be in writing under the hand of the appointer or of his/her attorney duly authorised in writing. If the appointer is a corporation, it must be executed under its common seal or under the hand of its officer or its attorney duly authorised on its behalf.

3.

A member may appoint two or more proxies to attend and vote at the general meeting of the Company. Where a member appoints two or more proxies, the appointment of such proxies shall not be valid unless the Member specifies the proportion of his/her shareholding to be represented by each such proxy.

4.

The Form of Proxy, together with the power of attorney (if any) under which it is signed or a duly notarial certified copy thereof, must be deposited at the ed office of the Company at 10th Floor, Menara Hap Seng, No. 1 & 3 Jalan P. Ramlee, 50250 Kuala Lumpur, Wilayah Persekutuan not less than forty-eight (48) hours before the time for holding this meeting or any adjournment thereof.

5.

Where a member of the Company is an exempt authorised nominee which holds ordinary shares in the Company for multiple beneficial owners in one securities (“Omnibus ”), there is no limit to the number of proxies which the exempt authorised nominee may appoint in respect of each Omnibus it holds.

6.

Depositors whose name appear in the Record of Depositors as at 21 November 2014 shall be regarded as of the Company entitled to attend the AGM or appoint proxies to attend and vote on his/her behalf in accordance with Articles 55(5) and 55(6) of the Company’s Articles of Association.

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Fold here

AFFIX STAMP

The Company Secretary KAREX BERHAD (1018579-U) 10th Floor, Menara Hap Seng, No. 1 & 3 Jalan P. Ramlee 50250 Kuala Lumpur

Fold here

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KAREX BERHAD (Company No. 1018579-U) (Incorporated in Malaysia under the Companies Act 1965)

ADDENDUM TO THE ANNUAL REPORT 2014

To all Shareholders of Karex Berhad,

Reference is made to the Company’s Annual Report 2014, which was despatched to the shareholders on 4 November 2014. Please be informed that the Statement of Directors’ Responsibility was inadvertently omitted in the Annual Report 2014. A copy of the Statement is attached herewith as Appendix I for your information. The omission is much regretted.

This Addendum is dated 6 November 2014.

APPENDIX I

Statement of Directors’ Responsibility The Directors are required to prepare the financial statements which give a true and fair view of the state of affairs of the Company and Group as at end of the financial year and of their results and cash flows for the financial year then ended. In preparing the financial statements for the year ended 30 June 2014, the Directors have:

● adopted suitable ing policies and then applied them consistently; ● made judgements and estimates that are prudent and reasonable; ● ensured applicable ing standards have been followed, subject to any material departure and explained in the financial statements; and ● prepared the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business. The Directors have responsibility to ensure that proper and adequate ing records are kept which disclose with reasonable accuracy the financial position of the Company and Group, and which enable them to ensure that the financial statements comply with the provisions of the Companies Act, 1965. The Directors have general responsibility for taking such reasonable steps to safeguard the assets of the Company and Group so as to prevent and detect fraud and other irregularities.