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Statement On Corporate Governance

The Board of Directors (“the Board”) is committed to maintain good corporate governance throughout the group in its effort to ensure long-term sustainable growth and to safeguard, protect and enhance shareholders’ value.

The Statement on Corporate Governance will set out how the Company has applied the principles and recommendations and the approach the Board will take to steer the Company to apply such principles and recommendations to governance as prescribed by the Malaysian Code on Corporate Governance (MCCG 2012).

Principle 1: Establish Clear Roles and Responsibilities

1.1 Clear Functions of the Board and Management

The Board takes full responsibilities for the overall performance of the Group by providing leadership and direction as well as management supervision. As a whole, the Board is the ultimate decision making body. Further to its legal responsibilities, the Board assumes full responsibility for the Group’s strategic direction, overseeing the proper conduct of the Group’s business, identifying principal risks and ensuring the implementation of systems to manage risks, succession planning, developing investor relations programme, reviewing the adequacy and integrity of the Group’s internal control systems and management information systems, establishing goals for management and monitoring the achievement of these goals.

The Board has established 3 Board Committees (‘Committees’) to assist in the performance of its stewardship duties under specific terms of reference. The Committees established are the Audit Committee, the Nominating Committee and the Remuneration Committee. These Committees comprised mostly Non-Executive Directors with a majority being Independent Non-Executive Directors (“INEDs”). The composition of the Board and Board Committees are more particularly described under Principle 2 and section 3.5 of this statement.

All decisions and deliberations at Committee level are documented by the Company Secretary in the minutes of various committees meetings. The Chairman of the Board Committees reports on the outcome and recommendations of the Board Committee meetings to the Board for further deliberation and approval. Such reporting and ensuing deliberation, if any, is detailed in the minutes of Board meeting. The Committees’ function is to principally assist the Board in the execution of its duties and responsibilities to enhance operational and business efficiency and efficacy. The Board reviews the Committees’ authority and terms of reference from time to time to ensure its relevance and enhance its efficacy.

1.2 Clear Roles and Responsibilities

The Board has responsibilities which are discharged in the best interests of the Company in pursuance of its regulatory and commercial objective. The key responsibilities of the Board are include:

a) Reviewing and adopting the Company’s Strategic plans

The Board is collectively responsible for oversight and overall management of the Group. The Directors are normally involved in the deliberation of the overall Group strategy and direction, major acquisition and/or divestment, approval of major capital expenditure, consideration of significant financial matters and review of financial and operating performance of the Group.

b) Overseeing the conduct of the Company’s business

The Executive Directors are responsible for the day-to-day operational management of the Group, implementing the policies and decisions of the Board, overseeing business operations as well as coordinating the development and implementation of business and corporate strategies. On the other hand, the INED do not engage in the daily management of the Group. Their presences bring objectivity and independence to any evaluation of strategic performance or resources related issues. In this manner, the INEDs fulfil a crucial corporate accountability role as they provide independent and objective views, opinions and judgment on issues being deliberated.

The Board has yet to have descriptions for certain Board positions and also the corporate objectives for which the Executive Directors are responsible to meet. Having due note of that, the Board is of the opinion that the Managing Director, with the assistance and support from the Executive Directors and key management, is responsible for the day-to-day operations of the Group and represents Management to the Board.

c) Identifying principal risks and ensuring the implementation of appropriate systems to manage them

The management, with the assistance from the Internal Audit Department (“IAD”), has implemented the Enterprise Risk Management processes and formed a Risk Management Committee to identify, assess and monitor risks impacting the Group’s business and supporting activities.

The detail of the risk management are set out in the Statement on Internal Control and Risk Management of this Annual Report. Internal control system of the Company.

d) Succession planning

The Board, through the Nomination Committee (“NC”), is responsible for ensuring that there is effective and orderly succession planning in the Company. The TOR of the NC provide the responsible for formulating nomination, selection and succession policies for the Directors and also Chief Financial Officer.

e) Reviewing the adequacy and integrity of the management information and internal control system of the Company

The Board acknowledges its responsible for the adequacy and integrity of the Groups’ internal control system. Details pertaining to the Groups’ internal control system and its effectiveness are available in the Statement on Internal Control and Risk Management of this Annual Report.

1.3 Formalise Ethical Standards through a Code of Conduct and Ethics

A Code of Conduct, which outlines the conduct and responsibilities of both Management and employees, is in place. An Employee Handbook, which contained various human resource policies, serve as a guide for Management and employees of the Group and ensured that accepted code of conduct as well as employee responsibilities are practiced. It also sets out the prohibited activities or misconduct involving gift, gratuities, bribes, dishonest behaviour, confidentiality of information and sexual harassment.

There is also a platform in place for employees and Management to report on any grievances and or wrongdoing by employees and or Management. Insofar as the Board is concerned, the Directors have a duty to declare immediately to the Board and abstain from further discussion and decision-making process should they be interested in any transaction to be entered into by the Group and or whenever there is a potential conflict arising from any transactions which involved the interest of the Directors.

Similar with the Board Charter, the Board perhaps to adopt Whistle Blower Act directly and is working for the code for Directors for adoption and subsequent disclosure on corporate website.

1.4 Strategies Promoting Sustainability

The Board recognises the importance of sustainability vis a vis the environment, governance and social context and its increasing impact to its businesses. The Board is committed to understanding and has vigorously implemented sustainable practices to benefit its businesses whilst attempting to achieve the right balance between the needs of the wider community, and the requirements of shareholders and stakeholders.

It is the normal practice of the senior management team to conduct annual review of group performance, refine business strategies and set targets, both qualitative and quantitative, in consultation with the Managing Director and Executive Directors. To that end, the Board is in the process of formulating a Sustainability Policy.

From a social context, employees’ welfare, financial contribution and participation in community activities are part and parcel of the Group’s commitment as a responsible corporate citizen. The Group acknowledges the contribution of its employees and strive to improve their welfare and benefits. All recruits undergo induction program to familiarise themselves with the Group's background, policies, structure, products and services. There is an established performance review process to reward deserving employees with competitive remuneration packages, increment and bonus. In addition, confirmed employees are entitled to personal accident, medical and hospitalisation benefits at the Group’s expense. There is an emphasis on continuous employees’ training and professional development with various training programs continuously organised throughout the year to enhance skills and knowledge. Company dinners are organised to foster relationship amongst employees and Management. Long service awards are conferred to Management and employees as a token of appreciation for their continued loyalty, support, dedication and contribution to the Group.

All operations of the Group are conducted within the ambit of the various legislations in the countries where the Group operates.

1.5 Access to Information and Advice

The Chairman ensures that all Directors have full access to information with Board papers and agendas on matters requiring the Board’s consideration issued with appropriate notice in advance of each meeting to enable Directors to obtain further explanations from the Managing Director or his management team, where necessary, in order to be briefed properly before the meetings. Meeting papers on issues or corporate proposals which are deemed confidential and sensitive would only be presented to the Directors during the meeting itself. Management is invited to provide Directors with updates on business and operational matters or clarify items tabled to the Board. Verbal explanation and briefings are also provided by management to enhance understanding of the matters under discussions.

All Directors have access to the advice and services of the Company Secretaries. The Board of Directors, whether as a full board or in their individual capacity, may upon approval of the Board of Directors, seek independent professional advice if required, in discharge of their duties, at the Company’s expense.

1.6 Qualified and Competent Company Secretaries

All the Directors have unrestricted access to all information within the Group and to the advice and service of the Company Secretaries. The Company Secretaries, who are qualified and experienced, advise the Board on any updates relating to new statutory and regulatory requirements pertaining to the duties and responsibilities of Directors and the potential impact and implications arising there from. The Company Secretaries also ensure that deliberations at Board and Board Committee meetings are well documented.

The Company Secretaries constantly attend relevant conference or training programmes to ensure themselves abreast of the changing in business environment, regulatory changes and development in corporate governance. They also attended relevant professional development programmes as required by the Companies Commission of Malaysia or Malaysian Institute of Chartered Secretaries and Administrators (MAICSA) for practising company secretaries. The Board is satisfied with the performance and support rendered by the Company Secretaries to the Board in discharging its function.

1.7 Board Charter

The Board acknowledges the need to establish a point of reference for Board activities through a Charter as recommended by the MCCG 2012. As such, the Board is taking the necessary steps to revise such a Charter to clearly define the roles of the Board, Board Committees and Management in order to provide a structured guidance regarding their various responsibilities including the requirements of Directors in carrying out their leadership and supervisory role and in discharging their duties towards the Group as well as boardroom activities. An abridged version of the Board Charter will be made available on the Company website www.thongguan.com.

Principle 2: Strengthen the Composition

2.1 Nominating Committee

The Nominating Committee is chaired by an INED and the Committee consists of 2 INEDs. The Nominating Committee shall meet at least once in a financial year or more frequently if deemed necessary.

The Nominating Committee currently comprised the following:

Name Position
Chow Hon Piew Chairman
Dato’ Paduka Syed Mansor Bin Syed Kassim Barakbah (retired on 26 May 2016) Member
Kang Pang Kiang Member

2.2 Develop, Maintain and Review Criteria for Recruitment and Annual Assessment of Directors

The Nominating Committee’s mandate expressed through its terms of reference is to bring to the Board; recommendations on the appointment of new Directors, review of the Board structure, size, composition as well as systematic assessment of the effectiveness and contribution of the Board, its Committees, and individual Directors on an annual basis. The Nominating Committee is empowered to seek professional advice within or outside the Group as it deem necessary to discharge its responsibilities.

During the financial year ended 31 December 2016, the Committee met on two (2) occasion and resolved the following key activities:-

a) Conducted the annual assessment of the Directors, Board, Board Committee and Chief Financial Officer,

b) Deliberated the appointment for new Independent Non-Executive Directors; and

c) Recommended the re-appointment, re-election and retention of Directors.

The Nominating Committee also systematically assesses the effectiveness of the Board, the Committees of the Board and contribution of each individual Director and reviews the required mix of skills, experience and other qualities, including core competencies of the members of the Board on an annual basis. The assessment also considered the qualifications, contributions and performance of Directors and Chief Financial Officer in meeting the needs of the Group based on the criteria of competency, character, time commitment, integrity and experience as set out under paragraph 2.20A of the Listing Requirements.

The Board is committed to ensuring diversity and inclusiveness in its composition and deliberations. The present Board composition reflects the broad range of experience, skills and expertise necessary for the success of the Group and the importance of independent judgment and opinion at Board level.

The Board acknowledges the recommendation of the Code on gender diversity. However, the Board has yet to establish a specific policy on setting targets for women representation. The Board believes it is not necessary to adopt a formal diversity policy as the Company is committed to provide fair and equal opportunities and nurturing diversity within the Group. The evaluation of the suitability of candidate is based on the candidate’s competency, character, time commitment, integrity, performance and experience to bring value and expertise to the Board. The Nominating Committee will however continue to take steps to ensure suitable women candidates are sought as part of its recruitment exercise.

The Committee met to deliberate on the retirement by rotation of Directors and their eligibility for re-election at the Company’s Annual General Meeting (AGM). New appointees will be considered and evaluated by the Nominating Committee. The Committee will then recommend the candidates to be approved and appointed to the Board. The company secretary will ensure that all appointments are properly made, and that legal and regulatory obligations are met.

The director who is subject to re-election and/or re-appointment at the next Annual General Meeting is assessed by the Nominating Committee before recommendation is made to the Board and shareholders for re-election and/or re-appointment. Appropriate assessment and recommendation by the Nominating Committee is based on the annual assessment conducted. The Articles of Association of the Company requires that all Directors shall be subjected to re-election by shareholders at the first opportunity after their appointment and that at least one third (1/3) or the number nearest to one third (1/3) of the Directors, be subject to re-election thereafter by rotation at least once in every three (3) years at the AGM.

The Board, together with the Nominating Committee, will also formalise a guide to be used during annual assessment, recruitment and the induction processes for Directors.

2.3 Remuneration Committee

The Remuneration Committee consists of three members, the majority of whom are Independent Non-Executive Directors.

The Remuneration Committee currently comprised the following:

Name Position
Kang Pang Kiang Chairman
Dato’ Paduka Syed Mansor Bin Syed Kassim Barakbah (retired on 26 May 2016) Member
Chow Hon Piew Member
Dato’ Ang Poon Chuan Member

The Remuneration Committee met once during the financial year with the full attendance by all members of the Remuneration Committee. The adoption of remuneration packages for the Executive Directors, however, is a matter for the Board as a whole, with individual Directors abstaining from decision making in respect of his remuneration package.

The Remuneration Committee is authorised, inter-alia, to recommend to the Board the remuneration packages for the Executive Directors of the Company and set up a broad policy or framework for all elements of remuneration for the Directors.

The remuneration of Non-Executive Directors is linked to their experience and level of responsibilities undertaken by them. Non-Executive Directors are paid fixed annual fees as members of the Board and Board Committees. The Directors’ fees are approved annually by the shareholders of the Company.

The aggregate remuneration, with categorisation into appropriate components and distinguishing between Executive and Non-Executive Directors, paid or payable to all Directors of the Company for the financial year ended 31 December 2016 is as follows:

Company Executive Directors Non-Executive Directors1
Salaries (RM’000) 69 -
Bonus & Other Allowances (RM’000) 20 48
EPF Contributed by Employer (RM’000) 10 -
Fees (RM’000) 120 95
Total (RM’000) 219 143
Group Executive Directors Non-Executive Directors1
Salaries (RM’000) 1,891 -
Bonus & Other Allowances (RM’000) 703 48
EPF Contributed by Employer (RM’000) 196 -
Fees (RM’000) 289 95
Total (RM’000) 3,079 143

Note:-
1 Inclusive of remuneration to INED who left on 26 May 2016 and 2 INEDs appointed on 25 August 2016

The number of Directors whose total remuneration falls within the following bands is as follows:

Company No. of Directors
Range of Remuneration Executive Directors Non-Executive Directors1
Below RM50,000 3 5
RM100,001 to RM150,000 1 -
Group No. of Directors
Range of Remuneration Executive Directors Non-Executive Directors1
Below RM50,000 - 5
RM400,001 to RM450,000 2 -
RM1,050,001 to RM1,100,000 1 -
RM1,100,001 to RM1,150,000 1 -

Note:-
1 Include remuneration to INED who left on 26 May 2016 and 2 INEDs appointed on 25 August 2016

The Board has opted not to disclose each Director’s remuneration as it considers such information sensitive.

The Board is in the process of establishing a Remuneration Policy and Procedure to facilitate the Remuneration Committee to consider and recommend to the Board for decision the remuneration packages of the Executive Directors. Going forward, the Remuneration Committee would take on the task of reviewing and recommending the compensation structure of the Board for both Executive and Non-Executive Directors.

Principle 3: Reinforce Independence

3.1 Annual Assessment of Independent Directors

The Board, through the Nominating Committee, assesses the independence of the INEDs annually. Based on the assessment carried out for financial year ended 31 December 2016 the Board is generally satisfied with the level of independence demonstrated by the INEDs and their ability to act in the best interests of the Company.

3.2 Tenure of Independent Directors

The Board’s view on independence is in accordance with the definition of an independent director under para 1.01 and Practice Note 13 of MMLR of Bursa Securities. The present INEDs fulfils the key criteria of appointment as they are not a member of management, free of any relationship that could interfere with exercise of independent judgment or ability to act in the best interest of the Company.

The Company does not have term limits for all Directors presently as the Board is of the opinion that continued contribution by Directors provides benefit to the Board and the Group as a whole. The MCCG 2012 provides a limit of a cumulative term of 9 years on the tenure of an Independent Director.

However, an INED may continue to serve the Board upon reaching the 9-year limit subject to re-designation as a Non-INED. In the event the Board intends to retain the said INED as independent after the latter has served a cumulative term of 9 years, the Board must justify the decision and seek shareholders’ approval at general meeting. In justifying the decision, the Nominating Committee is entrusted to assess the candidate’s suitability to continue as an INED based on the criteria on independence.

3.3 Shareholders’ Approval For Retaining Independent Non-Executive Directors

Currently, none of the INEDs of the Company has served the Board for nine years. Hence, no shareholders’ approval will be sought for this purpose at the forthcoming 22nd AGM.

3.4 Separation of Positions of Chairman and Managing Director

The role of Chairman and the Managing Director are separate and each has a clearly accepted division of responsibilities to ensure a balance of power and authorities. The Chairman is responsible for ensuring Board effectiveness and conduct while the Managing Director will have overall responsibilities over the operating units, organizational effectiveness, implementation of Board policies and decision in achieving the corporate objectives of the Group.

The presence of INEDs also provides an element of objectivity, independent judgement, view and check and balance on the Board as well as to safeguard the interest not only of the Group, but also minority shareholders, employees, customers, suppliers and the community in general.

3.5 Composition of the Board

The Board comprised 7 Directors as at the date of this Annual Report and are as follows:

Independent Non-Executive Chairman Dato’ Tengku Sarafudin Badlishah Bin Dato’ Seri Diraja Tan Sri Tunku Sallehuddin
Managing Director Dato’ Ang Poon Chuan
Executive Directors Dato’ Ang Poon Khim
Datuk Ang Poon Seong
Ang See Ming
Independent Non-Executive Director Tengku Muzzammil Bin Tengku Makram
Chow Hon Piew
Kang Pang Kiang

Together with the Executive Directors who have intimate knowledge of the business, the Board is constituted of individuals who are committed to business integrity and excellence. Brief profiles of the Board members are presented under “Profile of Directors” section in this Annual Report.

Dato’ Paduka Syed Mansor Bin Syed Kassim Barakbah retired on 26 May 2016 from the Board as well as from the Audit, Remuneration and Nominating Committees. The Board of Directors had appointed Dato’ Tengku Sarafudin Badlishah Bin Dato’ Seri Diraja Tan Sri Tunku Sallehuddin and Encik Tengku Muzzammil Bin Tengku Makram as INEDs on 25 August 2016.

The current Board has a balanced mix of skills, relevant expertise and professional experience. The Directors, with their different background and specialisations, collectively bring with them a wide range of experience and expertise in areas such as finance, general management, marketing and operations.

The Board is of the opinion that it is not necessary to have a majority of INEDs forming the board as the Directors are seasoned business leaders who exercise objectivity and independence of opinions in arriving at their decisions and that Board deliberations are collegial and inclusive with ultimate aim of objective review of priorities and proposals. The Chairman solicits the opinion of fellow Board members before seeking consensus on decisions. Following the retirement of Dato’ Paduka Syed Mansor Bin Syed Kassim Barakbah on 26 May 2016, the Board appointed Dato’ Tengku Sarafudin Badlishah Bin Dato’ Seri Diraja Tan Sri Tunku Sallehuddin as Independent Non-Executive Chairman.

Principle 4: Foster Commitment

4.1 Time Commitment

The Board normally meets at least 4 times annually at quarterly intervals. Under exceptional circumstances owing to urgent and important issues at hand, additional meetings are convened between the scheduled meetings with sufficient notices.

During the year under review, the Board held 4 meetings to deliberate and decide on various issues. The major deliberation, in terms of issues discussed and the conclusion arrived by the Board during the meetings, are recorded by the Company Secretary with the minutes signed by the Chairman of the meetings.

Details of attendance of each Director on the Board meeting and respective Board Committees’ meeting during the year under review are as follows:

   Board Committees
Audit Nominating Remuneration
Dato’ Paduka Syed Mansor Bin Syed Kassim Barakbah 1 1/2 1/2 0/1 0/1
Dato’ Tengku Sarafudin Badlishah Bin Dato‘ Seri Diraja Tan Sri Tunku Sallehuddin 2 1/1 - - -
Tengku Muzzammil Bin Tengku Makram 3 1/1 1/1 - -
Dato’ Ang Poon Chuan 4/4 - - 1/1
Dato’ Ang Poon Khim 4/4 - - -
Datuk Ang Poon Seong 4/4 - - -
Ang See Ming 4/4 - - -
Chow Hon Piew 4/4 4/4 2/2 1/1
Kang Pang Kiang 4/4 4/4 2/2 1/1

Notes:
All Board members met the minimum percentage required for Board meeting attendance as prescribed under MMLR of Bursa Securities during the period under review.

1 Retired from the Board as well as Audit, Remuneration and Nominating Committee on 26 May 2016
2 Appointed as INED and Chairman of the Board on 25 August 2016
3 Appointed as INED and member of Audit Committee on 25 August 2016

The Company Secretary will convene, upon request of any Board members, special Board meetings to discuss any urgent issues. Agenda for Board meetings are set by the Company Secretary in consultation with the Chairman, as appropriate. In between meetings, whenever required, decisions are taken by way of Directors’ Circular Resolutions.

In the absence of a formal protocol on induction, acceptance of new Directorship and time commitment, a Director accepting new directorships will notify the Board ahead of his new appointment. The Board, through the Nominating Committee ensures that recruits to the Board are individuals of calibre, with the necessary experience and knowledge to meet the expectations of the Board as a Director of the Company. Although there are no formal training or orientation programmes for Directors, they are briefed at the major locations of the Group’s manufacturing plants to acquire an understanding of the Groups’ operations. The Board took the view that familiarization visits to the various operational sites would equip the Directors with a working understanding of the Group’s operations. This is geared towards ensuring that new Directors are able to appreciate the Group’s operating environments and business dynamics and therefore able to contribute effectively in the Board’s deliberations.

4.2 Annual Assessment of Independent Directors

The Board is cognisant of the need to ensure that its members undergo continuous trainings to enhance their knowledge, expertise and professionalism in discharging their duties. The Company Secretary circulates relevant guideline to update the Directors on statutory and regulatory requirements and changes from time to time. Internal briefings were also conducted for the Directors on key corporate governance developments and salient changes to the MMLR.

Pursuant to para 15.08(2) and Appendix 9C (Part A, para 28) of MMLR, some of the Directors had, during the year under review, attended the following training programs, seminars and international trade exhibition:-

Areas Seminar / Programs
Production/ Plastics
  • Evolution Blown Film Line 5-2400
  • Sino-Pack 2016 - The 23rd China International Exhibition on Packaging Machinery & Materials
  • Specialty Packaging Film Asia 2016
  • Chinaplas 2016 – The International Exhibition on Plastics and Rubber Industries
  • K 2016 International Plastic & Rubber Trade Fair
  • Pack Expo International
Finance, Taxation & Governance
  • Amendment to Bursa Malaysia Listing Requirement – With Latest Cases on Directors Duties
  • The New Companies Act 2016: Revamp toward Modernization
Management
  • GLCS LogiSYM Malaysia

All Directors have complied with the provision of MMLR in relation to Mandatory Accreditation Program.

Principle 5: Uphold Integrity in Financial Reporting

5.1 Compliance with Applicable Financial Reporting Standards

The Board is committed to provide and present a balanced and meaningful assessment of the Group’s financial performance and prospects, primarily through the annual financial statements and quarterly announcements of the results to shareholders as well as the Chairman’s Statement in the annual report. The Directors are responsible in ensuring the annual financial statements are prepared in accordance with the provisions of the Companies Act, 1965 and applicable Approved Accounting Standards in Malaysia.

The Audit Committee is to aid the Board in discharging its duties on financial reporting by overseeing the processes for production of the financial data, reviewing and monitoring the integrity of the financial reports and the internal controls of the Company. The composition and terms of reference of the Audit Committee together with its report are presented under “Audit Committee Report” section in this Annual Report.

In consultation with the External Auditors, the Audit Committee reviews the appropriateness of the Group’s accounting policies and the changes to these policies as well as to ensure that the financial statements comply with accounting standards and regulatory requirements.

Directors’ Responsibility Statement

The Board is responsible to ensure that the financial statements of the Group and Company gives a true and fair view of the state of affairs of the Group and of the Company and of their results and cash flows as at the end of the financial year. The Directors have ensured that the financial statements have been prepared in accordance with the applicable approved accounting standards in Malaysia and the provisions of the Companies Act, 1965.

The Director have selected and applied consistently suitable accounting policies and made reasonable and prudent judgments and estimates in preparing the financial statements.

A general responsibility of the Directors is to take such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

5.2 Assessment of Suitability and Independence of External Auditors by the Audit Committee

The Audit Committee (AC’s) has a close and transparent relationship with the External Auditors in seeking professional advice and ensuring compliance with relevant accounting standards. During the financial year ended 31 December 2016, the Audit Committee held two (2) dialogue sessions with the External Auditors in the absence of the Executive Directors and Management.

The Audit Committee is empowered by the Board to review all issues in relation to appointment and re-appointment, resignation or dismissal of External Auditors. The External Auditors had given written assurance that, they are, and have been, independent throughout the conduct of the audit engagement in accordance with the terms of the relevant professional and regulatory requirements. In early 2017, the Audit Committee undertook an annual assessment of the suitability and independence of the External Auditors and was satisfied with the independence and technical competency of the External Auditors. The Audit Committee then decided to recommend for the Board’s approval the re-appointment of Messrs. KPMG PLT (Converted from a conventional partnership, KPMG on 27 December 2016) as external auditors of the Company for the financial year ending 31 December 2017.

Having regard to the outcome of reviewing on the suitability and independence of external auditors which supported the AC’s recommendation, the board approved the AC’s recommendation for the shareholders’ approval to be sought at the 22nd AGM on the re-appointment of the Messrs. KPMG PLT as external auditors of the Company for the financial year 2017.

Moving on, the Audit Committee will establish procedures to assess the suitability and independence of the External Auditors as well as policy governing the circumstance under which contracts for provision of non-audit services could be entered into by the External Auditors.

Principle 6: Recognise and Manage Risks

6.1 Sound Framework to Manage Risks

In general, all major projects, investment and capital expenditure initiatives are presented to the Board for consideration and approval. An overview of the state of internal controls and risk management within the Group is spelt out in this Annual Report under Statement on Risk Management and Internal Control.

6.2 Internal Audit Function

The Board and management has established internal control procedures and policies for its operations. It monitors its compliance through the Internal Audit Department, to ensure that such internal control system is implemented and carried out effectively by the Management.

The Company has in place an internal audit function which is led by the Head of Internal Audit, who reports directly to the Audit Committee. The Internal Audit Department undertakes regular review of identified operational areas annually to assess the effectiveness of internal controls and risk management. During the review of Internal Audit Reports, the Audit Committee is made aware of the operational risks affecting the Group’s operations and all follow through mitigating actions taken.

The Statement on Risk Management and Internal Control, which provided an overview of the state of internal control and risk management within the Group, is included in this Annual Report.

Principle 7: Ensure Timely and High Quality Disclosure

7.1 Corporate Disclosure Policy

The Board acknowledges the need and importance of ensuring dissemination of information to shareholders, investors and regulatory bodies. The Board peruses through and approves all announcements prior to the release of the same to Bursa Securities. At the same time, the Board will take reasonable steps to ensure that the public and investors all who invest in the Company’s securities enjoy equal access to such information to avoid selective disclosure.

7.2 Leverage on Information Technology for Effective Dissemination of Information

The Company’s website, www.thongguan.com, provides an avenue for information dissemination with dedicated sections on corporate information including announcements to Bursa Securities, financial information, press releases and news and events related to the Group. Any queries or concerns regarding the Group may be directed to the Investor Relations Department via the email address: info@thongguan.com.

As the Group release all material information publicly through Bursa Securities, shareholders and the public in general may also obtain announcements and financial results of the Company from Bursa Securities’ website at www.bursamalaysia.com.

Principle 8: Strengthen Relationship with Shareholders

8.1 Shareholders’ Participation at General Meetings

The AGM and Extraordinary General Meeting (“EGM”), provide a platform for the Board to dialogue and interact with shareholders where individual shareholders and investors may seek clarifications on the Group’s businesses, performance and prospects. The notices of the AGM and EGM are sent to shareholders. The notices are also published in a national newspaper and released through Bursa Securities for public dissemination. Members of the Board attend the AGM and EGM to answer queries and concerns of the shareholders. All suggestions and comments put forth by shareholders will be noted by the Board for consideration.

The Board will consider adopting electronic voting, within the bound of practicality, in the future to facilitate greater shareholder participation at general meetings.

8.2 Poll Voting

In line with the amendments to the Listing Requirements of Bursa Securities, the Board will implement poll voting for all the resolutions set out in the notice of general meetings. In addition, the Company will appoint one (1) scrutineer to validate the votes cast at the general meetings. The outcome of the general meetings is to be announced to the Bursa Securities on the same day after the meetings are concluded and the announcement is made accessible via the Bursa Securities and the Company’s website.

8.3 Effective Communication and Proactive Engagement

The Board recognises the need for shareholders to be kept updated with all material business matters affecting the Group. Shareholders are provided with an overview of the Group’s performance and operations through timely release of financial results on yearly and quarterly basis as well as various other announcements.

The general meetings are useful forums for shareholders to engage directly with the Board and Senior Management. The shareholders are at liberty to raise questions or seek clarification on the agenda of the meeting from the Board and the Senior Management.

Further, in a move to promote wider publicity and dissemination of public information, the Group will issue press releases to the media on significant corporate developments and business initiatives to keep the investment community and shareholders updated on the progress and development of the Group.

Compliance with the Principles and Recommendations of the Code

For the year ended 31 December 2016 and up to the date of the printing of this annual report, the Group has complied substantially with the Principles and Recommendations of the Code insofar as applicable and described herein.

This statement is issued in accordance with a resolution of the Directors dated 13 April 2017.

Other Information

Audit and Non-audit Fee

The amount of audit and non-audit fees paid and payable to the external auditors and its affiliate corporations for the audit and non-audit services rendered to the Company and the Group for the financial year ended 31 December 2016 is as follows:-

  Fee (RM’000)
Type of Audit Company Group
a) Audit fee 23 238
b) Non Audit Fee 16 36

Material Contract

Since the end of the previous year report, there were no material contract that involved the Group and its Directors and major shareholders.

Introduction

Pursuant to Paragraph 15.26(b) of the Main Board Listing Requirement of Bursa Malaysia Securities Berhad, the Board of Directors of listed companies is required to include in its Company’s Annual Report a statement about the state of the internal controls of the listed issuer as a group. The Board is pleased to provide the following Internal Control Statement for the financial year ended 31 December 2016.

Responsibility

The Board acknowledges its responsibility for the Groups’ system of internal control, which include establishment of an effective control environment and an appropriate internal control framework, as well as to review its adequacy and integrity. Due to limitations inherent in any system of internal control, it is important to note that the system is designated to manage, rather than eliminate the risk of failure. Therefore, the system can only provide reasonable and not absolute assurance that assets are safeguarded against material loss or misstatement. The system of internal control covers, inter-alia, financial, organisational, and operational and compliance controls and risk management.

Risk Management Framework

The board has established a process for identifying, evaluating and managing risk through the Enterprise Risk Management (ERM) Framework. These include the formation of a Risk Management Committee (RMC) which was delegated with the task of identifying risks within the Group. The Board through its Audit Committee regularly reviews this process. The main objective of the review is to formalize and embed a risk management process across the Group in order to sensitise all employees within the Group to risk identification, evaluation, monitoring, and reporting. The formalisation of the ERM framework will encompasses the following activities:

  • To update the risk profiles of companies in the Group according to the ERM framework;
  • To further embed a risk awareness culture and risk management process within the Group, including the risk management training where applicable;
  • To execute risk-based internal audit with periodic review by Audit Committee and the Board on the adequacy and integrity of the system of internal control.

Internal Audit Function

The Group’s Internal Audit Department (“IAD”) reports directly to the Audit Committee (“AC”). Its role is to provide the Audit Committee with reasonable assurance on the adequacy and integrity of the Group’s internal control system through its auditing and monitoring process. The Audit Committee provides direction and oversees the function. At the beginning of each financial year, the IAD prepares an Annual Audit Plan and presents it to the Audit Committee for approval. Subsequently at every Audit Committee meeting, the IAD will present its audit findings and review them with the Audit Committee.

The activities that have been planned and carried out by the IAD are as follows:

  • Mapping out the current state of procedures and processes to facilitate the understanding and reference with the aim of identifying areas for improvements.
  • Identifying potential areas that are lack of control and efficiency from the process mapping.
  • Testing and conducting audit on the identified risk areas and relevant control.
  • Reporting of findings and irregularities (if any) to Management and Audit Committee and provide recommendations to mitigate the risks identified.
  • Ensuring the compliance with applicable laws, regulations, rules, directives and guidelines by the various authorities and those set out by the Management.
  • Carrying out ad-hoc investigation and special review when requested by Management.

The internal audit reports prepared by the IAD arising from the audits which include the recommendation or action plan from the management are discussed at the AC Meetings. Follow-up are conducted by the IAD to ensure that all action plans from each audit are adequately addressed by auditee/management and the progress will be updated at the AC Meetings.

Other Risk and Control Processes

  • The Group’s Policies and standard operating procedures, sets out the policies, procedures and standards of the Group’s operations to be followed by all employees. The policies and procedures are regularly reviewed and updated where applicable to maintain its effectiveness over time.
  • The Board and Audit Committee rigorously review the quarterly financial results and evaluate the reasons for unusual variances noted thereof.
  • Internal audit function includes performing regular reviews of business processes to assess the effectiveness of the internal control system and to highlight significant risks impacting the Group with recommendations for improvement;
  • The close involvement of Executive Directors, who are hands-on in the operations of the Group. The Managing Director briefs the Board on significant changes in the business and external environment, which affect the operations of the Group at large.
  • The Group has in place a Management Reporting mechanism whereby financial information is generated and reviewed by management and the Board on a timely basis. Performance and results are monitored on a monthly basis against the budget.
  • The Group sets out an annual budget and operations targets for every operating division. Analysis and reporting of variances against budget are presented in the Group’s various Management Meetings which act as a monitoring mechanism.
  • The Group has successfully implemented three (3) management systems namely the ISO 9001-QMS, ISO14001-EMS & OHSAS 18001-Health & Safety.

Conclusion

The Board has received assurance from the Group Managing Director and Chief Financial Officer that the Group’s risk management and internal control system is operating adequately and effectively in all material aspects, based on the risk management and internal control systems of the Group.

The Board and Management are committed towards operating a sound system of internal control and the internal control systems will continue to be reviewed, updated and improved upon in line with the changes in its operating environment.

For the financial year under review and up to the date of issuance of the financial statements, the Board is satisfied with the adequacy, integrity and effectiveness of the Group’s system of risk management and internal control. No material losses, contingencies or uncertainties have arisen from any inadequacy or failure of the Group’s system of internal control that would require separate disclosure in the Group’s Annual Report.

This statement is issued with a resolution of the Directors dated 13 April 2017.