INVESTING FOR THE FUTURE Annual Report 2017 WHAT’S INSIDE
Highlights Corporate Governance 01 5-Year Group Financial Highlights 60 Corporate Governance Overview Statement 02 Economic Value for Shareholders 77 Statement of Directors’ Responsibility 78 Additional Compliance Information
Corporate Information 79 Statement on Risk Management and Internal Control 03 Corporate Information 88 Board Audit Committee Report 04 Corporate Structure
05 Group Directory Financial Statements 07 Profile of Directors 92 Financial Statements 17 Board Committees 18 Senior Management Team Other Corporate Information 20 Profile of Senior Management 211 List of Properties 214 Analysis of Shareholdings Performance Review 25 Message from the Chairman 28 The President/GMD’s Statement and Management Discussion & Analysis 40 KUB in the News 43 Sustainability Statement
INVESTING FOR THE FUTURE As part of our sustainability initiatives, KUB We play a leading role in shaping our future by focusing on our core Malaysia Berhad is reducing the print run of all publication. We encourage you to businesses, inspiring vibrant ideas, nurturing potential and delivering visit our Annual Report microsite at www. excellence in everything we do. kub.com/annualreport2017. You will have the privilege to download, retrieve and view any pages of the annual report at your We shall continue to invest in our businesses and human capital in order to convenience. keep ourselves competitive; and ensure our businesses are able to survive the inevitable tough times. Under the KUB’s expansion strategy, each sector The printed copy of the Annual Report is also available upon request. Kindly please will be able to boost performance in their individual business, thereby fill in the requisition form and return it to us unlocking value for shareholders. via post or fax. ANNUAL REPORT 2017 | 1
5-Year Group Financial Highlights
Revenue Profit for the year (RM’000) (RM’000)
‘13 947,856* ‘13 4,942
‘14 626,559* ‘14 4,475
‘15 432,154* ‘15 9,075
‘16 495,772* ‘16 21,542
‘17 599,277 ‘17 30,842
Net assets per share Basic earnings per share (RM) (sen)
‘13 0.49 ‘13 0.87
‘14 0.48 ‘14 0.41
‘15 0.50 ‘15 1.41
‘16 0.53 ‘16 4.07
‘17 0.58 ‘17 5.78
RM’000 2013 2014 2015 2016 2017 Revenue 947,856* 626,559* 432,154* 495,772* 599,277 Profit before taxation 5,491* 10,198* 50,303* 32,334* 40,252 Profit for the year 4,942 4,475 9,075 21,542 30,842 Profit attributable to owners of the parent 4,846 2,294 7,854 22,628 32,165 Shareholders’ fund 273,331 269,716 277,153 296,357 324,401 Basic earnings per share (sen) 0.87 0.41 1.41 4.07 5.78 Net assets per share (RM) 0.49 0.48 0.50 0.53 0.58 Dividend per share (sen) - - 0.50 1.0 1.0 Return on equity 2% 1% 3% 8% 10% Gearing ratio (times) 0.34 0.22 0.21 0.21 0.18
*Note: Continuing Operations 2 | KUB MALAYSIA BERHAD (6022-D)
Economic Value for Shareholders
MARKET CAPITALISATION* (RM million)
300 250.4 250 225.4 211.5 222.6 217.0 200 161.4 150
100
50
0 2013 2014 2015 2016 2017 30/3/2018
* As at 31 December (closing price)
SHARE PRICE MOVEMENT# (RM)
0.7
0.6
0.5
0.4
0.3 APR ‘17 may ‘17 jun ‘17 jul ‘17 aug ‘17 sep ‘17 oct ‘17 nov ‘17 dec ‘17 jan ’18 feb ’18 Mar ’18
# Closing Price
MONTHLY TRADING VOLUME & SHARE PRICE STATISTICS
Month Apr ‘17 May ‘17 Jun ‘17 Jul ‘17 Aug ‘17 Sep ‘17 Oct ‘17 Nov ‘17 Dec ‘17 Jan ’18 Feb ’18 Mar ’18
Volume (‘000) 52.04 89.23 49.99 39.84 56.50 31.12 27.50 14.17 13.66 95.94 41.49 90.67
High (RM) 0.625 0.625 0.575 0.530 0.560 0.530 0.500 0.485 0.415 0.545 0.500 0.555
Low (RM) 0.550 0.525 0.480 0.475 0.505 0.475 0.460 0.410 0.370 0.385 0.410 0.425
Closing Price (RM) 0.580 0.555 0.490 0.520 0.520 0.485 0.475 0.420 0.390 0.465 0.485 0.450 ANNUAL REPORT 2017 | 3
Corporate Information
Board of Directors
Dato’ Ahmad Ibnihajar Dato’ Jamelah A.Bakar Datuk Haji Mohd Haniff Haji Koslan (Chairman (Independent (Independent Independent Non-Executive Director) Non-Executive Director) Non-Executive Director)
Datuk Abdul Rahim Mohd Zin Tunku Alizan Raja Muhammad Datuk Wira Mohd Hafarizam Harun (President/Group Managing Director) Alias (Independent (Non-Independent Non-Executive Director) Dato’ Ab Rahim Abu Bakar Non-Executive Director) (Retired w.e.f. 23 May 2017) (Senior Independent Non-Executive Director) Tengku Zahaimi Tuan Hashim (Non-Independent Datuk Hj Faisyal Non-Executive Director) Datuk Yusof Hamdain Diego (Non-Independent Mohammad Farish Nizar Othman Non-Executive Director) (Independent Non-Executive Director)
Company Secretaries External Auditors Share Registrar
Sharina Saidon Messrs. Deloitte PLT Symphony Share Registrars Sdn Bhd (LS 0006127) (LLP0010145-LCA) (378993-D) Chartered Accountants (AF 0080) Level 6, Symphony House Mohd Afendy Md Yazim Level 16, Menara LGB Pusat Dagangan Dana 1 (MAICSA 7056481) 1, Jalan Wan Kadir Jalan PJU 1A/46 Taman Tun Dr. Ismail 47301 Petaling Jaya Nani Suryani Ahmad Tajudin 60000 Kuala Lumpur Selangor Darul Ehsan (MAICSA 7045699) Tel : +(603) 7610 8888 Tel : +(603) 7849 0777 Fax : +(603) 7726 8986 Fax : +(603) 7841 8151/8152 Registered Office
KUB Malaysia Berhad (6022-D) Stock Exchange Listing Principal Bankers Level 8-11, Unit 1, Capital 3 Oasis Square, Ara Damansara Bursa Malaysia Securities Berhad Malayan Banking Berhad Jalan PJU 1A/7A (635998-W) Bank Pertanian Malaysia Berhad 47301 Petaling Jaya Exchange Square (Agrobank) Selangor Darul Ehsan Bukit Kewangan Bank Islam Malaysia Berhad 50200 Kuala Lumpur Affin Bank Berhad Tel : +(603) 7680 9600 (General) Fax : +(603) 7680 9793 Market : Main Market (Group Secretarial Division) Stock name : KUB Fax : +(603) 7680 9610 (General) Stock Code : 6874 Sector : Trading/Services Website : www.kub.com 4 | KUB MALAYSIA BERHAD (6022-D)
Corporate Structure
Agro Energy 100% 100%
KUB Agro Holdings Sdn Bhd KUB Gaz Sdn Bhd (9189-U) (47135-V) 60% KUB Sepadu Sdn Bhd (392172-H) Food Business 66% 100% KUB Maju Mill Sdn Bhd (307838-U) Restoran Kualiti Sdn Bhd (477993-A) 100% 100% KUB Malua Plantation Sdn Bhd A&W (Malaysia) Sdn Bhd (62716-K) (5168-X)
Power Property 100% 100%
KUB Power Sdn Bhd Peraharta Sdn Bhd (236338-P) (19250-X) 100% Information and KUB Tower Sdn Bhd Communications (233906-D) Technology 40% 100% KUB Berjaya Enviro Sdn Bhd (614497-H) KUB Telekomunikasi Sdn Bhd (230021-D) 100% KFT International (Malaysia) Sdn Bhd (245501-X) 100%
Empirical Systems (M) Sdn Bhd (584218-A)
Note: The chart above represents active companies within the Group ANNUAL REPORT 2017 | 5
Group Directory
Corporate Office: Operations Office:
Energy Sector Level 3, Unit 1, Capital 3 (Westport Branch) Oasis Square, Ara Damansara Lot 55710, Lorong Kenanga 8 KUB Gaz Sdn Bhd (9189-U) Jalan PJU 1A/7A Liquid Bulk Terminal 47301 Petaling Jaya Westport, Pulau Indah Selangor Darul Ehsan 42009 Port Klang Tel : +(603) 7610 0018 Selangor Darul Ehsan Fax : +(603) 7610 0017 Telw : +(603) 3101 1799 Faxw : +(603) 3101 1791
(Johor Bahru Branch) 16, Jalan Kangkar Tebrau 81100 Johor Bahru Johor Darul Takzim Telw : +(607) 333 1351 Faxw : +(607) 332 6527
Corporate Office: information and Unit G30, Level G-Unit 430 communications Level 4, Block 4 technology sector Laman Seri Business Park Persiaran Sukan KUB Telekomunikasi Sdn Bhd (230021-D) Seksyen 13 KFT International (Malaysia) Sdn Bhd 40100 Shah Alam (245501-X) Selangor Darul Ehsan Tel : +(603) 5514 3800 Empirical Systems (M) Sdn Bhd (584218-A) Fax : +(603) 5510 0242
Corporate Office: Food Sector No.66, Jalan Sungai Burung A&W (Malaysia) Sdn Bhd (5168-X) AA 32/AA, Bukit Rimau, Section 32 40460 Shah Alam Selangor Darul Ehsan Tel : +(603) 5131 6600 Fax : +(603) 5131 3777/5131 3737 6 | KUB MALAYSIA BERHAD (6022-D)
Group Directory
Corporate Office: agro Sector Level 3, Unit 1, Capital 3 KUB Agro Holdings Sdn Bhd (47135-V) Oasis Square, Ara Damansara KUB Sepadu Sdn Bhd (392172-H) Jalan PJU 1A/7A KUB Maju Mill Sdn Bhd (307838-U) 47301 Petaling Jaya KUB Malua Plantation Sdn Bhd (62716-K) Selangor Darul Ehsan Telw : +(603) 7610 9490 Faxw : +(603) 7610 9496
Corporate Office: power Sector Level 3, Unit 1, Capital 3 KUB Power Sdn Bhd (236338-P) Oasis Square, Ara Damansara Jalan PJU 1A/7A 47301 Petaling Jaya Selangor Darul Ehsan Telw : +(603) 7610 0018 Faxw : +(603) 7610 0017
Corporate Office: property Sector Level 8-11, Unit 1, Capital 3 Peraharta Sdn Bhd (19250-X) Oasis Square, Ara Damansara KUB Tower Sdn Bhd (233906-D) Jalan PJU 1A/7A 47301 Petaling Jaya Selangor Darul Ehsan Tel : +(603) 7680 9600 Fax : +(603) 7680 9610
Note : Registered Office of all Companies located at :
KUB Malaysia Berhad (6022-D) Level 8-11, Unit 1, Capital 3, Oasis Square, Ara Damansara, Jalan PJU 1A/7A, 47301 Petaling Jaya, Selangor Darul Ehsan Tel : +(603) 7680 9600 (General) Fax : +(603) 7680 9793 (Group Secretarial Division) / +(603) 7680 9610 (General) website : www.kub.com ANNUAL REPORT 2017 | 7
Profile of Directors
ACADEMIC/PROFESSIONAL QUALIFICATION(S) • Bachelor of Economics (Business Administration), University of Malaya • Fellow of the Chartered Institute of Logistics and Transport, Malaysia
WORKING EXPERIENCE(S) Dato’ Ahmad Ibnihajar was a Forex Dealer and Portfolio Manager of Malayan Banking Berhad, London from 1976 to 1979 and Branch Manager with Malayan Banking Berhad from 1980 to 1984.
Dato’ Ahmad served as Managing Director of United Traders Securities Sdn Bhd from 1984 to 1991 and Taiping Securities Sdn Bhd in 1996 to 1999, both of which are involved in stockbroking business. Since 1991, he has been the Chairman of Heirs Corporation Sdn Bhd, a property development company. From 1991 to 1993, he was an Executive Director of WM Svene-Nor JV Sdn Bhd.
Dato’ Ahmad was a Director of Bumiputera Technology Venture Capital Sdn Bhd and Managing Director of Bumiputera Technology Venture Capital Management Sdn Bhd from 1996 to 2008. Both Companies are venture capital funds initiated by the Prime Minister’s Office.
From 1999 to 2013, Dato’ Ahmad served as Managing Director of Penang Port Sdn Bhd.
Dato’ Ahmad is the Chairman of Penang Sentral Sdn Bhd and also sits on the boards of several private limited companies principally involved in property development and investment holdings.
Apart from KUB, Dato’ Ahmad is also the Chairman of D’Nonce Technology Berhad, a public company listed on the Main Market of Bursa Malaysia Securities Berhad. He currently sits on the Board DATO’ AHMAD IBNIHAJAR of Governors of Universiti Sains Malaysia. From 2001 to 2005, he was the Chairman of Commerce Assurance Berhad. He also held few Directorships of public listed companies namely Malaysian Chairman, Independent Non-Executive Director Resources Corporation Berhad from 2000 to 2013 and PWF Consolidated Berhad (now PW Consolidated Berhad) from 1997 to 2004.
DIRECTORSHIP(S) Listed entity • Chairman, D’Nonce Technology Berhad Malaysian, Date of Appointment: 68, Male 27 November 2015 Other public companies • None Board Committee Membership: Others • Board Investment Committee • Chairman, Penang Sentral Sdn Bhd • Director in various private limited companies
ATTENDANCE AT BOARD MEETING IN 2017 • Attended all nine (9) meetings 8 | KUB MALAYSIA BERHAD (6022-D)
Profile of Directors
ACADEMIC/PROFESSIONAL QUALIFICATION(S) • Bachelor of Accountancy (Honours), National University of Malaysia • Master Degree in Accountancy, University of Glasgow, Scotland • Chartered Accountant • Member of the Malaysian Institute of Accountants
WORKING EXPERIENCE(S) Datuk Abdul Rahim Mohd Zin is a Chartered Accountant and a Member of the Malaysian Institute of Accountants. He has thirty (30) years experience in various fields particularly in banking and finance, oil and gas, shipbuilding, ship repair, shipping and food and beverage. He has held several positions since graduation, first as a lecturer in accounting and as a finance executive at Shell Malaysia Trading Sdn Bhd.
He started his banking career in 1990 with Bumiputra Merchant Bankers Berhad, with his last held position as the General Manager, Corporate Finance. He was the General Manager, Group Finance of Southern Bank Berhad from 1996 to 1998. He then pursued his career with Amanah Merchant Bank Berhad with last held position as the Senior General Manager, Corporate Finance from 1998 to 2000.
Datuk Abdul Rahim was the Chief Executive Officer of Southern Finance Berhad from 2001 to 2003. He was appointed as the President and Group Managing Director of Bank Pembangunan Malaysia Berhad Group in 2003 until 2007.
Prior to joining KUB, Datuk Abdul Rahim was the Group Chief Executive Officer of Radimax Group Sdn Bhd from 2010 to 2015.
He has held several directorships in shipbuilding, ship repair, shipping and oil and gas related activities namely, Labuan Shipyard and Engineering Sdn Bhd (2011-2015) and from 2003-2007, Global Maritime Ventures Berhad, Global Carriers Berhad and DATUK ABDUL RAHIM MOHD ZIN Malaysian Bulk Carriers Berhad.
President/Group Managing Director DIRECTORSHIP Listed entity • None
Other public companies • None Malaysian, Date of Appointment: Others 54, Male 17 August 2015 • Director of several companies within KUB Group • Director in various private limited companies Board Committee Membership: ATTENDANCE AT BOARD MEETING IN 2017 None • Attended all nine (9) meetings ANNUAL REPORT 2017 | 9
Profile of Directors
ACADEMIC/PROFESSIONAL QUALIFICATION(S) • Bachelor of Electrical Engineering, NED University of Engineering and Technology
WORKING EXPERIENCE(S) Dato’ Ab Rahim Abu Bakar’s extensive exposure cover his eighteen (18) years of working experience in EPE Power Corporation Berhad, with his last position as the General Manager of Marketing and Project Division. He has also served several companies in power and oil and gas industries namely Schneider and Arab Malaysian SGB.
Dato’ Ab Rahim is also active in serving various business and Non- Governmental Associations. He was appointed as the President of Persatuan Usahawan Tenaga Malaysia. He has served as President of Bumiputera Manufacturers and Services for five (5) years and as one of the Vice Presidents of National Malay Chamber of Commerce for four (4) years. He was also the President of Pahang State National Malay of Chamber for three (3) years. In sport, he has served as the Deputy President of Pahang Malays Football Association for one (1) term.
Dato’ Ab Rahim is currently the Chief Executive Officer of Nouva ASP (M) Sdn Bhd, a subsidiary of BARTEC Group International and a Consultant in ZTE (Malaysia) Corporation Sdn Bhd. He is also the Chairman of EDMI Meters Sdn Bhd and VITZROTND (M) Sdn Bhd.
Dato’ Ab Rahim has twenty-seven (27) years experience in power engineering, construction and oil and gas industries.
DIRECTORSHIP(S) Listed entity • None
Other public companies • None DATO’ AB RAHIM ABU BAKAR Others Senior Independent Non-Executive Director • Director of several companies within KUB Group • Chief Executive Officer, Nouva ASP (M) Sdn Bhd (a subsidiary of BARTEC Group International) • Chairman, EDMI Meters Sdn Bhd • Chairman, VITZROTND (M) Sdn Bhd
ATTENDANCE AT BOARD MEETING IN 2017 Malaysian, Date of Appointment: • Attended all nine (9) meetings 66, Male 5 August 2013
Board Committee Membership: • Board Investment Committee (Chairman) • Board Risk Management Committee (Chairman) • Board Audit Committee • Board Nomination and Remuneration Committee • Board Employee Share Option Scheme Committee 10 | KUB MALAYSIA BERHAD (6022-D)
Profile of Directors
ACADEMIC/PROFESSIONAL QUALIFICATION(S) • Degree in Economics, York University, Toronto, Ontario, Canada • Diploma in Accountancy, Toronto School of Business, Ontario, Canada • Masters of Business Administration in Shipping and Logistics, Middlesex University, London
WORKING EXPERIENCE(S) Datuk Hj Faisyal Datuk Yusof Hamdain Diego has vast experience in the field of corporate governance, management, property development and construction.
He is currently the Chairman of Suria Capital Holdings Berhad. He is also the Chairman of SCHB Engineering Services Sdn Bhd, a subsidiary of Suria Capital Holdings Berhad. He was appointed by Bursa Malaysia Berhad (‘Bursa Malaysia’) as Governor and member of Yayasan Bursa Malaysia on 14 April 2015.
Datuk Hj Faisyal was a Board Member of Bursa Malaysia from May 2004 until June 2010. During his tenure with Bursa Malaysia, he was the Chairman of Market Participation, Listing and Compensation Committee and a Member of Risk Management, Investment and Advisory Committee. He has been the Executive Chairman of Arus Sutera Sdn Bhd since 1997 and a Director of Perkasa Trading Sdn Bhd (a subsidiary of Sabah Economic Development Corporation) since 1996.
He was Treasurer of Dewan Perniagaan Melayu Malaysia (Sabah) from 1997 until 2007 and the Chairman of Yayasan Bumiputera Sabah (wholly-owned by the State Government of Sabah) from September 2010 until September 2012.
DIRECTORSHIP(S) Listed entity • Chairman, Suria Capital Holdings Berhad DATUK HJ FAISYAL DATUK YUSOF HAMDAIN DIEGO Other public companies • Governor and member, Yayasan Bursa Malaysia
Non-Independent Non-Executive Director Others • Director of several companies within KUB Group • Executive Chairman, Arus Sutera Sdn Bhd • Chairman, SCHB Engineering Services Sdn Bhd (a subsidiary of Suria Capital Holdings Berhad) • Director, Perkasa Trading Sdn Bhd (a subsidiary of Sabah Malaysian, Date of Appointment: Economic Development Corporation) 55, Male 18 August 2005 (Redesignated as Non-Independent ATTENDANCE AT BOARD MEETING IN 2017 Non-Executive Director on 18 August • Attended eight (8) out of nine (9) meetings 2014)
Board Committee Membership: • Board Audit Committee • Board Risk Management Committee ANNUAL REPORT 2017 | 11
Profile of Directors
ACADEMIC/PROFESSIONAL QUALIFICATION(S) • Associate Degree in Printing and Advertising, United States of America • Diploma in Journalism, International Institute of Journalism, Berlin, Germany
WORKING EXPERIENCE(S) Dato’ Jamelah A.Bakar has vast experience in the fields of corporate governance, business, social activities and journalism.
Dato’ Jamelah started her early career as a journalist with Utusan Malaysia in early 1970’s. She then moved on to serve Berita Harian in 1977. In 1990, Dato’ Jamelah was a representative journalist for Berita Harian in Washington DC to cover the development of the Gulf War. She was also a former editor of ‘Utusan Pengguna’ and Editor-in-Chief for Bahasa Malaysia publication of the Consumer Association of Penang. She was the Vice Chairwoman, Women and Asean Economic Community Business Foundation.
Currently an accomplished entrepreneur, Dato’ Jamelah is a Director of Perbadanan Usahawan Nasional Berhad and recently appointed as an Adjunct Professor for Bachelor of Management Programme of Universiti Tun Abdul Razak (UNITAR).
Her various involvements in Non-Governmental Organisations include the National Drug Abuse Prevention Association (PEMADAM) where she serves as Chairwoman of Women & Family Development Bureau.
She has also been appointed as a member of the Women’s Advisory Council and Consultative Malaysia effective 24 August 2015 by the Honourable Prime Minister of Malaysia, Dato’ Sri Mohd Najib Tun Abdul Razak.
DIRECTORSHIP(S) Listed entity DATO’ JAMELAH A.BAKAR • None
Independent Non-Executive Director Other public companies • Director, Perbadanan Usahawan Nasional Berhad
Others • Director of several companies within KUB Group • Chairwoman, Women & Family Development Bureau, National Drug Abuse Prevention Association (PEMADAM) • Member, Women’s Advisory Council and Consultative Malaysian, Date of Appointment: Malaysia 65, Female 5 August 2013 ATTENDANCE AT BOARD MEETING IN 2017 Board Committee Membership: • Attended all nine (9) meetings • Board Nomination and Remuneration Committee • Board Investment Committee • Board Employee Share Option Scheme Committee 12 | KUB MALAYSIA BERHAD (6022-D)
Profile of Directors
ACADEMIC/PROFESSIONAL QUALIFICATION(S) • LLM, University of Bristol, United Kingdom • LLB (Honours), University of Malaya • Advocate and Solicitor of the High Court of Malaya (1991)
WORKING EXPERIENCE(S) Tunku Alizan Raja Muhammad Alias holds an LLM from the University of Bristol, United Kingdom and LLB (Honours) from the University of Malaya. In 1991, he was admitted as an Advocate and Solicitor of the High Court of Malaya. In 1999, together with Dato’ Zulkifly Rafique and several other partners formed Messrs. Zul Rafique & Partners. He has twenty-seven (27) years of post-qualification, specialising in the areas of Corporate and Construction Law. He is currently a Partner at Messrs. Zul Rafique & Partners.
Tunku Alizan is the Chairman of Gabungan AQRS Berhad, a public company listed on the Main Market of Bursa Malaysia Securities Berhad. He also holds directorships in various private limited companies.
DIRECTORSHIP(S) Listed entity • Chairman, Gabungan AQRS Berhad
Other public companies • None
Others • Director of several companies within KUB Group • Partner, Messrs. Zul Rafique & Partners • Director in various private limited companies
ATTENDANCE AT BOARD MEETING IN 2017 • Attended all nine (9) meetings TUNKU ALIZAN RAJA MUHAMMAD ALIAS
Non-Independent Non-Executive Director
Malaysian, Date of Appointment: 51, Male 16 June 2015
Board Committee Membership: • Board Nomination and Remuneration Committee (Chairman) • Board Employee Share Option Scheme Committee (Chairman) • Board Investment Committee ANNUAL REPORT 2017 | 13
Profile of Directors
ACADEMIC/PROFESSIONAL QUALIFICATION(S) • Bachelor of Science in Business Administration, University of Tulsa, Oklahoma, USA • Associate Degree in Computer Information System, MARA Science College, Kuantan • Professional Certificate in Financial Technical Analysis with Distinction, Open University • Accredited full member of the Society of Technical Analyst, United Kingdom
WORKING EXPERIENCE(S) Tengku Zahaimi Tuan Hashim has vast experience in strategic planning and consulting services at national and international level. Throughout his twenty-seven (27) years of professional services, he has consulted numerous government and international organisations including the Islamic Development Bank in Jeddah, Government of Morocco as well as Bahrain. Tengku Zahaimi was appointed as the lead advisor to the Governor of Al-Madinah Al- Munawarah in Saudi Arabia for the Strategic Study Transformation Readiness initiative in 2004.
Tengku Zahaimi started his career in the Information and Communications Technology (‘ICT’) and consulting industry, attached to local and multinational organisations during his early years. He then joined Multimedia Development Corporation and was appointed as the Regional Manager for Middle East and North Africa region based in Jeddah, Saudi Arabia. On completion of his overseas assignment in 2006, Tengku Zahaimi was appointed as Special Officer to the former Minister of Science, Technology and Innovation (’MOSTI’) office.
During his tenure at MOSTI, he was credited with the formation of the Malaysian Animation and Creative Content Centre (‘MAC3’) as well as facilitating the ICT developments and policy in the country. Tengku Zahaimi’s last appointment was as Special Officer to the Special Advisor in the Prime Minister’s Department.
He currently sits on the Board of Nur Power Sdn Bhd, Nur TENGKU ZAHAIMI TUAN HASHIM Generation Sdn Bhd and Nur Distribution Sdn Bhd, which is an independent power utility company. He is also a Board Member of National Aerospace and Defence Industries Sdn Bhd. Non-Independent Non-Executive Director DIRECTORSHIP(S) Listed entity • None
Other public companies • None Malaysian, Date of Appointment: 49, Male 16 June 2015 Others • Director of several companies within KUB Group • Director, Nur Power Sdn Bhd Board Committee Membership: • Director, Nur Generation Sdn Bhd • Board Nomination and Remuneration Committee • Director, Nur Distribution Sdn Bhd • Board Investment Committee • Director, National Aerospace and Defence Industries Sdn Bhd
ATTENDANCE AT BOARD MEETING IN 2017 • Attended eight (8) out of nine (9) meetings 14 | KUB MALAYSIA BERHAD (6022-D)
Profile of Directors
ACADEMIC/PROFESSIONAL QUALIFICATION(S) • Bachelor of Accountancy (Honours), International Islamic University of Malaysia • Member of the Malaysian Institute of Accountants • Member of the Chartered Institute of Management Accountants
WORKING EXPERIENCE(S) Mohammad Farish Nizar Othman is currently the Director of Corporate Services of Malaysian Technology Development Corporation (‘MTDC’), a wholly-owned subsidiary of Khazanah Nasional Berhad that is involved in commercialisation of public/ private sector research results, early stage technology ventures, innovation policy development, incubation space and fund management.
He is a Chartered Accountant attached with Messrs. PricewaterhouseCoopers Kuala Lumpur from 1995 until 2003 and subsequently with Messrs. KPMG Kuala Lumpur, both in the Assurance and Business Advisory practice, covering multiple assignments on various industries.
Mohammad Farish then joined MTDC as the Senior Vice President of Finance and Corporate Services. In 2010 he joined Scomi Engineering Berhad, a public company listed on the Main Market of Bursa Malaysia Securities Berhad, as General Manager of Business Development and Tender Coordination.
He then returned to MTDC in May 2014 as the Director of Advisory and Value Added Services. He holds directorships in various other private limited companies.
DIRECTORSHIP(S) Listed entity • None
MOHAMMAD FARISH NIZAR OTHMAN Other public companies • None Independent Non-Executive Director Others • Director in various private limited companies
ATTENDANCE AT BOARD MEETING IN 2017 • Attended all nine (9) meetings
Malaysian, Date of Appointment: 46, Male 27 November 2015
Board Committee Membership: • Board Audit Committee (Chairman) • Board Risk Management Committee • Board Nomination and Remuneration Committee • Board Employee Share Option Scheme Committee ANNUAL REPORT 2017 | 15
Profile of Directors
ACADEMIC/PROFESSIONAL QUALIFICATION(S) • International Executive Master of Business Administration, Paris Graduate School of Management, France • Certified International Project Manager & Fellow, American Academy of Project Management (‘AAPM’) • Registered Business Analyst & Fellow, American Academy of Financial Management (‘AAFM’)
WORKING EXPERIENCE(S) Datuk Haji Mohd Haniff Haji Koslan has vast experience in property development, construction, taxation and business strategies.
Datuk Haji Mohd Haniff began his career as a Tax Assistant at Jabatan Hasil Dalam Negeri (now Inland Revenue Board of Malaysia) from 1980 to 1984. He then pursued his career as a Tax Consultant with Messrs. K.K San Liew & Loke from 1984 to 1986 and Messrs. Aidid & Co from 1986 to 1989, both are Chartered Accountants and Public Accountants firms. He then joined Kumpulan KKHM Sdn Bhd as the Executive Director from 1989 to 1997 and Bridgecon Holdings Berhad in 1997 to 1998.
He was appointed as President of Ranhill Corporation Sdn Bhd from 1998 to 2000.
DIRECTORSHIP(S) Listed entity • None
Other public companies • None
Others • Director of several companies within KUB Group • Executive Chairman, Dorchester International Sdn Bhd • Executive Chairman, Tirai Sutera (M) Sdn Bhd • Executive Chairman, Haniff Properties Sdn Bhd • Director, Corporate Strategic & Development, HSS Engineering Sdn Bhd DATUK HAJI MOHD HANIFF • Chairman, DMIA Sdn Bhd HAJI KOSLAN ATTENDANCE AT BOARD MEETING IN 2017 Independent Non-Executive Director • Attended all nine (9) meetings
Malaysian, Date of Appointment: 59, Male 25 August 2016
Board Committee Membership: • Board Investment Committee • Board Audit Committee • Board Risk Management Committee 16 | KUB MALAYSIA BERHAD (6022-D)
Profile of Directors
Additional Information
1. Save as disclosed below, none of the Directors has any family relationship with and is not related to any director and/ or major shareholder of KUB Malaysia Berhad, nor has any personal interest in any business arrangement involving the Company.
i. Anchorscape Sdn Bhd is the major shareholder of KUB which in turn is a wholly-owned subsidiary of Gaya Edisi Sdn Bhd.
ii. The nominee Directors of Gaya Edisi Sdn Bhd are as follows: • Tunku Alizan Raja Muhammad Alias; and • Tengku Zahaimi Tuan Hashim.
iii. Tunku Alizan Raja Muhammad Alias is a partner at Messrs. Zul Rafique & Partners which renders professional services to the KUB Group in the ordinary course of business.
iv. Tunku Alizan Raja Muhammad Alias has interest in certain related party transactions as disclosed in Note 35(d) to the financial statements.
2. None of the Directors has been convicted for offences within the past five (5) years and public sanction or penalty imposed by the relevant regulatory bodies during the financial year other than traffic offences, if any.
3. The details of Directors’ attendance at Board Meetings held in the financial year ended 31 December 2017 are set out in the Profile of Directors from pages 7 to 16 of this Annual Report.
4. The full profiles of the Directors are available online under the Directors’ Profile at www.kub.com. ANNUAL REPORT 2017 | 17
Board Committees
Appointed with effect from (w.e.f.)
BOARD AUDIT COMMITTEE
1. Mohammad Farish Nizar Othman (Chairman) 27/11/2015 (Redesignated as Chairman w.e.f 28/08/2017) 2. Dato’ Ab Rahim Abu Bakar 29/06/2015 3. Datuk Hj Faisyal Datuk Yusof Hamdain Diego 27/11/2015 4. Datuk Haji Mohd Haniff Haji Koslan 27/02/2018
BOARD NOMINATION AND REMUNERATION COMMITTEE
1. Tunku Alizan Raja Muhammad Alias (Chairman) 29/06/2015 2. Dato’ Ab Rahim Abu Bakar 29/06/2015 3. Dato’ Jamelah A.Bakar 29/06/2015 4. Tengku Zahaimi Tuan Hashim 27/11/2015 5. Mohammad Farish Nizar Othman 18/08/2017
BOARD RISK MANAGEMENT COMMITTEE
1. Dato’ Ab Rahim Abu Bakar (Chairman) 21/10/2014 (Redesignated as Chairman w.e.f 28/08/2017) 2. Datuk Hj Faisyal Datuk Yusof Hamdain Diego 29/05/2012 3. Mohammad Farish Nizar Othman 27/11/2015 4. Datuk Haji Mohd Haniff Haji Koslan 27/02/2018
BOARD INVESTMENT COMMITTEE
1. Dato’ Ab Rahim Abu Bakar (Chairman) 29/06/2015 2. Dato’ Ahmad Ibnihajar 27/11/2015 3. Dato’ Jamelah A.Bakar 21/10/2014 4. Tunku Alizan Raja Muhammad Alias 29/06/2015 5. Tengku Zahaimi Tuan Hashim 29/06/2015 6. Datuk Haji Mohd Haniff Haji Koslan 07/10/2016
BOARD EMPLOYEE SHARE OPTION SCHEME COMMITTEE
1. Tunku Alizan Raja Muhammad Alias (Chairman) 28/08/2017 2. Dato’ Ab Rahim Abu Bakar 21/10/2014 3. Dato’ Jamelah A.Bakar 27/11/2015 (Redesignated as Member w.e.f 28/08/2017) 4. Mohammad Farish Nizar Othman 30/05/2016 18 | KUB MALAYSIA BERHAD (6022-D)
Senior Management Team
2 5 7 1 4 6 8
3
From left to right:
1 Khamsiah Ya’akob 4 Nani Suryani Ahmad Tajudin 7 mohd Afendy Md Yazim
2 Dr. Badrulhisham Mohd Ghazali 5 Azizul Rahman Mohd Basir 8 Ahmad Fisal Shafie
3 mohd Noorkhairi Mahmud 6 Dr. Zaini Mohamed Tambah ANNUAL REPORT 2017 | 19
Senior Management Team
10 15 14 12 13 9 16 11
9 Datuk Abdul Rahim Mohd Zin 12 mohamad Mazri Zainal Abidin 15 Ahmed Fairuz Abdul Aziz
10 Azman Abdullah 13 Samad Mohd Shariff 16 Sharina Saidon
11 Hanie Izawatie Ahmad Kamil 14 Azizan Ariffin 20 | KUB MALAYSIA BERHAD (6022-D)
Profile of Senior Management
Datuk Abdul Rahim mohd zin Present Directorship(s) President/Group Managing Director Listed entity Other public companies (As expressed in page 8 of the Profile of Directors) • None • None
Working Experience(s) Ahmed Fairuz Abdul Aziz Azman has eighteen (18) years experience in corporate finance, Vice President, Group Finance strategic planning, business development, management and operations of medium-size to global companies in diversified industries such as audit, advisory, banking, automotive, ICT Nationality Age Gender and oil and gas in Malaysia and the United Kingdom. He Malaysian 40 Male has held senior positions in Proton Holdings Berhad, Mexter Technology Berhad and Group Lotus Plc. Before joining KUB, Date of Appointment he was the Chief Executive Officer of CMS Consortium 4 January 2016 Ecotour Sdn Bhd, the first electric car sharing service provider in Malaysia. Academic/Professional Qualification(s) • Bachelor Degree in Accounting and Finance, London School of Economics, United Kingdom Mohamad Mazri Zainal Abidin • Fellow of the Institute of Chartered Accountants in England Vice President/Chief Executive Officer, KUB Power Sdn Bhd and Wales • Member of the Malaysian Institute of Accountants Nationality Age Gender Present Directorship(s) Malaysian 51 Male Listed entity Other public companies • None • None Date of Appointment 15 May 2014 Working Experience(s) Ahmed Fairuz has more than sixteen (16) years experience in Academic/Professional Qualification(s) audit, advisory, corporate finance and financial reporting in • Bachelor Degree in Electrical Engineering, University of the services, banking, automotive and property development Malaya sectors. He was previously the Group Chief Financial Officer • Member of Board of Engineers Malaysia of Naza Corporation Group of Companies. Prior to his • Member of Institution of Engineers Malaysia appointment with Naza Corporation, he was attached to CIMB Investment Bank Berhad and Messrs. Ernst & Young. Present Directorship(s) Listed entity Other public companies • None • None Azman Abdullah Vice President, Group Operations and Strategic Development Working Experience(s) Mohamad Mazri has twenty-seven (27) years experience as an Electrical Engineer with Pengurusan Lebuhraya Berhad Nationality Age Gender in 1991 and later joined ABB (M) Sdn Bhd in 1992. He Malaysian 42 Male held various managerial positions from 1994 to 2007 with Malaysian Resources Corporation Berhad, Schneider Electric Date of Appointment (M) Sdn Bhd and Muhibbah Engineering Sdn Bhd. He was the 15 February 2016 General Manager for KUB Power Sdn Bhd from 2007 until 2011 before joining Mahkota Technology Sdn Bhd in mid- Academic/Professional Qualification(s) 2011 as Senior General Manager. After a stint as a consultant • Bachelor Degree in Accounting and Finance, University of with Multi Discovery Sdn Bhd, he re-joined KUB Power Sdn Warwick, United Kingdom Bhd in 2014. • Associate Member of the Chartered Institute of Management Accountants, United Kingdom • Member of the Malaysian Institute of Accountants ANNUAL REPORT 2017 | 21
Profile of Senior Management
Samad Mohd Shariff in 2004. He was the Group Chief Operating Officer of Vice President/Chief Executive Officer, Aerotree Defence and Services Sdn Bhd from 2010 to 2011 A&W (Malaysia) Sdn Bhd and the Head of Operations, Maple Icon Sdn Bhd from 2011 to 2014. Ahmad Fisal provided consultancy services for the downstream oil industry before joining KUB. Nationality Age Gender Singaporean 52 Male Dr. Zaini Mohamed Tambah Date of Appointment Head, Plantation and Operations, 2 July 2013 KUB Agro Holdings Sdn Bhd and KUB Sepadu Sdn Bhd
Academic/Professional Qualification(s) • Advanced Diploma in Business Administration, Thames Nationality Age Gender Business School, Singapore Malaysian 55 Male
Present Directorship(s) Date of Appointment Listed entity Other public companies 1 March 2017 • None • None Academic/Professional Qualification(s) Working Experience(s) • Doctorate in Business Administration, University of Samad has more than thirty (30) years experience in sales Hertfordshire, United Kingdom and operations. He was attached to Singapore Press Holdings • Master in Business Administration, University of Delaware Pte Ltd and Amazing Services Pte Ltd as Sales Manager from • Diploma in Agriculture, Universiti Pertanian Malaysia (now 1986 to 1991. Samad joined McDonald’s Restaurants Pte Universiti Putra Malaysia) Ltd from 1991 to 2005 as business consultant. He was the Director of Operations of Cosmo Restaurants Sdn Bhd from Present Directorship(s) 2008 to 2013. Listed entity Other public companies • None • None
Ahmad Fisal Shafie Working Experience(s) Vice President/Chief Executive Officer, KUB Gaz Sdn Bhd Dr. Zaini has more than thirty (30) years experience in agriculture and plantation management. He started his employment with RISDA in 1984 as an officer. He then served Nationality Age Gender KPK Bandar Baharu Bhd as General Manager between 1985 Malaysian 56 Male to 1992.
Date of Appointment Dr. Zaini joined KUB Holdings Berhad in 1994 as an Agriculture 16 November 2015 Executive before being promoted and assigned to various managerial positions in the company. He was the Head of Academic/Professional Qualification(s) Business Development and Special Project (Senior Manager) • Bachelor Degree in Accountancy, University of East Anglia, Plantation Operations and Business Development of KUB United Kingdom Agro Holdings Sdn Bhd from 2012 to 2016. After seven (7) months at the Plantation Advisory Unit at KUB Malaysia Present Directorship(s) Berhad, he was appointed to his current position. Listed entity Other public companies • None • None
Working Experience(s) Ahmad Fisal has more than thirty (30) years experience in the downstream oil and gas industry, beginning with PETRONAS in 1985, covering international trade operations, risk management, supply and logistics and LPG marketing. He joined KIC Oil & Gas Group of Companies as Group Senior Vice President overseeing terminal operations and marketing 22 | KUB MALAYSIA BERHAD (6022-D)
Profile of Senior Management
Mohd Noorkhairi Mahmud Present Directorship(s) Head, KUB Maju Mill Sdn Bhd Listed entity Other public companies • None • None Nationality Age Gender Working Experience(s) Malaysian 39 Male Azizul Rahman has over fifteen (15) years working experience in telecommunications and network field. He has held Date of Appointment senior positions in areas of sales and business development, 20 June 2016 risk management, corporate compliance, business process management, business transformation, project management Academic/Professional Qualification(s) and corporate strategy. Before joining KUB Telekomunikasi, • Bachelor Degree in Mechanical Engineering, MARA he spent most of his professional career at Telekom Malaysia University of Technology (‘TM’) Subsidiaries i.e. SOTELGUI in Republic of Guinea, • Diploma in Mechanical Engineering, Polytechnic of Kota Robi in Bangladesh and webe. He first started as a Software Bharu, Kelantan Engineer with his last held position at TM as General Manager, Risk and Corporate Compliance Management. Present Directorship(s) Listed entity Other public companies • None • None Sharina Saidon Head, Group Secretarial Working Experience(s) Company Secretary Mohd Noorkhairi has thirteen (13) years experience in palm oil industry. He joined Sime Darby Plantation Sdn Bhd in 2005 as Assistant Manager. In 2009, he was attached to Mill Nationality Age Gender Engineering Department, PT Minamas Sime Darby (Indonesia) Malaysian 58 Female and assigned to four (4) mills for commissioning and mill improvement until 2011. Mohd Noorkhairi then served as Mill Date of Appointment Manager at Tabung Haji Plantations Bhd until 2013. He then 2 June 2013 joined United Malacca Bhd in Triang, Pahang until June 2016 Appointed as Company Secretary on 14 June 2013 before joining KUB. Academic/Professional Qualification(s) • LLB (Honours) in Business Law, City of London Polytechnic, Azizul Rahman Mohd Basir United Kingdom (now London Metropolitan University) Vice President/Chief Executive Officer, • Diploma in Law, MARA Institute of Technology KUB Telekomunikasi Sdn Bhd • Licensed Company Secretary (LS 0006127) • Admitted to the Malaysian Bar Nationality Age Gender Present Directorship(s) Malaysian 40 Male Listed entity Other public companies • None • None Date of Appointment 1 June 2017 Working Experience(s) Sharina has more than thirty (30) years experience in law, Academic/Professional Qualification(s) company secretarial and corporate governance. Before • Master of Science (Telecommunications and Networks), joining KUB, Sharina was the General Manager, Legal and University of Paris, France Company Secretary with Utusan Melayu (Malaysia) Berhad. • Bachelor of Science (Telecommunications and Networks), Sharina practised law in Kuala Lumpur from 1990 to 1996. University of Paris, France • Diploma in Telecommunications and Networks, University of Joseph Fourier, Grenoble France • Project Management Professional – PMP Certified 2012 • Business Continuity Plan – Associate Business Continuity Planner – 2007 ANNUAL REPORT 2017 | 23
Profile of Senior Management
Azizan Ariffin Working Experience(s) Head, Group Risk and Audit Khamsiah has more than thirty-four (34) years of experience in Human Resource in various industries namely telecommunications, transportation, electronic Nationality Age Gender manufacturing, trading and consultancy. Malaysian 50 Male She served Sapura Holdings Sdn Bhd from 1984 until 2003 Date of Appointment before joining Naza Motor Trading Sdn Bhd in 2004 as Manager, 1 July 2014 Human Resource and Administration. Between 2007 and 2013, Khamsiah was the Vice President, Business Process Outsourcing Academic/Professional Qualification(s) with HR Consulting Sdn Bhd. She joined KUB in 2013 as • Bachelor of Accountancy (Honours), International Islamic Manager before assuming her current position. University of Malaysia • Chartered Accountant with the Malaysian Institute of Accountants Dr. Badrulhisham Mohd Ghazali • Chartered Member of the Institute of Internal Auditors Assistant Vice President, Malaysia Strategic Planning and Performance Management • Member of the Malaysian Institute of Management • Qualified Risk Auditor, Professional Member of the Institute of Enterprise Risk Practitioners Nationality Age Gender Malaysian 43 Male Present Directorship(s) Listed entity Other public companies Date of Appointment • None • None 5 May 2016
Working Experience(s) Academic/Professional Qualification(s) Azizan has over twenty (20) years experience in internal audit • Doctorate in Mechanical Engineering, University of and risk management. Between 2001 and 2004, he was the Adelaide, Australia Head of Internal Audit with WWE Holdings Berhad before • Bachelor Degree in Mechanical Engineering (1st Class joining KUB in 2004 as Manager, Group Internal Audit. In Honours), University of Adelaide, Australia 2007, Azizan joined NCB Holdings Bhd as the Head of Group Internal Audit. In 2014, he re-joined KUB. Present Directorship(s) Listed entity Other public companies • None • None Khamsiah Ya’akob Head, Group Human Capital Working Experience(s) Dr. Badrulhisham has over seventeen (17) years experience in corporate and strategic planning, business development Nationality Age Gender management and operations of medium-size to global Malaysian 57 Female companies.
Date of Appointment He was the Head of Strategic Planning, Proton Edar Sdn Bhd 9 June 2016 from 2006 to 2008. He later joined Proton Holdings Sdn Bhd as the Head of Export and Group Corporate Strategy between Academic/Professional Qualification(s) 2008 and 2014. He then moved to CMS Consortium Ecotour • Diploma in Human Resource Management, University of Sdn Bhd in 2014 as the Chief Executive Officer. He was a Malaya Director/Consultant of Timuraxis Sdn Bhd in 2015 prior to • Member of the Malaysian Institute of Human Resource joining KUB. Management
Present Directorship(s) Listed entity Other public companies • None • None 24 | KUB MALAYSIA BERHAD (6022-D)
Profile of Senior Management
Hanie Izawatie Ahmad Kamil Working Experience(s) Assistant Vice President, Group Legal Mohd Afendy has thirteen (13) years experience in secretarial practice and corporate governance. He was a Secretarial Executive at Kumpulan Perangsang Selangor Berhad in 2010 Nationality Age Gender and later moved to Kumpulan Hartanah Selangor Berhad as Malaysian 41 Female Compliance Officer in 2012. He was the Corporate Secretarial Manager with National Aerospace and Defence Industries Date of Appointment Sdn Bhd prior to joining KUB. 7 December 2015
Academic/Professional Qualification(s) Nani Suryani Ahmad Tajudin • Bachelor Degree in Law (Honours), MARA University of External Joint Company Secretary Technology • Admitted to the Malaysian Bar Nationality Age Gender Malaysian 48 Female Present Directorship(s) Listed entity Other public companies Date of Appointment • None • None 8 September 2015
Working Experience(s) Academic/Professional Qualification(s) Hanie Izawatie has more than ten (10) years experience as an • Master of Law Executive (Business Law), International in-house counsel. Islamic University of Malaysia • The Institute of Chartered Secretaries and Administrators, She joined Messrs. Lee Hishammuddin Allen & Gledhill as United Kingdom Legal Associate in 2003. She later moved to AirAsia X Berhad Present Directorship(s) in 2008 as Legal Manager and was promoted as the Head of Listed entity Other public companies Legal in 2014. • None • None
Working Experience(s) Mohd Afendy Md Yazim Nani Suryani has more than twenty-five (25) years experience Senior Manager, Group Secretarial in areas of secretarial and corporate legal practice, compliances Joint Company Secretary and managemet.
Nationality Age Gender Between 2004 and 2006, she was the Manager, Company Secretary of Radicare (M) Sdn Bhd prior to her appointment Malaysian 38 Male as the General Manager, Group Secretarial and Legal. Since 2010, she has been the Director, Group Secretarial and Legal Date of Appointment for Radimax Group Sdn Bhd. 2 September 2014 Appointed as Joint Company Secretary on 9 January 2015 Additional Information Academic/Professional Qualification(s) • Bachelor Degree (Honours) in Corporate Administration, 1. None of the Senior Management/Management has any MARA University of Technology family relationship with and is not related to any director • Diploma in Executive Secretaryship, MARA University of and/or major shareholders of KUB Malaysia Berhad, nor Technology has any personal interest in any business arrangement • Member of the Malaysian Institute of Chartered Secretaries involving the Company. and Administrators • Licensed/Certified Company Secretary 2. None of the Senior Management/Management has • Certified Integrity Officer (Malaysia Anti-Corruption been convicted for offences within the past five (5) years and public sanction or penalty imposed by the relevant Commission) regulatory bodies during the financial year other than traffic offences, if any. Present Directorship(s) Listed entity Other public companies 3. The full profiles of the Senior Management/Management • None • None are available online at www.kub.com. we delivered “ a LAUDABLE PERFORMANCE FOR THE year and i would like to acknowledge the efforts of
team kub for
their hard work and perseverance“ IN ACHIEVING theSE results
Dato’ Ahmad Ibnihajar Chairman
Message from the Chairman Dear Shareholder,
The Group’s revenue On behalf of the Board of Directors of KUB Malaysia Berhad increased by 20.9% (‘KUB’ or ‘the Group’), I am pleased to report that the Group has pulled through yet another challenging year. RM599.3 Underpinned by our four (4) core values – integrity, excellence, million higher than teamwork and trust & mutual respect, we delivered a laudable FY2016: RM495.8 million performance for the year and I would like to acknowledge the efforts of team KUB for their hard work and perseverance in achieving these results. 26 | KUB MALAYSIA BERHAD (6022-D)
Message from the Chairman
The Board of Directors of KUB at the Group’s 52nd Annual General Meeting
to recommend a first and final single- share for the financial year ending 31 DELIVERING RESULTS tier dividend of 1.0 sen per ordinary December 2018 (‘FY2018’). This brings share, subject to the shareholders’ the total expected dividend payout to The Group has been on a steady growth approval at the forthcoming Annual 2.0 sen per ordinary share amounting trajectory for the past three (3) years as General Meeting. Further to that, the to RM11.2 million, which is the highest we continue to improve our operating Board has also declared an interim dividend payout in a single year to be performance as well as realise our dividend of 1.0 sen per ordinary issued by the Group since 2010. strategic plans and initiatives. Revenue (RM’000) Profit for the Year (RM’000) The Group’s revenue for the financial year ended 31 December 2017 (‘FY2017’) increased by 20.9% to 4,942 4,475 9,075 RM599.3 million from RM495.8 million 21,542 30,842 in the financial year ended 31 December 947,856* 626,559* 432,154* 495,772* 599,277 2016 (‘FY2016’), mainly on the back of higher contributions from our energy, agro and food businesses.
In FY2017, the Group recorded profit after tax (‘PAT’) of RM30.8 million compared with RM21.5 million in the previous year, representing an increase of 43.3%. The rise in profit was mainly due to operational improvements and the recognition of gain on disposals of the Group’s properties.
Our confidence in the progress and ‘13 ‘14 ‘15 ‘16 ‘17 ‘13 ‘14 ‘15 ‘16 ‘17 performance of the Group led the Board *Note: Continuing Operations ANNUAL REPORT 2017 | 27
Message from the Chairman
Governance Guide of Bursa Malaysia has become all the more evident in KEY CORPORATE Securities Berhad (‘Bursa Malaysia’) and the programmes and efforts that we DEVELOPMENTS DRIVING the Main Market Listing Requirements. undertake. GROWTH As a testament to our commitment Towards this end, we have implemented In line with the strategic roadmap laid to corporate governance, KUB was various initiatives to integrate out by the management in 2015, the recognised at the Minority Shareholder sustainability across the value chain Group undertook a couple of corporate Watchdog Group (‘MSWG’) – ASEAN of our operations. These include the exercises during the year under review Corporate Governance Recognition implementation of a business continuity to strengthen our growth momentum 2017 where KUB was ranked number management (‘BCM’) programme to and position the Group for future forty-two (42) and eighty-three (83) ensure our capability of anticipating, opportunities. amongst the top 100 public listed preventing, responding and recovering companies in Malaysia for good from any disruptive incident. Both We have successfully executed our disclosures (By Rank) and overall KUB and its subsidiary KUB Gaz strategy to expand our plantation land corporate governance & performance Sdn Bhd have been certified for ISO bank in 2017 with the acquisition of (By Rank) respectively, which we are 22301:2012, a BCM programme, with a brownfield oil palm plantation land truly proud of. other subsidiaries within the Group is in Kinabatangan, Sabah for RM100.4 targeted to be certified in FY2018. million, bringing the Group’s total HUMAN CAPITAL plantation land bank to 8,866 hectares. DEVELOPMENT In addition to that, and in our effort to Completed in early FY2018, the land provide a safe and conducive working acquisition is expected to generate The Group views its workforce as an place to the employees, the Group has immediate revenue and contribute essential part of its overall strategy for begun its journey to implement the 5S positively to the Group’s earnings. business sustainability and therefore, initiatives in FY2018 and is expected to prioritises the continuous development be certified during the same year. Another major development is the and skills upgrading of our people. Group entering into a memorandum A holistic update on these initiatives of understanding with Singapore’s We continue to implement various are presented in detail under the Mabanaft Pte Ltd to construct, own talent development programmes Sustainability Statement. and operate a 50,000 metric tonne to inculcate leadership qualities, refrigerated terminal at Westport, enhance technical and non-technical APPRECIATION Klang. This new plant will strengthen competencies as well as to facilitate our presence in the Malaysian LPG and nurture our employees into high- On behalf of the Board of Directors, I domestic market as well as provide performing individuals. would like to thank our shareholders for us the opportunity to become an their steadfast support and unremitting international LPG player, supplying LPG As part of the Group’s human capital confidence in us, and our partners as in the ASEAN region. initiatives, we have successfully well as customers for their invaluable established an Employee Share Option support and cooperation. UPHOLDING STRONG Scheme (‘ESOS’ or ‘the scheme’) GOVERNANCE which was approved on 23 May 2017 My gratitude also goes to my fellow by our shareholders at the Group’s Board members for their counsel The Board remains committed to Extraordinary General Meeting. The and insights in steering KUB amidst a upholding the highest standards of scheme was established to retain, challenging business landscape. corporate governance as well as robust motivate and reward employees, as risk management and internal control well as to sustain a high employee I wish to also express my sincerest measures throughout our organisation. performance level whilst instilling a appreciation to YBhg Datuk Wira Mohd It is our belief that these elements sense of loyalty to the Group. Hafarizam Harun, our former Director, help to ensure sustainable growth, who had served us well during his preserve our corporate reputation SUSTAINABILITY tenure. and strengthen our ability to deliver continued shareholder value. Alongside our commitments to our Last but not least, to our employees and shareholders, the Group strives to Management at KUB, thank you for your KUB is continuously working to abide ensure sustainable business practices. contributions to the Group this past year by the principles and requirements Our philosophy to operate in a and we truly appreciate the dedication of the Malaysian Code on Corporate responsible manner from an economic, and concrete efforts in preparing us for Governance 2017, Corporate environmental and social standpoint our next phase of growth. The President/GMD’s Statement and Management Discussion & Analysis
We believe that our next phase of growth will be largely dependent on our ability to maximise the utilisation of our current resources efficiently and effectively by making the right investment decisions
Datuk Abdul Rahim Mohd Zin President/Group Managing Director
Dear Shareholder, I am pleased to inform you that we have been making steady progress in the implementation of our three (3) year (2016 - 2018) strategic roadmap.
No doubt 2017 was a challenging year for us due to a combination of internal and external factors such as the weakening ringgit, volatility in commodity prices, adverse weather conditions, intense competition and softening consumer sentiment which had impacted the performance of our core sectors. However, the strength of our diversified business operations and the disciplined execution of our strategies particularly in the timely value unlocking of our non-core assets provided us the stability and resilience to weather the storm. We not only managed to sustain our revenue and earnings but in fact recorded a significantly better performance. ANNUAL REPORT 2017 | 29
The President/GMD’s Statement and Management Discussion & Analysis
2017 also marked the year where plant, pipeline extension, purchase these plans and initiatives will generate we intensified our investmentof new cylinders and reconditioning immediate visible returns to us but commitments with the ultimate aim of and requalification of old cylinders) is meant to sow the seeds for KUB building a strong foundation for our and Food sectors (increase network Malaysia Berhad’s (‘KUB’ or ‘the Group’) future success. We believe that our footprint). Additionally, we have business sustainability. We hope you next phase of growth will be largely also rolled-out our inorganic growth can be patient with us as our goal is to dependent on our ability to maximise blueprint commencing with the provide long term value growth. the utilisation of our current resources expansion of our plantation land bank efficiently and effectively by making the through a brownfield acquisition in Notwithstanding, you can take comfort right investment decisions – hence the Sabah and setting the scene for a that all the strategic plans undertaken or theme of this year’s Annual Report - potential large scale investment in a to be undertaken that we will consider Investing for the Future. refrigerated Liquefied Petroleum Gas our balance sheet strength, capital (‘LPG’) terminal with a joint venture structure and cash flow management. During the period under review, we partner for the Energy business. Any changes to our financial position expended our resources in various will require us to reprioritise our capital organic growth programmes namely The investments above combined expenditure plans, review investment for our Agro (improvement works for with other future plans are expected decisions and re-optimise the capital our mill, replanting of estates), Energy to continue well into 2018. It is also structure which will be done proactively. (construction of a satellite bottling important to highlight that not all
Some highlights, milestones and achievements in the Financial Year Ended 31 December 2017 (‘FY2017’):
Financial Performance Enhanced
Driven by 20.9% 43.3% Energy, Agro increase in revenue to increase in earnings to and Food sectors RM599.3 million, RM30.8 million, highest in three (3) years highest since 2009
Investing for the Future
• Executed a MOU with Mabanaft to build a refrigerated LPG terminal at Westport • Invested in a dedicated pipeline extension at Westport (completed in July FY2017) • Embarked on the reconditioning and requalification of existing cylinders as well as purchase of new cylinders • Commenced the construction of a satellite bottling plant in the Klang Valley
• Acquisition of 1,534 hectares of brownfield oil palm plantation land in Sabah (completed in January FY2018) • Mill improvement works facilitated the commencement of operations in July FY2017 • Replanting exercise of 204.5 hectares was carried out in our Kahang estate in Kluang, Johor
• Opened seven (7) outlets during the year • Remodeled three (3) outlets in FY2017
Asset Value Unlocking Strategy
Monetised non-core properties and assets in Selangor, Perak and Penang amounting to RM31.6 million 30 | KUB MALAYSIA BERHAD (6022-D)
The President/GMD’s Statement and Management Discussion & Analysis
Balance Sheet Strength
Net assets per share strengthened to Total assets for the year increased to . Financial leverage remained healthy RM0.58 RM546.8 million with net gearing ratio of 0.18 times increased Return to Shareholders
Expected payout of 2.0 sen (RM11.2 million)
Operational Excellence/Human Capital Initiatives
• Received shareholders’ approval on 23 May 2017 to establish an Employee Share Option Scheme (‘ESOS’) • Obtained OHSAS 18001:2007 Management System Certification on 3 July 2017 for KUB • Embarked on a Business Continuity Management (‘BCM’) Programme - KUB and KUB Gaz Sdn Bhd were certified on 10 January 2018 for ISO 22301:2012, a BCM Programme • Revamped the KUB Management Guidelines to enhance accountability and authority to senior management in tandem with the latest organisation structure of the Group • Upgraded our integrated reporting systems • Continued to provide constructive training and career development opportunities to employees
SEGMENTAL BUSINESS REVIEW
KUB’s revenue and PAT contribution according to sectors are shown in the diagrams below:
SEGMENTAL REVENUE CONTRIBUTION (%) FOR FY2017
Energy 5.3%
ICT 10.2%
Agro 10.5% Food 0.4% 5.0% Property 68.3% 0.3% Power
Others ANNUAL REPORT 2017 | 31
The President/GMD’s Statement and Management Discussion & Analysis
Segmental Revenue Comparison (Rm’million)
FY2016 : 495.8 FY2017 : 599.3
450 70.5 32.0 325.2 409.4 39.7 61.1 46.9 62.9 2.6 2.6 10.6 30.0 0.3 1.3 400 350 300 250 200 150 100 50 - ICT Energy Agro Food Property Power Others
Segmental Pat Comparison (RM’MILLION)
FY2016 : 21.5 FY2017 : 30.8
30 5.1 6.3 24.1 19.6 2.0 4.5 2.9 4.0 0.9 1.3 1.9 5.7 25 20 15 10 5 Others 0 ICT Energy Agro Food Property Power -5 -10 -15 -20 (15.4) (10.6)
Financial and Operational Performance Review
KUB delivered a set of commendable financial results in FY2017 with revenue of RM599.3 million, representing a 20.9% increase from RM495.8 million in the previous year. Meanwhile, profit after tax (‘PAT’) grew by 43.3% to RM30.8 million as compared to RM21.5 million in the Financial Year Ended 31 December 2016 (‘FY2016’) mainly attributable to the operational performances of the Energy, Agro and Food sectors. Our overall financial performance was bolstered by the gain on disposals of non-core properties amounting to RM12.4 million.
Earnings per share for the year stood at 5.78 sen while net assets per share was 58.0 sen as at 31 December 2017. The Group’s market capitalisation came in at RM217.0 million as at 31 December 2017, while our gearing ratio was manageable at 0.18 times (before our plantation acquisition). Our cash position at the year-end declined to RM119.1 million from RM133.9 million largely due to our capital expenditure commitments in the year.
As part of our drive to deliver value to shareholders, the Board proposed dividends of 1.0 sen per share for FY2017. This represents a total payout of RM5.6 million, translating to a 17.4% payout ratio. Additionally, and for the first time in KUB’s history, the Board has also declared an interim dividend of 1.0 sen per ordinary share for the Financial Year Ending 31 December 2018 (‘FY2018’), translating to an additional payout of also RM5.6 million. The interim dividend will be paid in April FY2018. 32 | KUB MALAYSIA BERHAD (6022-D)
The President/GMD’s Statement and Management Discussion & Analysis
Energy Sector
Our Energy business involves the importation, bottling, marketing and distribution of LPG under the brand name of Solar Gas, through our wholly-owned subsidiary, KUB Gaz Sdn Bhd (‘KUB Gaz’).
Our LPG supply is mainly imported from the Middle East to our terminal at Westport, Port Klang where the LPG is stored, bottled and delivered to our customers. As one of the few LPG suppliers in Malaysia, we service various customer segments including residential, commercial and industrial operators within Peninsular Malaysia (with greater demand from the central and southern regions) through our network of appointed dealers.
ENERGY SECTOR KEY HIGHLIGHTS
Initiatives MOU signed with Invested in a pipeline Began construction • Expanding supply and 26% Mabanaft Pte Ltd for extension at Westport of a satellite bottling distribution capacity increase in revenue the joint development, for higher efficiency in plant in Klang Valley • Building core via ownership and delivery to widen distribution vertical integration operation of network • Rationalising and Refrigerated LPG expanding market Terminal at Westport base
The Energy division was the main revenue driver for the Group in FY2017, representing 68.3% of the Group’s top- line. The sector registered revenue of RM409.4 million, 25.9% higher than FY2016, largely due to the higher average contract price (‘CP’) of LPG. However, lower overall operating margins -- caused by stiffer competition particularly in the commercial segment -- resulted in an 18.7% reduction in the sector’s PAT, from RM24.1 million to RM19.6 million.
In FY2017, KUB Gaz continued to invest in infrastructure improvements which included the construction of Environment (‘HSSE’) initiatives which is strategically located at a high-dense a RM1.8 million dedicated pipeline involved repairing roads, walls and residential area to provide us with better extension at Westport. The pipeline, fences at the terminal plant at Westport geographical reach to our target market which was completed in July FY2017, and bottling facility in Johor. base. Depending on the success of this is aimed at ensuring the stability and strategy, we plan to establish more efficiency of our LPG supply capacity In an effort to increase our distribution satellite plants in the future. through increasing berth availability. capacity and expand our market base, Since coming into operation, KUB Gaz we initiated the establishment of a FY2017 also saw KUB Gaz further has managed to reduce demurrage satellite bottling plant and warehouse accelerate its re-branding efforts geared exposure significantly. We also in the Klang Valley. The plant, which towards strengthening its position in continued to make headway in our is currently under construction, the country’s LPG market. As part of this operational improvement practices costs approximately RM10.7 million exercise, we initiated several activities through Health, Safety, Security and (including additional cylinder assets) to create brand awareness, including ANNUAL REPORT 2017 | 33
The President/GMD’s Statement and Management Discussion & Analysis
purchasing new cylinders and improving provides a framework to identify, control and decrease the risks associated with our existing cylinder appearance. Further to health and safety within the workplace. that, as a preventive measure and in order to address perception issues, we invested AGRO Sector in the reconditioning and requalification of our old cylinders amounting to RM3.1 The Agro-business sector has always been a major contributor to the Group’s revenue, million. earnings and cash flow for many years. Given the ever increasing global demand for edible oils, this sector will remain as one of our key business segments going forward. The high capital expenditure incurred for the above initiatives which we expect As of FY2017, the sector comprised of four (4) plantation estates located in Kluang, to lead to an improved operational Johor and Mukah, Sarawak representing a total area of 7,332 hectares together performance would not be possible had with a 45 metric tonne/hour palm oil mill operating within to our estate in Mukah. it not been for the asset monetisation exercise performed via the disposal of our agro SECTOR KEY HIGHLIGHTS unproductive assets in Penang – namely in Prai and Georgetown which raised cash amounting to RM12 million. The Prai and Georgetown disposals were completed Initiatives in FY2017 and the first quarter (‘Q1’) of Revenue grew by FFB output increased by FY2018 respectively. • Improving productivity via yield improvement 54% 18% While KUB Gaz has a strong customer • Expanding production PAT surged base in Malaysia, we believe future growth capacity will come from the regional market. Thus, • Improving extraction rate 125% on top of strengthening our current and manufacturing cost infrastructure, we are also investing in regional expansion. In this respect, the Group is proposing to build a 50,000 metric tonne refrigerated LPG terminal at Westport. In May 2017, KUB signed a Newly acquired Replanted 204.5 Mechanisation memorandum of understanding (‘MoU’) brownfield plantation in hectares, with a plan intensified for better with Singapore’s Mabanaft Pte Ltd for the Sungai Kinabatangan, to replant 200 hectares efficiency development of the terminal. This new Sabah will drive the per annum over the next facility will increase our storage capacity Group’s earnings five (5) years whilst reducing landed costs. It will also provide an opportunity for us to enter the international markets within the region. The total area for our plantation estates It was again a mixed year for the sector. are shown in the table below: Our estates recorded a notable 18.0% In the period under review, KUB Gaz year-on-year increase in fresh fruit sucessfully obtained the ISO 22301:2012 Total Area bunches (‘FFB’) production supported Certification administered by Cybersecurity Estate as of FY2017 mainly by the newly matured areas Malaysia (under the Business Continuity (hectares) at our Sungai Nape estate, successful Management). This means that the rehabilitation works at our Sungai Yong Johor Company has a framework in place that and Sungai Buloh estate and overall yield Sungai Yong 1,700 outlines an effective response mechanism enhancement efforts. The production Kahang 956 to safeguard its reputation and brand, as would have been higher if not for the abnormally high rainfall which led to well as the interest of our key stakeholders. Sarawak flooding in certain areas causing damage Sungai Buloh 2,435 to main access and field roads and We have also been accredited to OHSAS Sungai Nape 2,241 18001:2007 Occupational Health and further hampering crop evacuation. In addition, labour shortage also impacted Safety Management Certification, Total 7,332 which is an international standard that harvesting operations during the year. 34 | KUB MALAYSIA BERHAD (6022-D)
The President/GMD’s Statement and Management Discussion & Analysis
Following the higher crop production coupled with the strengthening of crude palm oil (‘CPO’) prices and operational commencement of our Mill in Mukah, the sector managed to deliver a 53.9% increase in revenue for FY2017 to RM61.1 million contributing approximately 10.2% of the Group’s total revenue in FY2017.
FFB Production (metric tonnes)
FY2016 : 77,120 FY2017 : 91,149
40,000 19,727 14,303 26,345 16,745 22,036 14,481 33,763 20,869 35,000
30,000 Sungai Yong 25,000 Kahang 20,000 Sungai Buloh 15,000 Sungai Nape
10,000
5,000
- FY2016 FY2017
Our overall PAT meanwhile improved by 125.0% to RM4.5 million in tandem with the higher topline and lower costs of production for our plantation estates. This improvement was however offset by the significant under-performance of our Mill due to operational challenges and crop quality issues. The management has decided to place a major emphasis in improving the performance and capacity utilisation of the Mill by implementing various initiatives going forward.
On the operational front, we continued to make significant progress in our yield enhancement and cost optimisation efforts. The mechanisation of FFB harvesting and collection has been further intensified with the aim of driving productivity, improving efficiency and cutting labour dependency. We have a number of crawlers and mini-tractors for FFB collection in our peat areas in Mukah. Moving forward, we also plan We are also committed to improve our fertiliser management regime through to introduce at our Mukah estate a Bin detailed foliar analyses performed by external agronomists to ascertain System which is integrated with in-field nutrient levels in order to determine the optimum fertiliser combination tractors to facilitate crop evacuation and application required. This will result in significant cost savings and yield and reduce manual intervention. improvement going forward. ANNUAL REPORT 2017 | 35
The President/GMD’s Statement and Management Discussion & Analysis
Apart from the above, the Group is also cognisant and has prioritised the need to address the ageing profile of our oil palms. We have in place a phased and accelerated re-planting roadmap which commenced in FY2017 where 204.5 hectares of our Kahang estate in Johor were replanted. The replanting programme will use new cutting-edge planting materials, with advanced hybrid seeds to improve the yield of our oil palm. We plan to replant at least 200 hectares per year over the next five (5) years.
Taking into account the moderating effects of the replanting programme and in order to not only preserve but enhance the sector’s operational ict Sector performance which the Group considers as a key sector, we decided to embark Since 1991, KUB’s Information and Communications Technology (‘ICT’) sector via on a brownfield oil palm plantation our fully-owned subsidiary, KUB Telekomunikasi Sdn Bhd (‘KUB Telekomunikasi’) acquisition in Kinabatangan, Sabah has successfully delivered billion ringgits worth of contracts focusing on from Kwantas Plantations Sdn Bhd telecommunication and transportation industries. Holding licences from the (‘Kwantas’), a wholly-owned subsidiary Malaysian Communications and Multimedia Commission (‘MCMC’) as Network of Kwantas Corporation Bhd. The Facility Provider (‘NFP’), Network Service Provider (‘NSP’) and Application Service estate, measuring approximately 1,534 Provider (‘ASP’), the products and services of KUB Telekomunikasi consists of ICT hectares, was acquired through our infrastructure solutions, maintenance support & services, ancillary services and wholly-owned subsidiary, KUB Malua supply of telecommunication infra & ICT equipment. Plantation Sdn Bhd (‘KUB Malua’), for a cash consideration of RM100.4 million. ICT sector KEY HIGHLIGHTS
This acquisition, which is also in line with our overall strategy to increase our plantation landbank, Initiatives PBT maintained at previous year’s was approved by the shareholders on • Focusing on core expertise and delivery level in spite of revenue decrease 2 August 2017 and completed on 3 capacity January 2018. The estate is expected • Expanding customer base to generate immediate earnings as • Exploring new business opportunities more than 80% of the plantation is at a high-yield stage and will also have the added effect of reducing the overall age profile of the sector’s estates. With the completion of the Secured three (3) additional contracts Total outstanding order book acquisition, our plantation land-bank area has also increased to 8,866 worth a total of RM26.0 million amounting to RM66.4 million hectares. as at 31 December 2017 as at 31 December 2017
Finally, the Group has taken active steps to For FY2017, the ICT sector contributed 5.3% of the Group’s total revenue, achieving improve the facilities and living conditions RM32.0 million for the fiscal year under review. This was 54.6% lower as compared for our plantation workers with the to the previous year due to the absence of high value contracts similar to the construction of new accommodation Automatic Fare Collection (‘AFC’) system contract and MCMC Telecommunication facilities and at the same time, repairing Tower project completed in FY2016. However, despite the large decrease in revenue, roads, existing houses and providing the PAT was marginally higher at RM6.3 million contributed by a gain on disposal of access to clean water. its office building amounting to RM5.9 million. 36 | KUB MALAYSIA BERHAD (6022-D)
The President/GMD’s Statement and Management Discussion & Analysis
The modest ICT revenue for FY2017 will give an opportunity for us to be part of enablers in shaping up the country was mainly contributed by supply of into a developed nation hence increase our competitive advantage in securing a telecommunication infra, which involves long-term sustainable recurring business as well as high value contracts to further delivery of fibre optic accessories and enhance our business performance. metal based items to support Telekom Malaysia Berhad’s (‘TM’) High-Speed food Sector Broadband (‘HSBB’) rollout amounting to RM20.0 million. As to our core Our Food sector is represented by A&W (Malaysia) Sdn Bhd (‘A&W’) which was expertise i.e. maintenance support & acquired by the Group in 2001 and is also known as the first established quick- services, this area contributed a revenue service restaurant (‘QSR’) chain that was brought into Malaysia in 1963. It currently of RM9.9 million mainly from the AFC has thirty-six (36) outlets throughout Peninsular Malaysia. maintenance contract, servicing fifty- three (53) Keretapi Tanah Melayu food SECTOR KEY HIGHLIGHTS Berhad (‘KTMB’) commuter stations and also the network maintenance contract with TM, servicing fibre optic network nationwide. Initiatives Revenue grew by Opened The ICT sector secured three (3) • Investing in more outlets seven (7) additional contracts from TM and MCMC to improve revenue additional amounting to RM26.0 million in FY2017. • Improving cost 34% outlets This included a five (5)-year contract on management PAT increased TM-NOKIA Metro-E BAU maintenance • Innovating menu service with a value of RM16.7 million offerings and MCMC Universal Service Provider 38% (‘USP’) telecommunication tower construction amounting to RM6.8 million, which involves the construction of nine (9) units of telecommunication towers. The sector further secured a Relocated Continued to Added new products sizeable contract in January 2018 i.e. non-performing outlets invest in and introduced exciting the TM-Nokia Network Simplification branding and marketing promotions Initiative (‘NSI’) amounting to RM45.0 million increasing the total current order book at hand to RM106.5 million (Q1 FY2018).
Moving forward, as the broadband service market in Malaysia is undergoing a period of dramatic growth with tremendous increase in data traffic usage, the Group is expected to broaden its business in this sector exploring new income streams leveraging on strategic collaboration in providing telecommunication infrastructure and network maintenance services. This
In FY2017, the ICT sector contributed5.3% of the Group’s total revenue ANNUAL REPORT 2017 | 37
The President/GMD’s Statement and Management Discussion & Analysis
Amidst a challenging year for the Food The Group will also enhance the customer service levels by providing better training and Beverage (‘F&B’) industry due to to service employees as well as continue to renovate and upgrade existing outlets. weaker consumer sentiments, the sector chalked up a set of admirable financial power Sector results for FY2017 performance. Revenue improved by 34.1% to RM62.9 The principal activities of the Group’s Power sector involves the construction of million in FY2017 from RM46.9 million substations and transmission lines, supplying and installing of electrical infrastructure in FY2016. This was mainly due to the for private companies and electrical maintenance contracts. opening of seven (7) additional outlets and improvement in selected existing During the year under review, the sector secured an additional contract for works outlets during the year. PAT surged by under the TNEC LSS Solar Sepang project amounting to RM8.9 million bringing its 37.9% to RM4.0 million, on the back total value of projects-in hand as at 31 December 2017 to RM69.2 million. of stronger revenue, combined with various cost management and supply power sector KEY HIGHLIGHTS chain improvement initiatives.
FY2017 saw A&W’s various aggressive digital marketing campaigns aimed at Initiatives building a stronger customer base and to • Undertaking more projects Revenue grew by 183% create brand awareness especially among • Considering new businesses within the PBT improved 200% the younger generation start to bear fruit sector with the increase in store footfall and • Exploring sustainable models that are able to generate recurring income transaction counts. The introduction of more innovative menu offerings coupled with attractive limited time offer (‘LTO’) promotions to cater to the discerning tastes of consumers further boosted the Contracts in-hand amounted to RM69.2 million number of returning customers to outlets as at 31 December 2017 leading to increased sales. With the increased number of contracts embarked on and higher progressive revenue Apart from incurring RM4.2 million recognition during the year, the sector registered revenue and PAT growth of about for the opening of new outlets with 183.0% to RM30.0 million and 200.0% to RM5.7 million respectively. Included in an innovative layout and look, we also the sector’s earnings was a reversal of overprovision of costs relating to projects invested RM0.8 million to remodel undertaken in previous years amounting to RM3.0 million. three (3) outlets to provide them with a refreshed image. We were also In our effort to enhance our earnings and competitive edge for this sector, we will disciplined in our approach to non- explore into shifting our business model to a more sustainable business with recurring performing outlets and relocated one (1) incomes such as Energy Management and Energy Efficient Systems, specifically district store from Bandar Puteri Klang to Kota cooling, rehabilitation and maintenance of existing cooling systems of buildings and Kemuning. For slow moving outlets in the Renewable Energy space, particularly in Co-Generation and Large Scale Solar malls, we requested for rental revisions Photovoltaic power plants. through aggressive negotiations during the year to preserve our bottom line.
Going forward, the sector will continue to focus on its network footprint expansion at strategic locations in Peninsular Malaysia. We intend to open an additional eleven (11) outlets in FY2018. For loss-making outlets, we will attempt to relocate them progressively to locations with high foot traffic and continue to review their operational efficiency and business sustainability. 38 | KUB MALAYSIA BERHAD (6022-D)
The President/GMD’s Statement and Management Discussion & Analysis
Our Energy sector will remain the leading property Sector revenue and earnings contributor to the Group in FY2018. Demand for LPG Our subsidiary company, Peraharta Sdn Bhd (‘Peraharta’) is involved in the property is expected to remain robust in line management and building maintenance of certain KUB assets, which include with the increasing population and Bangunan Wisma Sri Kinta, Wisma KUB Kota Bharu, and seven (7) units of double- we believe there is still a lot of growth storey shop houses; altogether worth approximately RM23.9 million. Peraharta, potential in this business. Nonetheless, through a licenced property manager, manages and maintains over 400,000 square intense competition and escalating input feet of commercial and office spaces in Perak, of which 80% of its existing tenants costs may exert some pressure on the are government agencies. operating margins going forward. With the determined effort to counter these property sector KEY HIGHLIGHTS factors through aggressive marketing strategies, improvement in supply chain management specifically in the areas of inventory and dealer management, Initiatives and our plans to boost distribution Monetised two (2) parcels • Divesting property assets to support capacity by establishing satellite bottling of land in Perak and a 3-storey shop plants, the Group anticipates next year’s growth of core businesses office in Selangor performance for the Energy sector to be • Unlocking value from property portfolio amounting to better. RM5.1 million Our medium-term initiative to establish a refrigerated LPG terminal will likely take shape once the necessary design and For FY2017, the sector recorded a revenue and PAT of RM2.6 million and RM1.3 financial investment feasibility studies are million respectively, as compared to a revenue and PAT of RM2.6 million and RM0.9 completed with our JV partner. If all goes million respectively in FY2016. The sector’s profit in the current year was enhanced by according to plan, we target to execute the gain on disposal of two (2) parcels of land in Perak, amounting to RM2.5 million, definitive agreements with our JV offset by higher administrative expenses. The disposal is in line with the Group’s partner Mabanaft in the fourth quarter strategic plans to unlock the value from our property portfolio. Subsequently, the of FY2018, with the aim of commencing proceeds will be utilised to fund our plans for our core businesses. construction in Q1 FY2019.
The Group owns a prime piece of land measuring up to 1.05 acres located in the For the Agro sector, we expect our heart of Petaling Jaya, Selangor. We are actively looking to collaborate with reputable performance to be neutral owing to property developers to develop the land into a potential commercial development. subdued outlook of CPO prices due to The Development Order for the land has been submitted to the authorities and we the higher palm oil production supply in are now waiting for the respective approval. the market which is predicted to outpace consumption. OUTLOOK AND PROSPECTS On the other hand, and barring adverse As we head into the final year of our three (3)-year roadmap, we will likely face weather conditions, we expect FFB similar challenges and setbacks as we did in FY2017 particularly with the heightened production prospects to be potentially competition in many of our business sectors. Notwithstanding, we expect our encouraging. While our replanting performance to remain stable as we leverage on the firm progress we have made in activities are projected to reduce the building our core businesses and in the orderly execution of our strategic plans. With contribution of our Johor estates, an this, we should be able to maintain momentum to drive the Group forward in the overall uptrend in FY2018 is anticipated years ahead. from our newly acquired plantation land in Sabah which has a much robust yield FY2018 will be a busy year for us as we begin the next phase of our growth story – and age profile. especially in ramping-up our core Energy, Agro and ICT sectors. As we amplify our capital requirements to build a strong and sustainable KUB, we are well aware of the Meanwhile for our Mill in Mukah, funding needs and hence, will also be emphasising our efforts in pre-emptive balance we will place greater emphasis and sheet management strategies. This will likely lead to the continued acceleration of attention to ensure it overcomes all its our asset monetisation strategy to support our funding needs to ensure that our operational challenges and is able to resources are not strained by our growth plans. ANNUAL REPORT 2017 | 39
The President/GMD’s Statement and Management Discussion & Analysis
meet its planned production capacity (11) new outlets in line with the despite our best laid plans, domestic targets and ideal oil extraction rates. franchise development agreement headwinds such as prolonged weak with our Principal. The Company will consumer sentiments resulting in The ICT and Power sectors will continue carry-on the efforts to improve on reduced consumer spending will to aggressively bid for further sizeable its menu offerings, increase revenue likely impact our performance going contracts whenever the opportunity through more innovative marketing forward. arises to enhance our order book and at and promotional activities and expand the same time focus on the execution of customer engagement through Meanwhile, and as highlighted, we existing projects. Both sectors will also digital media platforms and reward expect additional gains from our actively explore new sources of revenue programmes. In addition, we will Property sector arising from our asset growth to create more recurring and monitor the performance of our non- unlocking strategy. As usual, the Group sustainable income in the future. performing stores and relocate them will further strengthen the various where necessary and at the same time operational improvement and cost A&W will proceed with its expansion continue with the remodelling efforts management initiatives that have been plans to open an additional eleven for our ‘tired’ outlets. However, carried out since previous years.
ACKNOWLEDGEMENT
As the President/Group Managing Director, I would like to express my deepest gratitude to our valued shareholders for their overwhelming trust and precious support to the Group as we navigate through the challenging and unpredictable global macroeconomic environment.
To our valued business partners, advisers and clients, thank you for your support, loyalty and unrelenting assistance to the Group.
I would also like to take this opportunity to express my appreciation to the Board of Directors for their immense contributions in providing the stewardship, direction and corporate oversight to lead KUB forward, as well as steering the Group’s business trajectory.
Last but not least, I would like to acknowledge our management team and employees for their tireless efforts, contributions and unrelenting commitment throughout the year. 40 | KUB MALAYSIA BERHAD (6022-D)
KUB in the news ANNUAL REPORT 2017 | 41
KUB in the news 42 | KUB MALAYSIA BERHAD (6022-D)
Creating Value for Our Community ANNUAL REPORT 2017 | 43
Sustainability Statement
Boundary and Scope
KUB Malaysia Berhad (‘KUB’ or the ‘Group’) is pleased to present the Sustainability Statement that covers the Group’s sustainability initiatives, in line with the Main Market Listing Requirements issued by Bursa Malaysia Securities Berhad. This statement covers the approaches and efforts feedback undertaken to embed sustainability into the Group’s business operations between 1 January 2017 and Any comments or suggestions 31 December 2017 unless specified otherwise. The that might help us enhance our sustainability initiatives are framework adopted for this statement is in line with welcome. the Global Reporting Initiative (‘GRI’) G4 Guidelines.
For further information, The scope of this statement extends to the Group’s business operations please contact: in the corporate sector- KUB Malaysia Berhad (‘KUB’), Energy sector-
Corporate Communications KUB Gaz Sdn Bhd (‘KUBGaz’), Agro sector- KUB Agro Holdings Sdn Bhd & Investor Relations (‘KUBAH’), KUB Sepadu Sdn Bhd (‘KUBS’) and KUB Maju Mill Sdn Bhd KUB Malaysia Berhad (‘KUBMA’) and ICT sector- KUB Telekomunikasi Sdn Bhd (‘KUBTel’). Level 8, Unit 1, Capital 3 Oasis Square, Ara Damansara This Sustainability Statement describes the Group’s commitment towards Jalan PJU 1A/7A improving its sustainability practices while also taking into account the 47301 Petaling Jaya, Selangor concerns of stakeholders. By focusing on sustainability, the Group aims to Tel : 603-76809600 manage its economic, environmental and social (‘EES’) risks to strengthen Fax : 603-76809610 the local economy, safeguard natural resources and strengthen its bond with the community. 44 | KUB MALAYSIA BERHAD (6022-D)
Sustainability Statement
Approach to Sustainability
Think Sustainability, Act Responsibly
KUB’s approach to sustainability is founded on the Group’s core values. The values of integrity, teamwork, trust & mutual respect and excellence, inculcate a culture of transparency and sustainable performance amongst the employees. In building the Group’s mission for sustainability, these values reflect the underlying principles of a sustainable business model and outline the Group’s strategy for achieving sustainability in the short, medium and long term.
Framework
Integrity Teamwork Trust & Mutual Respect Excellence
KUB CORE VALUES
CORPORATE VISION
To own and develop businesses with sustainable profits which generate premium returns to shareholders
SUSTAINABILITY MISSION
To deliver sustainable value creation for our stakeholders and support the local communities we operate in
KUB ees focus area
Economic Environment Social
Economic Growth Environment Responsible Community Conservation Business Practice Development • Local economic development • Energy and water • Occupational health • Investment in • Supply chain conservation and safety community and management • Recycling and effluent • Ethics and integrity donations • Infrastructure, management • Accountability and • Quality of education investments and • Climate change action transparency • Involvement in supporting services • Employee training and community programmes development • Employee welfare • Regulatory compliance ANNUAL REPORT 2017 | 45
Sustainability Statement
Sustainability Roadmap
The roadmap captures the Group’s progressive journey towards a sustainable future.
Phase 4: Value Creation
Realisation of business value through sustainable practices
Phase 3: Embedding Sustainability
Consider sustainability as part of business operations
Phase 2: Implementation and business preparedness Implement eco-efficiency Industry leadership - innovation and supporting systems Phase 1: Commitment
Management commitment to sustainability
Sustainability performance - Economic, Environmental and Social Outcomes
Governance Structure
The Group’s sustainability performance is driven by the Sustainability Steering and Working Committees (‘The Sustainability Committee’) that encompasses the Group’s six (6) sectors, KUB Senior Management and is headed by the President/Group Managing Director (‘President/GMD’). The Sustainability Committee is tasked to identify and prioritise material sustainability matters that impact the Group’s business operations and stakeholders’ interest. The assessment and ranking of the material matters is updated to the Board Risk Management Committee (‘BRMC’) and subsequently to the Board of Directors (‘the Board’). Both the Board and BRMC will also receive quarterly updates of the sustainability initiatives. The Board takes on a supervisory and advisory role for business and sustainability strategies recommended by the BRMC.
board of directors
board risk management committee
SUSTAINABILITY president/group managing director committee
kub senior management
agro energy power food ict property sector sector sector sector sector sector 46 | KUB MALAYSIA BERHAD (6022-D)
Sustainability Statement
MATERIALITY ASSESSMENT ON SUSTAINABILITY ISSUES
identifying sustainability issues
The Group identified sustainability related issues by taking into consideration the expectations and interests of internal and external stakeholders. The Sustainability Committee, through a series of workshops and discussions, identified the Group’s key stakeholder groups. These groups represent different interests and concerns, which can have a direct impact on KUB’s business.
Engaging Stakeholders
The table below lists the concerns of each of the stakeholder groups and the approaches the Group undertakes to engage with them.
Stakeholder Stakeholder Concerns Engagement Approach Customers • Product performance/service deliverable • Consumer survey • Support services • Sales/technical visit • Inventory supply commitment • Website/social media platforms • Commodity pricing
Employees • Employee compensation, benefits and welfare • Independent evaluation of employees’ benefits & • Compliance to company’s code of conduct, compensation package by external party corporate governance, regulatory requirements, • Issuance of warning letter from HR, whistleblowing standard operating procedures procedure, audit reports • Employee performance and career • Employee KPI assessment, employee engagement development programmes • Employee health and safety • Periodical medical check-up review, OSH Committee meeting
Suppliers • Financing capacity • Regular business communication • Pricing of services and service/product quality • Feedback from industry suppliers • Ethical/responsible procurement process • Number of registered vendors/suppliers • Supplier acceptance to participate in procurement process
Regulatory, • Non-compliance to regulatory requirement • Relevant laws, regulations, guidelines or standards Government • Environmental emissions and discharges • Warning letters, summoned or penalty from respective and Statutory • Immigration status of foreign workers regulatory bodies Bodies • Improper basic necessities provided to workers • Complaint or feedback from respective stakeholders • Audit reports
Investors • Group financial performance • Annual General Meeting (‘AGM’) • Business strategy and governance • Analysts briefing • Waste of company resources • Quarterly updates of financial results • Evaluation of company scorecard • Feedback from shareholders • Audit reports
Media/Local • Company development • Press releases, AGM or EGM through Q&A session with communities/Non- • Community service activities shareholders profit organisations • Climate change strategies • Press conferences (NGOs)/Academic • Local community aids and support • Press releases or media highlighting the emerging trends Institutions • Social contribution and community outreach programmes ANNUAL REPORT 2017 | 47
Sustainability Statement
Press conference held during the Group’s 52nd Annual General Meeting Financial results analyts briefing
Prioritising Material Issues
Using a weighted ranking method, the Sustainability Committee assessed the material matters that were identified. The Materiality Matrix below was derived from the materiality assessment and illustrates the economic, environmental and social material sustainability matters in order of priority.
The Materiality Matrix
9 Anti-Corruption Financial Performance
Regulatory Compliance 8 Corporate Governance Customer Satisfaction Occupational Health and Safety Human Rights Data Security and Privacy 7 Training and Career Development Grievance Mechanism Employee Welfare Supply Chain Management 6 Waste Management
Energy Conservation Product Certification Local Community Investment 5 Diversity and Equal Opportunity Importance to Stakeholders 4
3 3 4 5 6 7 8 9 Importance to Business Operations
Legend: Economic Indicators Environmental Indicators Social Indicators 48 | KUB MALAYSIA BERHAD (6022-D)
Sustainability Statement
SUSTAINABILITY STRATEGIES
The Group has implemented a variety of initiatives and measures throughout KUB’s operations to address the material matters that are embedded in its value chain. These measures are captured in this statement and define the Group’s strategy in moving towards sustainable growth. The adopted strategy aligns with the United Nation’s Sustainability Development Goals (‘SDGs’) which were launched in 2016.
The SDGs were unveiled and affirmed by 193 member states including Malaysia, dedicated to improve the well-being of present and future generations by addressing global challenges. It is a call on businesses on a global scale to advance their sustainable development initiatives by tailoring the investments they make, the solutions they identify for their business and the practices that they adopt towards achieving long-term corporate sustainability.
Sustainability Initiatives in Managing EES Risks
ECONOMY It is the Group’s primary concern to generate profit for its shareholders. However, the Group also closely considers how KUB’s business activities affect the economic conditions of the other stakeholders. As part of the Group’s responsibility towards economic sustainability, it strengthens the local economy through employment and by incorporating sustainability into its procurement practices. i) Employee Remuneration
KUB complies with the requirements of the Malaysian Minimum Wages Order 2016 and offers a higher standard entry level wage than what is stipulated by the minimum national entry level wage. The minimum starting wage for KUB’s non- executive staff is RM1,200 per month, which is 20% and 28% higher than what is stipulated for Peninsular Malaysia and East Malaysia respectively.
The revision of the reward is done as and when required. Benchmarking is carried out periodically to monitor the market to ensure that cash and total remunerations remain competitive. ii) Creating Employment Opportunities Senior Management Distribution The Group believes in investing and building Malaysian talents to drive growth for the organisation. The Group 6% has managed to tap and groom most of its senior managers from the strongest Malaysian potential to gain the competitive edge.
94%
Malaysian citizen Non-Malaysian citizen ANNUAL REPORT 2017 | 49
Sustainability Statement
iii) Sustainable Procurement Policy
The Group is committed to adopting a procurement approach that supports the principles of sustainability. Throughout the procurement supply chain, the Group strives to reduce the consumption of resources and minimise waste, by (i) encouraging or preferring eco-friendly products which are more power efficient, (ii) selecting energy, fuel and water efficient products, (iii) preferring to purchase from a source which is less polluting or uses clean technology, and (iv) considering the provision of re-usable products and recycling as part of the project planning process, including the consideration of whole life costs and disposal considerations. The Group’s Procurement Policy encourages the growth and development of local suppliers and vendors, through the optimal use of local resources and materials.
ENVIRONMENT The Group works towards minimising the likelihood of any adverse impact from its operations on the environment. The Group is committed to drive a greater awareness in preserving and conserving the environment for the future generation. i) Increasing Energy Efficiency
The Group recognises the environmental impact of its business operations in terms of carbon emissions and climate change. Energy conservation is a necessary step to mitigate the increasing threat of climate change. The Group aims to achieve optimum energy utilisation in the long-term while also reducing energy costs. The Group has incorporated key initiatives that are specifically targeted towards reducing energy consumption.
Location Energy Saving Initiatives (FY 2017)
KUB, KUBGaz, • Energy saving reminder to encourage employees to conserve water and electricity at KUB KUBTel & KUBAH
KUBMA • Mukah mill is powered by biomass energy, generating electricity using a steam turbine • Mesocarp fiber and palm kernel shells are reused as biofuel for the Mukah mill boiler
KUB & KUBGaz • Replaced existing lights with energy efficient LED bulbs within KUBGaz bottling plant and at certain levels at KUB office ii) managing Waste and Effluent
The Group ensures the well being of its stakeholders and the community at large by practicing responsible waste management methods that will not only benefit the organisation but also the surrounding community in the long run.
Location Waste Management Initiatives (FY 2017)
KUB, KUBGaz, Reducing Office Paper Consumption KUBTel & KUBAH • Raise awareness and save resources by practising the 3R’s of waste reduction (reduce, reuse and recycle) - Paperless environment for all Board meetings - Duplex printing to avoid paper wasted - Avoid printing out unnecessary copies of documents - Reduce colour printing for internal document 50 | KUB MALAYSIA BERHAD (6022-D)
Sustainability Statement
ii) managing Waste and Effluent
Location Waste Management Initiatives (FY 2017) KUBGaz Scheduled Waste Management • Several types of scheduled waste that are closely monitored by KUBGaz including: i) SW409 – Waste contaminated ii) SW410 – Waste empty containers iii) SW417 – Waste paint • These scheduled waste is disposed by a DOE registered vendor and will be updated to eSWIS.
KUBMA Waste water Management • Raw wastewater is processed to produce clear water to be recycled and reused for mill processing and powering the steam boiler • Clear wastewater produced through mill operations is then channeled to a raw water catchment pond for settlement. • Palm oil mill effluent (‘POME’) treatment plant to reduce the level of organic pollution and chemical oxygen demand (‘COD’) removal from POME before discharging it to the environment • Final wastewater discharge meets the DOE limit of <50ppm BOD (biological oxygen demand)
Liquid Waste Management • Managing liquid waste by using POME treatment • Used oil lubricant is monitored and managed through online inventory (eSWIS)
KUBMA & KUBS Solid Waste Management • In managing solid waste, empty fruit bunches (‘EFB’) disposed off by mulching at estate fields • EFB to be used as organic fertiliser and soil conditioner to partially replace the usage of chemical fertiliser • Mesocarp fibre & palm kernel shell reused as biofuel for boiler combustion • Used oil filters/cotton rags are monitored and managed through online inventory (eSWIS)
KUB & KUBTel Asset Disposal Management • Initiate the disposal process of unrepairable IT equipment to e-waste companies registered with DOE • Faulty cards (Metro-E and DSLAM) sold to an external company to be recycled
Wastewater Management facility at KUBMA’s mill ANNUAL REPORT 2017 | 51
Sustainability Statement
SOCIAL The Group is committed to being a responsible and caring organisation. The Group’s Corporate Social Responsibilities (‘CSR’) activities consist of two (2) aspects: (i) Employees and (ii) Community.
Employees
The Group recognises its employees to be its most important asset as they are the main driving force behind its growth and operational success. Therefore, the Group strives to build an inspiring and engaging workplace for its employees.
KUB employees are the main driving force behind its growth and operational success 2017 Dodge Ball Tournament organised by Kelab Kakitangan Kumpulan KUB i) Cultivating Workplace Culture for Employees
The workplace at KUB is one of equal opportunity and free of discrimination, wherein every employee is treated with respect and dignity. Career development and employment decisions are made based on merit and performance, regardless of gender or ethnicity.
Total Employee by Gender and Employee Category
107 93 90 Male 67 Female 52 31 No. of Employees
Management Executives Non-Executive Employee
ii) low Employee Turnover Employee Turnover Rate By regularly engaging with employees and providing career development opportunities, the Group has built up employee loyalty which has contributed to low turnover rates. 8%
For year 2017, the overall turnover rate for KUB is 8% (represented by 2% female and 6% male employees), which is 5% lower than Malaysia’s overall employee turnover rate which was 13% according to a survey done on Malaysia’s workforce in year 2016. 13%
Malaysian KUB 52 | KUB MALAYSIA BERHAD (6022-D)
Sustainability Statement
iii) providing Employee Benefits
The Group provides its employees with considerable benefits to ensure employee wellbeing. Aside from benefits which are compulsory under the Employment Act, 1955 (i.e. annual leave, medical leave, hospitalisation leave, maternity leave etc.), the Group provides the following additional incentives and allowances for its employees:
Additional Medical Additional Additional Benefits Provided Leave Provided Allowance • Outpatient treatment • Compensation leave Fixed allowance and dental benefit • HAJ leave • Transport allowance • Surgical insurance (GHS) • Replacement leave • Regional allowance • Child education allowance • Group term life insurance • Special paid leave • Executive medical check-up (study/exam leave) Reimbursement allowance • Prolonged illness leave • Outstation allowance • Mobile phone • Compassionate & special leave • Shift and site allowance (marriage/paternity/calamity • Professional membership leave) • Re-settlement allowance • Unpaid leave • Meal allowance
Staff loan or a personal advance is granted to employees who need emergency medical support. To ensure continuous growth and development, the Group had recently introduced the Employee Share Option Scheme (‘ESOS’) to retain and motivate employees. This scheme is offered to those who meet the criteria of eligibility and will be implemented in 2018. iv) Furthering Career Development
Training and Development Programmes KUB believes in building loyalty amongst its employees and retaining top talent by offering extensive employee development programmes. In 2017, the Group invested approximately RM393,148 on training and skill development programmes for KUB, KUBAH, KUBS, KUBMA, KUBGaz and KUBTel employees. The average training days per employee in 2017 was equivalent to 3.86 days as compared to last year’s performance which was 0.43 days.
Several training and development programmes attended by KUB employees in year 2017 are as follows:
Training List of Training Attended by Employees Category Technical/ • Internet Estate Computer System (IECS) Technology • Kursus Pengendalian Makmal Kilang Sawit Ke-18 Training • Agriculture Technology & Exhibit 8th Palm Oil Seminar • Financial and Predictive Modelling with Excel • Navision Upgrade Workshop • Workshop for Corporate Tax and Deferred Tax Computation and High Level Introductory Concepts of the Requirements of MFRS 112 Income Taxes • Malaysian Financial Reporting Standards (MFRS) 9 – Financial Instrument • Convincing Cabling Solutions • Nokia Metro-E Maintenance Support • Awareness Training on the Principles & Requirements of QMS (ISO9001:2015) ANNUAL REPORT 2017 | 53
Sustainability Statement
Training List of Training Attended by Employees Category Business & • Fundamentals of Business Continuity Management Managerial • Enterprise Risk Management Training • Best Practice in Procurement Management • Principles of Vendor Management & Monitoring • Palm Oil Economic Review & Outlook Seminar 2017 • Management of Contractor Team & • KUB Group Team Engagement 2017 Development • Employee Development Programme Training • Practical Managerial Leadership Styles • Building a Strong Team • Building and Developing Your Talents • Managing Change • Creativity on Demand • Effective Coaching Skills Professional & • New Malaysian Code on Corporate Governance – A Comprehensive Disclosure Framework Legal Training • MCCG – Raising the Bar on Transparent, Accountability & Integrity in the Board Safety Training • OHSAS Briefing • Chemical Safety Awareness Talk for KUB Cleaners • Environmental Education • Table Top Ex-Oil spill Training • Briefing on Building Evacuation Plan (Fire Drill) • Fire Drill Exercise • Hazard Identification Risk Assessment Risk Control (HIRARC) Training • Internal Audit Safety Training • Forklift Safety Training • CPR & First Aid Training • TM NIOSH Safety Passport
KUB Group Team Engagement 2017
Safety Training 2017 at Akademi Bomba & Penyelamat 54 | KUB MALAYSIA BERHAD (6022-D)
Sustainability Statement
Shaping Future Leaders The Group employs the following strategy to accelerate the development of our local talents:
Employee Development Objectives Programme Key Performance It is used to help employees understand the criteria used to assess performance, as well as Indicators (KPIs) the quantitative indicators for employees to perform well in their roles in order to get the promotion/bonus.
The assessment of KPIs company-wide is to evaluate the performance of the Group. The financial components (i.e. revenue, profit before tax, free cash and budget) are shared with deserving employees who demonstrate they can support the company to effectively achieve its targets, including a strong financial performance. 360 Performance It is used to evaluate an employee’s level of competency and to propose development initiatives Assessments for areas where they are less competent.
This tool enables employees to receive performance feedback from their superior, peers, reporting staff and functional managers with whom they work regularly.
Swift Aptitude It is used to evaluate employees based on verbal, numerical and diagrammatic reasoning. It is also Tests used to determine an employee’s behavioural style and how to improve it.
Saville Wave® It is used to measure motives, talent and competency level. The results will then be used towards Professional Styles employee development, talent management, succession planning, leadership programmes, coaching and career planning. v) Upholding Company Integrity
BCM Appreciation Lunch 2017
Anti-Corruption Practices On 27 October 2016, the Group signed the Corporate Integrity Pledge (‘CIP’) with the Malaysian Anti-Corruption Commission. This pledge extends to all employees, thereby strengthening the Group’s ethical conduct and standards. The Group is committed to prevent corruption or any dishonest and fraudulent behaviour throughout its business. Apart from the above, the Group has embarked on a series of integrity awareness programmes in 2017 such as: ANNUAL REPORT 2017 | 55
Sustainability Statement
• Startup message for employees displays integrity vii) maintaining Occupational Health and Safety awareness slogans Measures • Establishment of KUB’s Integrity Framework • Establishment of a Gift Policy The Group is committed to provide a safe and healthy • Fraud and corruption risk assessment working environment for its employees, partners, suppliers and visitors. As a responsible company, the BCM Certification Programme (ISO 22301:2012) Group aims to protect employee and public safety by The Group has embarked on a business continuity implementing prudent safety measures. management (‘BCM’) programme to ensure its business is operating at its full potential and well prepared for The Group maintains an effective health and safety policy various contingencies. On 10 January 2018, both KUB and the Occupational Safety and Health Committee and KUBGaz were certified for ISO 22301:2012, a BCM (‘OSH Committee’) has been established at KUB office programme. Moving forward, other subsidiaries within and at each of these subsidiaries - KUBGaz, KUBAH, the Group are targeted to be certified in 2018. KUBS, KUBMA and KUBTel. The OSH Committee meets on a quarterly basis to discuss arising safety issues and vi) Implementing Good Labour Practices to check the effectiveness of control measures. Any accidents must be officially reported to the Group Health, managing Foreign Workers Safety and Environment within twenty-four (24) hours. The Group ensures that foreign labourers working in our estates hold the necessary legal permits to work in The Group aims to achieve continuous system Malaysia. This ensures no immigration law nor human improvement through a structured safety, health and rights law are breached. The employment contract environmental management system. KUB and KUBGaz signed between KUB and the foreign workers clearly have been certified for OHSAS 18001:2007. Aside from stipulate the rights and benefits of the employee and these initiatives, the additional health and safety efforts ensures the workers understand their rights. In order done by the Group to minimise accident rates and to avoid the issue of guest workers at our estates improve safety awareness among employees are listed and ensure transparency in the foreign worker hiring below: process, KUBAH has recently started to outsource the hiring of foreign workers to an experienced third party Health & Safety Initiatives conducted at relevant agency. locations • Contractor Safety Handbook – applicable for KUB managing Grievance and all subsidiaries The Group places importance on employee wellbeing • Permit to Work System – applicable for KUB and all subsidiaries and workplace safety, and provide them with channels • Office Lighting Improvement Survey and Studies to express grievance or complaints they may have with conducted at KUB office regard to work. The Group’s Employee Grievance Policy • Gym facilities provided at KUB office and Procedure is part of the mechanism to ensure that • Laptop Riser & Laptop Cable Lock provided to KUB no one arbitrarily makes decisions which are detrimental employees to prevent ergonomic issues and laptop to the interests of its employees and KUB. safety • Conduct survey for the unsafe act/conditions at The Group also has a Whistleblowing Policy which workplace – applicable to employees, vendors, is intended to directly support the Company’s Core visitors and contractors Values, Code of Ethics and Governance Requirement. • Establishment of Hazard Identification Risk A revision of the policy was made and approved by the Assessment Risk Control (HIRARC) – applicable for Board in August 2017. This policy urges employees to KUB, KUBGaz, KUBAH, KUBMA & KUBS report instances of illegal and immoral conduct to the • First Aider and First Aid Box available at KUB office, appropriate parties within the Group and at the same KUBAH, KUBMA, KUBS, KUBGaz & KUBTel time protects these employees against victimisation • Monthly Safety Inspection conducted at KUB office or discrimination in any way arising from such and subsidiaries communication. It also provides proper investigation to • Establishment of OHSAS 18001:2007 Management be initiated on allegations or reports received by parties System at KUB office & KUBGaz from within or outside the Group. • Developed Work Instruction and Standard Operating Procedures for Agro Sector 56 | KUB MALAYSIA BERHAD (6022-D)
Sustainability Statement
• Chemical Management and Arrangement Compliance to OSHA 1994 at all estates • Establishment of Environmental Aspect and Impact for KUBMA • Monitoring of the PPE issuance • Waste Water Treatment at all estates • POME Treatment at KUBMA • Sports and recreation activities organised by Kelab KUB viii) Ensuring Customer Satisfaction and Product Assurance
The Group is committed to delivering products and services of the highest standard to the customers, as product quality and reliability are essential in building the foundation of a sustainable business model.
product and Services Responsibility
a) Energy Sector KUBGaz does not compromise on the safety and quality of the LPG cylinders that are delivered to customers. Every cylinder is thoroughly inspected and tested prior to delivery. Each cylinders undergoes a process called ‘Reconditioning and Requalification’ to ensure that it is safe to be circulated in the market.
b) ICT Sector KUBTel is ISO 9001:2008 certified for KUB Tel’s Customer Satisfaction Survey each of its ICT systems integration, as 56% well as for design and development. This certification assures the customers that KUBTel’s products and services are of high quality, as it is a well-known 26% international standard. There has been 18% no breach of customer’s privacy or loss of customer’s data in 2017 as the 0% 0% company is committed to complying with applicable data protection laws. Excellence (5) Good (4) Normal (3) Fair (2) Poor (1) ANNUAL REPORT 2017 | 57
Sustainability Statement
Community
Shaping a healthy, resilient and sustainable community KUB strives to support communities that are underprivileged and require assistance. The Group contributes to the development of such communities by planning effective and meaningful programmes that create a long-lasting positive impact.
The Group’s corporate social responsibility (‘CSR’) activities are built on three (3) pillars: Local Community Enrichment; Community Investment and Youth Education.
LOCAL COMMUNITY enrichment
RAMADAN PROGRAMME 2017 18 June 2017 The Group organised Majlis Berbuka Puasa which was attended by 700 guests including employees and their family members, as well as children from Pusat Jagaan Sayang and senior citizens from My Aged Care. RM10,000 was donated to both organisations. 58 | KUB MALAYSIA BERHAD (6022-D)
Sustainability Statement
HARI RAYA OPEN HOUSE 2017 24 July 2017 The Group organised a Majlis Rumah Terbuka Hari Raya where KUB invited 700 corporate guests, KUB’s employees and 80 special guests from Pertubuhan Kebajikan Anak-anak Yatim dan Miskin Sungai Pinang, Klang and Pertubuhan Kebajikan Kanak-Kanak Selangor. KUB donated RM10,000 to both organisations. ANNUAL REPORT 2017 | 59
Sustainability Statement
COMMUNITY INVESTMENT To provide financial aid to underprivileged communities
25 November 2017 KUB donated RM10,000 to Pertubuhan Kebangsaan Melayu Bersatu Pulau Pinang to aid relief efforts to help victims of Penang floods.
15 November 2016 KUB donated RM20,000 to Bulan Sabit Merah Malaysia to assist in restoring the essential services, patients care and other assistance required at Hospital Sultanah Aminah as it was damaged in a fire.
31 May 2017 In Kempen Mengumpul Baju Baharu Nona, KUB pledged RM10,000 in donation funds to provide new Hari Raya clothes to underprivileged children and orphans across Malaysia.
Youth Education To sponsor economically disadvantaged students
16 & 20 June 2017 23 March 2017 Through energy and agro businesses (KUBGaz and KUB Agro Holdings), the Group made KUB donated RM20,000 to Jawatankuasa business tithe payments to Majlis Agama Islam Selangor (MAIS) worth RM346,783 on Kariah Masjid Jamek Hj Wahab Simpang Enam 16 June 2017 and RM292,582 to Majlis Agama Islam Johor (MAIJ) on 20 June 2017, (Penang) to sponsor exam preparation classes indirectly aiding in various community programmes undertaken by MAIS and MAIJ. for UPSR, PT3 and SPM 2017 candidates. 60 | KUB MALAYSIA BERHAD (6022-D)
Corporate Governance Overview Statement
The Board of Directors of KUB Malaysia Berhad (‘the Board’) remains committed to ensure that the process and structure used to direct and manage the business and affairs of KUB Malaysia Berhad (‘KUB’ or ‘the Company’) towards promoting business prosperity and corporate accountability with the ultimate objective of realising long-term shareholders’ value while taking into account the interest of other stakeholders.
The Board has given consideration to the compliance with Bursa Malaysia Securities Berhad (‘Bursa Malaysia’) Main Market Listing Requirements (‘Listing Requirements’), the Malaysian Code on Corporate Governance issued by Securities Commission in April 2017 (‘the Code’) and all other statutory requirements.
The Board is pleased to present the Corporate Governance Overview Statement (‘the Statement’) and explain how KUB Malaysia Berhad Group (‘KUB Group’) has applied the three (3) principles which are set out in the Code throughout the financial year ended 31 December 2017 :
(i) Board leadership and effectiveness (ii) Effective audit and risk management (iii) Integrity in corporate reporting and meaningful relationship with stakeholders
This Statement is to be read together with the Corporate Governance Report (‘CG Report’) of the Company which is available on KUB’s website.
PRINCIPLE A BOARD LEADERSHIP AND EFFECTIVENESS
Board Duties and Responsibilities
The Board is responsible for ensuring that Shareholders’ value and interests are protected and enhanced. The Board has since the 52nd Annual General Meeting continuously reviewed and adopted various guidelines and processes to enhance the standards of the corporate governance practised within KUB Group. These include but not limited to review the Board Charter and Terms of Reference of its Sub-Committees and the Management Guidelines (‘the Policies’).
The Board has full control of KUB Group and oversees the business affairs to ensure proper management. These include adopting strategic plans, approving key business initiatives, major investments decisions, reviewing financial and management performance, developing corporate objectives and implementing investor relations programmes. The Board adopts, amongst others, the following duties and responsibilities :
• together with Senior Management, promote good corporate governance culture within the Company which reinforces ethical, prudent and professional behaviour. • review, challenge and decide on Management’s proposals for the Company, and monitor its implementation by Management. • ensure that the strategic plan of the Company supports long term value creation and includes strategies on economic, environmental and social considerations underpinning sustainability. • supervise and assess Management performance to determine whether the business is being properly managed. • ensure there is a sound framework for internal controls and risk management. • understand the principal risk of the Company’s business and recognise that business decisions involve the taking of appropriate risks. • set the risk appetite within which the Board expects Management to operate and ensure that there is an appropriate risk management framework to identify, analyse, evaluate, manage and monitor significant financial and non-financial risks. • ensure that Senior Management has the necessary skills and experience, and there are measures in place to provide for the orderly succession of Board and Senior Management. • ensure the integrity of the Company’s financial and non-financial reporting. ANNUAL REPORT 2017 | 61
Corporate Governance Overview Statement
The Board Retreat is held annually and it is a platform for the Board and the Management to exchange and formulate ideas in reviewing and adopting strategic plan. At this platform, the Board plays an active role in the development of KUB Group’s strategy, whereby the Management presents to the Board its recommended strategy and proposed business plan and budget for the following year at a dedicated session. At this session, the Board reviews and deliberates upon both Management and its own perspectives, as well as challenges Management’s views and assumptions, to deliver the best outcomes. In furtherance of this, the Board then reviews and approves the annual business plan and budget for the ensuing year and sets the Key Performance Indicators (‘KPI’) under the Corporate Scorecard. The overall KUB Group strategy will focus on growing and strengthening the core business sectors, transforming the Subsidiaries business model, turnaround the underperformance Subsidiaries and divesting the Subsidiaries’ key assets to generate funds to finance key strategic goals.
Board Activities
The Board has an agenda that ensures strategic, budget, sustainability, risk management and internal control, operational, financial performance and corporate governance items are discussed at the appropriate time at Board meetings. Key highlights of activities undertaken by the Board and Board Committees during the financial year ended 31 December 2017 (‘FY2017’) in respect of :
• Business strategy, budget, funding and financial performance The Board had reviewed, deliberated, in consideration of the foreseeable external environment changes that may impact the performance of KUB Group and had resolved the strategic plan for 2018 to 2020 together with the budget for financial year 2018 at Board meeting held in November 2017.
• Nomination and remuneration The Board through the Board Nomination and Remuneration Committee (‘BNRC’) is responsible to ensure that there is an effective and orderly succession planning in KUB Group. The Terms of Reference of the BNRC provides that it is responsible for formulating the nomination, selection and succession policy for KUB Group’s key management positions. The BNRC is responsible to review candidates for key management positions and determine the remuneration for these appointments. For this purpose, the factors considered by the BNRC include the suitability of the shortlisted candidates based on their profiles, professional achievements and personality assessments.
• Joint Venture, proposed development and collaboration, investment, acquisition and disposal of assets The Board, with recommendation of the Board Investment Committee (‘BIC’) had reviewed, deliberated, in consideration of the emerging risks and opportunities, market outlook (i.e. market study and market analysis), economic indicators, currency market, industry/regulatory developments as well as key business developments, which may affect the investment portfolio, KUB Group’s investment strategy and financial health.
• Quarterly financial results The Board, with recommendation of the Board Audit Committee (‘BAC’) had considered KUB Group’s financial results, discussed and reviewed KUB Group’s business plan including financial performance to-date against the annual budget and financial plan previously approved by the Board for the year 2017.
• Internal control and risk management Through the Board Risk Management Committee (‘BRMC’), the Board oversees the risk management framework of KUB Group. The BRMC advises the Board on areas of significant risks and the adequacy of compliance and control procedures throughout the organisation. 62 | KUB MALAYSIA BERHAD (6022-D)
Corporate Governance Overview Statement
Chairman
The relationship between the Board and Management remain strong and cohesive during the year under review. Dato’ Ahmad Ibnihajar, the Independent Non-Executive Chairman is responsible for leadership of the Board, ensuring its effectiveness on all aspects of its role and setting its agenda. The Chairman is also responsible for creating an environment for open, robust and effective debate. This includes ensuring, via the Company Secretary, that the Directors receive accurate, timely and clear information.
The Chairman with his vast experience in various corporate sectors and non-governmental organisations manages the effectiveness of the relationship between Directors and the Senior Management, encouraging active participation and allowing dissenting views to be freely expressed.
Whereas, the President/Group Managing Director is responsible for the day-to-day operations of KUB Group and execution of the Board’s decision.
President/Group Managing Director
The positions of the Chairman and the President/Group Managing Director are held by different individuals. The President/ Group Managing Director is responsible for making and implementing operational decisions, and the day-to-day management of the business of KUB Group with respect to both its commercial and regulatory functions. The President/Group Managing Director, along with the Management, oversee conduct of business of KUB Group, chart the overall business direction of KUB Group, report and communicate key strategic matters and proposal to the Board and implement decisions made by the Board. The respective members of the Management were in attendance at Board meetings to support the President/Group Managing Director in presenting the updates on the progress of key initiatives, business targets and budget and achievements to date, and to provide clarification on the challenges and issues raised by the Board.
Company Secretaries
The Company Secretaries are persons qualified pursuant to Section 235(2) of the Companies Act, 2016. The Company Secretaries are responsible and accountable to the Board, through the President/Group Managing Director, for ensuring that the secretarial function provides adequate support to the Board, Board Committees and Subsidiaries Boards for all Board- related administrative functions. The Company Secretaries are responsible to the Board in ensuring all governance matters, Board proceedings, applicable laws and regulations are complied with. The Company Secretaries are the custodian of the Board and Board Committee meetings agenda and ensure that matters for discussion are ordered appropriately so as to focus the Board’s attention on critical matters requiring deliberation.
In summary, the roles of the Company Secretaries are as follows :
• ensuring compliance with the provisions of the Companies Act, 2016 and Bursa Malaysia Securities Berhad Main Market Listing Requirements relating to the administration of companies, in particular, maintaining statutory records and registers and the timely filing of notices and forms to the Companies Commission of Malaysia • coordinating announcements for release to Bursa Malaysia Securities Berhad • ensuring compliance with the provisions of KUB’s Constitution • preparing the agenda of meetings at the direction of the President/Group Managing Director, and procuring the Chairman’s approval of the same • organising the Board and Board Committee meetings including issuance of notices, preparing relevant Board/Board Committee papers and distributing the Board/Board Committee papers • assisting in the conduct of Annual Board Evaluation • coordinating professional development programmes for the Board members • organising general meetings of Shareholders • carrying out any other duty that may be reasonably required by the Board ANNUAL REPORT 2017 | 63
Corporate Governance Overview Statement
The profile of the Company Secretaries is reflected on page 22 and 24 of this Annual Report.
Support for Directors
KUB Group had embarked on ‘green’ initiative by implementing a paperless environment or ‘eBoard paper’ for all Board and Board Committee meetings, which enable digital access to meeting documents instead of requiring distribution of hard copies. The implementation of eBoard paper will ensure a secured board portal with permission-driven access, secured email and reduce risks of leakages of confidential information. The customised solution also provides various functionalities which enable Directors and Committee members to access various Company documents, including Board policies, procedures, rules and guidelines, which are uploaded onto personal iPads for convenient reference. As a result, Directors and Committee members are able to access meeting documents and Company information in a timely and more efficient manner, thus improving Board performance and overall effectiveness of decision-making.
With the eBoard software, compilation of digital Board papers can be quickly and efficiently done and the meeting documents will be easily distributed to Directors and Committee members, who can access the meeting documents via their personal iPads before the meeting.
The notice for each of the meetings is accompanied by the minutes of the preceding Board Meetings, together with the relevant information and supporting documents to facilitate the Board’s informed decision-making process. Senior Management and consultants are also invited to attend the Board Meetings from time to time as deemed fit to assist the Board with management and operational input as well as professional advices. They also have access to the advice and services of the Company Secretaries and independent professionals as and when required. All issues raised, deliberations and decisions including dissenting views made at Board meetings along with clear actions to be taken by responsible parties are recorded in the minutes. Decisions made, policies approved and follow-up actions at Board meetings will be communicated to Management after the Board Meeting.
All scheduled meetings held during the year were preceded by a formal notice issued by the Company Secretaries in consultation with the Chairman and/or President/Group Managing Director. Additional meetings are convened when specific directions or decisions are required expeditiously or urgently from the Board. Nine (9) Board Meetings were held during the financial year ended 31 December 2017. All Directors fulfilled the requirements of the Company’s Constitution and Listing Requirements in respect of the Board Meeting attendance. Details of attendance of each Director at Board meeting held during the financial year 2017 are disclosed in the Profile of Directors on pages 7 to 16 of this Annual Report.
Demarcation of Responsibilities between the Board, Board Committees and Management
There is demarcation of responsibilities between the Board, Board Committees and Management. The Board’s power and functions are specified in the Board Charter (‘the Charter’). Based on the Charter, the Board assisted by its Sub-Committees is ultimately responsible for KUB Group’s corporate governance, strategic direction, establishing KUB Group’s business and investment policies, overseeing the conduct of KUB Group’s business and evaluating whether these are being properly and effectively managed.
The objectives of the Charter are to ensure that all Board members acting on behalf of KUB are aware of their duties and responsibilities as Board members and the various legislations and regulations affecting their conduct and that the principles and practices of good Corporate Governance are applied in all their dealings in respect, and on behalf of KUB.
The Charter was formalised in the financial year ended 31 December 2016. On 29 March 2018, the Board has approved the revised Charter in line with the Code. The updated version of the Charter is available on KUB’s website at www.kub.com. The Charter will be periodically reviewed as and when necessary.
A clear guideline separating the functions of the Board and its Sub-Committees with the function of the Management is further spelt out in KUB Management Guidelines (‘KUBMaG’). The KUBMaG is continuously reviewed by the Board. 64 | KUB MALAYSIA BERHAD (6022-D)
Corporate Governance Overview Statement
The general objective of the KUBMaG is to facilitate organised dissemination of Management policies as well as timely and effective decision-making process in KUB Group. The KUBMaG is an integral part of the management system established to achieve the planned business goals and objectives of KUB Group. The KUBMaG will form the necessary authority framework within which the respective level of KUB personnel will operate. The specific purpose of the KUBMaG is to provide a framework that clearly define and specify the authority levels for the personnel to carry out their assigned responsibilities. The framework ensures the proper execution of instrument of delegation and provision of clear policies, guidelines and procedures for executing decisions.
Key matters reserved for the Board’s approval include the annual business plan and budget, new ventures, expenditure above a certain pre-determined limit, material acquisitions and disposal of assets and changes to the Management and control structure of KUB and its Subsidiaries, including key policies.
The Non-Executive Directors, with their different background, professions and experiences effectively contribute to independent view and judgement to facilitate the decision making process of KUB Group with regards to the various business strategies and performance.
Code of Conduct and Ethics
KUB has in place a separate Code of Conduct for Directors and employees of the Company. The Directors’ Handbook and Code of Conduct and Code of Conduct and Ethics for employees are available on KUB’s website. The Directors’ Handbook and Code of Conduct was formalised in the financial year ended 31 December 2016 and will be further reviewed during the financial year ending 31 December 2018. The Directors’ Handbook and Code of Conduct is designed to provide the Directors of KUB with the guidelines on the policies and procedures governing the terms, conditions and benefits of their service with KUB.
The fundamental principles applied in developing the policies and procedures are equity among all Directors and fairness to KUB. The Directors are expected to adhere to the spirit of these principles. The Directors’ Handbook and Code of Conduct is available on KUB’s corporate website.
KUB Group communicates the Code of Conduct and Ethics to all employees. The Code of Conduct and Ethics covers the following six (6) broad categories of ethics relating to KUB Group’s operations and personal conduct : a) Conflict of Interest; b) Misuse of Position; c) Misuse of Information; d) Integrity and Accuracy of Record/Transaction; e) Fair and Equitable Treatment; and f) Confidentiality.
The Code of Conduct and Ethics reinforces KUB Group’s core value on integrity by providing guidance on moral and ethical behaviour that is expected from all employees. The Code of Conduct and Ethics is incorporated in the Employee Handbook and it is accessible online through Human Resource Information Exchange (‘HRIX’).
Conflicts of Interest Policy
To foster ethical and independent decision-making, KUB requires Directors with any direct or indirect interest in a proposal or transaction being considered by the Board or its Board Committees to declare that interest and abstain himself/herself from the deliberations. The affected Directors will take no part in the decision-making.
The Conflict of Interest Policy is designed to protect the Directors and the Company and to enhance Corporate Governance, transparency and integrity, and defines the situations in which personal interests and/or dealings may conflict or be perceived to conflict with the discharge of duties and responsibilities. The Conflict of Interest Policy is formed as part of the Directors’ Handbook and Code of Conduct. ANNUAL REPORT 2017 | 65
Corporate Governance Overview Statement
Integrity, Anti-Corruption and Whistleblowing Policy
It is KUB Group policy to conduct all the business in an honest and ethical manner, which outlines a zero tolerance policy towards all forms of bribery and corruption. Pursuant to the signing of the Corporate Integrity Pledge (‘CIP’) witnessed by the Malaysian Anti-Corruption Commission (‘MACC’) in 2016, the CIP has been extended to all employees of KUB Group as part of the initiative to strengthen the ring-fencing of KUB Group’s ethics parameters. KUB Group has established KUB Integrity Framework which have been approved by the Board and subsequently implemented in November 2017. The framework illustrates how integrity plays a vital role in the attainment of KUB Group’s vision and mission through the execution of KUB Integrity pillars.
In addition, KUB Group has also established KUB gift policy to reflect better governance practice in supporting the objective of CIP; Zero Tolerance Towards Corruption. The Policy is guided by the Malaysian Anti-Corruption Act 2009.
Apart from the above, KUB Group also has a Whistleblowing Policy of which it is to directly support the Company’s Core Values, Code of Ethics and Governance Requirement. A revision of the policy was made and approved by the Board in August 2017. On 29 March 2018, the Board has approved the revised Whistleblowing Policy. This Policy guides the employees of KUB Group in communicating instances of illegal and immoral conduct to the appropriate parties within KUB Group and at the same time protecting these employees against victimisation or discrimination in any way arising from such communications. It also provides proper investigation to be initiated on all allegations or reports received/ submitted by parties from within or outside KUB Group. The updated Whistleblowing Policy is available on KUB’s website.
Independent Directors
As at the date of the Annual Report, the Board consists of nine (9) members comprising one (1) Chairman/Independent Non- Executive Director, one (1) President/Group Managing Director, one (1) Senior Independent Non-Executive Director, three (3) Independent Non-Executive Directors and three (3) Non-Independent Non-Executive Directors. The Independent Directors make up fifty five percent (55%) or majority of the Board membership which is in accordance with Paragraph 15.02(1) of the Listing Requirements and Practice 4.1 of the Code.
No individual or group of individuals dominates the Board’s decision making process. The Board adopts the concept of independence in tandem with the definition of Independent Director under Paragraph 1.01 of the Listing Requirements that he/she is independent of Management and free from any business or other relationship which could interfere with the exercise of independent judgement or the ability to act in the best interests of KUB, taking into account the candidate’s character, integrity and professionalism.
The Board approved the assessment criteria of the independence of Directors embedded in the Directors’ Handbook and Code of Conduct to formalise the process of determining the Non-Executive Directors’ independence by having each of them complete the Form of Declaration/Confirmation of Independence on an annual basis.
The Board is generally satisfied that each Independent Non-Executive Director remains independent in character and judgement and is free from relationships or circumstances which are likely to affect or could appear to affect the Director’s judgement.
In reaching this conclusion, the Board has considered all relevant facts and circumstances of these relationships, which include whether the Independent Director :
• Is a major shareholder of KUB or an officer of, or otherwise associated directly with, a major shareholder of KUB • Is employed, or has previously been employed within the last two (2) years in an executive capacity by KUB • Has been engaged as an adviser by KUB or is presently a partner, Director (except an Independent Director) or major shareholder, as the case may be, of a firm or corporation which provides professional advisory services to KUB • Has engaged in any transaction with KUB or is presently a partner, Director or major shareholder, as the case may be, of a firm or corporation which has engaged in any transaction with KUB. 66 | KUB MALAYSIA BERHAD (6022-D)
Corporate Governance Overview Statement
Tenure of Independent Directors
In line with Practice 4.2 and Step Up 4.3 of the Code, the Board on 29 March 2018 agreed that the tenure of an Independent Director (inclusive of redesignated) does not exceed a limit of nine (9) years. Upon completion of the nine (9) years, the Independent Director is to relinquish his/her Directorship.
The Directors are also assessed on their ability to provide strong, valuable contributions to the Board’s deliberations, without interference to and acting in the best interests of KUB. The criteria include independence from the Management and the absence of any business relationship which could materially interfere with, or could reasonably be perceived to materially interfere with, the Independent Director’s judgement.
Diversity
The Company sees increasing diversity at Senior Management level as an essential element in supporting the attainment of its strategic objectives. In any appointment, number of aspects has been considered to maintain a diversified Board and Senior Management which will facilitate in the growth of KUB Group, including but not limited to gender, age, educational background, professional experience, skills and knowledge.
The Board encourages women candidate to take up board positions. In relation thereto, the Company has established the Board Diversity Policy with the objective of at least ten per cent (10%) women representation on the Board. As of the date of reporting, the Company has achieved its Board Diversity Policy objective. The Board Diversity Policy is reflected in the Corporate Governance Report. The Board is of the view that while it is important to promote boardroom diversity, the normal selection criteria of a Director based on effective blend of competency, skill, vast experience and knowledge in KUB’s business sector, should remain a priority so as not to compromise on qualification, experience and capability.
Succession Planning
The Board also determines succession plans for Management and ensures adequate internal controls to identify and manage risks. These actions are carried out directly by the Board and through its Sub-Committees.
In order to identify emerging talents within KUB Group and facilitate the succession planning initiative, KUB Group had embarked on a leadership programme especially for Management and Senior Management positions. The objective of the programme is to cultivate well-rounded managers and develop leaders who are able to contribute effectively to KUB Group’s long term sustainability and to ensure adequate internal talent to succeed critical positions. KUB Group had implemented the Employees’ Development Programme to inculcate a culture that promotes leadership, teamwork and high performance work.
KUB Group has implemented various organisational development initiatives on internal organisational alignment and human capital enhancement, which include :
• Organisational restructuring • Revision of employees compensation and benefits • Successor assessment • Recruitment of key leadership roles • Implementation of performance management system • Implementation of a new planning cycle
The next phase of organisational enhancement will focus on :
• Recruitment of key talents at the Subsidiaries to support growth and turnaround initiatives • Development of a new competency framework • Roll-out leadership and functional development programme • Upgrading of Group-wide Accounting and Management Information System
ANNUAL REPORT 2017 | 67
Corporate Governance Overview Statement
Board Nomination and Remuneration Committee (‘BNRC’)
The BNRC comprises exclusively of Non-Executive Directors, a majority of Independent Directors in accordance with the Listing Requirements. The Committee is chaired by Tunku Alizan Raja Muhammad Alias, Non-Independent Non-Executive Director, being representative to the substantial shareholder to ensure the Board and Senior Management is adequately remunerated in discharging their obligations and responsibilities towards KUB. No individual or group of individuals dominates the BNRC’s decision making process and independent views have been taken into consideration in each discussion.
The objectives of the BNRC are to establish a documented formal and transparent procedure for the appointment of Directors and Senior Management as well as to assess the effectiveness of the Directors, the Board as a whole and the various Sub- Committees of the Board on an on-going basis. On 29 March 2018, the Board has approved the revised Terms of Reference of the BNRC in line with the Code. The BNRC had met four (4) times during the financial year ended 31 December 2017 for deliberation of the following key activities :
In relation to its nomination functions :
• Retirement and re-election of Directors; • Annual Board evaluation; • Evaluation on the performance of the Board Audit Committee; • Independent Directors’ assessment; • Revision of the composition of the Board Committees and Board Subsidiaries; • Appointment of Senior Management; and • Renewal of contract of service of Senior Management.
In relation to its remuneration functions :
• Annual salary increment for the year 2017; • Bonus payment for the year 2016; • Appointment and renewal of contract of service of Senior Management; • Directors’ Fees for the financial year ended 2016; and • Revision of the Non-Executive Directors’ remuneration package.
The attendance of the Members of the BNRC at its Meeting held during the financial year ended 31 December 2017 is as follows :
Directors Attendance
Tunku Alizan Raja Muhammad Alias 4/4
Dato’ Ab Rahim Abu Bakar 4/4
Dato’ Jamelah A.Bakar 4/4
Tengku Zahaimi Tuan Hashim 4/4
Mohammad Farish Nizar Othman 1/1 (Appointed w.e.f. 28 August 2017)
Datuk Wira Mohd Hafarizam Harun 3/3 (Resigned w.e.f. 23 May 2017)
The Board through the BNRC continuously reviews its size and composition to ensure effective functioning of the Board. 68 | KUB MALAYSIA BERHAD (6022-D)
Corporate Governance Overview Statement
Recruitment Process
The Board delegated to the BNRC including but not limited to the responsibility of recommending the appointment of any new Directors, review of KUB’s succession plans and training programmes.
The policies and procedures for recruitment and appointment including re-election are embedded in the Board Charter and the Directors Handbook and Code of Conduct. The appointment of a new Director is a matter for consideration and decision by the Board upon appropriate recommendation from the BNRC. The BNRC has adopted the process for identification of suitable candidates for appointment to the Board, having regard to the skills required and the skills represented.
In identifying, selecting and appointing a new Director, the BNRC and the Board will assess the following criteria :
• The needs of the Board to maximise the likelihood that there is a range of skills, experience and perspectives represented, including an understanding of :
. • the industry in which KUB operates; . • the regulatory environment in which KUB operates; . • the markets in which KUB operates; and . • the communities impacted by KUB’s operations.
• The potential candidate particular skills and experience • The potential candidate capability to bring new skills, experience and perspective to and enhance the culture within the existing Board and KUB
Once the BNRC and the Board have determined the above criteria, the BNRC will assess the factors need to be considered in appointing a new Director including but not limited to the following :
• The time commitment required by a Director to discharge effectively the duties to KUB; • The nature of existing positions, directorships or other material relationships and the impact that each may have on the potential appointee’s ability to exercise an independent judgment; • The extent to which the potential appointee is likely to work constructively with the existing Directors and contribute to the overall effectiveness of the Board; • The strategic and operational advantages of broadening the membership of the Board in terms of diversity of experience, skills, values, perspectives and backgrounds; and • The extent to which the potential appointee meets the independence criteria as outlined in the Listing Requirements and the Code.
In the event that the BNRC believes that a new Director needs to be appointed, either to fill a casual vacancy or increase the total number of directors, the Curriculum Vitae or background information of potential candidates are to be sought from existing Board members. In addition, the BNRC may engage the services of non-governmental agencies for Curriculum Vitae of potential candidates if required. The BNRC will review the list of nominees against the criteria and factors set out above with the assistance from the Company Secretary.
One (1) or more of the BNRC members appointed by the Chairman of the BNRC will then contact the shortlisted candidates and confirm the suitability of the candidates for appointment as a Director (‘the Discussion’). The one (1) or more BNRC members will report back to the BNRC on the Discussion. The BNRC may make any other enquiries regarding the shortlisted candidates as it deems appropriate.
Once satisfied that all relevant information has been obtained and assessed, the BNRC will make an appropriate recommendation to the Board. If approved, the Board will then authorises the Company Secretary to formally invite the candidates to join the Board in conjunction with KUB’s induction programme for new Directors, including a letter of appointment.
ANNUAL REPORT 2017 | 69
Corporate Governance Overview Statement
Protocol for Accepting New Directorship
By accepting the appointment, the Director undertakes that he/she has sufficient time to carry out his/her duties and has declared to the Board details of all other significant business and other interests and a broad indication of the time spent devoted to such commitments. The Director must advise the Board of any subsequent changes to these commitments.
In order to foster commitment among Directors, the Directors should devote sufficient time to carry out their responsibilities, the existing Directors will notify in writing to the Chairman of the Board whilst the Chairman of the Board will notify in writing to all Board members before accepting new Directorship in other companies, including indication of time that will be spent on the new appointment.
Board Assessment
The Annual Board Evaluation comprises the Board and Board Committees Effectiveness and a Directors’ Self and Peer Assessment (‘the Exercise’). The Exercise was conducted to assess the Board’s performance as well as to recommend improvement areas and remedial actions on the Board’s administration and process. The performance evaluation was conducted for the Board as a whole, its Board Committees and contribution of each individual Director.
The Annual Board Evaluation is intended to accomplish the following :
• Improve the overall performance of KUB and its Board • Assess individual and collective success • Improve working relationship • Reinforce individual relationship • Improve the support given to the Board members
Findings of the Annual Board Evaluation were generated based on Directors’ feedback via the Annual Board Evaluation Form. Upon collation and tabulation of the results and analysis of output, the Company Secretary consulted the Chairman of the BNRC for in-depth analysis of the Annual Board Evaluation Results.
A summarised report will be presented to the BNRC and the Board to enable the Board to identify its strengths, areas for improvement and potential issues for the Board, Board Committees and individual Directors.
The effectiveness of the Board and Board Committees is assessed in the areas of the Board roles and responsibilities, composition, ways to foster commitment, meeting process, administration and conduct, interaction and communication with Management, Stakeholders and Board engagement, as well as the effectiveness of the Chairman.
Self and Peer Evaluation are conducted to assess each Director’s professional competency, performance, leadership and integrity, Board contribution and commitment and strategic thinking and management.
The Board, through the BNRC continuously reviews and evaluates the performance of the Board, Board Committees and individual Directors. In addition, the Annual Board Evaluation facilitates in indentifying areas for potential adjustment, provides an opportunity to remind Directors of the importance of group dynamics and effective Board and Board Committee processes in fulfilling the Board and Board Committees duties and responsibilities.
Directors’ Training
The Board acknowledges the importance of continuing education for its Directors to ensure that they are equipped with the necessary skills and knowledge to perform their duties.
During the financial year 2017, all Directors attended various training programmes and workshops relevant to KUB Group, particulars as reflected under the ‘Continuous Professional Development’ section. 70 | KUB MALAYSIA BERHAD (6022-D)
Corporate Governance Overview Statement
Review of Directors Proposed for Re-election
Procedures relating to the appointment and re-election of Directors are contained in the Directors’ Handbook and Code of Conduct. Pursuant to KUB’s Constitution, Directors are to be re-elected at every Annual General Meeting of KUB, where one- third (1/3) of the Directors who have been longest in office since their last election should retire. Eligible Directors may seek re-election at the Annual General Meeting.
Based on the schedule of retirement by rotation, the BNRC is responsible for recommending to the Board those Directors who are eligible to stand for re-election. This recommendation is based on formal reviews of the performance of the Directors, taking into account their Annual Board Evaluation Results, contribution and commitment to the Board through their skills, experience, strengths and qualities, level of independence and ability to act in the best interest of KUB in decision-making.
Remuneration Policies
The BNRC is responsible for reviewing KUB Group’s compensation policy and ensuring alignment of compensation to corporate performance, and that compensation offered is in line with the market practice. The Board had approved on the review of Organisational Design, Remuneration and Reward Package and Employment Terms and Conditions of KUB Group.
The implementation of the Compensation Policy provides the employees of KUB Group a detailed description of a defined standards and processes relative to the development, implementation, management and governance of compensation practice in KUB Group.
The objectives of KUB Group are to maintain a Compensation Policy that :
• Support a performance culture that is based on merit and generates KUB Group’s business growth • Provide clear focus and measurement on key objectives with a meaningful link to reward • Provide competitive compensation opportunities that retain performers focusing on external competitiveness as the primary driver of reward opportunities • Encourage performance driven culture and fosters teamwork and collaboration across KUB Group
The above objectives are to be supported by the following three (3) components which form the key approach of KUB Group in achieving its business objectives :
• Performance alignment :
• Align business achievement to compensation quantum for reward contribution • Align reward to annual performance and in relation to its Key Performance Indicators (‘KPI’) • Recognise and reward cross-companies/divisional collaboration in pursuit of KUB’s business goals • Award and differentiate compensation based on individual performance and contributions
• Individual compensation determination :
• Facilitate competitiveness through market positioning, competitive compensation positions for comparable job positions • Promote meritocracy and fairness by recognising individual performance with a clear emphasis on performance contribution • Equal compensation opportunity and equitable of application across KUB Group
• Compensation structure and instruments :
• Maintain appropriate balance of Fixed Compensation and Variable Compensation • Significant portion of Variable Pool be allocated and aligned with the business performance of KUB Group • The administration of the benefit items be subjected to proper control and governance across KUB Group • Promote sound human resource management practices that are consistently applied throughout KUB Group ANNUAL REPORT 2017 | 71
Corporate Governance Overview Statement
In line with the Compensation Policy in ensuring alignment of compensation to corporate performance, KUB Group had introduced an Automated Balance Scorecard System across KUB Group to improve existing KPI with focus on performance based remuneration and improved performance management system. The benefits of the System are as follows :
• Automates the employees Balance Scorecard (‘BSC’) for ease of tracking and monitoring • Able to view the performance anytime, anywhere on any smart devices • Facilitates the cascading of the BSC KPI framework down to executive level • Facilitates the performance appraisal process based on objective targets linked to the financial performance.
The Board ensures that KUB Group’s remuneration policy remains competitive to attract and retain employees of such calibre who are able to provide the necessary skills and experience, commensurate with the responsibilities for the effective management of KUB Group.
The Terms of Reference of the BNRC
The BNRC roles and responsibilities is governed by the Terms of Reference which are available on KUB’s website.
Remuneration of Directors
The remuneration of the Directors for the financial year ended 31 December 2017 is as follows :
Company
Executive Director Fees Salary Bonus EPF Allowance Benefits in Total (RM) (RM) (RM) (RM) (RM) Kind (RM) (RM) Datuk Abdul Rahim Mohd Zin - 840,000 315,000 173,600 - 62,361 1,390,961
Company Subsidiaries Fees Allowance Benefits in Total A Fees Allowance Benefits in Total B Grand Non-Executive Directors (RM) (RM) Kind (RM) (RM) (RM) Kind (RM) Total (RM) (RM) (Total A + B) Dato’ Ahmad Ibnihajar 60,000 271,000 66,455 397,455 - - - - 397,455 Dato’ Ab Rahim Abu Bakar 60,000 43,500 18,626 122,126 55,000 151,600 7,200 213,800 335,926 Datuk Hj Faisyal Datuk Yusof Hamdain Diego 60,000 29,000 7,459 96,459 23,167 9,000 - 32,167 128,626 Dato’ Jamelah A.Bakar 60,000 26,500 10,299 96,799 50,000 88,750 16,328 155,078 251,877 Tunku Alizan Raja Muhammad Alias 60,000 35,250 10,705 105,955 31,167 87,780 - 118,947 224,902 Tengku Zahaimi Tuan Hashim 60,000 31,750 6,325 98,075 46,902 101,197 - 148,099 246,174 Mohammad Farish Nizar Othman 60,000 53,145 4,152 117,297 - - - - 117,297 Datuk Haji Mohd Haniff Haji Koslan 60,000 26,750 16,974 103,724 27,274 69,828 - 97,102 200,826 Datuk Wira Mohd Hafarizam Harun* 23,507 46,960 12,919 83,386 - 3,000 - 3,000 86,386
* Note : Retired w.e.f. 23 May 2017 72 | KUB MALAYSIA BERHAD (6022-D)
Corporate Governance Overview Statement
Payment for services rendered by firm in which the Director is deemed interested : i) Tunku Alizan Raja Muhammad Alias Provision of legal services
Company RM71,000 Subsidiaries RM89,000 Group Total RM160,000
Remuneration of Senior Management
The remuneration framework outlines the total compensation packages of fixed remuneration and variable remuneration payable to employees. Fixed remuneration refers to basic salary and other fixed income which commensurate with the role and position of an individual employee, including professional experience, qualifications, responsibilities, job complexity and local market condition.
The variable remuneration refers to the discretionary bonus which is cash based and does not consist of shares or non-cash instruments as KUB Group does not have such instruments in place. The pool for the variable remuneration is determined by financial matrices such as KUB Group’s overall performance, achievement of selected financial ratios, market trends and economic outlook.
The following depicts the total value of cash based remuneration paid out to Senior Management of KUB Group for financial year ended 31 December 2017 :
Range of Remuneration (RM) Group Company (RM’000) (RM’000) Short Term Employee Benefits : • Salary, allowances and bonuses 5,028 3,716 Post Employment Benefits : • Defined contribution plan - EPF 555 446 • Social security contributions 12 8 TOTAL 5,595 4,170
PRINCIPLE B EFFECTIVE AUDIT AND RISK MANAGEMENT
Board Audit Committee (‘BAC’)
The BAC comprises three (3) Independent Non-Executive Directors and a Non-Independent Non-Executive Director, whom are equipped with the financial expertise and commercial acumen that are most needed for them to discharge their responsibilities and fulfil their roles as BAC members.
The Chairman of the BAC is not the Chairman of the Board, so as not to impair the objectivity of the Board’s view of the BAC’s findings and recommendations. Details of the composition and activities of the BAC are set out in the BAC Report on pages 88 to 91 of this Annual Report.
The BAC met six (6) times in the financial year ended 2017. The President/Group Managing Director, Vice President, Group Finance Division and the Head, Group Risk and Audit Division all attended those six (6) meetings whilst representatives of the External Auditors and the respective Head of Divisions and Head of Companies also attended by invitation appropriately. ANNUAL REPORT 2017 | 73
Corporate Governance Overview Statement
Quarterly financial statements were reviewed by the BAC and approved by the Board prior to their releases to Bursa Malaysia. The Board is responsible for ensuring that financial statements prepared for each financial year give a true and fair view of KUB Group’s state of affairs. The Directors took due care and reasonable steps to ensure that the requirements of accounting standards were fully met.
Terms of Reference of the BAC
The BAC is guided by its Terms of Reference. KUB has always recognised the need to uphold independence. None of the member of the BAC was former key audit partners within the cooling-off period of two (2) years. On 29 March 2018, the Board has approved the revised Terms of Reference of the BAC in line with the Code. The Terms of Reference of the BAC reflects a policy that requires a former key audit partner to observe a cooling-off period of at least two (2) years before being appointed as a member of the BAC.
External Auditors Assessment
KUB has established a transparent and appropriate relationship with KUB Group’s external auditors through the BAC. The BAC meets the external auditors without the presence of the Management at least twice (2) a year.
The BAC also undertakes an annual assessment of the performance, suitability and independence of the external auditors in recommending the re-appointment of the external auditors which encompassed the performance of the external auditors and the quality of their communication with the BAC and KUB Group. The BAC also took into account the openness in communication and interaction with the lead audit engagement partner and engagement team through discussions at private meetings, which demonstrated their objectivity, independence and professionalism. The external auditors’ performance and independence checklist is embedded in the Board Charter.
In the financial year ended 31 December 2017, the BAC has obtained assurance from Messrs. Deloitte, the External Auditors, that they have maintained their objectivity and independence in accordance with the provisions of the By-Laws on Professional Independence of the Malaysian Institute of Accountants.
The BAC was satisfied with the performance, suitability and independence of the external auditors based on the quality of services and sufficiency of resources they provided to KUB Group, in terms of the firm and the professional employees assigned to the audit.
The role of the BAC in relation to the external auditors is described in the BAC Report on pages 89 to 90 of this Annual Report.
Continuous Professional Development
Existing members of the BAC have experience and skills in financial as well as other relevant fields of expertise. All of them are able to understand the financial reporting process in recommending the financial statements for the approval of the Board.
Particulars of training programmes attended by all Directors during the financial year ended 31 December 2017 are reflected in the CG Report.
Risk Management and Internal Control Framework
The Board Risk Management Committee (‘BRMC’) assists the Board to oversee the risk management matters relating to the activities of KUB Group. The BRMC comprises three (3) Independent Non-Executive Directors and a Non-Independent Non- Executive Director. The BRMC reviews the Enterprise Risk Management Framework (‘Framework’) and processes to ensure that they remain relevant for use, and monitors the effectiveness of risk mitigation action plans for the management and control of the significant risks exposures inherent in its business operation. The design of this Framework is aligned with the principles and process outlined in ISO 31000 : 2009 Risk Management - Principles and Guidelines. It should be noted that these principles in themselves are broad and to be utilised only where considered appropriate.
74 | KUB MALAYSIA BERHAD (6022-D)
Corporate Governance Overview Statement
The Framework is to provide a formal process to assist KUB in among others :
• Providing the foundations and arrangements on the application of risk management process that will be embedded throughout KUB Group at varying level. • Encouraging understanding by managers and their employees on the implication of risk exposures, opportunities and their risk management, in their day-to-day work and in strategic and operational planning activities. • Developing and implementing procedures to ensure that risks are identified, assessed against accepted criteria and appropriate measures are implemented. • Communicating that risk management is everyone’s business within KUB Group. • Ensuring that KUB Group’s Framework and process for risk management is integrated with all aspects of the business, including governance, strategic planning, operational planning, management and reporting.
The Framework is developed and continuously improved to ensure KUB Group capabilities in facing the changing and challenging business environment by continuously implementing, monitoring, reviewing and improving the overall risk management activities.
Additionally, the Framework provides a structured approach in the overall risk management process via the following :
• The underlying principles of Risk Management for KUB Group. • Risk Management Governance under the supervision of BRMC. • Risk Management Governance structure which outlines the roles and responsibilities of all individuals involved in the risk management processes. • Approach to managing risk based on ISO 31000 : 2009 principles and risk management processes with a detailed context.
The Board has established the Business Continuity Management (‘BCM’) to provide guidance in resuming key business functions in the event crisis occurs that has a major or severe impact on business in terms of financial, operations and reputation.
The BRMC is committed to enhance service reliability and resilience via an improved BCM programme. The programme serves to identify potential adversities to KUB Group and their impact on business operations. An overall framework has also been established to build organisational resilience with an effective response mechanism to safeguard KUB Group’s reputation, brand and the interests of its key stakeholders. In 2017, the establishment of BCM Programme for KUB and KUB Gaz Sdn Bhd has been strengthen with the ISO 22301 Certification by Cybersecurity Malaysia in January 2018. Moving forward, other subsidiaries within KUB Group are targeted to be certified in 2018.
Health, Safety and Environment
KUB Group adopts the international standards and controls to continuously improve the safety management systems to ensure safe working environment as it is fundamental in business operations and KUB Group’s success. As part of the initiative, KUB Group has engaged with external consultant for OHSAS 18001 : 2007 of which the certification was received on 3 July 2017. In early 2018, KUB Group has embarked on the 5S programme to maintain a safe, clean, organised and efficient environment with accurate and timely information.
The risk management and internal control system is regularly reviewed by the Management and relevant recommendations are made to the Board for approval. KUB continues to maintain and review its internal control procedures to ensure that its assets and its shareholders’ investments are protected as well as providing assurance to all stakeholders. Full report on KUB’s Statement on Risk Management and Internal Control is reflected on pages 79 to 87 of this Annual Report.
Internal Audit Function
The Board has established an internal audit function within KUB. Internal audit is independent of both business management and of the activities under its review. Internal audit is responsible for providing assurance that the design and operations of KUB Group’s internal control system is effective.
KUB Group Risk and Audit Division assists the BAC in discharging its duties and responsibilities throughout the financial year under review. The terms of reference of the internal audit function is clearly spelt out in the Internal Audit Charter. Internal audit principal role is to undertake independent, regular and systematic reviews of the internal control systems, so as to provide an independent and reasonable assurance on the adequacy, integrity and effectiveness of the KUB Group’s system of internal control, risk management and governance process. ANNUAL REPORT 2017 | 75
Corporate Governance Overview Statement
Internal audit functions have no operational responsibility and authority over the activities it audits and adopts a risk-based approach in preparing its Internal Audit Annual Plan. The audit plan, budget, key performance indicators and manpower resources are submitted to the BAC for its review and approval. None of the internal auditors has any relationships or conflict of interest that could impair their objectivity and independence in conducting their internal audit functions.
To support the BAC in discharging their responsibilities, the Head, Group Risk and Audit Division reports directly to the BAC. The appointment of the Head, Group Risk and Audit Division is reviewed and endorsed by the BAC. KUB Group Risk and Audit Division is supported by six (6) internal auditors headed by Encik Azizan Ariffin. The detailed profile of Encik Azizan Ariffin is reflected under the Profile of Senior Management on page 23 of this Annual Report.
As the corporate member of the Institute of Internal Auditors of Malaysia (‘IIAM’), the internal auditors have access to the internal audit information, networking and trainings in ensuring its commitment that its activities meet the standards required by the Institute of Internal Auditors International Professional Practices Framework (‘IPPF’).
The details of KUB Group’s internal audit function are set out in the BAC Report of this Annual Report 2017.
PRINCIPLE C INTEGRITY IN CORPORATE REPORTING AND MEANINGFUL RELATIONSHIP WITH STAKEHOLDERS
Engagement with Stakeholders
The Board recognises the need for transparency and accountability to shareholders and for regular communications with shareholders, stakeholders and investors on the performance and major developments in the Group. This is achieved through timely releases of quarterly financial results, circulars, annual reports, corporate announcements and press releases. The Management attends meetings with institutional shareholders, analysts and members of the media to clarify information announced regarding the Group’s performance and strategic direction as and when needed and/or requested. Corporate Communication and Investor Relations (‘CCIR’) of KUB plays its role to ensure proper channels of communication between KUB Group and the stakeholders.
The CCIR manages the investing community and conducted engagement between the Management and analysts/fund managers/media in the form of briefings, announcements and press statements to keep the stakeholders updated and well- informed on the progress and affairs of KUB Group.
Quarterly reports on KUB Group’s results and announcements can be accessed from Bursa Malaysia’s website. In addition, KUB Annual Report contains a review of its financial performance, supported by facts and statistics.
KUB website includes ‘About KUB’ section and Investor Relations section which provides all relevant information on KUB and accessible to the public. The Investor Relations section includes among others all announcements made by KUB, share price information, annual reports, notices of general meetings and minutes of general meetings whereas ‘About KUB’ section includes among others the corporate and governance structure of KUB. KUB Group maintains its corporate website which is accessible at www.kub.com.
KUB Group’s Communication Guidelines empowers the Chairman and/or President/Group Managing Director as the spokespersons of KUB Group. In order to ensure that the Stakeholders and investing public have updated information on KUB Group’s performance, operations and other significant developments, various corporate announcements required under the Listing Requirements have been made during the period under review. In addition, detailed information on KUB Group’s significant corporate events and developments were made through the media via press release and/or press conference.
KUB adopts the requirement on corporate disclosure as stipulated under Chapters 9 and 10 of the Listing Requirements. KUB has in place KUB Group’s Communication Guidelines as spelt out in the KUBMaG. It facilitates and ensures compliance by Bursa Malaysia and serves to enhance awareness of corporate disclosure requirements among employees. Clear roles and responsibilities of Directors, Management and employees are provided with the levels of authority to be accorded to designated person and spokesperson in handling the disclosure of material information.
The persons responsible for preparing the disclosure will conduct due diligence and proper verification and coordinate the timely disclosure of material information to the investing public. 76 | KUB MALAYSIA BERHAD (6022-D)
Corporate Governance Overview Statement
In ensuring consistency to KUB Group’s corporate image and standard format, all official communications on KUB Group to the investing public by way of announcements, media, event management, advertisement and promotions, donations and gifts, publications and corporate identity events must be approved by the President/Group Managing Director.
KUB Group has yet to adopt the integrated reporting. KUB Group acknowledges that the integrated reporting improves the quality of information available to investors and promotes greater transparency and accountability on the part of KUB.
The current Annual Report provides stakeholders with a fairly comprehensive overview on the Company’s financial and non- financial information including strategic performance. Components such as Management Discussion Analysis, Corporate Governance Overview Statement, Sustainability Statement and Statement of Risk Management and Internal Control form an integral part of the non-financial information.
Sustainability
The Board promotes good corporate governance in the application of sustainability practices as outlined in the KUBMaG.
The governance structure focuses on creating and enhancing Shareholders’ value by striking a balance between short-term financial performance and long-term sustainability through sound corporate governance that upholds code of conduct and ethics, risk management and effective internal controls.
A full detail of the Sustainability Statement is reflected on pages 43 to 59 of this Annual Report.
Annual General Meeting
The Board recognises the Annual General Meeting as an invaluable platform for shareholders to engage in a productive dialogue and provide constructive feedback that contributes to the overall performance of KUB Group. The Board therefore endeavours to provide shareholders with adequate time to consider the resolutions that will be discussed and decided upon during the Annual General Meeting and to facilitate informed decision-making by the shareholders.
KUB despatches the notice of the Annual General Meeting to shareholders at least twenty-eight (28) days before the Annual General Meeting, well in advance of the twenty-one (21)-day requirement under the Companies Act, 2016 and Listing Requirements.
The notice of the Annual General Meeting outlines the resolutions to be tabled during the meeting and is accompanied with explanatory notes and background of information where applicable.
KUB distributes an Administrative Guide when despatching notice of the Annual General Meeting, which provides information to the Shareholders regarding the details of the Annual General Meeting and their entitlement (if any) to attend the Annual General Meeting.
The Annual General Meeting is the principal forum for dialogue with Shareholders. The Board provides an opportunity for the Shareholders to raise questions pertaining to the business activities of KUB Group. Highlights on KUB Group’s financial performance are also presented to the Shareholders at the Annual General Meeting for their information. The President/Group Managing Director also shared with the Shareholders of KUB’s responses to questions submitted in advance of the Annual General Meeting by the Minority Shareholders Watchdog Group.
All Directors, including Chairman of the BNRC and BAC, attended and participated at Annual General Meeting of KUB in 2017. The external auditors are also present to provide professional and independent clarification on issues and concerns raised by the Shareholders.
The Board encourages the Shareholders to request for the resolutions put forth to be voted by poll. This is in line with the amendments of the Listing Requirements in mandating poll voting for all resolutions set out in the notice of general meetings. The procedure for voting by polls is in accordance with KUB’s Constitution. KUB’s Constitution allows poll voting to be conducted manually using voting slips or electronically using various electronic voting devices, for the purpose of more efficiently determining the outcome of resolutions. KUB has conducted an electronic poll voting or ‘e-polling’ at the last Annual General Meeting. As stated in KUB’s Constitution, KUB allows its shareholders to vote in absentia or by proxy, provided that the proxy form is deposited at least forty-eight (48) hours before the Annual General Meeting. The locations of the General Meetings have always been convened in the Klang Valley at locations which are accessible by public transport.
This Statement is made in accordance with the resolution of the Board of Directors dated 29 March 2018. ANNUAL REPORT 2017 | 77
Statement of Directors’ Responsibility (for the Audited Financial Statements)
The Directors are required by the Companies Act, 2016 to prepare the financial statements for each financial year which have been made out in accordance with the applicable approved accounting standards and the requirements of the Companies Act, 2016 in Malaysia.
The Directors are responsible to ensure that the financial statements give a true and fair view of the state of affairs of KUB Group and KUB at the end of the financial year, and of the results and cash flows of KUB Group and KUB for the financial year.
In preparing the financial statements, the Directors have :
• Adopted appropriate accounting policies and applied them consistently;
• Made judgements and estimates that are reasonable and prudent; and
• Prepared the financial statements on a going concern basis.
The Directors are responsible to ensure that KUB Group and KUB keep accounting records which disclose the financial position of KUB Group and KUB with reasonable accuracy, enabling them to ensure that the financial statements comply with the Companies Act, 2016.
The Directors are responsible for taking such steps as are reasonably open to them to safeguard the assets of KUB Group and KUB, to detect and prevent fraud and other irregularities. 78 | KUB MALAYSIA BERHAD (6022-D)
Additional Compliance Information
The following information is provided in compliance with Paragraph 9.25 of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad as set out in Appendix 9C thereto : a. Utilisation of Proceeds Raised from any Corporate Proposal
There were no proceeds raised from any Corporate Proposal in the financial year ended 31 December 2017. b. Audit and Non-Audit Fees
The amount of audit fees and non-audit fees paid or payable to the external auditors, Messrs. Deloitte PLT for the services rendered to the Group and the Company for the financial year ended 31 December 2017 are as follows:
Group Company Particulars RM RM
Statutory Audit Fees 400,000 120,000 Non-Audit Fees - Tax related services 211,800 108,200 - Others1 166,000 5,500
1 Fees incurred primarily in relation to advisory services for the implementation of the new Malaysian Financial Reporting Standards and review of Statement of Risk Management and Internal Control. c. Material Contracts
During the financial year, there were no material contracts entered into by the Company and its subsidiaries (not being contracts entered into in the ordinary course of business) involving interests of Directors, Chief Executive who is not a director or major shareholders. d. Employee Share Option Scheme (‘ESOS’)
During the Extraordinary General Meeting held on 23 May 2017, the shareholders had approved for the Company to grant an ESOS options to the Directors and the eligible employees subject to the By-Laws. The enforcement of the ESOS is for a period of five (5) years effective 25 July 2017 until 24 July 2022.
However, as at the financial year ended 31 December 2017, the Company has yet to grant the ESOS options to the respective Directors and eligible employees. ANNUAL REPORT 2017 | 79
Statement on Risk Management and Internal Control
INTRODUCTION
This Statement on Risk Management and Internal Control is made pursuant to the Main Market Listing Requirements (‘MMLR’) of Bursa Malaysia Securities Berhad (‘Bursa Malaysia’) with regards to the Group’s compliance with the Principles and Best Practices provisions relating to risk management and internal controls as stipulated in the Malaysian Code on Corporate Governance 2017 (‘MCCG 2017’).
The Board is pleased to provide the Statement on Risk Management and Internal Control of the Group (excluding associated companies, as the Board does not have control over their operations) which outlines the processes adopted by the Board in reviewing the adequacy and integrity of the system of risk management and internal control of the Group.
BOARD RESPONSIBILITY AND ACCOUNTABILITY
Board of Directors
The Board is responsible for the Group’s system of risk management and internal control to safeguard the stakeholders’ interests and the Group’s assets as prescribed by the MCCG 2017.
The Board acknowledges that the system of risk management and internal controls is designed to manage the risks that may impede the achievement of the Group’s objectives. It provides reasonable assurance against material misstatements, fraud or losses. The system of risk management and internal controls cover governance, risk management, financial, strategy, organisational, operational, regulatory and compliance.
The Board confirms that there is an on-going process of identifying, evaluating and managing significant risks by the Management. The process has been in place throughout the year up to the date of approval of the annual report and financial statements. It has been periodically reviewed and is guided by the Statement on Risk Management and Internal Control, Guidelines for Directors of Listed Issuers (‘SRMICG’).
The Board is assisted by the Board Risk Management Committee (‘BRMC’) to assume the responsibilities for the supervision and monitoring of principal risks, whose main responsibility is to review the effectiveness of the risk management processes, report the key risks and recommend appropriate risk management strategies, policies, risk tolerance and mitigation plans for the Board’s approval.
The Board Audit Committee (‘BAC’) on the other hand, meets on a regular basis to review the risk management and internal control issues identified in reports prepared by the internal and external auditors and further evaluate the effectiveness and adequacy of the Group’s risk management and internal control system. The BAC has active oversight on the internal audit’s independence, scope of work and resources. BAC consists of three (3) Independent Non-Executive Directors and one (1) Non- Independent Non-Executive Director who have unrestricted access to both the internal and external auditors. BAC also has the right to convene meetings with the auditors without the presence of other directors and employees.
It also reviews the Internal Audit function, particularly the scope of the annual audit plan and frequency of the internal audit activities. The minutes of the BAC meetings are tabled to the Board on a periodic basis. The details of the activities undertaken by the BAC are highlighted in the Board Audit Committee Report in pages 88 to 91 of the Annual Report 2017.
Internal control and risk-related matters which warrant the attention of the Board were recommended by the BRMC and BAC to the Board for its approval and matters or decisions made within the BRMC and BAC’s purview were updated to the Board for its notation. 80 | KUB MALAYSIA BERHAD (6022-D)
Statement on Risk Management and Internal Control
BOARD RESPONSIBILITY AND ACCOUNTABILITY (CONT’D)
Management
Management is responsible for implementing Board-approved frameworks, policies of risk management and internal control. Management acknowledges their responsibility to ensure Group’s risk management and internal control system are operating adequately and effectively within the Group’s appetite to ensure the Group achieving its established business goals and objectives effectively.
RISK MANAGEMENT
The Board acknowledges that effective risk management is an essential and indispensable part of corporate management and recognises that commitment to risk management contributes to sound management practice and increasing community confidence in KUB Group performance. The Board is committed to embed within the organisational structure, defined roles and responsibilities for all aspects of risk management with the appropriate tools to support the identification, assessment, treatment and reporting of key risks. Generally, the objectives are :
(a) To provide sound basis for integrated risk management and internal control as components of good corporate governance, while enabling systematic and prompt reporting of risks or failures of existing control measures;
(b) To promote risk aware culture, with assigned employees assume responsibility for managing risks to benefit the Group; and
(c) To improve decision making, planning and prioritisation based on comprehensive understanding of the reward to risk balance.
The Group’s level of tolerance is expressed through the use of a risk impact and likelihood matrix with an established risk tolerance boundary demarcating those risks that are deemed to have ‘exceeded risk tolerance’ and those which have not. The Group have clear risk treatment guidance on the action to be taken for the relevant risks.
To ensure that risk management in the Group remains sound and effective, a new set of quantitative and qualitative parameters to measure different impact dimensions; and a revised risk heat map to align with the risk tolerance were established in 2017.
Risk Management Framework
To ensure that effective corporate governance is practised throughout the Group, Enterprise Risk Management Framework (‘ERMF’) has been established to allow the Group to identify, evaluate, monitor and manage the significant risk exposures inherent in its business operations. The design of this framework is aligned with the principles and processes outlined in the ISO 31000: 2009 Risk Management – Principles and Guidelines. It should be noted that these principles in themselves are broad and to be utilised only where considered appropriate. Objectives of this ERMF are to provide a formal process to assist the Group in :
(a) Providing the foundations and arrangements on the application of risk management process that will be embedded throughout the KUB Group at varying level;
(b) Encouraging understanding by managers and their staff on the implication of risk exposures, opportunities and their risk management, in their day-to-day work and in strategic and operational planning activities;
(c) Developing and implementing procedures to ensure that risks are identified, assessed against accepted criteria and appropriate measures are implemented;
(d) Communicating that risk management is everyone’s business within KUB Group; and
(e) Ensuring that KUB Group’s framework and process for risk management is integrated with all aspects of the business, including governance, strategic planning, operational planning, management and reporting. ANNUAL REPORT 2017 | 81
Statement on Risk Management and Internal Control
RISK MANAGEMENT (CONT’D)
The ERMF is developed and continuously improved to ensure the Group capabilities in facing the changing and challenging business environment by continuously implementing, monitoring, reviewing and improving the overall risk management activities.
Additionally, it provides a structured approach in the overall risk management process via the following :
(a) The underlying principles of Risk Management for KUB Group of Companies;
(b) Risk Management Governance under the supervision of Board Risk Management Committee (‘BRMC’);
(c) Risk Management Governance structure which outline the roles and responsibilities of all individuals involved in the risk management processes; and
(d) Approach to managing risks based on ISO 31000: 2009 principles and risk management processes with detailed context.
The ERMF is depicted in Figure 1 below, which defined the relationship between the risk management principles and the Group’s process in managing risk.
Figure 1 – Risk Management – Principles, framework and process relationship (as outlined by ISO 31000: 2009)
Monitor and Review of the framework
Establish the context Monitor and Review Identity risks Implementation of the Continuous framework and risk Analyse risks improvement Framework & Process management process of the framework Evaluate
Treat risk
Design of an effective framework for managing risks
Mandate and Commitment
Facilitate continuous Dynamic, interactive Taken human and Transparent and Based on the best improvement of the and responsive cultural factors into Tailored inclusive available information
organisation to change account Principles
Systematic, structured Explicitly addresses Part of decision Integral part of Creates and protects and timely uncertainty making organisational processes values 82 | KUB MALAYSIA BERHAD (6022-D)
Statement on Risk Management and Internal Control
RISK MANAGEMENT (CONT’D)
Risk Management Process
The ERMF provides a systematic approach in identifying, evaluating, assessing, treating, monitoring and reviewing the risks. In risk management, it assists the Management in informed decision making. The reporting of risks through a Risk Register allows the risks that need to be managed being escalated and communicated to the Management for implementation on risk mitigation actions. The risk management process structure applied by the Group are as follows (as outlined in ISO 31000: 2009):
Communication and Consultation
Establishing Risk Risk Risk Risk Context Identification Analysis Evaluation Treatment
Monitoring and Review
Summary of steps in the risk management process
Process Step Description Purpose Communication and • Involving all stakeholders and • Staff that are involved throughout the risk management process Consultation information sharing throughout the understand the basis for decisions and actions required. risk management process, vertically • Lesson learnt can be shared and transferred to those who can benefit and horizontally across the KUB Group within KUB Group. Establish Context • Understanding KUB Group’s objectives • Understand factors influencing the ability to achieve objectives. and defining the external and internal • Determine boundaries within which the risk management framework environment within which KUB Group operates. operates Risk Identification • Identifying risks, its sources, causes • Generate a comprehensive list of threats and opportunities based on and potential consequences those events that might enhance, prevent, degrade, accelerate or delay the achievement of the objectives. • All identified risks are recorded in the Risk Register. Risk Analysis • Understanding the nature of the risk • Provide an understanding of the inherent (level of exposure without and determining the level of exposure control in place). – Likelihood and Impact • Assist with identifying ineffective controls. • Inform risk evaluation and guide risk treatment.
Risk Evaluation Risk Assessment • Comparing the level of exposure from • Determining whether the controlled risk (level of exposure with risk analysis and take into account control in place) is acceptable. existing control (residual risk) • Determine if controlled risk needs further treatment. • Identify priority order in which individual risk should be treated. Risk Treatment • Selecting one or more options for • Identify treatment for risks that fall outside the KUB Group’s risk modifying the risk tolerance. • Reassessing the level of risks with • Provide an understanding of the residual risk (level of risk with controls controls and treatments in place and treatments in place). • Identify priority order in which individual risk should be treated, monitored and reviewed. Monitoring and Review • Determining whether the risk profile • Provide exchange of information has changed and whether new risks • Identified emerging risks have emerged • Provide feedback on control efficiency and effectiveness • Checking control effectiveness and • Identify whether any further treatment is required progress of the treatment action plans • Provide basis to reassess risk priorities • Capture lessons learnt from failures, near misses and successful events ANNUAL REPORT 2017 | 83
Statement on Risk Management and Internal Control
RISK MANAGEMENT (CONT’D)
Risk Factors and Mitigation Strategies
The Group has identified and classified the risk based on its significant potential impact and high likelihood of occurrence that could affect the bottom line of the Group’s overall performances. The primary risks identified and continuously assessed as it significantly affect the Group’s reputation, operations and overall financial performances. Appropriate mitigation actions have been put in place to alleviate the magnitude of impact to the Group. Whilst, secondary risks are continuously reviewed and monitored to ensure that risk mitigation actions taken are effective and efficient.
KEY CONTROL ENVIRONMENT AND ACTIVITIES
The Board is fully committed in ensuring that a proper control environment is maintained at the Group to ensure effective strategic and operational controls over the Group’s business operations. The key elements of the Group’s internal control are as follows :
Board of Directors
The Board is responsible for the Group’s risk management and internal control systems. It sets appropriate policies on internal control and seeks assurance that the systems are functioning effectively. The Board ensures that the system of risk management and internal control manages risks and forms part of the corporate culture.
The Board acknowledges that ensuring sound corporate governance requires effective interaction among the Board, Management, internal and external auditors. The Board assumes the responsibilities, which facilitates the discharge of the Board’s stewardship through the identification of principal risks and the implementation of appropriate systems to manage these risks and review the adequacy and integrity of the Group’s internal control systems and compliance to applicable laws, regulations and guidelines. The Board also ensures the adoption of strategic plans for the Group, oversees the conduct of its business and reviews of the operations and financial performance.
Board Committees
Appointment of Board Committees, including the Audit Committee and Risk Management Committee, assisting the Board to oversee the overall management of principal areas of risk and evaluate the adequacy and effectiveness of the risk management and internal control systems. Whilst the Board Investment Committee, and Board Nomination and Remuneration Committee have been delegated with specific responsibilities pursuant to their terms of reference, these Committees have the authority to examine all matters within their scope of responsibilities and report back to the Board with their recommendations for review or approval by the Board, where appropriate. Being the focal point of the Group, the Board at all times exercise collective oversight of the Board Committees and Management.
Core Values
The Group corporate culture is embedded on the following core values which are continuously inculcated in employees during their service to the Group; Integrity, Excellence, Teamwork and Trust and Mutual Respect.
84 | KUB MALAYSIA BERHAD (6022-D)
Statement on Risk Management and Internal Control
KEY CONTROL ENVIRONMENT AND ACTIVITIES (CONT’D)
Code of Ethic and Conduct
The Group communicates the Code of Ethics and Conduct (‘the Code’) to all employees. The Code covers the following six (6) broad categories of ethics relating to the Group’s operations and personal conduct: a) Conflict of Interest; b) Misuse of Position; c) Misuse of Information; d) Integrity and Accuracy of Record/Transaction; e) Fair and Equitable Treatment; and f) Confidentiality.
The Code reinforces the Group’s core value on integrity by providing guidance on moral and ethical behaviour that is expected from all employees. The Code of Ethics and Conduct is incorporated in the Employee Handbook and it is accessible online through Human Resource Information Exchange (‘HRIX’).
Organisational Structure
The Board has established a defined organisational structure with clear lines of responsibility and accountability in the Group that is directly aligned to the strategic and operational demands of the business. Each operational unit is headed by personnel who is fully accountable to ensure that the business activities are implemented with full compliance with the Group’s objectives and policies. The structure is reviewed regularly to monitor its effectiveness and to provide support to the changing business requirements.
Policies and Procedures
The internal policies and procedures are established and defined in KUB Management Guidelines (‘KUBMaG’) and other common Standard Operating Procedures (‘SOP’) to provide guidelines for proper management and operations of the Group’s operating units. These policies and procedures are documented and subjected to regular reviews, updates and enhancement to reflect the operational requirements, ensure relevance and effectiveness of the Group’s business operations. The KUBMaG has been revised and approved by the Board for implementation effective 1 April 2017. The KUBMaG and other common Group’s SOPs are accessible online through HRIX.
Policies and Procedures
Our Procurement Policy aimed in supporting good and sustainable procurement practices. The policy outlines that all procurement decisions within the Group will be guided with clearly defined principles, to ensure the Group and suppliers comply with all applicable laws and regulations throughout the procurement life cycle. The Policy also governed ethical procurement, vendor management and selection of vendors and encouraged at all times a tender process to ensure fair procurement practices. The Group’s Procurement Policy has been revised and approved by the Board for implementation effective 1 April 2017.
Limits of Authority
The delegation of responsibilities to the Board Committees and the Management as well as the delineation of their respective authority limits are defined in the KUBMaG. The KUBMaG provides a framework that clearly demarcates and specifies the authority levels for personnel to carry out their assigned responsibilities. The KUBMaG aims to create awareness among all employees with regards to the internal control components and the basic control policy of the Group. The Limit of Authority (‘LOA’) specified in the KUBMaG is also aligned to be in tandem with the latest organisation structure of the Group. ANNUAL REPORT 2017 | 85
Statement on Risk Management and Internal Control
KEY CONTROL ENVIRONMENT AND ACTIVITIES (CONT’D)
Internal Audit
Internal audit assesses the Group’s system of internal control, risk management and governance processes. The assurance on compliances and adequacy of internal controls to manage the Group’s risk is independently and regularly reported to the BAC. Corrective actions will be taken by the Management based on the agreed action plan.
Human Resources
A comprehensive human resource policy and procedure is in place within the Group to provide guidelines and ensure standardised adoption of best practices on manpower planning, talent acquisition and recruitment, compensation and benefits, industrial and employee relations, employee development, performance management, salary administration and other relevant human resources management areas. The information is accessible online through the HRIX system.
Integrity and Anti-Corruption
It is the Group policy to conduct all the business in an honest and ethical manner, which outlines a zero tolerance policy towards all forms of bribery and corruption. Pursuant to the signing of the Corporate Integrity Pledge (‘CIP’) witnessed by the Malaysian Anti-Corruption Commission (‘MACC’) in 2016, the CIP has further been extended to all employees of the Group as part of the initiative to strengthen the ring-fencing of the Group’s ethics parameters. The Group has established KUB Integrity Framework which have been approved by the Board and subsequently implemented in November 2017. The framework illustrates how integrity plays a vital role in the attainment of the Group’s vision and mission through the execution of KUB Integrity pillars.
In addition, the Group has also established KUB gift policy to reflect better governance practice in supporting the objective of CIP; Zero Tolerance Towards Corruption. The Policy is guided by the Malaysian Anti-Corruption Act 2009.
Apart from the above, the Group also has a Whistleblowing Policy of which it is to directly support the Company’s Core Values, Code of Ethics and Governance Requirement. A revision of the policy was made and approved by the Board in August 2017. This Policy guides the employees of the Group in communicating instances of illegal and immoral conduct to the appropriate parties within the Group and at the same time protecting these employees against victimisation or discrimination in any way arising from such communications. It also provides proper investigation to be initiated on all allegations or reports received/ submitted by parties from within or outside the Group.
Staff Competency and Performance Management
The Group believes that effective organisation requires employees at all levels to be competent, skilled and capable of contributing to the achievement of the Group’s vision and mission. Training and development programmes are established to ensure that employees are equipped with the necessary competencies to carry out their responsibilities towards achieving the Group’s objectives. Key Performance Indicators (KPIs) and Scorecards are used as tools that communicate the amount of progress made towards a goal. Aside from that, competencies factors are used as tools to measure staff competencies and to identify reward in line with the Group’s mission to nurture and develop the Company’s performance culture. 86 | KUB MALAYSIA BERHAD (6022-D)
Statement on Risk Management and Internal Control
KEY CONTROL ENVIRONMENT AND ACTIVITIES (CONT’D)
Insurance on Manpower and Assets
In order to attract and retain talents, KUB Group believes it is important to offer competitive reward packages and to increase the compensation positioning against the market compensation to at least to eighty (80) percentile. Group Hospitalisation and Surgical and Group Term Life Insurance is one of the benefits covered by KUB Group. Both benefits and insurance include the coverage for the cost of treating inpatient and outpatient and critical illnesses, rehabilitation and death on all causes.
Besides insurance for the manpower, KUB Group also purchases insurance for its physical assets. The coverage include damage or loss of assets in the event of fire, theft of assets, liability coverage for the legal responsibility to others for accidents, bodily injury or property damage, and coverage for computers and servers.
Insurance coverage is reviewed on a yearly basis to ensure comprehensive coverage to mitigate business risks in view of the changing business environment or assets.
Business Plan and Budget Review
The Group undertakes business planning and budgeting each year to establish plans and targets against which performances are compared and monitored as well as to facilitate management in focusing on areas of concerns.
The Board and Senior Management play important roles in the stages of strategic reviews and updates, which include among others, reviewing the plan before its finalisation, and the budget approval process to ensure that the plan developed reflects the corporate intent of the Group and that resource allocation is strategically aligned.
Sustainability Reporting and Strategies
The Group believes that the emerging trend of economic, environmental and social (‘EES’) risks and opportunities increasingly affecting business value as well as share prices. By incorporating sustainability considerations into the process, it shall lead to value creation in the long run as organisation looks beyond short term profitability and consider medium to long term business viability. It also serves as a business strategy that advocates long term value creation for business, support business continuity and creating competitive advantage over the long term. Sustainability reporting and strategies are driven by Sustainability Committee that reports to BRMC. For more details on the Sustainability Statement, please refer to pages 43 to 59 of the Annual Report 2017.
Financial and Operational Review
The BAC reviews the annual and quarterly financial statements and performance of the Group together with the Management before they are tabled to the Board for approval. The quarterly reviews enable the BAC to deliberate and assess the Group’s financial results and operational performance.
Business Continuity Management
The Group is committed to enhance service reliability and resilience via an improved BCM programme. The programme serves to identify potential adversities to the Group and their impact on business operations. An overall framework has also been established to build organisational resilience with an effective response mechanism to safeguard the Group’s reputation, brand and the interests of its key stakeholders. In 2017, the establishment of the BCM Programmes for KUB Malaysia Berhad and KUB Gaz Sdn Bhd have been strengthen with the ISO 22301:2012 Certification by Cybersecurity Malaysia in January 2018. Moving forward, other subsidiaries within the Group are targeted to be certified in 2018. ANNUAL REPORT 2017 | 87
Statement on Risk Management and Internal Control
KEY CONTROL ENVIRONMENT AND ACTIVITIES (CONT’D)
Health, Safety and Environment
The Group adopts international standards and controls to continuously improve the safety management systems to ensure safe working environment as it is fundamental in business operations and Group’s success. As part of the initiative, the Group has engaged with external consultant for OHSAS 18001: 2007 of which the certification was received on 3 July 2017. In addition to that, with the aim of having a structured approach to get a clean, organise, and efficient workplace, the Group has embarked on the 5S programmes in early 2018.
CONCLUSION
After due and thorough inquiry on the information and assurance provided, the Board is satisfied with the process of identifying, evaluating and managing significant risks that may affect the achievement of the Group’s business objectives. Where exceptions were noted, there were no material control failure or weakness that had resulted in material loss that had not been disclosed in the Group’s financial statements. For areas requiring attention, measures had been and are being taken to ensure that an on- going adequacy and effectiveness of risk management and internal control. The Board and the Management will continuously improve and seek assurance on the efficiency and effectiveness of the internal control system through independent assessments by the internal and external auditors.
The Board has received assurance from the President/Group Managing Director and the Vice President, Group Finance Division 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 adopted by the Group.
This Statement is made based on the recommendation of the BRMC to the Board of Directors and as per the Board’s resolution dated 27 February 2018.
REVIEW OF THE STATEMENT BY EXTERNAL AUDITORS
As required by Paragraph 15.23 of the Listing Requirements, the External Auditors, Messrs. Deloitte PLT had reviewed this Statement on Risk Management and Internal Control. Their limited assurance review was performed in accordance with ISAE 3000, Assurance Engagements Other than Audits or Reviews of Historical Financial Information and Recommended Practice Guide (‘RPG’) 5 (Revised), issued by the Malaysian Institute of Accountants, RPG5 (Revised) does not require the external auditors to form an opinion on the adequacy and effectiveness of the risk management and internal control systems of the Group.
Based on their procedures performed, the External Auditors have reported to the Board that nothing has come to their attention that caused them to believe that the Statement is not been prepared, in all material aspects, in accordance with the disclosures required by Paragraph 41 and 42 of the Guidelines to be set out , nor is it factually inaccurate. 88 | KUB MALAYSIA BERHAD (6022-D)
Board Audit Committee Report
The Board of Directors is pleased to present the report on the Board Audit Committee (‘BAC’) for the financial year ended 31 December 2017.
COMPOSITION
The BAC consists of the following members:
Mohammad Farish Nizar Othman Chairman, Independent Non-Executive Director (Re-designated as Chairman w.e.f 28 August 2017)
Dato’ Ab Rahim Abu Bakar Senior Independent Non-Executive Director
Datuk Hj Faisyal Datuk Yusof Hamdain Diego Non-Independent Non-Executive Director
Datuk Haji Mohd Haniff Haji Koslan Independent Non-Executive Director (Appointed w.e.f 27 February 2018)
Datuk Wira Mohd Hafarizam Harun Chairman, Independent Non-Executive Director (Resigned w.e.f 23 May 2017)
The BAC is governed by its Terms of Reference as set out in the Governance section at www.kub.com. Conforming to the requirements of the Malaysian Code on Corporate Governance on 26 April 2017 (‘the Code’), the majority members of the BAC are Independent Non-Executive Directors and the current BAC Chairman is a member of the Malaysian Institute of Accountants (‘MIA’), thereby complying with Paragraph 15.09(1)(c)(i) of the Main Market Listing Requirements (‘Listing Requirements’) of Bursa Malaysia Securities Berhad (‘Bursa Malaysia’).
MEETINGS
During the financial year ended 31 December 2017, the BAC held a total of six (6) meetings, with the following record of attendance :
Directors Attendance
Directors Attendance 1. Mohammad Farish Nizar Othman 5/6 2. Dato’ Ab Rahim Abu Bakar 5/6 3. Datuk Hj Faisyal Datuk Yusof Hamdain Diego 4/6 4. Datuk Wira Mohd Hafarizam Harun 4/4
The Company Secretary was present during all the meetings except for the private sessions with the external auditors. The Head of Group Risk and Audit (‘GRAD’), representatives of the external auditors, Messrs Deloitte, as well as the President/Group Managing Director, the Vice President of Group Finance and Senior Management personnel also attended the meetings upon invitation.
The BAC Chairman updates the Board of Directors on matters deliberated after each BAC Meeting. This is to ensure that the Board is updated on any matter of significant concerns raised by the internal and external auditors. ANNUAL REPORT 2017 | 89
Board Audit Committee Report
MEETINGS (CONT’D)
The BAC in the discharge of its functions and duties had carried out the following works to meet its responsibilities during the financial year ended 31 December 2017 :
1. Financial Results and Corporate Governance
• Reviewed the quarterly unaudited financial results, year-end financial statements and announcements to Bursa Malaysia before recommending to the Board for approval focusing particularly on :
(i) changes in or implementation of major accounting policy changes; and
(ii) significant matters highlighted including financial reporting issues, significant judgments made by management, significant and unusual events or transactions, and how these matters were addressed;
• Reviewed the Company’s compliance level, in particular the quarterly and year-end financial statements with the Listing Requirements, Financial Reporting Standards issued by the Malaysian Accounting Standards Board (‘MASB’) and other legal and regulatory requirements;
• Reviewed the audited financial statements of the Group with external auditors prior to submission to the Board for its consideration and approval. The review is to ensure that the audited financial statements were drawn up in accordance with the provisions of the Companies Act, 2016 and the Financial Reporting Standards issued by MASB;
• Reviewed the issuance of the Letter of Financial Support in respect of KUB Group of Companies for recommendation to the Board for approval;
• Reviewed the proposed renewal of the authority for the purchase by KUB of its own ordinary shares representing up to ten percent (10%) of its issued share capital prior to recommending to the Board for its recommendation to the shareholders for approval;
• Reviewed minutes of the BAC meetings;
• Reviewed the application of corporate governance principles and the Group’s compliance with the practices set out under the Malaysian Code on Corporate Governance for the purpose of preparing the Corporate Governance Overview Statement, Statement on Risk Management and Internal Control and the Board Audit Committee’s Report pursuant to the Listing Requirements for the Board’s approval;
• Reviewed the Related Party Transactions (‘RPT’) entered by the Group in compliance with the Listing Requirements before recommending to the Board for its approval; and
• Reviewed and subsequently recommending to the Board for approval the revision to the Whistleblowing Policy.
2. External Audit
• Reviewed the external auditors’ scope of work and audit plans for the year. Prior to the audit, representatives from the external auditors presented their audit strategy and plan;
• Reviewed with the external auditors the results of audit, audit report and management letter, including the management’s response, evaluation of the system of internal controls, and the assistance given by the employees to the external auditors;
• Considered and recommended to the Board for approval the audit fees payable to the external auditors as disclosed in the Financial Statements;
• Met with the external auditors twice during the year without the presence of the Management; and 90 | KUB MALAYSIA BERHAD (6022-D)
Board Audit Committee Report
MEETINGS (CONT’D)
2. External Audit (cont’d)
• Reviewed the nomination of the external auditors before recommending to the Board for approval.
3. Internal Audit
• Reviewed the internal audit reports incorporating the internal audit programme, processes, the results of internal audit programmes, processes or investigation undertaken and presented by GRAD on findings and recommendations with respect to the adequacy and integrity of the internal controls system;
• Reviewed with Management on corrective actions taken on all matters raised in the internal audit reports to improve the system of internal controls;
• Assessed the performance of the internal audit function via the status updates on the Internal Audit Plan as compared to the Internal Audit Plan and reviewed the reasonableness of compensation of members of the function; and
• Reviewed and approved the internal audit function’s budget and Internal Audit Annual Plan to ensure adequacy in its resources, competencies, scope, functions and coverage. The authority of the internal audit function to carry out its work is spelt out in the Internal Audit Charter, approved by the BAC.
SUMMARY OF WORKS OF THE INTERNAL AUDIT FUNCTION
GRAD assists the BAC in discharging its duties and responsibilities throughout the financial year under review. The Terms of Reference of the internal audit function are clearly spelt out in the Internal Audit Charter. Internal audit principal role is to undertake an independent, regular and systematic reviews of the internal control systems, so as to provide an independent and reasonable assurance on the adequacy, integrity and effectiveness of the Group’s system of internal controls, risk management and governance process.
Internal audit functions have no operational responsibility and authority over the activities it audits and adopts a risk-based approach in preparing its Internal Audit Annual Plan. The audit plan, budget, key performance indicators and manpower resources are submitted to the BAC for its review and approval.
During the financial year under review, a total of twenty-five (25) audits were carried out on holistic approach in accordance with the Internal Audit Annual Plan including special audit reviews requested by the Management with subsequent endorsement by the BAC. The audit engagements encompassed scheduled, ad-hoc and follow-up audits covering the Information and Communications Technology (‘ICT’), Food (inclusive of outlet audits), Energy, Agro and Property sectors.
The key assurance process include carrying out analysis to determine the efficiency of business carried out by the Group, and evaluating the systems established to ensure compliance with laws, regulations, policies, plans and procedures which could have significant risk and impact on the Group.
Among the key areas covered during the financial year are project management, business development, sales and marketing, contract management, tender and procurement process, safety and security, operations management, human resource management, property and maintenance management, plantation management, and financial management.
The presented audit reports were incorporated with risk assessment, financial performance evaluation, internal control assessment, areas for improvement, and management’s action plan. ANNUAL REPORT 2017 | 91
Board Audit Committee Report
SUMMARY OF WORKS OF THE INTERNAL AUDIT FUNCTION (CONT’D)
The resulting reports from the internal audits undertaken were forwarded to the Management for necessary corrective actions. The Management is responsible for ensuring that corrective actions on reported weaknesses are taken within the required time frame. The implementation of audit recommendations is continuously monitored through periodic follow-up reviews, which are reported and presented to the BAC regularly.
KUB is a corporate member of the Institute of Internal Auditors of Malaysia (‘IIAM’) that allows the internal auditors to have access to internal audit information, networking and trainings in ensuring its commitment that its activities meet the standards required by The Institute of Internal Auditors International Professional Practices Framework (‘IPPF’).
The total costs incurred for the internal audit function of the Group as at 31 December 2017 amounted to RM818,138 supported by six (6) internal auditors headed by Azizan Ariffin, Head of GRAD. The detailed profile of the Head of GRAD is reflected on page 23 of the Annual Report.
Moving forward into 2018, the Board of Directors, in November 2017, has approved that, the GRAD will be co-sourced with the Group Internal Audit of Cita Kapital Sdn Bhd (‘Cita Kapital’), on its audit activities based on the approved audit plan. The team of Cita Kapital will comprise of five (5) staff headed by its project director, Abdullah Hashim, a member of both the Institute of Internal Auditors Malaysia and Malaysian Institute of Accountant. Both GRAD and Cita Kapital have no operational responsibility and authority over the activities in the scope of audits in providing independent and reasonable assurance on the adequacy, integrity and effectiveness of the internal control, risk management and governance process. 92 | KUB MALAYSIA BERHAD (6022-D) ANNUAL REPORT 2017 | 92
Notes to the Financial Statements
FINANCIAL STATEMENTS
93 Report of the Directors 97 Independent Auditors’ Report 101 Statements of Profit or Loss and Other Comprehensive Income 103 Statements of Financial Position 105 Statements of Changes In Equity 108 Statements of Cash Flows 112 Notes to the Financial Statements 210 Statement by Directors 210 Declaration by the Officer Primarily Responsible for the Financial Management of the Company ANNUAL REPORT 2017 | 93
Report of the Directors
The Directors hereby submit their report and the audited financial statements of the Group and of the Company for the financial year ended 31 December 2017.
PRINCIPAL ACTIVITIES
The principal activities of the Company are that of investment holding and provision of management services to its subsidiaries.
The subsidiaries are principally engaged in the business of energy, agricultural businesses, information, communications and technology, food, power and others as stated in Note 42 to the financial statements.
RESULTS OF OPERATIONS
The results of operations of the Group and of the Company for the financial year are as follows :
Group Company RM’000 RM’000
Continuing operations Profit before zakat and taxation 40,252 18,282 Zakat (639) - Taxation (8,771) - Profit for the year 30,842 18,282
Profit/(Loss) attributable to : Owners of the parent 32,165 18,282 Non-controlling interests (1,323) - 30,842 18,282
In the opinion of the Directors, the results of operations of the Group and of the Company during the financial year have not been substantially affected by any item, transaction or event of a material and unusual nature.
DIVIDEND
Since the end of the previous financial year, the Company had paid the first and final single tier dividend of 1.0 sen on 556,464,690 ordinary shares amounting to RM5,564,647 for the financial year ended 31 December 2016.
The Directors have recommended a first and final single tier dividend of 1.0 sen on 556,464,690 ordinary shares amounting to RM5,564,647 in respect of the financial year ended 31 December 2017. The proposed dividend is subject to the approval of the shareholders at the forthcoming Annual General Meeting of the Company.
On 27 February 2018, the Board of Directors approved and declared an interim dividend of 1.0 sen on 556,464,690 ordinary shares amounting to RM5,564,647 for the financial year ending 31 December 2018.
The first and final dividend for the financial year 2017 and the interim dividend will be accounted for in equity as an appropriation of retained earnings in the financial year ending 31 December 2018. 94 | KUB MALAYSIA BERHAD (6022-D)
Report of the Directors
RESERVES AND PROVISIONS
All material transfers to or from reserves and provisions during the financial year are shown in the financial statements.
ISSUE OF SHARES AND DEBENTURES
The Company has not issued any new shares or debentures during the financial year.
SHARE OPTIONS
No options have been granted by the Company to any parties during the financial year to take up unissued shares of the Company.
No shares have been issued during the financial year by virtue of the exercise of any option to take up unissued shares of the Company. As of the end of the financial year, there were no unissued shares of the Company under options.
OTHER STATUTORY INFORMATION
Before the statements of profit or loss and other comprehensive income and statements of financial position of the Group and of the Company were made out, the Directors took reasonable steps :
(a) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of allowance for doubtful debts, and had satisfied themselves that all known bad debts had been written off and that adequate allowance had been made for doubtful debts; and
(b) to ensure that any current assets which were unlikely to be realised in the ordinary course of business including the value of current assets as shown in the accounting records of the Group and of the Company had been written down to an amount which the current assets might be expected so to realise.
At the date of this report, the Directors are not aware of any circumstances :
(a) which would render the amount of bad debts written off or the amount of allowance for doubtful debts in the financial statements of the Group and of the Company inadequate to any substantial extent; or
(b) which would render the values attributed to current assets in the financial statements of the Group and of the Company misleading; or
(c) which have arisen which would render adherence to the existing method of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate; or
(d) not otherwise dealt with in this report or financial statements which would render any amount stated in the financial statements of the Group and of the Company misleading.
At the date of this report, there does not exist :
(a) any charge on the assets of the Group and of the Company which has arisen since the end of the financial year and secures the liability of any other person; or
(b) any contingent liability of the Group and of the Company which has arisen since the end of the financial year. ANNUAL REPORT 2017 | 95
Report of the Directors
OTHER STATUTORY INFORMATION (CONT’D)
No contingent or other liability has become enforceable, or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the Directors, will or may substantially affect the ability of the Group and of the Company to meet their obligations as and when they fall due.
In the opinion of the Directors, no item, transaction or event of a material and unusual nature has arisen in the interval between the end of the financial year and the date of this report which is likely to affect substantially the results of operations of the Group and of the Company in the financial year in which this report is made.
DIRECTORS
The Directors of the Company in office during the financial year and during the period from the end of the financial year to the date of this report are :
Dato’ Ahmad Ibnihajar (Chairman) Datuk Abdul Rahim Mohd Zin (President/Group Managing Director) Dato’ Ab Rahim Abu Bakar Datuk Hj Faisyal Datuk Yusof Hamdain Diego Dato’ Jamelah A. Bakar Tunku Alizan Raja Muhammad Alias Tengku Zahaimi Tuan Hashim Mohammad Farish Nizar Othman Datuk Haji Mohd Haniff Haji Koslan Datuk Wira Mohd Hafarizam Harun (resigned on 23 May 2017)
The names of the Directors of subsidiaries are set out in the respective subsidiaries’ financial statements and the information is deemed incorporated herein by such reference and made a part thereof.
DIRECTORS’ INTERESTS
According to the register of Directors’ shareholdings, none of the Directors in office at the end of the financial year had any interest in shares in the Company or its related corporations during the financial year except as follows :
Number of ordinary shares As of As of 1.1.2017 Acquired Sold 31.12.2017
Shares in the Company, KUB Malaysia Berhad
Direct Interest Datuk Abdul Rahim Mohd Zin 1,050 - - 1,050 Tunku Alizan Raja Muhammad Alias - 10,000 - 10,000
The other directors in office at the end of the financial year did not have any interest in the shares of the Company or its related corporations during or as at the beginning and end of the financial year. 96 | KUB MALAYSIA BERHAD (6022-D)
Report of the Directors
DIRECTORS’ BENEFITS
Neither at the end of the financial year, nor at any time during that year, did there subsist any arrangement to which the Company was a party, whereby the Directors might acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate.
Since the end of the previous financial year, no Director has received or become entitled to receive a benefit (other than benefits included in the aggregate amount of emoluments received or due and receivable by the Directors as shown in Note 11 to the financial statements or the fixed salary of a full-time employee of the ultimate holding company) by reason of a contract made by the Company or a related corporation with any 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, except as disclosed in Note 35(d) to the financial statements.
INDEMNITY AND INSURANCE FOR DIRECTORS AND OFFICERS
The Company maintains a Directors and officers liability insurance throughout the year, which provides appropriate insurance cover for the Directors and officers of the Company and its Group of companies.
During the financial year, the total amount of indemnity coverage and the insurance premium paid are RM10,000,000 and RM12,150 respectively.
AUDITORS
The auditors, Deloitte PLT, have indicated their willingness to continue in office.
AUDITORS’ REMUNERATION
The auditors’ remuneration of the Group and of the Company for financial year ended 31 December 2017 are disclosed in Note 9 of the financial statements.
Signed on behalf of the Board in accordance with a resolution of the Directors,
DATO’ AHMAD IBNIHAJAR DATUK ABDUL RAHIM MOHD ZIN
Petaling Jaya 29 March 2018 ANNUAL REPORT 2017 | 97
Independent Auditors’ Report to the members of kub Malaysia Berhad (Incorporated in Malaysia)
Report on the Audit of Financial Statements
Opinion
We have audited the financial statements of KUB MALAYSIA BERHAD, which comprise the statements of financial position as at 31 December 2017 of the Group and of the Company, and the statements of profit or loss and other comprehensive income, statements of changes in equity and statements of cash flows of the Group and of the Company for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, as set out on pages 101 to 209.
In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Group and of the Company as at 31 December 2017, and of their financial performance and their cash flows for the year then ended in accordance with Financial Reporting Standards and the requirements of the Companies Act, 2016 in Malaysia.
Basis for Opinion
We conducted our audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence and Other Ethical Responsibilities
We are independent of the Group and of the Company in accordance with the By-Laws (on Professional Ethics, Conduct and Practice) of the Malaysian Institute of Accountants (“By-Laws”) and the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (“IESBA Code”), and we have fulfilled our other ethical responsibilities in accordance with the By-Laws and IESBA Code.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the Group and of the Company for the current year. These matters were addressed in the context of our audit of the financial statements of the Group and of the Company as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 98 | KUB MALAYSIA BERHAD (6022-D)
Independent Auditors’ Report to the members of kub Malaysia Berhad (Incorporated in Malaysia)
The Group
Key audit matter Our audit performed and responses thereon Revenue recognition
Revenue arising from construction contracts in its Power and We have performed the procedures below : ICT Segments, represents 5% of the Group’s total revenue. • Tested relevant key internal controls over revenue and cost The Group recognises contract revenue and contract cost in recognition and budgeting process for projects. the profit and loss by using the stage of completion method. The stage of completion is measured by reference to the • Selected on a sampling basis management prepared proportion of contract costs incurred for work performed to budgets for certain construction contracts and verified date over the total estimated construction contract costs. contract sum against underlying documents. We tested computation of budgeted costs and checked that the Significant judgement is required in determining the stage budgets are regularly reviewed by management. of completion, the extent of the construction costs incurred, the estimated total construction contract revenue and costs, • Selected on a sampling basis actual costs incurred during as well as the recoverability of the construction project. In the year. Tested the appropriateness of actual costs incurred making the judgement, the Group evaluates based on past and that they are recorded in the correct accounting period. experience and external economic factor. • Performed recomputation of revenue and costs based on The construction contracts revenue and cost of sales the percentage of completion. recognised in the profit or loss are disclosed in Note 5 and Note 6 of the financial statements respectively.
The Company
There are no key audit matters to be communicated in respect of the audit of the financial statements of the Company.
Information Other than the Financial Statements and Auditors’ Report thereon
The Directors of the Company are responsible for the other information. The other information comprises the information included in the Annual Report, but does not include the financial statements of the Group and of the Company and our auditors’ report thereon.
Our opinion on the financial statements of the Group and of the Company does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements of the Group and of the Company, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements of the Group and of the Company or our knowledge obtained in the audit or otherwise appears to be materially misstated. If based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the Board of Directors for the Financial Statements
The Directors of the Company are responsible for the preparation of financial statements of the Group and of the Company that give a true and fair view in accordance with Financial Reporting Standards and the requirements of the Companies Act, 2016 in Malaysia. The Directors are also responsible for such internal control as the Directors determine is necessary to enable the preparation of financial statements of the Group and of the Company that are free from material misstatement, whether due to fraud or error. ANNUAL REPORT 2017 | 99
Independent Auditors’ Report to the members of kub Malaysia Berhad (Incorporated in Malaysia)
Responsibilities of the Board of Directors for the Financial Statements (cont’d)
In preparing the financial statements of the Group and of the Company, the Directors are responsible for assessing the Group’s and the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intends to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements of the Group and of the Company as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with approved standards on auditing in Malaysia and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing, we exercise professional judgment and maintain professional scepticism throughout the audit. We also :
• Identify and assess the risks of material misstatement of the financial statements of the Group and of the Company, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group and the Company’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Directors.
• Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s or the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements of the Group and of the Company or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group or the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements of the Group and of the Company, including the disclosures, and whether the financial statements of the Group and of the Company represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial statements of the Group. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. 100 | KUB MALAYSIA BERHAD (6022-D)
Independent Auditors’ Report to the members of kub Malaysia Berhad (Incorporated in Malaysia)
Auditors’ Responsibilities for the Audit of the Financial Statements (cont’d)
From the matters communicated with the Directors, we determine those matters that were of most significance in the audit of the financial statements of the Group and of the Company for the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Report on Other Legal and Regulatory Requirements
In accordance with the requirements of the Companies Act, 2016 in Malaysia, we report that the subsidiaries of which we have not acted as auditors, are disclosed in Note 42 to the financial statements.
Other Matters
This report is made solely to the members of the Company, as a body, in accordance with Section 266 of the Companies Act, 2016 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the contents of this report.
DELOITTE PLT (LLP0010145-LCA) KAMARUL BAHARIN BIN TENGKU ZAINAL ABIDIN Chartered Accountants (AF 0080) Partner - 02903/11/2019 J Chartered Accountant
29 March 2018 ANNUAL REPORT 2017 | 101
Statements of Profit or Loss and Other Comprehensive Income for the financial year ended 31 December 2017
Group Company 2017 2016 2017 2016 Note RM’000 RM’000 RM’000 RM’000
Continuing operations Revenue 5 599,277 495,772 17,971 7,045 Cost of sales 6 (507,321) (406,608) - -
Gross profit 91,956 89,164 17,971 7,045 Other income 20,061 13,328 26,659 29,711 Distribution expenses (2,699) (1,736) - - Administrative expenses (70,098) (62,781) (19,522) (18,328) Other expenses (7,948) (15,571) (6,731) (31,895)
Profit/(Loss) from operating activities 31,272 22,404 18,377 (13,467) Finance income 7 2,964 3,094 586 1,725 Finance costs 8 (1,909) (739) (681) (633) Share of results of associates 7,925 7,575 - -
Profit/(Loss) before zakat and taxation 9 40,252 32,334 18,282 (12,375) Zakat (639) (202) - - Taxation 12 (8,771) (10,084) - (3)
Profit/(Loss) for the year from continuing operations 30,842 22,048 18,282 (12,378)
Discontinued operations Loss for the year from discontinued operations 13 - (506) - -
Profit/(Loss) for the year 30,842 21,542 18,282 (12,378) 102 | KUB MALAYSIA BERHAD (6022-D)
Statements of Profit or Loss and Other Comprehensive Income for the financial year ended 31 December 2017
Group Company 2017 2016 2017 2016 Note RM’000 RM’000 RM’000 RM’000
Other comprehensive income/(loss) Item that may be reclassified subsequently to profit or loss Net gain/(loss) on available-for-sale financial assets - Gain/(Loss) on fair value changes, net of tax 1,444 (642) 1,444 (642)
Other comprehensive income/(loss) for the year, net of tax 1,444 (642) 1,444 (642)
Total comprehensive income/(loss) for the year 32,286 20,900 19,726 (13,020)
Profit/(Loss) attributable to : Owners of the parent - from continuing operations 32,165 23,134 18,282 (12,378) - from discontinued operations - (506) - -
32,165 22,628 18,282 (12,378) Non-controlling interests (1,323) (1,086) - - 30,842 21,542 18,282 (12,378)
Total comprehensive income/(loss) attributable to : Owners of the parent - from continuing operations 33,609 22,492 19,726 (13,020) - from discontinued operations - (506) - - Non-controlling interests (1,323) (1,086) - - 32,286 20,900 19,726 (13,020)
Basic and diluted earnings/(loss) per ordinary share attributable to owners of the parent (sen) 14 - from continuing operations 5.78 4.16 - from discontinued operations - (0.09) 5.78 4.07
The accompanying Notes form an integral part of the Financial Statements. ANNUAL REPORT 2017 | 103
Statements of Financial Position as at 31 December 2017
Group Company 2017 2016 2017 2016 Note RM’000 RM’000 RM’000 RM’000
Assets
Non-current assets Property, plant and equipment 15 177,029 160,325 24,952 26,205 Plantation development expenditure 16 51,130 52,543 - - Investment properties 17 12,520 15,629 3,444 3,517 Investments in subsidiaries 18 - - 258,448 220,029 Investments in associates 19 41,994 34,069 9,000 9,000 Other investments 20 5,268 3,824 5,268 3,824 Intangible assets 21 2,756 902 - - Due from subsidiaries 22 - - 9,718 1,028 Deferred tax assets 24 2,094 3,224 - - 292,791 270,516 310,830 263,603
Current assets Inventories 25 11,754 8,869 - - Trade and other receivables 22 118,684 84,835 1,422 937 Due from subsidiaries 22 - - 5,591 - Tax recoverable 789 365 - - Cash and bank balances 26 119,088 133,865 6,111 15,277 250,315 227,934 13,124 16,214
Non-current assets held for sale 13 3,731 3,534 - -
Total assets 546,837 501,984 323,954 279,817 104 | KUB MALAYSIA BERHAD (6022-D)
Statements of Financial Position as at 31 December 2017
Group Company 2017 2016 2017 2016 Note RM’000 RM’000 RM’000 RM’000
Equity and liabilities
Equity attributable to owners of the parent Share capital 27 228,863 222,586 228,863 222,586 Reserves 28 49,245 54,078 3,111 7,944 Retained earnings 29 46,293 19,693 42,664 29,947
324,401 296,357 274,638 260,477 Non-controlling interest 9,051 10,374 - - Total equity 333,452 306,731 274,638 260,477
Non-current liabilities Borrowings 30 50,549 51,136 204 1,286 Deferred tax liabilities 24 12,113 12,346 - - Deferred income 31 2,620 2,673 - - Due to subsidiaries 32 - - 38,055 6,395 65,282 66,155 38,259 7,681
Current liabilities Trade and other payables 32 141,684 113,396 9,125 9,809 Borrowings 30 6,269 11,951 1,082 1,847 Due to subsidiaries 32 - - 850 - Derivative financial liabilities 33 23 7 - - Provision for tax 127 3,744 - 3 148,103 129,098 11,057 11,659
Total liabilities 213,385 195,253 49,316 19,340
Total equity and liabilities 546,837 501,984 323,954 279,817
The accompanying Notes form an integral part of the Financial Statements. ANNUAL REPORT 2017 | 105
Statements of Changes in Equity for the financial year ended 31 December 2017 - - - - Non- 9,051 (1,323) (1,323) 10,374 RM’000 interests controlling ------11,147 11,147 reserve Merger RM’000 ------971 971 of non- RM’000 paid on interests Discount controlling acquisition - - - - 3,111 1,444 1,444 1,667 reserve RM’000 Fair value adjustment ------312 (312) Capital reserve RM’000 Non-distributable redemption ------34,016 34,016 Capital reserve RM’000 - - - (312) total 1,444 1,444 Other 49,245 48,113 RM’000 reserves, Attributable to owners of the parent - - (5,565) (5,565) 46,293 32,165 32,165 19,693 RM’000 earnings Retained Distributable ------5,965 Share (5,965) RM’000 premium - - - - - Non-distributable 6,277 Share capital The accompanying Notes form an integral part of the Financial Statements. RM’000 228,863 222,586 - total 1,444 (5,565) (5,565) of the Equity 33,609 32,165 parent, RM’000 324,401 296,357 to owners attributable - total 1,444 (5,565) (5,565) 30,842 32,286 Equity, RM’000 333,452 306,731 Pursuant to Section 618(2) of the Companies Act, 2016 (“CA 2016”), any outstanding share premium and capital redemption reserve accounts shall become part of share capital. 2017 to S618(2) of CA 2016 with owners owners comprehensive comprehensive income/(loss) income to be to reclassified or loss profit in subsequent periods, net of tax 2017 * As at 31 December Transfer pursuant Transfer Total transactions Total Dividend paid Transactions with Transactions Total Total Other comprehensive Other comprehensive Profit for the year Profit As at 1 January 2017 Group 106 | KUB MALAYSIA BERHAD (6022-D)
Statements of Changes in Equity for the financial year ended 31 December 2017 - - - - Non- (1,086) (1,086) 10,374 11,460 RM’000 interests controlling ------11,147 11,147 reserve Merger RM’000 - - - - 971 2,802 2,802 (1,831) of non- RM’000 paid on interests Discount (Premium)/ controlling acquisition - - - - (642) (642) 1,667 2,309 reserve RM’000 Fair value adjustment ------312 312 Capital reserve RM’000 Non-distributable redemption ------34,016 34,016 Capital reserve RM’000 - - (642) (642) total 2,802 2,802 Other 48,113 45,953 RM’000 reserves, Attributable to owners of the parent - 2,649 (5,584) (2,782) (2,802) 19,693 22,628 22,628 RM’000 earnings Retained Distributable ------5,965 5,965 Share RM’000 premium ------Share Non-distributable capital RM’000 222,586 222,586 - (642) total (2,782) (2,782) of the Equity 21,986 22,628 parent, RM’000 296,357 277,153 to owners attributable - (642) total (2,782) (2,782) 21,542 20,900 Equity, RM’000 306,731 288,613 2016 with owners owners subsidiary (Note18(b)(i)) comprehensive comprehensive income/(loss) loss to be to reclassified or loss profit in subsequent periods, net of tax 2016 As at 31 December Total transactions Total Dividend paid Disposal of a Transactions with Transactions Total Total Other comprehensive Other comprehensive Profit for the year Profit 2016 Group As at 1 January ANNUAL REPORT 2017 | 107
Statements of Changes in Equity for the financial year ended 31 December 2017 - - - - - (642) (642) 1,667 1,444 1,444 3,111 2,309 1,667 reserve RM’000 Fair value adjustment ------312 312 312 (312) Capital reserve RM’000 redemption Non-distributable - - - - (312) (642) (642) total 1,979 1,444 1,444 3,111 2,621 1,979 Other RM’000 reserves, - - - (5,565) (2,782) 29,947 18,282 18,282 42,664 45,107 29,947 (12,378) (12,378) RM’000 earnings Retained Distributable ------5,965 5,965 5,965 Share (5,965) RM’000 premium ------6,277 Share capital RM’000 Non-distributable 222,586 228,863 222,586 222,586 - (642) total 1,444 (5,565) (2,782) 18,282 19,726 Equity, (12,378) (13,020) RM’000 260,477 274,638 276,279 260,477 The accompanying Notes form an integral part of the Financial Statements. be reclassified to profit or loss in to profit be reclassified subsequent periods, net of tax CA 2016 reclassified to profit or loss in to profit reclassified subsequent periods, net of tax 2017 Company As at 1 January 2017 Profit for the year Profit Other comprehensive income to Other comprehensive Total comprehensive income comprehensive Total As at 31 December 2017 Dividend paid pursuant to S618(2) of Transfer 2016 Company As at 1 January 2016 Loss for the year Other comprehensive loss to be Other comprehensive loss comprehensive Total Dividend paid As at 31 December 2016 108 | KUB MALAYSIA BERHAD (6022-D)
Statements of Cash Flows for the financial year ended 31 December 2017
Group Company 2017 2016 2017 2016 RM’000 RM’000 RM’000 RM’000
CASH FLOWS FROM/(USED IN) OPERATING ACTIVITIES Profit/(Loss) before zakat and taxation - continuing operations 40,252 32,334 18,282 (12,375) - discontinued operations - (506) - - Adjustments for : Amortisation of : - plantation development expenditure 3,208 2,882 - - - intangible assets 230 159 - - Depreciation of : - property, plant and equipment 12,613 11,409 1,504 1,355 - continuing operations 12,613 10,424 1,504 1,355 - discontinued operations - 985 - - - investment properties 464 480 73 75 Amortisation of deferred income (53) - - - Finance costs 1,909 1,022 681 633 - continuing operations 1,909 739 681 633 - discontinued operations - 283 - - Loss on fair value changes of derivative instruments 23 7 - - Provision for liquidated ascertained damages - 1,479 - - Allowance for impairment on trade and other receivables 1,006 376 - - Allowance for impairment on amount due from subsidiaries (Note 22(a)) - - 5 2,071 Allowance for impairment on investment in subsidiaries - advances to subsidiaries (Note 18) - - 5,149 - - investment (Note 18) - - - 22,957 Impairment losses on property, plant and equipment 638 374 - 124 ANNUAL REPORT 2017 | 109
Statements of Cash Flows for the financial year ended 31 December 2017
Group Company 2017 2016 2017 2016 RM’000 RM’000 RM’000 RM’000
Property, plant and equipment written off 258 2,948 - - Inventories written off 8 6 - - Net unrealised gain on foreign exchange (299) (246) - - (Gain)/Loss on disposal of : - property, plant and equipment (6,429) (31) (11) - - assets held for sale (5,956) (1,205) - - - subsidiaries - 4,722 - 5,187 Dividend income (1,295) (245) (11,295) (7,045) Interest/profit income (2,964) (3,094) (586) (1,725) Reversal of impairment on property, plant and equipment (277) (989) - - Reversal of provision for liquidated ascertained damages (1,291) (1,720) - - Reversal of provision for foreseeable loss (546) (28) - - Written back of allowance for impairment on receivables (477) (2,201) - - Written back of allowance for impairment : - amount due from subsidiaries - - (250) - - advances to subsidiaries - - (2,871) (28,841) - investment in subsidiaries - - (22,764) - Share of results of associates (7,925) (7,575) - - Operating Profit/(Loss) Before Changes in Working Capital 33,097 40,358 (12,083) (17,584) 110 | KUB MALAYSIA BERHAD (6022-D)
Statements of Cash Flows for the financial year ended 31 December 2017
Group Company 2017 2016 2017 2016 RM’000 RM’000 RM’000 RM’000
Changes in working capital : Inventories (2,893) 3,745 - - Trade and other payables 31,908 12,376 (684) 593 Trade and other receivables (9,836) (17,725) (489) 1,036 Cash Generated From/(Used In) Operations 52,276 38,754 (13,256) (15,955) Zakat paid (639) (202) - - Tax paid (11,969) (11,482) (3) - Net Cash Generated From/(Used In) Operating Activities 39,668 27,070 (13,259) (15,955)
CASH FLOWS (USED IN)/FROM INVESTING ACTIVITIES Acquisition of property, plant and equipment (Note 15) (36,148) (19,568) (378) (2,000) Additions to intangible asset (Note 21) (2,084) (243) - - Additions to plantation development expenditure (Note 16) (1,795) (4,523) - - Additions to investment properties (Note 17) (232) (128) - - Net advances to subsidiaries - - (2,576) (7,540) Deposit for acquisition of land (25,449) - - - Dividends received 1,295 245 11,295 7,045 Interest/profit received 2,964 3,010 586 1,725 Proceeds from disposal of property, plant and equipment 14,488 31 138 - Proceeds from disposal of assets classified as held for sale 8,169 1,730 - - Repayment of advance from subsidiaries (Note 18) - - 2,871 6,947 Repayment of amount due from subsidiaries (Note 22) - - 250 - Disposal of subsidiaries - Proceeds from disposal, net of cash and cash equivalents disposed off (Note 36) - 18,717 - 19,000 Net Cash (Used In)/Generated From Investing Activities (38,792) (729) 12,186 25,177 ANNUAL REPORT 2017 | 111
Statements of Cash Flows for the financial year ended 31 December 2017
Group Company 2017 2016 2017 2016 RM’000 RM’000 RM’000 RM’000
CASH FLOWS (USED IN)/FROM FINANCING ACTIVITIES Decrease of deposits pledged with licensed banks 130 2,918 - - Profit/interest paid (3,086) (1,022) (681) (633) Dividend paid (5,565) (2,782) (5,565) (2,782) Net (repayment)/drawdown of short-term borrowings (3,500) 2,493 - - Repayment of hire purchase (466) (472) (197) 160 Drawdown of term loans - 9,797 - - Repayment of term loans (3,376) (2,002) (1,650) (1,650) Net Cash Generated (Used In)/From Financing Activities (15,863) 8,930 (8,093) (4,905)
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (14,987) 35,271 (9,166) 4,317
Effect of exchange rate changes on the balance of cash held in foreign currency (136) - - -
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 109,996 74,725 15,277 10,960
CASH AND CASH EQUIVALENTS AT END OF THE YEAR (NOTE 26) 94,873 109,996 6,111 15,277
The accompanying Notes form an integral part of the Financial Statements. 112 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
1. GENERAL INFORMATION
The Company is a public limited liability company, incorporated and domiciled in Malaysia, and is listed on the Main Market of Bursa Malaysia Securities Berhad.
The principal activities of the Company are that of investment holding and provision of management services to its subsidiaries.
The subsidiaries are principally engaged in the business of energy, agricultural businesses, information, communications and technology, energy, food, power and others as stated in Note 42.
The registered office and principal place of business of the Company is located at Level 8-11, Unit 1, Capital 3, Oasis Square, Ara Damansara, PJU 1A/7A, 47301 Petaling Jaya, Selangor.
The financial statements were authorised for issue in accordance with a resolution by the Board of Directors on 29 March 2018.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.1 Basis of Preparation of the Financial Statements
The financial statements of the Group and of the Company have been prepared in accordance with Financial Reporting Standards (“FRS”) and the requirements of the Companies Act, 2016 in Malaysia.
Malaysian Financial Reporting Standards
On 19 November 2011, the MASB issued a new MASB approved accounting framework, the Malaysian Financial Reporting Standards Framework (“MFRS Framework”), a fully-IFRS compliant framework. Entities other than private entities should apply the MFRS Framework for annual periods beginning on or after 1 January 2012, with the exception of Transitioning Entities.
Transitioning Entities, being entities within the scope of MFRS 141 Agriculture and/or IC Interpretation 15 : Agreements for the Construction of Real Estate, including its parents, significant investors and ventures were allowed to defer the adoption of the MFRS Framework until such time as mandated by the MASB. On 2 September 2014, with the issuance of MFRS 15 Revenue from Contracts with Customers and Amendments to MFRS 116 and MFRS 141 Agriculture : Bearer Plants, the MASB announced that Transitioning Entities which have chosen to continue with the FRS Framework shall adopt the MFRS Framework latest by 1 January 2017. On 8 September 2015, MASB confirmed that the effective date of MFRS will be deferred to annual periods beginning on or after 1 January 2018 and the effective date for Transitioning Entities to apply the MFRS Framework will be deferred to the same date.
The Group falls within the scope definition of Transitioning Entities and has availed itself of this transitional arrangement and continues to apply FRSs in the preparation of its financial statements. Accordingly, the Group will be required to apply MFRS 1 First-time Adoption of Malaysian Financial Reporting Standards in its financial statements for the financial year ending 31 December 2018, being the first set of financial statements prepared in accordance with the new MFRS Framework.
The MFRS 1 will be adopted in the annual financial statements of the Group and of the Company when they become effective and that the adoption of the Standard will have no material impact on the financial statements of the Group and of the Company other than movement in equity.
ANNUAL REPORT 2017 | 113
Notes to the Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
2.2 Changes in Accounting Policies
(i) Adoption of Amendments to Standards and Annual Improvements to Standards
On 1 January 2017, the Group and the Company adopted the following amendments to the FRSs effective for annual financial periods beginning on or after 1 January 2017.
Amendments to FRSs Annual Improvements to MFRSs 2014-2016 Cycle Amendments to FRS 107 Statements of Cash Flows - Disclosure Initiative Amendments to FRS 112 Recognition of Deferred Tax Assets for Unrealised Losses
The application of the above amendments had no material impact on the disclosures or on the amount recognised in the financial statements of the Group and the Company.
(ii) Standards issued but not yet effective
The standards and interpretations that are issued but not yet effective up to the date of issuance of the Group’s and the Company’s financial statements are disclosed below. The Group and the Company intend to adopt these standards, if applicable, when they become effective.
Effective for annual periods beginning on or after 1 January 2018
MFRS 9 Financial Instruments (International Financial Reporting Standard 9 - Financial Instruments as issued by International Accounting Standards Board in July 2014)
MFRS 9 Financial Instruments
MFRS 9 (IFRS 9 issued by IASB in November 2009) introduced new requirements for the classification and measurement of financial assets. MFRS 9 (IFRS 9 issued by IASB in October 2010) includes requirements for the classification and measurement of financial liabilities and for de-recognition, and in February 2014, the new requirements for general hedge accounting was issued by MASB. Another revised version of MFRS 9 was issued by MASB, MFRS 9 (IFRS 9 issued by IASB in July 2014) mainly to include (a) impairment requirements for financial assets and (b) limited amendments to the classification and measurement requirements by introducing a ‘fair value through other comprehensive income’ (FVTOCI) measurement category for certain simple debt instruments.
Key requirements of MFRS 9 :
(a) All recognised financial assets that are within the scope of MFRS 139 Financial Instruments : Recognition and Measurement are required to be subsequently measured at amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. Debt instruments that are held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets, and that have contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, are measured at FVTOCI. All other debt investments and equity investments are measured at their fair value at the end of subsequent accounting periods. In addition, under MFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognised in profit or loss. 114 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
2.2 Changes in Accounting Policies (cont’d)
(ii) Standards issued but not yet effective (cont’d)
MFRS 9 Financial Instruments (cont’d)
Key requirements of MFRS 9 (cont’d) :
(b) With regard to the measurement of financial liabilities designated as at fair value through profit or loss, MFRS 9 requires that the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the recognition of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability’s credit risk are not subsequently reclassified to profit or loss. Under FRS 139, the entire amount of the change in the fair value of the financial liability designated as fair value through profit or loss is presented in profit or loss.
(c) In relation to the impairment of financial assets, MFRS 9 requires an expected credit loss model, as opposed to an incurred credit loss model under FRS 139. The expected credit loss model requires an entity to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognised.
(d) The new general hedge accounting requirements retain the three types of hedge accounting mechanisms currently available in FRS 139. Under MFRS 9, greater flexibility has been introduced to the types of transactions eligible for hedge accounting, specifically broadening the types of instruments that qualify for hedging instruments and the types of risk components of non-financial items that are eligible for hedge accounting. In addition, the effectiveness test has been overhauled and replaced with the principle of an ‘economic relationship’. Retrospective assessment of hedge effectiveness is also no longer required. Enhanced disclosure requirements about an entity’s risk management activities have also been introduced.
Based on an analysis of the Group’s financial assets and financial liabilities as at 31 December 2017 on the basis of the facts and circumstances that exist at that date, the Group has performed a preliminary assessment of the impact of MFRS 9 to the Group’s consolidated financial statements as follows :
(a) Classification and measurement
The quoted shares that are currently classified as available-for-sale investments carried at fair value as disclosed in Note 20 are qualified for designation as measured at FVTOCI under MFRS 9. However, the fair value gains and losses accumulated in the investment revaluation reserve will no longer be subsequently reclassified to profit or loss under MFRS 9 when it is disposed, which is different from current treatment. Certain unquoted equity investments which are currently measured at cost will be measured at fair value and designated as at fair value through profit or loss which may arise in gain or loss to be recognised in the statement of comprehensive income.
All other financial assets and financial liabilities will continue to be measured on the same basis as is currently adopted under FRS 139. ANNUAL REPORT 2017 | 115
Notes to the Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
2.2 Changes in Accounting Policies (cont’d)
(ii) Standards issued but not yet effective (cont’d)
MFRS 9 Financial Instruments (cont’d)
Key requirements of MFRS 9 (cont’d) :
(b) Impairment
MFRS 9 requires the recognition of impairment provisions based on expected credit losses (“ECL”) rather than an incurred credit loss model under FRS 139.
Financial assets measured at amortised cost and amounts due from customer under construction contracts will be subject to the impairment provisions of MFRS 9.
The Group expects to apply the simplified approach to recognise lifetime expected credit losses for its trade receivables, and amounts due from customer under construction contracts as required by MFRS 9.
The Group assessment on the calculation of ECL rates were segmented according to potential exposures based on common credit risk characteristics such as nature of business, type of projects undertaking and selection of similar type of customers.
The Group has determined that, based on the assessments undertaken to date on the past default experience and reputation of the debtors, the Group regards the trade and other receivables and amount due from construction contracts to have low credit risk. As at 31 December 2017, the amount due from Government and Government Linked Companies equates to 43% of the Group trade and other receivables (Note 38(a)). Therefore, the Group’s expected credit loss on these trade receivables are not materially different from that based on FRS 139 currently.
(c) Hedge accounting
The Group does not apply hedge accounting and has no intention of doing so at the moment.
Effective upon the adoption of the MFRS Framework
The new and amended standards (which are applicable upon adoption of MFRS Framework) that are issued but not yet effective up to the date of issuance of the Group’s and of the Company’s financial statements are disclosed below :
MFRS 141 Agriculture
MFRS 141 prescribes the accounting treatment, financial statement presentation and disclosures related to agricultural activity. It requires measurement of fair value less costs to sell, from initial recognition of biological assets up to the point of harvest. 116 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
2.2 Changes in Accounting Policies (cont’d)
(ii) Standards issued but not yet effective (cont’d)
MFRS 141 Agriculture (cont’d)
On 2 September 2014, the amendments to MFRS 116 Property, Plant and Equipment and MFRS 141 Agriculture : Bearer Plants introduce a new category of biological assets i.e. bearer plants. A bearer plant is a living plant that is used in the production and supply of agricultural produce, is expected to bear produce for more than one period, and has remote likelihood of being sold as agriculture produce. Bearer plants are accounted for under MFRS 116 as an item of property, plant and equipment. Agricultural produce growing on bearer plants continue to be measured at fair value less costs to sell under MFRS 141, with fair value changes recognised in profit or loss as the produce grows.
The Group’s bearer plants consist of oil palm trees which cost includes development expenditure and the plantation infrastructure from land clearing to the point of harvesting. Any replanting costs incurred are capitalised. These costs are currently in plantation development expenditure accounts and are measured at cost less accumulated depreciation based on estimated annual yield over 25 years. Upon adoption of MFRS framework, the net carrying amount of the plantation development expenditure accounts will be reclassified to bearer plants as part of the Group’s property, plant and equipment.
Produce growing on bearer plants of the Group comprise of fresh fruit bunches (“FFB”) prior to harvest. The valuation to be adopted by the Group considers the present value of the net cash flows expected to be generated from the sale of FFB. To arrive at the fair value of FFB, the management has considered the quantity of the unripe FFB on bearer plant up to 15 days prior to harvest when there is formation of oil content and the quantity will be based on yield per harvest per metric tonne. This was estimated at 80% of the ripe FFB, based on actual oil extraction rate and kernel extraction rate of the unripe FFB from the laboratory tests. Cost to sell includes the costs in producing the FFB which are direct costs from the upkeep, harvesting cost and transportation cost.
Pursuant to the above, the effects of the amendments of MFRS 141 would be approximately RM272,000 decrease in comprehensive income, approximately RM272,000 decrease in biological assets and approximately RM714,000 increase in equity. The Group does not expect any material impact on deferred taxation arising from the above.
The effect of amendments to MFRS 116 on the other hand will increase the property, plant and equipment by approximately RM51.1 million derived from the reclassification of net carrying amount balances of plantation development expenditure as at 31 December 2017.
Effective for annual periods beginning on or after 1 January 2018
MFRS 15 Revenue from Contracts with Customers
MFRS 15 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. MFRS 15 will supersede the current revenue recognition guidance including MFRS 118 Revenue, MFRS 111 Construction Contracts and the related Interpretations when it becomes effective. ANNUAL REPORT 2017 | 117
Notes to the Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
2.2 Changes in Accounting Policies (cont’d)
(ii) Standards issued but not yet effective (cont’d)
Effective for annual periods beginning on or after 1 January 2018 (cont’d)
MFRS 15 Revenue from Contracts with Customers (cont’d)
The core principle of MFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the Standard introduces a 5-step approach to revenue recognition :
(a) Step 1 : Identify the contract(s) with a customer. (b) Step 2 : Identify the performance obligations in the contract. (c) Step 3 : Determine the transaction price. (d) Step 4 : Allocate the transaction price to the performance obligations in the contract. (e) Step 5 : Recognise revenue when (or as) the entity satisfies a performance obligation.
Under MFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the goods or services underlying the particular performance obligation is transferred to the customer.
Far more prescriptive guidance has been added in MFRS 15 to deal with specific scenarios. Furthermore extensive disclosures are required by MFRS 15.
In June 2016, the MASB issued Clarifications on MFRS 15 in relation to the identification of performance obligations, principal versus agent considerations, as well as licensing application guidance.
The Group’s revenue is derived mainly from the business of refilling and distribution of liquefied petroleum gas (“LPG”), agricultural businesses, information, communications and technology (“ICT”), operating of chain restaurants outlets and construct transmission lines and substations.
During 2017, the Group has assessed the effects of applying the new standard and has concluded that apart from providing more extensive disclosures on the Group’s revenue transactions, the application of MFRS 15 will not have a significant impact on the financial position and or/financial performance of the Group. With the adoption of MFRS 15, revenue is recognised by reference to each distinct performance obligation in the contract with customer. Transaction price is allocated to each performance obligation on the basis of the relative standalone selling prices of each distinct good or services promised in the contract. Depending on the substance of a contract, revenue is recognised when the performance obligation is satisfied, which may be at a point in time or over time.
The following areas have been identified during the assessment :
• Energy - A single performance obligation is identified for the sales of LPG. The revenue is recognised as the goods are collected from the filling plant, being at the point in time when the customer purchases the goods. The revenue from the sales of LPG is recognised at fair value of the consideration received or receivable, which constitute the contracted selling price which represents the transaction price of the performance obligation, net of trade discounts, incentives and volume rebates. The trade discounts, incentives and volume rebates are variable considerations (“VC”). The Group has in current practice estimated the VC on monthly basis which will not differ with the required treatment under MFRS 15. Depending whether the Group grants credit terms to the customers, the payment of the transaction price are generally cash upon delivery and is due immediately. 118 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
2.2 Changes in Accounting Policies (cont’d)
(ii) Standards issued but not yet effective (cont’d)
Effective for annual periods beginning on or after 1 January 2018 (cont’d)
MFRS 15 Revenue from Contracts with Customers (cont’d)
The following areas have been identified during the assessment (cont’d) :
• Agro - The sales of fresh fruit bunches (“FFB”), crude palm oil and kernel are recognised by the Group as performance obligation to be recognised at a point in time when control of the goods is transferred to the customer, which is generally upon its collection or delivery. The transaction price is based on a formula determined within the contract which is guided by the industry.
• Food - Multiple performance obligations have been identified for set meal packages and promotional packages which contains free products offers. Each food and beverage is a single performance on its own that will be recognised when control of the goods has transferred, being at the point in time when the customer purchases the goods at the restaurant outlets. Payment of the transaction price is due immediately at the point the customer purchases the goods.
• ICT - The Group’s revenue from ICT segment is principally from the supply, construction, and maintenance of information technology and telecommunication equipments and infrastructure.
For sale of equipment and parts, each good is a single performance obligation of which its revenue will be recognised when control of the goods has been transferred to the customer, being at the point in time when the goods are delivered to the customer. The contracts for construction of equipment comprise of multiple deliverables which includes significant integration service and are therefore recognised as a single performance obligation. Revenue is recognised progressively based on the percentage of completion. Based on the Group’s assessment, implementation of ICT related infrastructure have fulfilled the condition to be recognised over time which is consistent with the Group’s current practice.
The revenue relating to maintenance services is recognised over time and no extended warranty was offered to the customers.
• Power - The Group constructs transmission lines and substations under long-term contracts with customers. This have been identified as a single performance obligation. In assessing the impact, the Group has specifically considered MFRS 15’s guidance on contract combinations, contract modifications arising from variation orders, variable consideration, and the assessment of whether there is a significant financing component in the contracts, particularly taking into account the reason for the difference in timing between the transfer of control of goods and services to the customer and the timing of related payments. Based on the assessment, the revenue from these construction contracts should be recognised over time as the customer controls the projects during the course of construction by the Group. Variable consideration arises from potential liquidated ascertained damages (“LAD”) and will be continuously assessed by the Group. The input method currently used to measure the progress towards complete satisfaction of these performance obligations will continue to be appropriate under MFRS 15. ANNUAL REPORT 2017 | 119
Notes to the Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
2.2 Changes in Accounting Policies (cont’d)
(ii) Standards issued but not yet effective (cont’d)
Effective for annual periods beginning on or after 1 January 2018 (cont’d)
MFRS 15 Revenue from Contracts with Customers (cont’d)
The Group’s joint arrangements on its contracts have been assessed and have been concluded that the Group acts as a principal rather than an agent.
The Group will be applying the full retrospective approach and will be availing the practical expedient for its completed contracts that have variable consideration. The Group will be using the transaction price at the date the contract was completed rather than estimating variable consideration amounts in the comparative reporting periods. These are applicable on the following, the VCs arising from LAD, variation orders and extension of contract period which are applicable to Group’s ICT and Power segments.
The above assessments of MFRS 9, MFRS 141 and MFRS 15 were based on available information at that point of time and may be subject to changes arising from further reasonable and supportable information when the Group will adopt the applicable standards in 2018. Overall, the Group expects no significant impact to the financial statements.
Effective for annual periods beginning on or after 1 January 2019
MFRS 16 Leases
MFRS 16 Leases supersedes MFRS 117 Leases and the related interpretations. Under MFRS 16, a lease is a contract (or part of a contract) that conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
MFRS 16 eliminates the classification of leases by the lessee as either finance leases (on balance sheet) or operating leases (off balance sheet). MFRS 16 requires a lessee to recognise a “right-of-use” of the underlying assets and lease liability reflecting future lease payments for most leases.
The right-of-use asset is depreciated in accordance with the principle in MFRS 116 Property, Plant and Equipment and the lease liability is accreted over time with interest expense recognised in the income statement.
For lessors, MFRS 16 retains most of the requirements in MFRS 117. Lessors continue to classify all leases as either operating leases or finance leases, and account for them differently.
A lessee can choose to apply the standard using either a full retrospective or a modified retrospective transition approach. MFRS 16 is effective for annual periods beginning on or after 1 January 2019, with early application permitted, but not before an entity applies MFRS 15.
The Group is in the process of assessing the impact on the financial statements arising from this standard.
120 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
3. SIGNIFICANT ACCOUNTING POLICIES
3.1 Basis of Accounting
The financial statements of the Group and of the Company have been prepared under the historical cost convention except as otherwise stated in the accounting policies.
The financial statements are presented in Ringgit Malaysia (“RM”) which is also the functional currency of the Group and of the Company.
The principal accounting policies are set out below :
3.2 Basis of Consolidation
The consolidated financial statements comprise the financial statements of the Company and of its subsidiaries as of the reporting date. The financial statements of the subsidiaries used in the preparation of the consolidated financial statements are prepared for the same reporting date as the Company. Consistent accounting policies are applied for like transactions and events in similar circumstances.
The Group controls an investee if and only if the Group has all the following :
(a) Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);
(b) Exposure, or rights, to variable returns from its investment with the investee; and
(c) The ability to use its power over the investee to affect its returns.
When the Group has less than a majority of the voting rights of an investee, the Group considers the following in assessing whether or not the Group’s voting rights in an investee are sufficient to give it power over the investee :
(a) The size of the Group’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders;
(b) Potential voting rights held by the Group, other vote holders or other parties;
(c) Rights arising from other contractual arrangements; and
(d) Any additional facts and circumstances that indicate that the Group has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings.
Subsidiaries are consolidated when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. All intra-group balances, income and expenses and unrealised gains and losses resulting from intra-group transactions are eliminated in full.
Losses within a subsidiary are attributed to the non-controlling interests even if that results in a deficit balance.
Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non- controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. The resulting difference is recognised directly in equity and attributed to owners of the Company. ANNUAL REPORT 2017 | 121
Notes to the Financial Statements
3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d)
3.2 Basis of Consolidation (cont’d)
When the Group loses control of a subsidiary, a gain or loss calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets and liabilities of the subsidiary and any non-controlling interest, is recognised in profit or loss. The subsidiary’s cumulative gain or loss which has been recognised in other comprehensive income and accumulated in equity are reclassified to profit or loss or where applicable, transferred directly to retained earnings. The fair value of any investment retained in the former subsidiary at the date control is lost is regarded as the cost on initial recognition of the investment.
Business combinations and goodwill
Acquisitions of subsidiaries are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non- controlling interests in the acquiree. The Group elects on a transaction-by-transaction basis whether to measure the non-controlling interests in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Transaction costs incurred are expensed and included in administrative expenses.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes in the fair value of the contingent consideration which is deemed to be an asset or liability, will be recognised in accordance with FRS 139 either in profit or loss or as a change to other comprehensive income. If the contingent consideration is classified as equity, it will not be remeasured. Subsequent settlement is accounted for within equity. In instances where the contingent consideration does not fall within the scope of FRS 139, it is measured in accordance with the appropriate FRS.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as of the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.
3.3 Revenue
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of consideration received or receivable.
(a) Sale of goods
Revenue from sale of goods is recognised upon the transfer of significant risk and rewards of ownership of the goods to the customer at the fair value of the consideration received or receivable together with the subsidy receivable from the Government of Malaysia (“Government”), net of returns and allowances, trade discounts and volume rebates. Revenue is not recognised to the extent where there are significant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods. 122 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d)
3.3 Revenue (cont’d)
(b) Rendering of services
Revenue from services rendered is recognised on accrual basis over the period of the service rendered.
(c) Construction contracts
Revenue from construction contracts is accounted for by the stage of completion method.
(d) Interest income
Interest income is recognised on an accrual basis using the effective interest method.
(e) Management fees
Management fees are recognised when services are rendered.
(f) Dividend income
Dividend income is recognised when the Group’s right to receive payment is established.
(g) Rental income
Rental income is accounted for on a straight-line basis over the lease terms. The aggregate costs of incentives provided to lessees are recognised as a reduction of rental income over the lease term on a straight-line basis.
3.4 Employee benefits
(a) Short-term benefits
Wages, salaries, bonuses and social security contributions are recognised as an expense in the year in which the associated services are rendered by employees. Short-term accumulating compensated absences such as paid annual leave are recognised when services are rendered by employees that increase their entitlement to future compensated absences. Short-term non-accumulating compensated absences such as sick leave are recognised when the absences occur.
(b) Defined contribution plans
The Group participates in the national pension schemes as defined by the laws of the countries in which it has operations. The Malaysian companies in the Group make contributions to the Employee Provident Fund in Malaysia, a defined contribution pension scheme. Contributions to defined contribution pension schemes are recognised as an expense in the period in which the related service is performed.
ANNUAL REPORT 2017 | 123
Notes to the Financial Statements
3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d)
3.5 Zakat
The Group recognises its obligations towards the payment of zakat on business. Zakat for the current period is recognised as and when the Group has a current zakat obligation as a result of a zakat assessment. The amount of zakat expense shall be assessed when a company within the Group has been in operation for at least 12 months, i.e. for the period known as “haul (eligible period)”.
Zakat expense is determined based on the respective companies financial results for the year. The amount of zakat paid is recognised as an expense in the financial year in which it is incurred.
3.6 Income taxes
(a) Current tax
Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date.
Current taxes are recognised in profit or loss except to the extent that the tax relates to items recognised outside profit or loss, either in other comprehensive income or directly in equity.
(b) Deferred tax
Deferred tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognised for all temporary differences, except :
- where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
- in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised except :
- where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
- in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. 124 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
3. SIGNIFICANT ACCOUNTING POLICIES (Cont’d)
3.6 Income taxes (cont’d)
(b) Deferred tax (cont’d)
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax assets to be utilised.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the reporting date.
Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity and deferred tax arising from a business combination is adjusted against goodwill on acquisition.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
3.7 Transactions with non-controlling interests
Non-controlling interests represent the portion of profit or loss and net assets in subsidiaries not held by the Group and are presented separately in profit or loss of the Group and within equity in the consolidated statements of financial position, separately from parent shareholders’ equity. Transactions with non-controlling interests are accounted for using the entity concept method, whereby, transactions with non-controlling interests are accounted for as transactions with owners. On acquisition of non-controlling interests, the difference between the consideration and book value of the share of the net assets acquired is recognised directly in equity. Gain or loss on disposal to non-controlling interests is recognised directly in equity.
3.8 Subsidiaries
A subsidiary is an entity over which the Group has all the following :
(a) Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);
(b) Exposure, or rights, to variable returns from its investment with the investee; and
(c) The ability to use its power over the investee to affect its returns.
In the Company’s separate financial statements, investments in subsidiaries are accounted for at cost less impairment losses. On disposal of such investments, the difference between net disposal proceeds and their carrying amounts is included in profit or loss. ANNUAL REPORT 2017 | 125
Notes to the Financial Statements
3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
3.9 Investments in associates
An associate is an entity in which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.
On acquisition of an investment in associate, any excess of the cost of investment over the Group’s share of the net fair value of the identifiable assets and liabilities of the investee is recognised as goodwill and included in the carrying amount of the investment. Any excess of the Group’s share of the net fair value of the identifiable assets and liabilities of the investee over the cost of investment is excluded from the carrying amount of the investment and is instead included as income in the determination of the Group’s share of the associate’s or joint venture’s profit or loss for the period in which the investment is acquired.
An associate is equity accounted for from the date on which the investee becomes an associate.
Under the equity method, on initial recognition the investment in an associate is recognised at cost, and the carrying amount is increased or decreased to recognise the Group’s share of the profit or loss and other comprehensive income of the associate after the date of acquisition. When the Group’s share of losses in an associate equal or exceeds its interest in the associate, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.
Profits and losses resulting from upstream and downstream transactions between the Group and its associate are recognised in the Group’s financial statements only to the extent of unrelated investors’ interests in the associate. Unrealised losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred.
The financial statements of the associates are prepared as of the same reporting date as the Company. Where necessary, adjustments are made to bring the accounting policies in line with those of the Group.
After application of the equity method, the Group applies FRS 139 Financial Instruments : Recognition and Measurement to determine whether it is necessary to recognise any additional impairment loss with respect to its net investment in the associate. When necessary, the entire carrying amount of the investment is tested for impairment in accordance with FRS 136 Impairment of Assets as a single asset, by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss is recognised in profit or loss. Reversal of an impairment loss is recognised to the extent that the recoverable amount of the investment subsequently increases.
In the Company’s separate financial statements, investments in associates are accounted for at cost less impairment losses. On disposal of such investments, the difference between net disposal proceeds and their carrying amounts is included in profit or loss.
3.10 Foreign currency
(a) Functional and presentation currency
The individual financial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in Ringgit Malaysia (RM), which is also the Company’s functional currency.
126 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
3.10 Foreign currency (cont’d)
(b) Foreign currency transactions
Transactions in foreign currencies are measured in the respective functional currencies of the Company and its subsidiaries and are recorded on initial recognition in the functional currencies at exchange rates approximating those ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the reporting date. Non-monetary items denominated in foreign currencies that are measured at historical cost are translated using the exchange rates as of the dates of the initial transactions. Non-monetary items denominated in foreign currencies measured at fair value are translated using the exchange rates at the date when the fair value was determined.
Exchange differences arising on the settlement of monetary items or on translating monetary items at the reporting date are recognised in profit or loss except for exchange differences arising on monetary items that form part of the Group’s net investment in foreign operations, which are recognised initially in other comprehensive income and accumulated under foreign currency translation reserve in equity. The foreign currency translation reserve is reclassified from equity to profit or loss of the Group on disposal of the foreign operation.
Exchange differences arising on the translation of non-monetary items carried at fair value are included in profit or loss for the period except for the differences arising on the translation of non-monetary items in respect of which gains and losses are recognised directly in equity. Exchange differences arising from such non-monetary items are also recognised directly in equity.
(c) Foreign operations
The assets and liabilities of foreign operations are translated into RM at the rate of exchange ruling at the reporting date and income and expenses are translated at exchange rates at the dates of the transactions. The exchange differences arising on the translation are taken directly to other comprehensive income. On disposal of a foreign operation, the cumulative amount recognised in other comprehensive income and accumulated in equity under foreign currency translation reserve relating to that particular foreign operation is recognised in the profit or loss.
Goodwill and fair value adjustments arising on the acquisition of foreign operations are treated as assets and liabilities of the foreign operations and are recorded in the functional currency of the foreign operations and translated at the closing rate at the reporting date.
3.11 Property, plant and equipment
All items of property, plant and equipment are initially recorded at cost. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred. Long-term leasehold land is initially measured at cost. Following initial recognition, long-term leasehold land is measured at cost less accumulated amortisation and accumulated impairment losses. The long-term leasehold land is amortised over their lease terms.
Subsequent to recognition, property, plant and equipment except for freehold land are stated at cost less accumulated depreciation and any accumulated impairment losses. ANNUAL REPORT 2017 | 127
Notes to the Financial Statements
3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
3.11 Property, plant and equipment (cont’d)
Freehold land has an unlimited useful life and therefore is not depreciated. Work in progress that relates to equipment not yet installed at the intended specific location is also not depreciated. Depreciation of other property, plant and equipment is provided for on a straight-line basis to write off the cost of each asset to its residual value over the estimated useful life, at the following annual rates :
Factory and buildings - Factory and buildings 2% - 7% - Storage tanks 7.5% - 10% Plant, office renovation and equipment - Renovations 10% - 20% - Plant, machinery and tools 5% - 33% - Cylinders 7.5% - 20% - Furniture and fittings 10% - 33% - Office equipment and computers 10% - 33% Motor vehicles 20%
Renovation in progress and assets under construction are not depreciated as these assets are not yet available for use.
The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. The residual value, useful life and depreciation method are reviewed at each financial year-end, and adjusted prospectively, if appropriate.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on derecognition of the asset is included in the profit or loss in the year the asset is derecognised.
3.12 Investment properties
Investment properties are investments in land and buildings which are held either to earn rental income or for capital appreciation or for both. Such properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at cost less accumulated depreciation and any accumulated impairment losses, consistent with the accounting policy for property, plant and equipment as stated in Note 3.11.
The freehold land element of an investment property is not depreciated due to the unlimited useful life and the building element is depreciated at an annual rate of depreciation of 2%. Buildings which are situated on leasehold land are also depreciated at annual rate of depreciation of 2%.
Investment properties are derecognised when either they have been disposed off or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognised in profit or loss in the year in which they arise.
Fair value, for purpose of disclosure in the financial statements, is arrived at by reference to market evidence of transaction prices for similar properties.
Transfers are made to or from investment property only when there is a change in use. Transfers between investment property and owner-occupied property do not change the carrying amount of the property transferred. The cost of the property remains unchanged for disclosure purposes. 128 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
3.13 Intangible assets
The initial fee is incurred for right granted by the franchisor to operate A&W restaurants. The restaurants’ initial franchise fees are stated at cost and are amortised on a straight line basis over 10 to 15 years.
3.14 Plantation development expenditure
Plantation development expenditure includes the costs incurred on the land, plantation infrastructure and development and capitalisation of interest expense on loans and advances utilised to finance on-going development. The capitalisation of interest is ceased when the plantation is ready for its intended use.
Plantation expenditure and replanting cost incurred for the land development, planting and upkeep of trees are capitalised until maturity in the plantation development account. Upon maturity, the expenditure incurred is amortised based on estimated annual yield over 25 years.
3.15 Impairment of non-financial assets
The carrying amounts of assets, other than inventories, deferred tax assets and non-current assets (or disposal groups) held for sale, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated to determine the amount of impairment loss.
For goodwill, intangible assets that have an indefinite useful life and intangible assets that are not yet available for use, the recoverable amount is estimated at each reporting date or more frequently when indicators of impairment are identified.
For the purpose of impairment testing of these assets, recoverable amount is determined on an individual asset basis unless the asset does not generate cash flows that are largely independent of those from other assets. If this is the case, recoverable amount is determined for the cash-generating unit (“CGU”) to which the asset belongs to. Goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s CGUs, or groups of CGUs, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units.
An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value less costs to sell and its value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Impairment losses recognised in respect of a CGU or groups of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to those units or groups of units and then, to reduce the carrying amount of the other assets in the unit or groups of units on a pro-rata basis.
An impairment loss is recognised in profit or loss in the period in which it arises.
3.16 Financial assets
Financial assets are recognised in the statements of financial position when, and only when, the Group and the Company become a party to the contractual provisions of the financial instrument.
When financial assets are recognised initially, they are measured at fair value, plus, in the case of financial assets not at fair value through profit or loss, directly attributable transaction costs.
The Group and the Company determine the classification of their financial assets at initial recognition, and the categories include loans and receivables and available-for-sale financial assets. ANNUAL REPORT 2017 | 129
Notes to the Financial Statements
3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
3.16 Financial assets (cont’d)
(a) Loans and receivables
Financial assets with fixed or determinable payments that are not quoted in an active market are classified as loans and receivables.
Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, and through the amortisation process.
Loans and receivables are classified as current assets, except for those having maturity dates later than 12 months after the reporting date which are classified as non-current.
(b) Available-for-sale financial assets
Available-for-sale financial assets are financial assets that are designated as available for sale.
After initial recognition, available-for-sale financial assets are measured at fair value, except for investments in equity instruments whose fair value cannot be reliably measured. Any gains or losses from changes in fair value of the financial assets are recognised in other comprehensive income, except that impairment losses are recognised in profit or loss. The cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment when the financial asset is derecognised. Dividends on an available-for-sale equity instrument are recognised in profit or loss when the Group and the Company’s right to receive payment is established.
Investments in equity instruments whose fair value cannot be reliably measured are measured at cost less impairment loss.
Available-for-sale financial assets are classified as non-current assets unless they are expected to be realised within 12 months after the reporting date.
A financial asset is derecognised when the contractual right to receive cash flows from the asset has expired. On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sum of the consideration received and any cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss.
Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace concerned. All regular way purchases and sales of financial assets are recognised or derecognised on the trade date i.e., the date that the Group and the Company commit to purchase or sell the asset. 130 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
3.17 Impairment of financial assets
The Group and the Company assess at each reporting date whether there is any objective evidence that a financial asset is impaired.
(a) Trade and other receivables carried at amortised cost
To determine whether there is objective evidence that an impairment loss on financial assets has been incurred, the Group and the Company consider factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments. For certain categories of financial assets, such as trade receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis based on similar risk characteristics. Objective evidence of impairment for a portfolio of receivables could include the Group’s and the Company’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period and observable changes in national or local economic conditions that correlate with default on receivables.
If any such evidence exists, the amount of impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. The impairment loss is recognised in profit or loss.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable becomes uncollectible, it is written off against the allowance account.
If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed to the extent that the carrying amount of the asset does not exceed its amortised cost at the reversal date. The amount of reversal is recognised in profit or loss.
(b) Unquoted equity securities carried at cost
If there is objective evidence (such as significant adverse changes in the business environment where the issuer operates, probability of insolvency or significant financial difficulties of the issuer) that an impairment loss on financial assets carried at cost has been incurred, the amount of the loss is measured as the difference between the 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. Such impairment losses are not reversed in subsequent periods.
(c) Available-for-sale financial assets
Significant or prolonged decline in fair value below cost, significant financial difficulties of the issuer or obligor, and the disappearance of an active trading market are considerations to determine whether there is objective evidence that investment securities classified as available-for-sale financial assets are impaired.
If an available-for-sale financial asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in profit or loss, is transferred from equity to profit or loss. ANNUAL REPORT 2017 | 131
Notes to the Financial Statements
3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
3.17 Impairment of financial assets (cont’d)
(c) Available-for-sale financial assets (cont’d)
Impairment losses on available-for-sale equity investments are not reversed in profit or loss in the subsequent periods. Increase in fair value, if any, subsequent to impairment loss is recognised in other comprehensive income. For available-for-sale debt investments, impairment losses are subsequently reversed in profit or loss if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss in profit or loss.
3.18 Construction contracts
Where the outcome of a construction contract can be reliably estimated, contract revenue and contract costs are recognised as revenue and expenses respectively by using the stage of completion method. The stage of completion is measured by reference to the proportion of contract costs incurred for work performed to date to the estimated total contract costs.
Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred that are likely to be recoverable. Contract costs are recognised as expense in the period in which they are incurred.
When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.
Contract revenue comprises the initial amount of revenue agreed in the contract and variations in contract work, claims and incentive payments to the extent that it is probable that they will result in revenue and they are capable of being reliably measured.
When the total of costs incurred on construction contracts plus recognised profits (less recognised losses) exceeds progress billings, the balance is classified as amount due from customers on contracts. When progress billings exceed costs incurred plus, recognised profits (less recognised losses), the balance is classified as amount due to customers on contracts.
3.19 Inventories
Inventories are measured at the lower of cost and net realisable value. The cost of LPG is based on weighted average method, whilst the cost of other type of inventories is based on first-in, first-out method. The cost of inventories includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of work-in-progress/manufactured and inventories/finished goods, cost includes an appropriate share of production overheads based on normal operating capacity.
For the cost of contract work-in-progress, it includes costs relating to the information technology and telecommunication equipment for which the assembling/installation/commissioning has yet to be completed.
Net realisable value is the estimated selling price in the ordinary course of business less estimated costs of completion and the estimated costs necessary to make the sale. 132 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
3.20 Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of economic resources will be required to settle the obligation and the amount of the obligation can be estimated reliably.
Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of economic resources will be required to settle the obligation, the provision is reversed. If the effect of the time value of money is material, provisions are discounted using a current pre tax rate that reflects, where appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
3.21 Grants
Grants are recognised at their fair values where there is reasonable assurance that the grant will be received and all conditions attached will be met. Grants relating to assets are included in non-current liabilities as deferred income and are amortised to profit or loss over the expected useful life of the relevant asset by equal annual instalment or by deducting the grants in arriving at the carrying amount of the asset. Grants relating to costs are recognised immediately through profit or loss to match them with the costs incurred.
3.22 Financial liabilities
Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability.
Financial liabilities, within the scope of FRS 139, are recognised in the statement of financial position when, and only when, the Group and the Company become a party to the contractual provisions of the financial instrument. The Group’s and the Company’s other financial liabilities include trade payables, other payables and loans and borrowings.
Trade and other payables are recognised initially at fair value plus directly attributable transaction costs and subsequently measured at amortised cost using the effective interest method.
Loans and borrowings are recognised initially at fair value, net of transaction costs incurred, and subsequently measured at amortised cost using the effective interest method. Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.
For other financial liabilities, gains and losses are recognised in profit or loss when the liabilities are derecognised, and through the amortisation process.
A financial liability is derecognised when the obligation under the liability is extinguished. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss. ANNUAL REPORT 2017 | 133
Notes to the Financial Statements
3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
3.23 Financial guarantee contracts
A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due.
Financial guarantee contracts are recognised initially as a liability at fair value, net of transaction costs. Subsequent to initial recognition, financial guarantee contracts are recognised as income in profit or loss over the period of the guarantee. If the debtor fails to make payment relating to financial guarantee contract when it is due and the Company, as the issuer, is required to reimburse the holder for the associated loss, the liability is measured at the higher of the best estimate of the expenditure required to settle the present obligation at the reporting date and the amount initially recognised less cumulative amortisation.
3.24 Borrowing costs
Borrowing costs are capitalised as part of the cost of a qualifying asset if they are directly attributable to the acquisition, construction or production of that asset. Capitalisation of borrowing costs commences when the activities to prepare the asset for its intended use or sale are in progress and the expenditures and borrowing costs are incurred. Borrowing costs are capitalised until the assets are substantially completed for their intended use or sale.
All other borrowing costs are recognised in profit or loss in the period they are incurred. Borrowing costs consist of interest and other costs that the Group and the Company incurred in connection with the borrowing of funds.
3.25 Leases
(a) As lessee
Finance leases, which transfer to the Group substantially all the risks and rewards incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Any initial direct costs are also added to the amount capitalised. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to profit or loss. Contingent rents, if any, are charged as expenses in the periods in which they are incurred.
Leased assets are depreciated over the estimated useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life and the lease term.
Operating lease payments are recognised as an expense in profit or loss on a straight-line basis over the lease term. The aggregate benefit of incentives provided by the lessor is recognised as a reduction of rental expense over the lease term on a straight-line basis.
(b) As lessor
Leases where the Group retains substantially all the risks and rewards of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same bases as rental income. The accounting policy for rental income is set out in Note 3.3(g). 134 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
3.26 Non-current assets (or disposal groups) held for sale and discontinued operation
Non-current assets (or disposal groups) are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition subject only to terms that are usual and customary.
Immediately before classification as held for sale, the measurement of the non-current assets (or all the assets and liabilities in a disposal group) is brought up-to-date in accordance with applicable FRSs. Then, on initial classification as held for sale, non-current assets or disposal groups (other than deferred tax assets, employee benefits assets, financial assets and inventories) are measured at the lower of carrying amount and fair value less costs to sell. Any differences are included in profit or loss.
A component of the Group is classified as a discontinued operation when the criteria to be classified as held for sale have been met or it has been disposed off and such a component represents a separate major line of business or geographical area of operations, is part of a single coordinated major line of business or geographical area of operations or is a subsidiary acquired exclusively with a view to resale.
3.27 Share capital
An equity instrument is any contract that evidences a residual interest in the assets of the Group and the Company after deducting all of its liabilities. Ordinary shares are equity instruments.
Ordinary shares are recorded at the proceeds received, net of directly attributable incremental transaction costs. Ordinary shares are classified as equity. Dividends on ordinary shares are recognised in equity in the period in which they are declared.
3.28 Segment reporting
For management purposes, the Group is organised into operating segments based on their products and services which are independently managed by the respective segment managers responsible for the performance of the respective segments under their charge. The segment managers report directly to the chief operating decision maker who regularly reviews the segment results in order to allocate resources to the segments and to assess the segment performance. Additional disclosures on each of these segments are shown in Note 40, including the factors used to identify the reportable segments and the measurement basis of segment information.
3.29 Contingencies
A contingent liability or asset is a possible obligation or asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of uncertain future event(s) not wholly within the control of the Group.
Contingent liabilities and assets are not recognised in the statements of financial position of the Group.
3.30 Statements of Cash Flows
The Group and the Company adopt the indirect method in the preparation of the statements of cash flows.
Cash and cash equivalents, which comprise deposits with licensed banks and other financial institutions, cash on hand and at bank, and bank overdrafts, are short-term, highly liquid investments and are readily convertible to cash with insignificant risks of changes in value. ANNUAL REPORT 2017 | 135
Notes to the Financial Statements
4. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of the Group’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future.
4.1 Judgements made in applying accounting policies
In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statements :
(a) Classification between investment properties and property, plant and equipment
The Group has developed certain criteria based on FRS 140 in making judgement whether a property qualifies as an investment property. Investment property is a property held to earn rental or for capital appreciation or both.
Some properties comprise a portion that is held to earn rental or for capital appreciation and another portion that is held for use in the production or supply of goods or services or for administrative purposes. If these portions could be sold separately (or leased out separately under a finance lease), the Group would account for the portions separately. If the portions could not be sold separately, the property is an investment property only if an insignificant portion is held for use in the production or supply of goods or services or for administrative purposes. Judgement is made on an individual property basis to determine whether ancillary services are so significant that a property does not qualify as investment property.
(b) Operating lease commitments - as lessor
The Group has entered into commercial property leases on its investment properties. The commercial properties combined leases of land and buildings. At the inception of the lease, it was not possible to obtain a reliable estimate of the split of the fair values of the lease interest between the land and the buildings. Therefore, the Group evaluated based on terms and conditions of the arrangement, whether the land and the buildings were clearly operating leases or finance leases. The Group assessed the following :
(i) The land titles do not pass to the Group; and
(ii) The rentals paid to the landlord for the commercial properties are increased to the market rent at regular intervals, and the Group does not participate in the residual value of the building.
Management judged that the Group retains all the significant risks and rewards of ownership of these properties, thus accounted for the contracts as operating leases. 136 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
4. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS (CONT’D)
4.2 Key sources of estimation uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
(a) Deferred taxes (Note 24)
Deferred tax assets are recognised for all unused tax losses and unabsorbed capital allowances to the extent that it is probable that taxable profit will be available against which the losses and capital allowances can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies.
(b) Impairment of investments in subsidiaries (Note 18) and associates (Note 19)
The Company assesses whether there is any indication that investments in subsidiaries and associates may be impaired at each reporting date. If indicators are present, these assets are subject to an impairment review. The impairment review comprises a comparison of the carrying amount of the assets and the assets’ estimated recoverable amount.
The Company determines whether investments are impaired following certain indications of impairment such as, amongst others, significant changes with adverse effects on the investment and deteriorating financial performance of the investment due to observed changes and fundamentals. Depending on their nature and the industries in which the investments relate to, judgements are made by management to select suitable methods of valuation such as the discounted cash flow method.
Once a suitable method of valuation is selected, management makes certain assumptions concerning the future to estimate the recoverable amount of the investment. These assumptions and other key sources of estimation uncertainty at the reporting date, may have a significant risk of causing a material adjustment to the carrying amounts of the investments within the next financial year.
Depending on the specific individual investment, assumptions made by management may include, amongst others, assumptions on expected future cash flows, revenue growth, discount rate used for purposes of discounting future cash flows which incorporates the relevant risks, and expected future outcome of certain past events.
(c) Construction contracts (Note 23)
The Group recognises construction contracts revenue and expenses in the statement of comprehensive income by using the stage of completion method. The stage of completion is determined by the proportion that construction contract costs incurred for work performed to date over the total construction contract costs.
Significant judgement is required in determining the stage of completion, the extent of the construction costs incurred, the estimated total construction contract revenue and costs, as well as the recoverability of the construction project. In making the judgement, the Group evaluates based on past experience, external economic factor and by relying on the work of specialists. ANNUAL REPORT 2017 | 137
Notes to the Financial Statements
4. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS (CONT’D)
4.2 Key sources of estimation uncertainty (cont’d)
(c) Construction contracts (Note 23) (cont’d)
The construction contracts revenue and expenses recognised in the profit or loss are disclosed in Note 5 and Note 6, respectively.
(d) Impairment of receivables (Note 22)
The Group assesses at each reporting date whether there is any objective evidence that a financial asset is impaired. To determine whether there is objective evidence of impairment, the Group considers factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments.
Where there is objective evidence of impairment, the amount and timing of future cash flows are estimated based on historical loss experience for assets with similar credit risk characteristics. 138 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
5. REVENUE
Group Company 2017 2016 2017 2016 RM’000 RM’000 RM’000 RM’000
Contract revenue 29,005 55,209 - - Sale of goods 553,210 427,605 - - Services 15,767 12,713 6,676 - Dividend income from : - subsidiaries - - 10,000 5,000 - associates - - - 1,800 - others 1,295 245 1,295 245 599,277 495,772 17,971 7,045
6. COST OF SALES
Group 2017 2016 RM’000 RM’000
Contract costs 22,748 45,380 Cost of inventories sold 477,113 353,035 Cost of services rendered 7,460 8,193 507,321 406,608
7. FINANCE INCOME
Group Company 2017 2016 2017 2016 RM’000 RM’000 RM’000 RM’000
Finance income from : - Subsidiaries - - 325 1,413 - Banks and other financial institutions 2,964 3,094 261 312 2,964 3,094 586 1,725
ANNUAL REPORT 2017 | 139
Notes to the Financial Statements
8. FINANCE COSTS
Group Company 2017 2016 2017 2016 RM’000 RM’000 RM’000 RM’000
Finance costs on : - Bank borrowings 3,064 2,877 127 249 - Obligations under hire purchase 18 27 18 27 - Intercompany advances - - 536 357 Commission charges on bank guarantee 4 83 - - 3,086 2,987 681 633 Interest capitalised in property, plant and equipment (Note 15) (1,177) (2,248) - - 1,909 739 681 633
9. PROFIT/(LOSS) BEFORE ZAKAT AND TAXATION
Profit/(Loss) before zakat and taxation for continuing operations has been arrived at after charging :
Group Company 2017 2016 2017 2016 RM’000 RM’000 RM’000 RM’000
Amortisation of : - plantation development expenditure (Note 16) 3,208 2,882 - - - intangible assets (Note 21) 230 159 - - Depreciation of : - property, plant and equipment (Note 15) 12,613 10,424 1,504 1,355 - investment properties (Note 17) 464 480 73 75 Auditor’s remuneration : Statutory audits - to the Company’s auditors 400 353 120 108 - to other firms of auditors 18 24 - - Other services : - to the Company’s auditors* 378 97 114 15 - to other firms of auditors 74 282 21 24
140 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
9. PROFIT/(LOSS) BEFORE ZAKAT AND TAXATION (CONT’D)
Profit/(Loss) before zakat and taxation for continuing operations has been arrived at after charging : (cont’d)
Group Company 2017 2016 2017 2016 RM’000 RM’000 RM’000 RM’000
Employee benefits expense (Note 10) 51,964 40,777 12,466 10,134 Non-executive Directors’ remuneration (Note 11) 1,812 1,885 1,068 1,072 Allowance for impairment : - trade and other receivables 1,006 376 - - - due from subsidiaries (Note 18) - - 5,149 - - due from subsidiaries (Note 22) - - 5 2,071 - investment in subsidiaries - - - 22,957 - property, plant and equipment 638 374 - 124 Property, plant and equipment written off 258 2,948 - - Inventories written off 8 6 - - Loss on fair value changes in derivatives 23 7 - - Realised loss on foreign exchange 18 1,544 - - Loss on disposal of subsidiary - 4,722 - 5,187 Provision of liquidated ascertained damages - 1,479 - - Rental expense on : - land and buildings 11 44 - - - premises 6,954 6,090 91 76 - equipment 800 830 75 56 - motor vehicle - 17 - 17
* Fees for other services to the Company’s auditors, Deloitte PLT and its other member firm, were incurred in relation to tax compliance and advisory services, the implementation of the new Malaysian Financial Reporting Standards and review of Statement of Risk Management and Internal Control. ANNUAL REPORT 2017 | 141
Notes to the Financial Statements
9. PROFIT/(LOSS) BEFORE ZAKAT AND TAXATION (CONT’D)
Profit/(Loss) before zakat and taxation for continuing operations has been arrived at after crediting :
Group Company 2017 2016 2017 2016 RM’000 RM’000 RM’000 RM’000
Gain on disposal of property, plant and equipment 6,429 31 11 - Gain on disposal of non-current assets held for sale 5,956 1,205 - - Rental income 898 1,425 739 566 Amortisation of deferred income 53 - - - Reversal of provision for foreseeable losses (Note 23) 546 28 - - Reversal of provision for liquidated ascertained damages (Note 32) 1,291 1,720 - - Reversal of impairment of property, plant and equipment (Note 15) 277 989 - - Reversal of allowance for : - advances to subsidiaries (Note 18) - - 2,871 28,841 - investment in subsidiaries (Note 18) - - 22,764 - - amount due from subsidiaries (Note 22) - - 250 - Reversal of impairment on receivables (Note 22) 477 2,201 - - Realised gain on foreign exchange 3,169 2,691 6 118 Unrealised gain on foreign exchange 299 246 - - 142 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
10. EMPLOYEE BENEFITS EXPENSES
Group Company 2017 2016 2017 2016 RM’000 RM’000 RM’000 RM’000
Wages, bonuses and salaries 40,491 31,653 10,230 7,547 Social security contributions 370 279 56 46 Contributions to defined contribution plans 3,974 3,254 1,032 898 Other benefits 7,129 5,591 1,148 1,643 51,964 40,777 12,466 10,134
Included in employee benefits expense of the Group and the Company is the Company’s Executive Director’s remuneration amounting to RM1,328,600 (2016 : RM1,096,200) as disclosed in Note 11.
11. DIRECTORS’ REMUNERATION
The details of remuneration for the Company’s Directors during the year are as follows :
Group Company 2017 2016 2017 2016 RM’000 RM’000 RM’000 RM’000
Executive Director : Salaries and other emoluments 840 840 840 840 Bonus 315 105 315 105 Defined contribution plans 174 151 174 151
Total Executive Director’s remuneration excluding benefits-in-kind (Note 10) 1,329 1,096 1,329 1,096 Estimated money value of benefits-in-kind 62 52 62 52 1,391 1,148 1,391 1,148
ANNUAL REPORT 2017 | 143
Notes to the Financial Statements
11. DIRECTORS’ REMUNERATION (CONT’D)
The details of remuneration for the Company’s Directors during the year are as follows : (cont’d)
Group Company 2017 2016 2017 2016 RM’000 RM’000 RM’000 RM’000
Non-Executive Directors : Fees - current year 737 757 504 525 - previous year - 150 - - Allowances 1,075 978 564 547
Total Non-Executive Directors’ remuneration excluding benefits-in-kind (Note 9) 1,812 1,885 1,068 1,072 Estimated money value of benefits-in-kind 177 158 154 135 1,989 2,043 1,222 1,207
Total Directors’ remuneration excluding benefits in kind 3,141 2,981 2,397 2,168 Estimated money value of benefits-in-kind 239 210 216 187 Total Directors’ remuneration 3,380 3,191 2,613 2,355
12. TAXATION
Major components of income tax expense
The major components of income tax expense for the years ended 31 December 2017 and 31 December 2016 are as follows :
Group Company 2017 2016 2017 2016 RM’000 RM’000 RM’000 RM’000
Estimated income tax : - Current income tax 7,982 12,213 - 3 - Overprovision in prior years (108) (1,849) - - 7,874 10,364 - 3 Deferred tax (Note 24) : - Origination/(Reversal) of temporary differences 900 (194) - - - Over provision in prior years (3) (86) - - 897 (280) - - Tax expense for the year 8,771 10,084 - 3
Domestic income tax is calculated at the statutory tax rate of 24% (2016 : 24%) of the estimated assessable profit/(loss) for the year. 144 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
12. TAXATION (CONT’D)
The numerical reconciliations of income tax expense applicable to profit/(loss) before tax at the statutory income tax rate to income tax expense at the effective income tax rate is as follows :
Group Company 2017 2016 2017 2016 RM’000 RM’000 RM’000 RM’000
Profit/(Loss) before zakat and taxation from continuing operations 40,252 32,334 18,282 (12,375) Loss before taxation from discontinued operations - (506) - - Accounting profit/(loss) before taxation 40,252 31,828 18,282 (12,375)
Tax at the statutory tax rate of 24% (2016 : 24%) 9,660 7,639 4,388 (2,970) Income not subject to tax (4,616) (4,556) (8,932) (10,544) Net effect of expenses not deductible for tax purposes 3,142 4,007 4,544 11,627 Effect on share of results of associate 1,902 1,818 - - Deferred tax asset not recognised during the year 2,264 3,950 - - Effect of utilisation of previously unrecognised tax losses and capital allowances (3,470) (839) - 1,890 Overprovision of tax expense in prior years (108) (1,849) - - Overprovision of deferred tax in prior years (3) (86) - - Tax expense for the year 8,771 10,084 - 3 ANNUAL REPORT 2017 | 145
Notes to the Financial Statements
13. DISCONTINUED OPERATIONS AND NON-CURRENT ASSETS CLASSIFIED AS HELD FOR SALE
Discontinued Operations
In August 2016, the Group has completed the disposal of its subsidiary, KUB Precast Sdn Bhd, a company principally involved in the manufacturing and trading of pre-casted concrete slabs and concrete elements.
Following the above, the results of the disposal company has been classified as discontinued operations in the financial statements, in accordance with FRS 5 ‘Non-current Assets Held for Sale and Discontinued Operations’.
The combined results of the discontinued operations included in the profit for the year are set out below.
The analysis of the results of the discontinued operations is as follows :
Group 2016 RM’000
Revenue 11,103 Cost of sales (9,206) Gross profit 1,897 Other income 318 Distribution expenses (23) Administrative expenses (2,002) Finance costs (283) Other expenses (413) Loss before taxation from discontinued operations (506) Taxation - Loss from discontinued operations, net of tax (506)
The loss from discontinued operations of RM506,000 is attributable entirely to the owners of the Company.
146 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
13. DISCONTINUED OPERATIONS AND NON-CURRENT ASSETS CLASSIFIED AS HELD FOR SALE (CONT’D)
The loss before taxation from discontinued operations is stated after charging the following :
Group 2016 RM’000
Employee benefit expenses 1,157 Depreciation of property, plant and equipment 985 Rental of premises 243 Finance costs 283
Non-current assets held for sale
The movements of the non-current assets held for sale for the current and previous financial year are as follows :
Group 2017 2016 RM’000 RM’000
As of 1 January 3,534 - Transfer from property, plant and equipment (Note 15) 2,976 4,321 Disposals (2,212) (787) Adjustment* (1,322) - Transfer from investment properties (Note 17) 755 - As of 31 December 3,731 3,534
* Relates to an adjustment of cost of a piece of leasehold land which was subsequently disposed off in the current year.
Non-current assets held for sale in current year
As at 31 December 2017, the non-current assets classified as held for sale of the Group are in respect of :
(i) a piece of leasehold land in Georgetown, Pulau Pinang for a sale consideration of RM6,000,000 with carrying value of the assets of RM2,976,000 as at 31 December 2017. The sale is expected to be completed in the first quarter of 2018.
(ii) 1 unit of 3-storey shop office in Taman Melawati, Kuala Lumpur with carrying value of RM133,000 as at 31 December 2017. The sales and purchase agreement was signed on 22 December 2017 for a sale consideration of RM2,250,000 and is expected to be completed in the first half of 2018.
(iii) 4 units of double storey shoplots in Pekan Razaki, Ipoh, Perak with carrying value of RM365,000 as at 31 December 2017 which the completion of the sale is currently pending the fulfillment of conditions precedent of the sales and purchase agreement. The sales is expected to be completed in the second quarter of 2018.
(iv) 3 units of double storey shoplots in Batu Gajah, Ipoh, Perak with carrying value of RM257,000 as at 31 December 2017. The sales are expected to be completed in the second quarter of 2018 pending the fulfillment of condition precedent in the sales and purchase agreement. ANNUAL REPORT 2017 | 147
Notes to the Financial Statements
13. DISCONTINUED OPERATIONS AND NON-CURRENT ASSETS CLASSIFIED AS HELD FOR SALE (CONT’D)
Non- current assets held for sale in prior year
As at 31 December 2016, the non-current assets classified as held for sale of the Group are as follows :
(i) A piece of leasehold land together with buildings and other assets erected thereon in Seberang Perai, Pulau Pinang formerly held by a subsidiary company, KUB Gaz Sdn Bhd with carrying value as at 31 December 2016 amounting to RM2,100,000. During the current year, the disposal of the said land was completed for a sale consideration of RM6,000,000 resulted in a net gain on disposal of RM3,891,000.
(ii) A piece of leasehold land in Ipoh, Perak formerly held by a subsidiary company, Peraharta Sdn Bhd with carrying value as at 31 December 2016 amounting to RM1,434,000. During the year, the disposal of the said land was completed for a sale consideration of RM2,300,000 resulted in a net gain on disposal of RM2,065,000.
Included in the transfer from property, plant and equipment in prior year was a piece of freehold land in Johor Bahru formerly held by Peraharta Sdn Bhd which had been sold for a sale consideration of RM2,000,000 resulted in a net gain on disposal of RM1,205,000.
14. EARNINGS PER ORDINARY SHARE
Basic and diluted earnings per ordinary share is calculated by dividing earnings for the year, net of tax, attributable to owners of the parent by the weighted average number of ordinary shares outstanding during the financial year.
The following tables reflect the earnings and share data used in the computation of basic and diluted earnings per share for the years ended 31 December :
Group 2017 2016 RM’000 RM’000
Profit/(Loss) net of taxation attributable to owners of the parent used in the computation of basic and diluted earnings per share - From continuing operations 32,165 23,134 - From discontinued operations - (506)
Weighted average number of ordinary shares for basic and diluted earnings per share computation (in ‘000) 556,465 556,465
2017 2016 Sen Sen
Basic and diluted earnings/(loss) per share attributable to the owners of the parent - From continuing operations 5.78 4.16 - From discontinued operations - (0.09) 5.78 4.07 148 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements - 638 220 (277) (124) Total 3,664 (1,396) (2,976) (5,966) (1,138) 37,527 22,984 12,613 23,221 (14,149) RM’000 377,219 399,889 193,910 216,894 199,639 222,860 177,029 ------3,002 3,002 60,181 15,969 (73,148) RM’000 construction Assets under ------20 728 144 371 (763) (511) (124) 6,449 6,414 5,290 5,434 5,150 5,170 1,244 Motor RM’000 vehicles - - - - - 31 and 8,165 8,481 8,196 office Plant, (4,787) (1,158) (3,296) (1,091) 17,087 19,012 54,740 RM’000 186,370 216,524 149,494 157,659 153,588 161,784 equipment renovation ------18 18 (84) (40) 397 land 7,126 7,144 7,483 7,501 30,986 30,902 23,401 RM’000 Leasehold - - - (47) 607 220 (238) 3,743 3,664 3,364 (5,915) (2,119) 87,325 54,136 32,000 14,380 46,380 33,418 14,987 48,405 94,310 RM’000 142,715 buildings Factory and ------277 332 277 332 (277) land 5,908 (2,600) (2,976) RM’000 Freehold for sale (Note 13) (Note 17) impairment Accumulated depreciation Accumulated impairment - depreciation - impairment (Note 17) Accumulated depreciation Accumulated impairment PROPERTY, PLANT AND EQUIPMENT PROPERTY, Group 2017 Cost As of 1 January 2017 Additions Disposals Written off Written Reclassifications Transfer to non-current assets held to non-current Transfer Transfer from investment properties investment properties from Transfer As of 31 December 2017 Accumulated depreciation and Accumulated depreciation As of 1 January 2017 losses Depreciation charge for the year Depreciation Impairment losses Reversal of impairment losses Disposals
Written off - depreciation off Written Transfer from investment properties investment properties from Transfer As of 31 December 2017 losses Net carrying amount 15. ANNUAL REPORT 2017 | 149
Notes to the Financial Statements - (88) (85) 374 (989) Total (3,990) (1,042) 20,035 23,599 11,409 22,984 (46,802) (15,363) (23,324) (11,042) RM’000 423,427 377,219 217,994 241,593 193,910 216,894 160,325 ------29 857 (886) RM’000 in progress Renovation ------(565) 7,459 (2,712) 55,999 60,181 60,181 RM’000 construction Assets under - - - 20 (85) (85) 627 625 534 124 144 (213) (400) (213) (360) 5,895 6,449 5,414 5,434 5,290 5,434 1,015 Motor RM’000 vehicles - - (3) 826 250 and (196) (188) 8,999 7,915 8,125 8,165 office Plant, (9,150) (9,095) 28,711 (21,230) (17,146) RM’000 207,124 186,370 167,798 175,713 149,494 157,659 equipment renovation ------38 18 18 411 (281) land 6,996 7,014 7,126 7,144 (2,669) 33,617 30,986 23,842 RM’000 Leasehold - - - - (682) (989) (494) 2,055 2,339 (3,544) (5,965) (1,666) 87,325 37,786 15,369 53,155 32,000 14,380 46,380 40,945 (19,456) RM’000 108,952 buildings Factory and ------277 277 277 277 land 5,908 5,631 (5,903) 11,811 RM’000 Freehold for sale (Note 13) impairment - depreciation for sale (Note 13) PROPERTY, PLANT AND EQUIPMENT (CONT’D) PROPERTY, Group 2016 Cost As of 1 January 2016 Additions Disposals Disposal of subsidiary Written off Written Reclassifications Transfer to non-current assets held to non-current Transfer As of 31 December 2016 Accumulated depreciation and Accumulated depreciation As of 1 January 2016 Accumulated depreciation Accumulated impairment losses Depreciation charge for the year Depreciation Impairment losses Reversal of impairment losses Disposals Disposal of subsidiary : Written off - depreciation off Written Transfer to non-current assets held to non-current Transfer As of 31 December 2016 Accumulated depreciation Accumulated impairment losses Net carrying amount 15. 150 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements - 378 124 (768) (517) (124) Total 8,936 9,060 1,504 9,923 9,923 35,265 34,875 24,952 RM’000 - - 94 468 575 124 699 158 158 310 (755) (511) (124) 1,223 Motor RM’000 vehicles - - - (6) (13) 378 and 7,035 7,400 4,513 4,513 1,003 5,510 5,510 1,890 office Plant, RM’000 equipment renovation ------93 land 2,493 2,493 2,586 2,586 8,679 11,265 11,265 RM’000 Leasehold ------314 1,355 1,669 1,355 1,669 15,742 15,742 14,073 RM’000 Freehold Freehold buildings Accumulated depreciation Accumulated impairment losses - depreciation - impairment Accumulated depreciation Accumulated impairment losses PROPERTY, PLANT AND EQUIPMENT (CONT’D) PROPERTY, Disposals Cost As of 1 January 2017 Additions As of 31 December 2017 and impairment Accumulated depreciation As of 1 January 2017 charge for the year Depreciation Disposals Company 2017 As of 31 December 2017
Net carrying amount 15. ANNUAL REPORT 2017 | 151
Notes to the Financial Statements - - (3) 124 124 Total Total 2,000 7,581 7,581 1,355 8,936 9,060 33,268 35,265 26,205 RM’000 ------857 (857) RM’000 in progress Renovation - - - 755 468 404 404 171 124 575 124 699 524 1,223 Motor RM’000 vehicles - - - (3) 675 857 777 and 5,506 7,035 3,736 3,736 4,513 4,513 2,522 office Plant, RM’000 equipment renovation ------93 land 2,400 2,400 2,493 2,493 8,772 11,265 11,265 RM’000 Leasehold ------314 1,041 1,355 1,041 1,355 15,742 15,742 14,387 RM’000 Freehold Freehold buildings Accumulated depreciation Accumulated impairment losses Accumulated depreciation Accumulated impairment losses PROPERTY, PLANT AND EQUIPMENT (CONT’D) PROPERTY, Cost As of 1 January 2016 Additions Company 2016 Disposals Reclassifications As of 31 December 2016 Accumulated depreciation and impairment Accumulated depreciation As of 1 January 2016
Depreciation charge for the year Depreciation Impairment losses As of 31 December 2016
Net carrying amount 15. 152 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
15. PROPERTY, PLANT AND EQUIPMENT (CONT’D)
Assets under construction
Assets under construction in prior year were mainly costs incurred on purchase of machineries and other expenses incidental to the construction of a 45MT/hour palm oil mill in Mukah, Sarawak by a subsidiary. The mill had commenced its operation since July 2017.
Included in the asset under constructions are finance costs capitalised of RM1,177,000 (2016 : RM2,248,000) arising from the borrowings incurred for constructing the mill.
Assets held under hire purchase
During the financial year ended 31 December 2017, the property, plant and equipment acquired by means of hire purchase by the Group was RM659,000 (2016 :RM467,000).
The carrying amount of assets held under hire purchase of the Group and of the Company at the reporting date were RM914,000 and RM310,000 (2016 : RM1,015,000 and RM524,000) respectively.
Assets pledged as security
As of 31 December 2017, the freehold and leasehold land, factory and buildings of the Group and of the Company with a total carrying amount of RM108,385,000 and RM14,073,000 (2016 : RM92,012,000 and RM14,387,000) respectively are pledged to banks as security for borrowings as disclosed in Note 30.
Assets written off
The assets that were written off in the current year are mainly in relation to a closed outlet’s renovation and equipment amounting to RM193,000. In prior year, two (2) units of palm oil mill effluent (“POME”) digestive tanks of the Group’s palm oil mill in Mukah, Sarawak amounting to RM2.7 million were written off. ANNUAL REPORT 2017 | 153
Notes to the Financial Statements
15. PROPERTY, PLANT AND EQUIPMENT (CONT’D)
Reconciliation to the cash flows
Reconciliation to the cash flows for purchase of property, plant and equipment is as follows :
Group 2017 2016 RM’000 RM’000
Additions for the financial year 37,527 20,035 Less : Purchases by means of hire purchase (659) (467) Provision for asset retirement obligation (720) - 36,148 19,568
16. PLANTATION DEVELOPMENT EXPENDITURE
Group 2017 2016 RM’000 RM’000
At cost As of 1 January 86,693 82,170 Additions 1,795 4,523 As of 31 December 88,488 86,693
Accumulated amortisation As of 1 January 34,150 31,268 Amortisation for the year recognised in cost of sales 3,208 2,882 As of 31 December 37,358 34,150 Net carrying amount 51,130 52,543
154 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
17. INVESTMENT PROPERTIES
Freehold land and Leasehold Group buildings buildings Total 2017 RM’000 RM’000 RM’000
Cost As of 1 January 32,184 1,222 33,406 Addition 232 - 232 Reclassification (640) 640 - Adjustment* - 1,322 1,322 Transfer to assets classified as held for sale (Note 13) - (1,462) (1,462) Transfer to property, plant and equipment (Note 15) (3,664) - (3,664) As of 31 December 28,112 1,722 29,834
Accumulated depreciation and impairment losses As of 1 January Accumulated depreciation 9,566 785 10,351 Accumulated impairment losses 7,426 - 7,426 16,992 785 17,777 Depreciation for the year 392 72 464 Transfer to assets classified as held for sale (Note 13) - (707) (707) Transfer to property, plant and equipment (Note 15) (220) - (220) As of 31 December Accumulated depreciation 9,958 150 10,108 Accumulated impairment losses 7,206 - 7,206 17,164 150 17,314 Net carrying amount 10,948 1,572 12,520 Fair value 25,670 8,600 34,270
* Relates to an adjustment of cost of a piece of leasehold land which was subsequently disposed off in the current year. ANNUAL REPORT 2017 | 155
Notes to the Financial Statements
17. INVESTMENT PROPERTIES (CONT’D)
Freehold land and Leasehold Group buildings buildings Total 2016 RM’000 RM’000 RM’000
Cost As of 1 January 20,229 1,222 21,451 Addition 128 - 128 Transfer from land held for property development 11,827 - 11,827 As of 31 December 32,184 1,222 33,406
Accumulated depreciation and impairment losses As of 1 January Accumulated depreciation 9,170 701 9,871 Accumulated impairment losses 211 - 211 9,381 701 10,082 Depreciation for the year 396 84 480 Transfer from land held for property development 7,215 - 7,215 As of 31 December Accumulated depreciation 9,566 785 10,351 Accumulated impairment losses 7,426 - 7,426 16,992 785 17,777 Net carrying amount 15,192 437 15,629 Fair value 31,170 9,880 41,050
156 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
17. INVESTMENT PROPERTIES (CONT’D)
Freehold Company Buildings 2017 RM’000
Cost As of 1 January/31 December 3,664
Accumulated depreciation As of 1 January 147 Depreciation for the year 73 As of 31 December 220 Net carrying amount 3,444 Fair value 5,770
2016 Cost As of 1 January/31 December 3,664
Accumulated depreciation As of 1 January 72 Depreciation for the year 75 As of 31 December 147 Net carrying amount 3,517 Fair value 5,500
The following were recognised in profit or loss in respect of investment properties :
Group 2017 2016 RM’000 RM’000
Rental income 2,627 2,638 Direct operating expenses 1,947 2,055
ANNUAL REPORT 2017 | 157
Notes to the Financial Statements
17. INVESTMENT PROPERTIES (CONT’D)
Valuation of investment properties
Group Company 2017 2016 2017 2016 RM’000 RM’000 RM’000 RM’000
Fair value measurement using significant observable inputs (Level 3)
Investment properties carried at cost 34,270 41,050 5,770 5,500
Fair value of the investment properties was arrived by relying on the work of independent firm of valuers, determined using open-market value based on active market prices involving identical or similar property, adjusted, if necessary, for any difference in the nature, location or condition of the specific asset.
Investment properties pledged as security
Freehold land and buildings of the Group and the Company with net carrying amount of RM4,388,000 and RM3,444,000 (2016 : RM7,905,000 and RM3,517,000) respectively, are pledged as security for borrowings as disclosed in Note 30.
Transfer to assets held for sale
In year 2017, the Group transferred part of its properties in Ipoh, Perak and Taman Melawati, Kuala Lumpur with a net carrying amount of RM755,000 that were held as investment properties to non-current assets held for sale in view of the Group’s decision to sell the properties.
Transfer to property, plant and equipment
During the financial year 2017, the Company transferred an office building with a net carrying amount of RM3,444,000 that was held as investment property to property, plant and equipment in view of the Group’s decision for subsidiaries’ use of business office.
18. INVESTMENTS IN SUBSIDIARIES
Company 2017 2016 RM’000 RM’000
Unquoted shares, at cost (a) 253,571 263,962 Less : Accumulated impairment losses (a) (43,789) (76,944) 209,782 187,018 Advances to subsidiaries (c) 282,190 264,257 Less : Accumulated impairment losses (240,808) (238,530) 41,382 25,727 Financial guarantees (d) 10,397 10,397 Less : Accumulated impairment losses (3,113) (3,113) 7,284 7,284 258,448 220,029
A list of the subsidiaries is shown in Note 42. 158 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
18. INVESTMENTS IN SUBSIDIARIES (CONT’D)
Movement in impairment accounts for unquoted shares :
Company 2017 2016 RM’000 RM’000
As of 1 January 76,944 53,987 Charge for the year (Note 9) - 22,957 Reversal of impairment in investment in subsidiaries (Note 9) (22,764) - Write-off of investment in subsidiaries (10,391) - As of 31 December 43,789 76,944
Movement in impairment account for advances to subsidiaries :
Company 2017 2016 RM’000 RM’000
As of 1 January 238,530 267,371 Charge for the year (Note 9) 5,149 - Reversal of impairment on advances to subsidiaries (Note 9) (2,871) (28,841) As of 31 December 240,808 238,530
(a) Transactions during the year
(i) Reversal of impairment in investment in subsidiaries
The Company had reversed its impairment in investments in KUB Gaz Sdn Bhd and KUB Malua Plantation Sdn Bhd (formerly known as KUB Oil & Gas Sdn Bhd) amounting to RM21.3 million and RM1.5 million respectively during the financial year. These reversals totalling RM22.8 million is included within other income in the statement of profit or loss and other comprehensive income. The reversals were made in view of the higher recoverable amount and future value of the subsidiaries.
(ii) Strike off of dormant subsidiaries
During the financial year, three dormant subsidiaries, namely KUB Prasarana Sdn Bhd, Creative Communications & Events Sdn Bhd and Academy of Knowledge for Accounting and Leadership Sdn Bhd have been struck off from the register pursuant to Section 550 of the Companies Act 2016 and are accordingly dissolved. ANNUAL REPORT 2017 | 159
Notes to the Financial Statements
18. INVESTMENTS IN SUBSIDIARIES (CONT’D)
(b) Transactions during the previous year
(i) Disposal of a subsidiary
The Company had on 6 June 2016 entered into a Share Sale Agreement with JEKS Precast Sdn Bhd for the disposal of 13,830,000 ordinary shares of RM1.00 each representing 100% of the issued and paid up capital of KUB Precast Sdn Bhd at a consideration of RM19.0 million. The net carrying amount of the investment in KUB Precast Sdn Bhd at the date of disposal was RM19.0 million.
Upon the completion of the disposal on 23 August 2016, KUB Precast ceased to be a subsidiary of the Company.
(ii) Subscription of new shares in the subsidiaries
During the previous financial year, the Company had increased its investments in subsidiaries amounting to RM22.9 million by capitalising the advances that were given earlier.
(c) Advances to subsidiaries
The terms of the advances to subsidiaries are as follows :
(i) The subsidiaries shall have the discretion to decide whether to pay any interest as well as the quantum of such interest;
(ii) The advances have no fixed tenure; and
(iii) The advances are repayable at the sole discretion of the subsidiaries.
Accordingly, the balances have been classified as part of investments in subsidiaries.
(d) Financial guarantees
This amount relates to fair value of corporate guarantee provided by the Company to banks for banking facilities granted to subsidiaries upon adoption of FRS 139 in prior year and which have been capitalised as part of the investment in these subsidiary companies.
160 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
18. INVESTMENTS IN SUBSIDIARIES (CONT’D)
(e) Material non-controlling interests
Details of non-wholly owned subsidiaries that have material non-controlling interests :
Profit allocated to Accumulated non-controlling interests non-controlling interests 2017 2016 2017 2016 RM’000 RM’000 RM’000 RM’000
Name of subsidiaries KUB Sepadu Sdn. Bhd. 1,954 1,766 21,954 20,024 KUB Maju Mill Sdn. Bhd. (3,318) (2,897) (6,268) (2,950)
Proportion of ownership held by non-controlling interests in KUB Sepadu Sdn Bhd : 40% (2016 : 40%) and KUB Maju Mill Sdn Bhd : 34% (2016 : 34%).
Summarised financial information in respect of the Group’s subsidiaries that have material non-controlling interests are set out below. The summarised financial information below represents amounts before intragroup eliminations.
Group
(i) Summarised statement of financial position
KUB Sepadu KUB Maju Mill 2017 RM’000 RM’000
Non-current assets 53,410 74,479 Current assets 18,502 7,893 Total Assets 71,912 82,372 Non-current liabilities 9,882 45,822 Current liabilities 5,371 49,916 Total Liabilities 15,253 95,738 Total Equity 56,659 (13,366)
ANNUAL REPORT 2017 | 161
Notes to the Financial Statements
18. INVESTMENTS IN SUBSIDIARIES (CONT’D)
(e) Material non-controlling interests (cont’d)
(i) Summarised statement of financial position (cont’d)
KUB Sepadu KUB Maju Mill 2016 RM’000 RM’000
Non-current assets 55,413 61,507 Current assets 9,243 6,701 Total Assets 64,656 68,208 Non-current liabilities 9,226 43,950 Current liabilities 3,596 27,866 Total Liabilities 12,822 71,816 Total Equity 51,834 (3,608)
(ii) Summarised statement of comprehensive income
KUB Sepadu KUB Maju Mill 2017 RM’000 RM’000
Revenue 28,951 28,871 Profit/(Loss) for the year 4,886 (9,758)
KUB Sepadu KUB Maju Mill 2016 RM’000 RM’000
Revenue 23,023 - Profit/(Loss) for the year 4,415 (8,522)
162 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
18. INVESTMENTS IN SUBSIDIARIES (CONT’D)
(e) Material non-controlling interests (cont’d)
(iii) Summarised statement of cash flows
KUB Sepadu KUB Maju Mill 2017 RM’000 RM’000
Net cash inflows/(outflows) from : - Operating activities 11,775 (4,149) - Investing activities (916) (14,678) - Financing activities (6,088) 16,557 Net cash inflows/(outflows) 4,771 (2,270)
KUB Sepadu KUB Maju Mill 2016 RM’000 RM’000
Net cash inflows/(outflows) from : - Operating activities 9,060 (9,672) - Investing activities (5,909) (8,003) - Financing activities (1,026) 23,024 Net cash inflows 2,125 5,349
19. INVESTMENT IN ASSOCIATES
Group Company 2017 2016 2017 2016 RM’000 RM’000 RM’000 RM’000
Unquoted shares, at cost 29,652 29,652 26,254 27,822 Share of post-acquisition reserves 32,995 25,070 - - 62,647 54,772 26,254 27,822 Less : Accumulated impairment losses (20,653) (20,653) (17,254) (18,822) 41,994 34,069 9,000 9,000
A list of the associates is shown in Note 43.
ANNUAL REPORT 2017 | 163
Notes to the Financial Statements
19. INVESTMENT IN ASSOCIATES (CONT’D)
Summarised financial information in respect of the Group’s material associate is set out below. The summarised financial information represents the amounts in the financial statements of the associate and not the Group’s share of those amounts.
KUB-Berjaya Enviro Sdn. Bhd.
(i) Summarised statement of financial position
2017 2016 RM’000 RM’000
Non-current assets 159,787 137,547 Current assets 53,523 46,383 Total Assets 213,310 183,930 Non-current liabilities 45,296 48,170 Current liabilities 63,029 50,586 Total Liabilities 108,325 98,756
(ii) Summarised statement of comprehensive income
2017 2016 RM’000 RM’000
Revenue 85,402 93,813 Profit for the year 19,813 18,938 Dividend received from the associate during the year - 1,800 164 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
19. INVESTMENT IN ASSOCIATES (CONT’D)
KUB-Berjaya Enviro Sdn. Bhd. (cont’d)
(iii) Reconciliation of the summarised financial information presented above to the carrying amount of the Group’s interest in associate.
2017 2016 RM’000 RM’000
Net assets as of 1 January 85,172 70,734 Profit for the year 19,813 18,938 Less : Dividend for the year - (4,500) Net assets as of 31 December 104,985 85,172 Interest in associate 40% 40% Carrying value of Group’s interest in associate 41,994 34,069
(iv) There is no financial information available for the associates that are not individually material as of 31 December 2017. These associates are dormant companies and the Group and Company have fully impaired the carrying amount for these associates in the financial statements.
20. OTHER INVESTMENTS
Group/Company 2017 2016 RM’000 RM’000
Available-for-sale financial investments At cost : Unquoted shares in Malaysia 3,240 3,240 Less : Accumulated impairment losses (3,100) (3,100) 140 140 At market value : Quoted shares in Malaysia 5,128 3,684 Total other investments 5,268 3,824
Available-for-sale financial investments are stated at fair value, except for unquoted shares which are continued to be carried at cost less impairment losses.
ANNUAL REPORT 2017 | 165
Notes to the Financial Statements
21. INTANGIBLE ASSETS
Group 2017 2016 RM’000 RM’000
Initial fees Cost As of 1 January 2017 4,126 3,883 Additions 2,084 243 As of 31 December 2017 6,210 4,126
Accumulated amortisation and impairment losses As of 1 January 2017 Accumulated amortisation 2,417 2,258 Accumulated impairment losses 807 807 3,224 3,065 Amortisation for the year recognised in other expenses 230 159 As of 31 December 2017 Accumulated amortisation 2,647 2,417 Accumulated impairment losses 807 807 3,454 3,224 Net carrying amount 2,756 902
Intangible assets represent the restaurants’ initial franchise fees payable to the franchisor for the right to open the restaurants for durations of 10 to 15 years from the grant date of the rights. 166 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
22. AMOUNT DUE FROM SUBSIDIARIES, TRADE RECEIVABLES AND OTHER RECEIVABLES
Group Company 2017 2016 2017 2016 RM’000 RM’000 RM’000 RM’000
Non-current Due from subsidiaries - - 24,170 15,725 Less : Allowance for impairment losses (a) - - (14,452) (14,697) - - 9,718 1,028 Current Trade Due from customers on contract (Note 23) 15,840 1,517 - - Trade receivables (b) 27,702 54,473 - - Less : Allowance for impairment losses (5,011) (14,180) - - 22,691 40,293 - - 38,531 41,810 - - Non-trade Other receivables 11,899 14,274 334 490 Less : Allowance for impairment losses (627) (1,974) - - 11,272 12,300 334 490 Government subsidy receivable 27,958 20,627 - - Deposits 38,177 8,053 258 257 Prepayments 2,746 2,045 830 190 80,153 43,025 1,422 937 118,684 84,835 1,422 937
Due from subsidiaries - - 5,591 -
ANNUAL REPORT 2017 | 167
Notes to the Financial Statements
22. AMOUNT DUE FROM SUBSIDIARIES, TRADE RECEIVABLES AND OTHER RECEIVABLES (CONT’D)
(a) Amount due from subsidiaries
The amount due from subsidiaries is unsecured and bears interest at the market Base Lending Rate (“BLR”) of 6.65% (2016 : 6.65%) per annum.
Movement in allowance for impairment accounts :
Company 2017 2016 RM’000 RM’000
As of 1 January 14,697 12,626 Charged for the year (Note 9) 5 2,071 Reversal for the year (Note 9) (250) - As of 31 December 14,452 14,697
(b) Trade receivables
Trade receivables are non-interest bearing and are generally on 30 to 120 days (2016 : 30 to 120 days) terms. They are recognised at their original invoice amounts which represent their fair values on initial recognition.
Ageing analysis of trade receivables
The ageing analysis of the Group’s trade receivables is as follows :
Group 2017 2016 RM’000 RM’000
Neither past due nor impaired 18,572 33,735 Past due but not impaired : 1 to 30 days 17 932 31 to 60 days 290 396 61 to 90 days 89 38 91 to 120 days 659 2,975 More than 121 days 3,064 2,217 Past due but not impaired 4,119 6,558 22,691 40,293 Impaired 5,011 14,180 27,702 54,473
168 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
22. AMOUNT DUE FROM SUBSIDIARIES, TRADE RECEIVABLES AND OTHER RECEIVABLES (CONT’D)
(b) Trade receivables (cont’d)
Receivables that are neither past due nor impaired
Trade and other receivables that are neither past due nor impaired are creditworthy debtors with good payment records with the Group.
Receivables that are past due but not impaired
Included in this balance is the amount due from Government of Malaysia and Government Linked Companies amounting to RM3,233,000 (2016 : RM5,244,000) which are recoverable based on the creditworthiness of these debtors.
Receivables that are impaired
The Group’s trade receivables that are impaired at the reporting date and the movement of the allowance accounts used to record the impairment are as follows :
Individually impaired 2017 2016 Group RM’000 RM’000
Trade receivables – nominal amounts 5,011 14,180 Less : Allowance for impairment losses (5,011) (14,180) - -
Movement in allowance for impairment accounts :
Group 2017 2016 RM’000 RM’000
As of 1 January 14,180 21,660 Charged for the year (Note 9) 701 376 Written off during the year (9,393) (29) Written back during the year (Note 9) (477) (2,201) Disposal of subsidiaries - (5,626) As of 31 December 5,011 14,180
Trade receivables that are individually determined to be impaired at the reporting date relate to debtors that are in significant financial difficulties and have defaulted on payments. These receivables are not secured by any collateral or credit enhancements.
ANNUAL REPORT 2017 | 169
Notes to the Financial Statements
22. AMOUNT DUE FROM SUBSIDIARIES, TRADE RECEIVABLES AND OTHER RECEIVABLES (CONT’D)
(c) Other receivables
The Group has no significant concentration of credit risk that may arise from exposures to a single debtor or group of debtors.
Movement in allowance for impairment accounts :
Group 2017 2016 RM’000 RM’000
As of 1 January 1,974 1,974 Charged during the year (Note 9) 305 - Written off during the year (1,652) - As of 31 December 627 1,974
23. DUE FROM CUSTOMERS ON CONTRACT
Group 2017 2016 RM’000 RM’000
Construction costs incurred to date 249,655 279,667 Attributable profits to date 32,418 33,913 282,073 313,580 Provision for foreseeable losses (10,741) (11,287) Progress billings to date (255,492) (300,776) Due from customers on contract 15,840 1,517
Analysed as : Due from customers on contract 17,273 2,513 Due to customers on contract (1,433) (996) Retention sum on contracts included within trade receivables 5,638 2,900
Construction contracts revenue and costs are disclosed in Notes 5 and 6 respectively.
170 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
23. DUE FROM CUSTOMERS ON CONTRACT (CONT’D)
Movement in provision for foreseeable losses account :
Group 2017 2016 RM’000 RM’000
As of 1 January 11,287 11,315 Net reversal for the year (Note 9) (546) (28) As of 31 December 10,741 11,287
24. DEFERRED TAX ASSETS AND LIABILITIES
Group 2017 2016 RM’000 RM’000
As of 1 January 9,122 9,180 Recognised in profit or loss (Note 12) 897 (280) Disposal of subsidiaries - 222 As of 31 December 10,019 9,122
Presented after appropriate offsetting as follows : Deferred tax assets (2,094) (3,224) Deferred tax liabilities 12,113 12,346 10,019 9,122
ANNUAL REPORT 2017 | 171
Notes to the Financial Statements
24. DEFERRED TAX ASSETS AND LIABILITIES (CONT’D)
The components and movements of deferred tax liabilities and assets during the financial year prior to offsetting are as follows :
Deferred tax liabilities of the Group :
Property, plant and equipment RM’000
As of 1 January 2016 12,382 Recognised in profit or loss 201 Disposal of subsidiaries (237) As of 31 December 2016/1 January 2017 12,346 Recognised in profit or loss (233) As of 31 December 2017 12,113
Deferred tax assets of the Group :
Unutilised tax losses and unabsorbed capital allowances Provisions Others Total RM’000 RM’000 RM’000 RM’000
As of 1 January 2016 (3,063) (2,076) 1,937 (3,202) Recognised in profit or loss (299) (47) (135) (481) Disposal of subsidiaries 459 - - 459 As of 31 December 2016/1 January 2017 (2,903) (2,123) 1,802 (3,224) Recognised in profit or loss 1,223 14 (107) 1,130 As of 31 December 2017 (1,680) (2,109) 1,695 (2,094)
172 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
24. DEFERRED TAX ASSETS AND LIABILITIES (CONT’D)
Deferred tax assets have not been recognised in respect of the following items due to the uncertainty of their recoverability :
Group Company 2017 2016 2017 2016 RM’000 RM’000 RM’000 RM’000
Unutilised tax losses 88,801 88,660 27,471 27,471 Unabsorbed capital allowances 37,448 39,315 3,667 3,667 Other deductible temporary differences 1,694 4,994 - - 127,943 132,969 31,138 31,138 Effect of clawed back on unutilised tax losses and unabsorbed capital allowances by tax authority (27,926) - (27,926) - 100,017 132,969 3,212 31,138
The unutilised tax losses, unabsorbed capital allowances and other deductible temporary differences of the Group and of the Company are available for offsetting against future taxable profits of the respective entities within the Group, subject to no substantial change in shareholdings of those entities under the Income Tax Act, 1967 and guidelines issued by the tax authority.
25. INVENTORIES
Group 2017 2016 RM’000 RM’000
Raw materials 7,448 7,931 Finished goods 3,489 - Parts and components 644 792 Consumables 173 146 11,754 8,869
ANNUAL REPORT 2017 | 173
Notes to the Financial Statements
26. CASH AND BANK BALANCES
Group Company 2017 2016 2017 2016 RM’000 RM’000 RM’000 RM’000
Cash on hand and at banks 87,151 46,812 205 439 Deposits with licensed banks 31,937 87,053 5,906 14,838 119,088 133,865 6,111 15,277
Included in cash at banks of the Group is an amount of RM6,518 (2016 : RM6,412) held pursuant to Section 7A of the Housing Development (Control and Licensing) Act, 1966 which is restricted from use in other operations.
Included in cash at banks of the Group is an amount of RM2,262,000 (2016 : RM2,271,000) held by a subsidiary’s branch operates in a jurisdiction where there are legal restrictions of foreign exchange controls that restrict the Group’s access to, and use of, the subsidiary’s cash balances.
Included in deposits with licensed banks of the Group is an amount of RM23,314,000 (2016 : RM23,444,000) which has been pledged as security for borrowings of the Group as disclosed in Note 30.
For the purpose of the statements of cash flows, cash and cash equivalents comprise the following as of the reporting date :
Group Company 2017 2016 2017 2016 RM’000 RM’000 RM’000 RM’000
Cash on hand and at banks 119,088 133,865 6,111 15,277 Less : Deposits pledged with licensed banks (23,314) (23,444) - - Bank overdrafts (Note 30) (901) (425) - - 94,873 109,996 6,111 15,277
The weighted average effective interest rates (“WAEIR”) as of the reporting date and the remaining maturities of the Group and the Company’s deposits with licensed banks are as follows :
Group Company 2017 2016 2017 2016
WAEIR (%) 2.9 3.3 3.3 3.2 Average remaining maturities (days) 98 91 17 9 174 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
26. CASH AND BANK BALANCES (CONT’D)
The currency profile of cash and bank balances is as follows :
Group Company 2017 2016 2017 2016
Malaysia Ringgit 116,826 131,594 6,111 15,277 Bangladeshi (Taka) 2,262 2,271 - - 119,088 133,865 6,111 15,277
27. SHARE CAPITAL
Number of ordinary shares Amount 2017 2016 2017 2016 ’000 ’000 RM’000 RM’000
Authorised : As of 1 January/31 December - 2,500,000 - 1,000,000
Issued and fully paid : As of 1 January 556,465 556,465 222,586 222,586 Transfer pursuant to S618(2) of CA 2016 - - 6,277 - As of 31 December 556,465 556,465 228,863 222,586
Par value (RM) per share - 0.40
Pursuant to the Companies Act 2016 (“Act”) which came into effect on 31 January 2017, the concept of authorised capital has been abolished and all shares issued before or upon the commencement of the Act shall have no par or nominal value. Consequently, the amount standing to the credit of the Company’s share premium and capital redemption reserve accounts becomes part of the Company’s share capital.
There is no impact on the number of ordinary shares in issue or the relative entitlement of any of the members as a result thereof. The Company may exercise its right to use the credit amounts transferred from the share premium and capital redemption reserve accounts within 24 months after the commencement of the Act in a manner as specified by the Act.
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All ordinary shares rank equally with regard to the Company’s residual assets. ANNUAL REPORT 2017 | 175
Notes to the Financial Statements
28. RESERVES
Group Company 2017 2016 2017 2016 Note RM’000 RM’000 RM’000 RM’000
Share Premium (a) - 5,965 - 5,965 Other reserves Capital reserve (b) 34,016 34,016 - - Capital redemption reserve (c) - 312 - 312 Fair value adjustment reserve (d) 3,111 1,667 3,111 1,667 Merger reserve (e) 11,147 11,147 - - Discount paid on acquisition of non-controlling interest (f) 971 971 - - Total 49,245 54,078 3,111 7,944
(a) Share Premium
Group/Company 2017 2016 RM’000 RM’000
As of 1 January 5,965 5,965 Transfer pursuant to S618(2) of CA 2016 (5,965) - As of 31 December - 5,965
(b) Capital reserve arose from the capitalisation of bonus shares issued by certain subsidiaries in prior years.
(c) The capital redemption reserve arose from the redemption of the Redeemable Convertible Preference Shares by the Company in prior years.
Group/Company 2017 2016 RM’000 RM’000
As of 1 January 312 312 Transfer pursuant to S618(2) of CA 2016 (312) - As of 31 December - 312
Effective 31 January 2017, the capital redemption reserve account was transferred to share capital pursuant to Section 618(2) of Companies Act 2016. 176 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
28. RESERVES (Cont’d)
(d) Fair value adjustment reserve represents the cumulative fair value changes, net of tax, of available-for-sale financial assets until they are disposed off or impaired.
Group/Company 2017 2016 RM’000 RM’000
As of 1 January 1,667 2,309 Gain/(Loss) on fair value 1,444 (642) As of 31 December 3,111 1,667
(e) Merger reserve amounting to approximately RM11,147,000 arose from the acquisition of KUB Ekuiti Sdn. Bhd. in 1997.
(f) Discount on acquisition of non-controlling interest amounting to RM971,000 arose from the acquisition of remaining equity interest of KFT International (Malaysia) Sdn Bhd in 2011 of RM1,229,000 less premium paid on acquisition of Empirical Systems (M) Sdn Bhd of RM258,000 in 2014.
29. RETAINED EARNINGS AND DIVIDENDS
The Company may distribute dividends out of its entire retained earnings as of 31 December 2017 under the single tier system.
The dividends paid and declared during the financial year to the date of signing of this report is as follows :
Company Net Dividend Per Share 2017 2016 2017 2016 RM’000 RM’000 Sen Sen
First and final single tier dividend paid in respect of financial year ended 31 December 2015 - 2,782 - 0.5 First and final single tier dividend paid in respect of financial year ended 31 December 2016 5,565 - 1.0 - 5,565 2,782 1.0 0.5 ANNUAL REPORT 2017 | 177
Notes to the Financial Statements
29. RETAINED EARNINGS AND DIVIDENDS (CONT’D)
The Directors have recommended a first and final single tier dividend of 1.0 sen on 556,464,690 ordinary shares amounting to RM5,564,647 in respect of the financial year ended 31 December 2017.
The proposed first and final dividend is subject to the approval by the shareholders at the forthcoming Annual General Meeting of the Company and has not been included as liability in the financial statements.
On 27 February 2018, the Board of Directors approved and declared an interim dividend of 1.0 sen on 556,464,690 ordinary shares amounting to RM5,564,647 for the financial year ending 31 December 2018.
The first and final dividend for the financial year 2017 and the interim dividend will be accounted for in equity as an appropriation of retained earnings in the financial year ending 31 December 2018.
30. BORROWINGS
Group Company 2017 2016 2017 2016 RM’000 RM’000 RM’000 RM’000
Long-term borrowings Secured Term loans (a) 49,904 50,695 - 1,000 Hire purchase payables (b) 645 441 204 286 50,549 51,136 204 1,286
Short-term borrowings Secured Term loans (a) 5,178 7,763 1,000 1,650 Revolving credit - 2,000 - - Trust receipts/Letter of credit - 1,500 - - Hire purchase payables (b) 190 263 82 197 Bank overdrafts 901 425 - - 6,269 11,951 1,082 1,847
Total borrowings Term loans (a) 55,082 58,458 1,000 2,650 Revolving credit - 2,000 - - Trust receipts/Letter of credit - 1,500 - - Hire purchase payables (b) 835 704 286 483 Bank overdrafts (Note 26) 901 425 - - 56,818 63,087 1,286 3,133
178 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
30. BORROWINGS (CONT’D)
The range of weighted average effective of interest rates (“WAEIR”) (% per annum) of the borrowings at the reporting date are as follows :
Group Company 2017 2016 2017 2016 WAEIR WAEIR WAEIR WAEIR % % % %
Term loans 4.85 – 7.50 4.85 – 7.50 7.00 7.00 Trust receipts/Letter of credit - 5.24 – 8.10 - - Hire purchase 2.80 – 3.26 2.32 2.80 2.32 Revolving credit - 7.25 - - Bank overdrafts 8.60 8.60 - -
The secured term loans, hire purchases, bank overdrafts and trust receipts of the Group and of the Company are secured by way of fixed and floating charges over certain assets of the Group and of the Company as disclosed in Notes 15, 17 and 26.
(a) Term Loans
Group Company 2017 2016 2017 2016 RM’000 RM’000 RM’000 RM’000
The maturity profile of the Group’s term loans are as follows : Less than 1 year 5,178 7,763 1,000 1,650 Between 1 year and 5 years 22,964 44,733 - 1,000 More than 5 years 26,940 5,962 - - 55,082 58,458 1,000 2,650
ANNUAL REPORT 2017 | 179
Notes to the Financial Statements
30. BORROWINGS (CONT’D)
(b) Hire purchase payables
Group Company 2017 2016 2017 2016 RM’000 RM’000 RM’000 RM’000
Future minimum hire purchase payables Less than 1 year 196 281 84 215 Between 1 year and 5 years 649 466 217 311 More than 5 years 51 - - - Total future minimum lease payments 896 747 301 526 Less : Future finance charges (61) (43) (15) (43) 835 704 286 483
Analysis of present value of hire purchase payables Less than 1 year 190 263 82 197 Between 1 year and 5 years 600 441 204 286 More than 5 years 45 - - - 835 704 286 483 Less : Due within 12 months (190) (263) (82) (197) Due after 12 months 645 441 204 286 180 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
30. BORROWINGS (CONT’D)
The table below details changes in the Group’s liabilities arising from financing activities are those for which cash flows were, or future cash flow will be, classified in the Group’s consolidated statement of cash flows as cash flow from financing activities.
Group Company 2017 2016 2017 2016 RM’000 RM’000 RM’000 RM’000
As at 1 January : Term loans 58,458 50,663 2,650 4,300 Hire purchase payables 704 1,176 483 323 Short term borrowings 3,500 1,007 - - 62,662 52,846 3,133 4,623
Drawdown during the year : Term loans - 9,797 - - Short term borrowings - 2,493 - - - 12,290 - -
Repayment during the year : Term loans (3,376) (2,002) (1,650) (1,650) Hire purchase payables (466) (892) (197) (260) Short term borrowings (3,500) - - - (7,342) (2,894) (1,847) (1,910)
Non-cash changes - New hire purchase 597 420 - 420
As at 31 December : Term loans 55,082 58,458 1,000 2,650 Hire purchase payables 835 704 286 483 Short term borrowings - 3,500 - - Total 55,917 62,662 1,286 3,133
31. DEFERRED INCOME
Deferred income relates to a grant received from Unit Peneraju Agenda Bumiputera (Teraju) from Dana Mudahcara for the construction of the mill. The deferred income is recognised as income over 25 years from the commencement of the mill’s operations.
ANNUAL REPORT 2017 | 181
Notes to the Financial Statements
32. AMOUNT DUE TO SUBSIDIARIES, TRADE AND OTHER PAYABLES
Group Company 2017 2016 2017 2016 RM’000 RM’000 RM’000 RM’000
Non-current Amount due to subsidiaries (a) - - 38,055 6,395
Current Trade payables : Trade payables (b) 64,205 44,252 - -
Non-trade payables : Other payables 38,315 29,759 9,125 9,809 Refundable deposits 38,907 37,837 - - Provisions (c) 257 1,548 - - 77,479 69,144 9,975 9,809 141,684 113,396 48,030 16,204
Amount due to subsidiaries - - 850 -
(a) Amount due to subsidiaries
The amount due to subsidiaries is unsecured, bears interest at the market Base Lending Rate (“BLR”) of 6.65% (2016: 6.65%) per annum.
(b) Trade payables
These amounts are non-interest bearing and normally settled between 60 to 90 days (2016 : 60 to 90 days) terms. 182 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
32. AMOUNT DUE TO SUBSIDIARIES, TRADE AND OTHER PAYABLES (CONT’D)
(c) Provisions
Movement of provision liquidated ascertained damages during the year is as follows :
Provision for liquidated ascertained damages Total Group RM’000 RM’000
As of 1 January 2016 1,789 1,789 Additional provision (Note 9) 1,479 1,479 Reversal of provision (Note 9) (1,720) (1,720) As of 31 December 2016/1 January 2017 1,548 1,548 Reversal of provision (Note 9) (1,291) (1,291) As of 31 December 2017 257 257
Provision for liquidated ascertained damages
The provision for liquidated ascertained damages is made based on the approved contract terms and is computed on the agreed penalty charges per delay multiplied by the number of days delayed.
33. DERIVATIVES
2017 2016 Contract/ Fair value Contract/ Fair value notional of derivative notional of derivative amount liabilities amount liabilities Group RM’000 RM’000 RM’000 RM’000
Current Forward currency contracts 34,783 23 12,368 7
The Group uses forward currency contracts to manage some of the transaction exposure. These contracts are not designated as cash flow or fair value hedges and are entered into for periods consistent with currency transaction exposure and fair value changes exposure. Such derivatives do not qualify for hedge accounting.
Forward currency contracts are used to hedge the Group’s purchases denominated in United States Dollar (USD) for which firm commitments existed at the reporting date.
During the financial year, the Group recognised a loss of RM22,752 (2016 : RM6,536) arising from fair value changes of derivatives as of reporting date. The fair value changes are attributable to changes in foreign exchange spot and forward rate. Forward currency contracts are valued using valuation obtained from counterparties.
ANNUAL REPORT 2017 | 183
Notes to the Financial Statements
34. COMMITMENTS
(a) Capital commitments
The commitments in respect of capital expenditure as of the reporting date are as follows :
Group Company 2017 2016 2017 2016 RM’000 RM’000 RM’000 RM’000
Approved and contracted for : Property, plant and equipment 77,144 11,718 969 112 Approved but not contracted for : Property, plant and equipment 52,838 37,369 854 363 129,982 49,087 1,823 475
(b) Operating lease commitments – as lessor
The Group has entered into commercial property leases on its properties. These leases have an average tenure of between one and three years.
Minimum lease income recognised in profit or loss of the Group for the financial year ended 31 December 2017 amounting to RM3,222,000 (2016: RM3,660,000).
Future minimum lease receivable under non-cancellable operating leases at the reporting date are as follows :
Group Company 2017 2016 2017 2016 RM’000 RM’000 RM’000 RM’000
Less than 1 year 1,231 2,925 - - Between 1 year and 5 years 1,826 672 - - More than 5 years - 162 - - 3,057 3,759 - -
(c) Operating lease commitments – as lessee
The Group has entered into commercial property leases on premises used for the operations of the subsidiaries. These non-cancellable leases have remaining lease terms of between one and five years.
Future minimum rentals payable under non-cancellable operating leases at the reporting date are as follows :
Group Company 2017 2016 2017 2016 RM’000 RM’000 RM’000 RM’000
Less than 1 year 5,931 4,411 - - Between 1 year and 5 years 10,820 11,743 - - More than 5 years 479 1,199 - - 17,230 17,353 - -
184 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
35. RELATED PARTY DISCLOSURES
(a) The Company had the following transactions with related parties during the financial year :
Company 2017 2016 RM’000 RM’000
Management fees from subsidiaries 6,676 - Rental income from subsidiaries 739 567 IT services rendered by a subsidiary (199) (235) Interest income from subsidiaries 325 1,413 Interest expense charged by subsidiaries (536) (357)
A related party of the Company refers to :
(i) a person or a close member of that person’s family who :
(a) has control or joint control over the Company; (b) has significant influence over the Company; or (c) is a member of the key management personnel of the Company having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any Director (whether executive or otherwise) of that entity.
(ii) a subsidiary, associate or joint venture of the Company and its subsidiaries;
(iii) an entity of which the Company or its subsidiaries are an associate or joint venture to;
(iv) an entity, together with the Company are joint ventures of the same third party;
(v) an entity controlled or jointly controlled by a person identified in (i); and
(vi) an entity of which a person identified in (i)(a) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).
(b) The Directors are of the opinion that all the transactions above have been entered into in the normal course of business under commercial terms mutually agreed between the parties involved.
Information regarding outstanding balances arising from related party transactions as of 31 December 2017 and 31 December 2016 are disclosed in Notes 18, 22 and 32. ANNUAL REPORT 2017 | 185
Notes to the Financial Statements
35. RELATED PARTY DISCLOSURES (CONT’D)
(c) Remuneration of key management personnel other than Directors :
Group Company 2017 2016 2017 2016 RM’000 RM’000 RM’000 RM’000
Other key management personnel Short-term employee benefits : - salaries, allowances and bonuses 5,028 3,905 3,716 1,992 Post-employment benefits : - defined contribution plan 555 419 446 234 - social security contributions 12 8 8 4 5,595 4,332 4,170 2,230
Key management personnel comprises persons of the Group entities having authority and responsibility for planning, directing and controlling the activities of the entity either directly or indirectly.
Details of the Company’s Directors remuneration for the Group and of the Company are disclosed in Note 11. Other key management personnel includes persons other than the Directors within the Group.
(d) Transactions between the Group and the Company with a company/firm in which certain Director is a common Director or a partner :
Transactions amount Transactions amount for year ended for year ended 31 December 2017 31 December 2016 Group RM’000 RM’000
Putrade Property Management Sdn Bhd.* Rental of venue and provision of food and beverages - 129 Zul Rafique & Partners** Provision of legal services 160 237
Company Putrade Property Management Sdn Bhd.* Rental of venue and provision of food and beverages - 106 Zul Rafique & Partners** Provision of legal services 71 65
* a company in which Datuk Wira Mohd Hafarizam Harun is a common Director. He has since retired from the Board of Directors on 23 May 2017. ** a firm in which Tunku Alizan Raja Muhammad Alias is a partner.
These amounts were fully paid as at 31 December 2017 and 31 December 2016.
186 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
36. DISPOSAL OF SUBSIDIARIES
During the previous financial year, the Company had completed its disposal on the entire equity interest in KUB Precast Sdn Bhd on 23 August 2016 as disclosed in Note 18(b)(i).
36.1 Consideration received
Group 2016 RM’000
Consideration received in cash and cash equivalents 19,000
36.2 Analysis of assets and liabilities over which control was lost
Group 2016 RM’000
Non-current assets Property, plant and equipment 23,474 Deferred tax assets 286 Total non-current assets 23,760
Current assets Inventories 4,427 Trade and other receivables 6,113 Cash and bank balances 283 Total current assets 10,823 Total assets 34,583
ANNUAL REPORT 2017 | 187
Notes to the Financial Statements
36. DISPOSAL OF SUBSIDIARIES (CONT’D)
36.2 Analysis of assets and liabilities over which control was lost (cont’d)
Group 2016 RM’000
Non-current liabilities Borrowings 209 Current liabilities Borrowings 3,016 Trade and other payables 7,586 Total current liabilities 10,602 Total liabilities 10,811
Net assets disposed off 23,772
36.3 Loss on disposal of subsidiaries
Group 2016 RM’000
Consideration received 19,000 Net assets disposed off (23,722) Loss on disposal (4,722)
36.4 Net cash inflow on disposal of subsidiaries
Group 2016 RM’000
Consideration received in cash and cash equivalents 19,000 Less : Cash and cash equivalent balances disposed off (283) 18,717
188 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
37. FAIR VALUE OF FINANCIAL INSTRUMENTS
(a) Fair value of financial instruments that are carried at fair value
The following table shows an analysis of financial instruments carried at fair value by level of fair value hierarchy :
Level 1 Level 2 Level 3 Total Note RM’000 RM’000 RM’000 RM’000
Group As of 31 December 2017 Financial asset : Available-for-sale investments - Quoted investments 20 5,128 - - 5,128
Financial liability : Derivatives – Forward currency contracts 33 - 23 - 23
Level 1 Level 2 Level 3 Total Note RM’000 RM’000 RM’000 RM’000
Group As of 31 December 2016 Financial asset : Available-for-sale investments - Quoted investments 20 3,684 - - 3,684
Financial liability : Derivatives – Forward currency contracts 33 - 7 - 7
ANNUAL REPORT 2017 | 189
Notes to the Financial Statements
37. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONT’D)
(a) Fair value of financial instruments that are carried at fair value (cont’d)
Fair value hierarchy
The Group classifies fair value measurement using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels :
• Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities; • Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and • Level 3 – Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
There have been no transfers between the fair value hierarchy during the financial years ended 2017 and 2016.
(b) Fair value of financial instruments by classes that are not carried at fair value and whose carrying amounts are not reasonable approximation of fair value :
2017 2016 Carrying Carrying amount Fair value amount Fair value Note RM’000 RM’000 RM’000 RM’000
Group Financial liabilities : Borrowings - Hire purchase payables 30 835 814 704 690
Company Financial liabilities : Borrowings - Hire purchase payables 30 286 280 483 464
The fair value of the financial liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The fair values of the interest- bearing hire purchase of the Group and the Company are determined using Discounted Cash Flow method at a discount rate ranging from 2.49% to 3.71% (2016 : 2.35% to 2.84%). These rates reflect the issuer’s hire purchase rate as of the end of the reporting period. 190 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
37. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONT’D)
(c) Determination of fair value
Financial instruments that are not carried at fair value and whose carrying amounts are reasonable approximation of fair value
The following are classes of financial instruments that are not carried at fair value and whose carrying amounts are reasonable approximation of fair value :
Note
Trade and other receivables (current) 22 Due from subsidiaries (current) 22(a) Due from subsidiaries (non-current) 22(a) Trade and other payables (current) 32 Due to subsidiaries (current) 32(a) Due to subsidiaries (non-current) 32(a)
The carrying amounts of current financial assets and liabilities are reasonable approximation of fair values due to their short-term nature.
The carrying amount of amount due from/(to) subsidiaries which is non-current are reasonable approximation of fair values due to floating rate instruments that are re-priced to market interest rates on or near the reporting date.
The carrying amounts of the current portion of borrowings are reasonable approximations of fair values due to the insignificant impact of discounting.
Derivatives
Forward currency contracts are valued using valuation obtained from counterparties.
Quoted equity instruments
Fair value is determined directly by reference to their published market bid price at the reporting date.
ANNUAL REPORT 2017 | 191
Notes to the Financial Statements
38. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
Categories of financial instruments :
Group Company 2017 2016 2017 2016 Note RM’000 RM’000 RM’000 RM’000
Financial assets Loan and receivables : Trade and other receivables 22 115,938 82,790 592 747 Due from subsidiaries 22 - - 15,309 1,028 Cash and bank balances 26 119,088 133,865 6,111 15,277
Financial liabilities At amortised costs : Trade and other payables 32 141,427 111,848 9,125 9,809 Borrowings 30 56,818 63,087 1,286 3,133 Due to subsidiaries 32 - - 38,905 6,395
At FVTPL : Derivative financial liabilities 33 23 7 - -
The Group and the Company are exposed to financial risks arising from their operations and the use of financial instruments. The key financial risks include credit risk, liquidity risk, interest rate risk and foreign currency risk.
The Board of Directors reviews and agrees on policies and procedures for the management of these risks. The Board Risk Management Committee provides independent oversight to the effectiveness of the risk management process. It is, and has been throughout the current and previous financial year, the Group’s policy that no derivatives shall be undertaken except for the use as hedging instruments where appropriate and cost-efficient. The Group and the Company do not apply hedge accounting.
The following sections provide details regarding the Group’s and Company’s exposure to the above-mentioned financial risks and the objectives, policies and processes for the management of these risks.
(a) Credit risk
Credit risk is the risk of loss that may arise on outstanding financial instruments should a counterparty default on its obligations. The Group’s and the Company’s exposure to credit risk arises primarily from trade and other receivables. For other financial assets (including cash and bank balances and derivatives), the Group and the Company minimise credit risk by dealing exclusively with high credit rating counterparties. Trade receivables are monitored on an ongoing basis via Group management reporting procedures.
The Group’s objective is to seek continual revenue growth while minimising losses incurred due to increased credit risk exposure. The Group trades only with recognised and creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis to minimise exposure to bad debts. 192 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
38. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D)
(a) Credit risk (cont’d)
Exposure to credit risk
At the end of the reporting period, the maximum exposure to credit risk is represented by the carrying amount of loans and receivables amounting to RM21,754,000 (2016 : RM16,795,000).
The Group does not have any major concentration of credit risk related to any financial instruments except for the concentration of credit risk arising from exposures to the Government of Malaysia and Government Linked Corporations amounting to RM27,978,000 and RM24,234,000 (2016 : RM35,487,000 and RM3,616,000) representing 23% and 20% (2016 : 42% and 4%) of the Group’s total net trade and other receivables, respectively.
(b) Liquidity risk
Liquidity risk is the risk that the Group or the Company will encounter difficulty in meeting financial obligations due to shortage of funds. The Group’s and the Company’s exposure to liquidity risk arises primarily from mismatches of the maturities of financial assets and liabilities. The Group’s and the Company’s objective is to maintain a balance between continuity of funding and flexibility through the use of stand-by credit facilities.
The Group actively manages its debt maturity profile, operating cash flows and the availability of funding so as to ensure that all refinancing, repayment and funding needs are met. As part of its overall prudent liquidity management, the Group maintains sufficient levels of cash or cash convertible investments to meet its working capital requirements. In addition, the Group strives to maintain available banking facilities of a reasonable level to its overall debt position. As far as possible, the Group raises committed funding from financial institutions and prudently balances its portfolio with some short-term funding so as to achieve overall cost effectiveness.
The table below summarises the maturity profile of the Group’s and the Company’s liabilities at the reporting date based on contractual undiscounted repayment obligations.
Group On demand or within One to Over one year five years five years Total RM’000 RM’000 RM’000 RM’000
As of 31 December 2017 Financial liabilities : Trade and other payables 141,427 - - 141,427 Borrowings 5,879 23,632 30,105 59,616 Total undiscounted financial liabilities 147,306 23,632 30,105 201,043
As of 31 December 2016 Financial liabilities : Trade and other payables 111,848 - - 111,848 Borrowings 15,229 53,311 6,844 75,384 Total undiscounted financial liabilities 127,077 53,311 6,844 187,232 ANNUAL REPORT 2017 | 193
Notes to the Financial Statements
38. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D)
(b) Liquidity risk (cont’d)
Company On demand or within One to Over one year five years five years Total RM’000 RM’000 RM’000 RM’000
As of 31 December 2017 Financial liabilities : Trade and other payables 9,125 - - 9,125 Due to subsidiaries 881 40,857 - 41,738 Borrowings 1,164 216 - 1,380 Total undiscounted financial liabilities 11,170 41,073 - 52,243
As of 31 December 2016 Financial liabilities : Trade and other payables 9,809 - - 9,809 Due to subsidiaries - 6,847 - 6,847 Borrowings 2,444 1,708 - 4,152 Total undiscounted financial liabilities 12,253 8,555 - 20,808
* At the reporting date, the counterparty to the financial guarantees does not have a right to demand cash as the default has not occurred. Accordingly, financial guarantees under the scope of FRS 139 are not included in the above maturity profile analysis.
(c) Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of the Group’s and the Company’s financial instruments will fluctuate because of changes in market interest rates.
As the Group has no significant interest-bearing financial assets, the Group’s income and operating cash flows are substantially independent of changes in market interest rates. The Group’s interest-bearing financial assets are mainly short-term in nature and have been mostly placed in fixed deposits.
The Group’s and the Company’s interest rate risk arises primarily from interest-bearing borrowings. Borrowings at floating rates expose the Group and the Company to cash flow interest rate risk. The Group manages its interest rate exposure by maintaining a mix of fixed and floating rate borrowings.
The information on the weighted average effective interest rates (“WAEIR”) as of the reporting date and the remaining maturities of the Group’s and the Company’s financial instruments that are exposed to interest rate risk is disclosed in Notes 26 and 30. 194 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
38. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D)
(c) Interest rate risk (cont’d)
Sensitivity analysis for interest rate risk
At the reporting date, if interest rates had been 25 basis points lower/higher, with all other variables held constant, the Group’s profit net of tax would have been RM91,000 (2016 : RM267,000) higher/lower, arising mainly as a result of lower/higher interest expense on floating rate loans and borrowings. The assumed movement in basis points for interest rate sensitivity analysis is based on the currently observable market environment.
(d) Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.
The Group and the Company are exposed to transactional currency risk primarily through sales and purchases that are denominated in a currency other than the functional currency of the operations to which they relate. The currency giving rise to this risk is primarily United States Dollar. Foreign exchange exposures in transactional currencies other than functional currencies of the operating entities are kept at an acceptable level.
The Group has entered into forward currency contracts for certain transactions to manage the exposures in foreign currencies as disclosed in Note 33. The Board is of the opinion that the unhedged foreign currencies exposures are minimal and can be efficiently managed.
The amounts of trade payables denominated in foreign currencies as of the reporting date is as follows :
Group 2017 2016 RM’000 RM’000
Trade payables hedged using forward currency contracts 34,783 12,368 Unhedged trade payables - 3 34,783 12,371
39. CAPITAL MANAGEMENT
The primary objective of the Group’s capital management is to ensure that it maintains healthy capital ratios in order to support its business and maximise shareholder value.
The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may issue new shares, return capital to shareholders, adjust the dividend payment to shareholders or obtain funding through external borrowings. No changes were made in the objectives, policies or processes during the years ended 31 December 2017 and 31 December 2016. ANNUAL REPORT 2017 | 195
Notes to the Financial Statements
39. CAPITAL MANAGEMENT (CONT’D)
The Group monitors its capital using a gearing ratio, which is total borrowings divided by total shareholders’ fund. The Group’s gearing ratio as at 31 December 2017 are as follows :
Group Company 2017 2016 2017 2016 Note RM’000 RM’000 RM’000 RM’000
Borrowings – long-term 30 50,549 51,136 204 1,286 Borrowings – short-term 30 6,269 11,951 1,082 1,847 Total borrowings 56,818 63,087 1,286 3,133 Total shareholders’ fund 324,401 296,357 274,638 260,477 Gearing ratio 18% 21% 0.5% 1%
40. SEGMENT INFORMATION
The Group has seven reportable segments, as described below, which are the Group’s strategic business units. The strategic business units offer different products and services, and are managed separately for the purpose of making decisions with regards to resource allocations and performance assessment. For each of strategic business units the chief executive officer reviews internal management reports on a regular basis.
The seven reportable operating segments are as follows :
(i) Information, communications and technology (“ICT”) - ICT services and their related infrastructures
(ii) Energy - Importation, bottling and trading of liquefied petroleum gas (“LPG”)
(iii) Agricultural businesses (“Agro”) - Oil palm plantation and estate management
(iv) Food related (“Food”) - Quick service restaurants
(v) Properties - Management of commercial properties
(vi) Power - Engineering and civil works in the power sectors
(vii) Others - Investment holding and provision of management services
Segment performance is evaluated based on operating profit or loss which, in certain respects as explained in the table below, is measured differently from operating profit or loss in the consolidated financial statements. 196 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements - (639) Total 2,964 7,925 (1,909) (8,771) 31,272 40,252 30,842 RM’000 599,277 599,277 A Note ------and (16,885) (16,885) RM’000 eliminations Adjustments - (86) 369 (145) 1,295 7,925 16,676 17,971 Others (18,725) (10,576) (10,662) RM’000 - - - - (3) 29 5,639 5,665 5,665 Power 29,974 29,974 RM’000 - - - - 64 (138) 2,628 2,628 1,413 1,477 1,339 RM’000 Properties - - - 16 683 (230) Food 3,565 3,351 4,034 62,917 62,917 RM’000 - - 474 (144) Agro 9,153 4,492 (1,527) (4,517) 61,088 61,088 10,206 RM’000 - - - (495) 1,662 (3,890) 22,350 24,012 19,627 Energy RM’000 409,399 409,399 - - (4) ICT 209 350 (823) 6,824 7,170 6,347 31,976 32,185 RM’000 operations associates zakat and taxation Business segments– continuing operations 2017 Revenue External sales Inter-segment sales Inter-segment Total revenue Total Results from Profit/(Loss) Finance income Finance costs Share of results of of results Share Profit/(Loss) before before Profit/(Loss) Zakat Taxation Segment profit/(loss) SEGMENT INFORMATION (CONT’D) SEGMENT INFORMATION (a) 40. ANNUAL REPORT 2017 | 197
Notes to the Financial Statements 638 258 (277) (477) 3,438 1,006 (6,429) (5,956) 41,638 13,077 RM’000 Total F E D Note ------(11) 378 1,587 Others RM’000 ------36 177 111 Power RM’000 - - - - - 234 674 125 (453) (2,065) RM’000 Properties - - - - - 230 638 (477) Food 9,823 2,425 RM’000 ------196 Agro 2,955 3,208 16,094 RM’000 - - - - - 305 (277) 4,816 (3,891) 14,334 Energy RM’000 - - - - - 26 ICT 598 509 576 (5,965) RM’000 property, plant and equipment property, property, plant and equipment property, written off and equipment assets held for sale Business segments – continuing operations (cont’d) 2017 Other information assets Additions to non-current Depreciation Amortisation Impairment loss : - - receivables Reversal of impairment : - - receivables Property, plant and equipment Property, Gain on disposal of property, plant Gain on disposal of property, Gain on disposal of non-current Gain on disposal of non-current SEGMENT INFORMATION (CONT’D) SEGMENT INFORMATION (a) 40.
198 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements 2,094 3,731 Total 41,994 RM’000 499,018 546,837 213,385 B Note - - - - and (9,000) (9,000) RM’000 eliminations Adjustments - - (1,692) 61,030 41,994 Others RM’000 103,024 - - - Power 27,093 27,093 24,212 RM’000 - - 755 754 11,671 12,426 RM’000 Properties - - Food 2,093 27,350 29,443 15,695 RM’000 - - - Agro 84,254 RM’000 201,262 201,262 - - 2,976 82,183 Energy RM’000 126,107 129,083 - - 1 ICT 7,979 53,505 53,506 RM’000 for sale Business segments – continuing operations (cont’d) 2017 Assets Segment assets Deferred tax assets Deferred Non-current assets held Non-current Investment in associates Total assets Total Liabilities Segment liabilities SEGMENT INFORMATION (CONT’D) SEGMENT INFORMATION (a) 40. ANNUAL REPORT 2017 | 199
Notes to the Financial Statements - (739) (202) Total 3,094 7,575 22,404 32,334 22,048 (10,084) RM’000 495,772 495,772 A Note ------and (12,088) (12,088) RM’000 eliminations Adjustments - (11) 245 424 (276) 7,575 11,800 12,045 Others (22,685) (14,962) (14,973) RM’000 - - - - 45 (130) 2,011 1,926 1,926 Power 10,596 10,596 RM’000 - - - - 19 902 (145) 2,638 2,638 1,028 1,047 RM’000 Properties - - - 20 (187) Food 1,707 1,540 1,399 2,939 46,925 46,925 RM’000 - - 683 (144) (202) Agro 5,396 5,935 2,015 (3,718) 39,704 39,704 RM’000 - - - - 1,580 (5,305) 27,836 29,416 24,111 Energy RM’000 325,209 325,209 - - (2) ICT 288 323 7,111 7,432 5,128 (2,304) 70,455 70,743 RM’000 operations associates zakat and taxation Business segments – continuing operations (cont’d) 2016 Revenue External sales Inter-segment sales Inter-segment Total revenue Total Results from Profit/(Loss) Interest income Interest Finance costs Share of results of of results Share Profit/(Loss) before before Profit/(Loss) Zakat Taxation Segment profit/(loss) SEGMENT INFORMATION (CONT’D) SEGMENT INFORMATION (a) 40.
200 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements (31) 374 376 (989) Total 3,041 4,722 2,948 (2,201) (1,205) 24,542 10,904 RM’000 F E D Note ------374 267 2,000 1,442 4,722 Others RM’000 ------39 200 (2,157) Power RM’000 ------77 269 711 (1,205) RM’000 Properties ------159 Food 2,931 2,150 RM’000 - - - - - (31) (989) Agro 1,324 2,882 2,948 12,568 RM’000 ------(44) 6,126 4,760 Energy RM’000 ------32 ICT 448 478 RM’000 property, plant and equipment property, property, plant and equipment property, written off and equipment assets held for sale Business segments – continuing operations (cont’d) 2016 Other information assets Additions to non-current Depreciation Amortisation Impairment loss : - - receivables Reversal of impairment : - - receivables Loss on disposal of subsidiaries Property, plant and equipment Property, Gain on disposal of property, plant Gain on disposal of property, Gain on disposal of non-current Gain on disposal of non-current SEGMENT INFORMATION (CONT’D) SEGMENT INFORMATION (a) 40. ANNUAL REPORT 2017 | 201
Notes to the Financial Statements Total 3,224 3,534 34,069 RM’000 461,157 501,984 195,253 B B C Note - - and 1,819 1,819 (9,000) (7,181) RM’000 eliminations Adjustments - - 4,726 62,253 34,069 96,322 Others RM’000 - - - 9,079 9,079 Power 11,972 RM’000 - - 854 1,443 17,235 18,678 RM’000 Properties - - Food 1,405 21,632 23,037 14,520 RM’000 - - - Agro 77,382 RM’000 159,950 159,950 - - 2,091 61,405 Energy RM’000 128,284 130,375 - - - ICT 71,724 71,724 22,575 RM’000 for sale Business segments – continuing operations (cont’d) 2016 Assets Segment assets Deferred tax assets Deferred Non-current assets held Non-current Investment in associates Total assets Total Liabilities Segment liabilities SEGMENT INFORMATION (CONT’D) SEGMENT INFORMATION (a) 40. 202 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
40. SEGMENT INFORMATION (CONT’D)
(b) The reportable segments of discontinued operations that are not included in the above segmental reporting are as follows :
Engineering and Construction Total 2016 RM’000 RM’000
Revenue External sales 11,103 11,103
Results Loss from operations (223) (223) Finance cost (283) (283) Loss before taxation (506) (506) Taxation - - Segment loss for the period (506) (506)
A Inter-segment revenues are eliminated on consolidation.
B The following items are deducted from segment assets to arrive at total assets reported in the consolidated statement of financial position :
2017 2016 RM’000 RM’000
Deferred tax assets* - 1,819 Investment in associates (9,000) (9,000) (9,000) (7,181)
C The following items are included to segment liabilities to arrive at total liabilities reported in the consolidated statement of financial position :
2017 2016 RM’000 RM’000
Deferred tax liabilities* - 1,819
* Reclassification of deferred tax assets and liabilities at Group level for presentation at gross tax balances.
D Additions to non-current assets relate to additions of property, plant and equipment, plantation development expenditures, investment properties and intangible assets.
E Depreciation relates to property, plant and equipment and investment properties.
F Amortisation relates to plantation development expenditures and intangible assets.
Geographical information
The Group’s geographical segments primarily operate in Malaysia. ANNUAL REPORT 2017 | 203
Notes to the Financial Statements
41. SIGNIFICANT EVENT SUBSEQUENT TO THE FINANCIAL YEAR
On 19 April 2017, KUB Malua Plantation Sdn Bhd (formerly known as KUB Oil & Gas Sdn Bhd) a wholly-owned subsidiary of the Company had entered into a conditional sale and purchase agreement with Kwantas Plantation Sdn Bhd to acquire a parcel of oil palm plantation land in the District of Kinabatangan, Sabah measuring approximately 1,534 hectares for a cash consideration of RM100,448,621.
The acquisition was completed on 3 January 2018.
42. INVESTMENTS IN SUBSIDIARIES
Details of the subsidiaries are as follows :
% of % of Country of ownership ownership incorporation/ interest and interest and Principal voting power voting power Name of place of held by the held non- subsidiary business Group** controlling** Principal activities 2017 2016 2017 2016 % % % %
Held by the Company : KUB Ekuiti Sdn. Bhd. Malaysia 100 100 - - Investment holding
Empirical Systems (M) Sdn. Bhd. Malaysia 100 100 - - Information and communication technology infrastructure and consultation
Restoran Kualiti Sdn. Bhd.* Malaysia 100 100 - - Investment holding
KUB Gaz Sdn. Bhd. Malaysia 100 100 - - Importation, bottling and trading of LPG
KUB Prasarana Sdn. Bhd.## Malaysia - 100 - - Dormant
Peraharta Sdn. Bhd. Malaysia 100 100 - - Property management
Perbiba Sdn. Bhd.* Malaysia 100 100 - - Dormant
Pernida Berhad * Malaysia 86 86 14 14 Dormant 204 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
42. INVESTMENTS IN SUBSIDIARIES (CONT’D)
Details of the subsidiaries are as follows (cont’d) :
% of % of Country of ownership ownership incorporation/ interest and interest and Principal voting power voting power Name of place of held by the held non- subsidiary business Group** controlling** Principal activities 2017 2016 2017 2016 % % % %
Held by the Company (cont’d) :
Peramining Sdn. Bhd.* Malaysia 100 100 - - Dormant
Utama Steel Works Sdn. Bhd.* Malaysia 51 51 49 49 Dormant
Pelita Espipi Sdn. Bhd.# Malaysia 100 100 - - Dormant
Gerik Timber Industries Malaysia 100 100 - - Dormant Sdn. Bhd.*
KUB Malua Plantation Sdn. Bhd. Malaysia 100 100 - - Cultivation and (f.k.a KUB Oil & Gas Sdn. management of oil Bhd). * palm estates
Creative Communications & Malaysia - 100 - - Dormant Events Sdn. Bhd.##
Academy of Knowledge for Malaysia - 100 - - Dormant Accounting and Leadership Sdn. Bhd.##
Held through KUB Ekuiti Sdn. Bhd. :
KUB Agro Holdings Sdn. Bhd. Malaysia 100 100 - - Plantation and estate management
KUB Telekomunikasi Sdn. Bhd. Malaysia 100 100 - - Assembling and commissioning of telecommunication equipment ANNUAL REPORT 2017 | 205
Notes to the Financial Statements
42. INVESTMENTS IN SUBSIDIARIES (CONT’D)
Details of the subsidiaries are as follows (cont’d) :
% of % of Country of ownership ownership incorporation/ interest and interest and Principal voting power voting power Name of place of held by the held non- subsidiary business Group** controlling** Principal activities 2017 2016 2017 2016 % % % %
Held through KUB Ekuiti Sdn. Bhd. :
KUB Power Sdn. Bhd. Malaysia 100 100 - - Supply and erection of electrical substations and transmission lines
KUB Realty Sdn. Bhd.* Malaysia 100 100 - - Dormant
KUB Development Berhad* Malaysia 100 100 - - Dormant
ITTAR Sdn. Bhd.* Malaysia 100 100 - - Dormant
KUB Hotel and Resort Malaysia 100 100 - - Dormant Management Sdn. Bhd.*
KUB Teknologi Sdn. Bhd.* Malaysia 100 100 - - Dormant
Affluent Vision Sdn. Bhd.*# Malaysia 100 100 - - Dormant
KUB Gas Sdn. Bhd.* Malaysia 100 100 - - Dormant
KUB Microelectronics Sdn. Bhd.* Malaysia 78.5 78.5 21.5 21.5 Dormant
Perumahan KUB Sdn. Bhd.* Malaysia 100 100 - - Dormant
KUB Tower Sdn. Bhd.* Malaysia 100 100 - - Property development and project management
KUB Expertise A&I Sdn. Bhd.*# Malaysia 100 100 - - Dormant 206 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
42. INVESTMENTS IN SUBSIDIARIES (CONT’D)
Details of the subsidiaries are as follows (cont’d) :
% of % of Country of ownership ownership incorporation/ interest and interest and Principal voting power voting power Name of place of held by the held non- subsidiary business Group** controlling** Principal activities 2017 2016 2017 2016 % % % %
Held through Empirical Systems (M) Sdn. Bhd. :
Credensoft Solutions Sdn. Bhd.* Malaysia 70 70 30 30 Dormant
Held through KUB Agro Holdings Sdn. Bhd. :
KUB Sepadu Sdn. Bhd. Malaysia 60 60 40 40 Plantation and estate management
Held through KUB Agro Holdings Sdn. Bhd. and KUB Sepadu Sdn. Bhd. :
KUB Maju Mill Sdn. Bhd. Malaysia 66 66 34 34 Processing of palm oil products
Held through KUB Telekomunikasi Sdn. Bhd. :
Cybertrek (Malaysia) Sdn. Bhd.* Malaysia 100 100 - - Dormant
KFT International (Malaysia) Malaysia 100 100 - - Assembling and Sdn. Bhd. installation of telecommunication equipment
KUB Research Sdn. Bhd.* Malaysia 100 100 - - Dormant ANNUAL REPORT 2017 | 207
Notes to the Financial Statements
42. INVESTMENTS IN SUBSIDIARIES (CONT’D)
Details of the subsidiaries are as follows (cont’d) :
% of % of Country of ownership ownership incorporation/ interest and interest and Principal voting power voting power Name of place of held by the held non- subsidiary business Group** controlling** Principal activities 2017 2016 2017 2016 % % % %
Held through ITTAR Sdn. Bhd. :
ITTAR-IPP (PJ) Sdn. Bhd. * Malaysia 100 100 - - Dormant
ITTAR-ILP (Prai) Sdn. Bhd.# Malaysia 100 100 - - Dormant
Held through KUB Realty Sdn. Bhd. :
KUB Realty (PJ) Sdn. Bhd.* Malaysia 100 100 - - Dormant
Held through KUB Development Berhad :
Kesina Development Sdn. Bhd.* Malaysia 100 100 - - Dormant
KUB-Astana Development Malaysia - 78 - 22 Dormant Sdn. Bhd.##
Held through KUB Microelectronics Sdn. Bhd. :
KUB Microelectronics Sales and Malaysia - 100 - - Dormant Services Sdn. Bhd.##
Held through KUB Hotel and Resort Management Sdn. Bhd. :
KUB Singgahsana (PJ) Malaysia 100 100 - - Dormant Sdn. Bhd.*
KUB Singgahsana (Langkawi) Malaysia - 100 - - Dormant Sdn. Bhd.## 208 | KUB MALAYSIA BERHAD (6022-D)
Notes to the Financial Statements
42. INVESTMENTS IN SUBSIDIARIES (CONT’D)
Details of the subsidiaries are as follows (cont’d) :
% of % of Country of ownership ownership incorporation/ interest and interest and Principal voting power voting power Name of place of held by the held non- subsidiary business Group** controlling** Principal activities 2017 2016 2017 2016 % % % %
Held through Restoran Kualiti Sdn. Bhd. :
A&W (Malaysia) Sdn. Bhd. Malaysia 100 100 - - Operating a chain of restaurants
Held through A&W (Malaysia) Sdn. Bhd. :
A&W Properties Sdn. Bhd.## Malaysia - 100 - - Dormant
Prosperous Avenue Sdn. Bhd.# Malaysia 100 100 - - Dormant
Dysec (M) Sdn. Bhd.# Malaysia 60 60 40 40 Dormant
Pleasant Harmony Sdn. Bhd.# Malaysia 60 60 40 40 Dormant
** Equals to the proportion of voting rights held. * Audited by firms other than Deloitte PLT. # The subsidiaries have commenced the striking off process under Section 550 of the Companies Act, 2016. ## The companies have been struck off the register pursuant to Section 550 of the Companies Act, 2016 in the current year. ANNUAL REPORT 2017 | 209
Notes to the Financial Statements
43. INVESTMENTS IN ASSOCIATES
Details of associates are as follows :-
% of Country of ownership incorporation/ interest and Principal voting power Name of place of held by associates business the Group Principal activities 2017 2016 % %
Held by the Company :
KUB-Berjaya Enviro Sdn. Bhd. Malaysia 40 40 Sanitary waste management
Mambang Di-Awan Sdn. Bhd. Malaysia - 37.5 Dormant
Rimba Raya Sdn. Bhd. Malaysia 20 20 Dormant
Progas Holding Limited Pakistan 38.2 38.2 Investment holding
Held through KUB Telekomunikasi Sdn. Bhd. :
Sphairon (Malaysia) Sdn. Bhd. Malaysia 49 49 Dormant
Held through A&W (Malaysia) Sdn. Bhd. :
Relk Food Services Sdn. Bhd. Malaysia 49 49 Dormant
Matrix Consolidated Sdn. Bhd. Malaysia - 20.7 Dormant
Held through KUB Ekuiti Sdn. Bhd. :
Editry Sdn. Bhd. Malaysia 41 41 Dormant 210 | KUB MALAYSIA BERHAD (6022-D)
Statement by Directors
The Directors of KUB MALAYSIA BERHAD, state that, in their opinion, the accompanying financial statements are drawn up in accordance with Financial Reporting Standards and the provisions of the Companies Act, 2016 in Malaysia so as to give a true and fair view of the financial position of the Group and of the Company as of 31 December 2017 and of the financial performance and the cash flows of the Group and of the Company for the year ended on that date.
Signed on behalf of the Board in accordance with a resolution of the Directors,
DATO’ AHMAD IBNIHAJAR DATUK ABDUL RAHIM MOHD ZIN
29 March 2018
Declaration by the Officer Primarily Responsible for the Financial Management of the Company
I, AHMED FAIRUZ ABDUL AZIZ, the officer primarily responsible for the financial management of KUB MALAYSIA BERHAD, do solemnly and sincerely declare that the accompanying financial statements are, in my opinion, correct and I make this solemn declaration conscientiously believing the declaration to be true, and by virtue of Statutory Declarations Act, 1960.
AHMED FAIRUZ ABDUL AZIZ
Subscribed and solemnly declared by the abovenamed AHMED FAIRUZ ABDUL AZIZ at PETALING JAYA in the State of SELANGOR DARUL EHSAN on 29th day of March, 2018.
Before me,
COMMISSIONER FOR OATHS ANNUAL REPORT 2017 | 211
List of Properties
Net Book Value as at Age of Date of 31/12/17 Building Acquisition/ Location/Address Description Usage Area Tenure (RM’000) (Years) (Revaluation)
KUB MALAYSIA BERHAD
HS (D) 279769, PT 9, Retail Lot Commercial 4,238 Leasehold 8,679 13 10 Jan 2005 Seksyen 26, sq. meters (99 years Town of Petaling Jaya, expiring District of Petaling, 2110)
Parcel No. C301, C3A01, Office Space Commercial 43,657 Freehold 17,517 7 24 May 2010 C801, C901,C1001 sq. feet & C1101 held under Master Title HS(D) 111073, PT No. 9, Mukim of Damansara, District of Petaling
KUB AGRO HOLDINGS SDN BHD
Unit No. 39-1, 39-2, Office Space Commercial 8,010 Leasehold 3,648 5 15 Apr 2013 39-3, 39-4, 39-5, Ground sq.feet (89 years Floor, Block 4, Held under expiring Pajakan Negeri 90045, 2109) Lot 3407 Seksyen 13, District of Petaling, Mukim Bandar Shah Alam
PTD No. 3545, Mukim Oil Palm Agricultural 453.1 Leasehold 1,556 - 17 Mac 1987 of Paloh & PTD No. Plantation hectares (99 years 3796, Mukim of Kahang, and 503.02 expiring District of Kluang, Johor hectares 2086) respectively
PTD No. 4901, Mukim of Oil Palm Agricultural 1,491.81 Leasehold 4,264 - 14 Nov 1994 Kahang, PTD No. 26005 Plantation hectares, (99 years & PTD No. 26006 147.54 expiring Mukim of Kluang, hectares, 2093) District of Kluang, Johor and 60.69 hectares respectively 212 | KUB MALAYSIA BERHAD (6022-D)
List of Properties
Net Book Value as at Age of Date of 31/12/17 Building Acquisition/ Location/Address Description Usage Area Tenure (RM’000) (Years) (Revaluation)
KUB SEPADU SDN BHD
Lot 221, 252, 261 Block Oil Palm Agricultural 3.63 Leasehold 86 - 10 May 1999 No. 7, Oya Dalat Land, Plantation hectares (60 years District, Sarawak expiring 2024- 2030)
Lot 642, Block No. 363 Oil Palm Agricultural 2,431.60 Leasehold 4,253 - 10 May 1999 Oya Dalat Land District, Plantation hectares (60 years Sarawak expiring 2050)
Lot 135, Block No. 48 Oil Palm Agricultural 1,101.10 Leasehold 1,273 - 10 May 1999 Oya Dalat Land District, Plantation hectares (60 years Sarawak expiring 2050)
Lot 8, Block No. 109 Oil Palm Agricultural 1,139.80 Leasehold 959 - 10 May 1999 Oya Dalat Land District, Plantation hectares (60 years Sarawak expiring 2052)
KUB MAJU MILL SDN BHD
Lot 642, Block No. 363 Palm Oil Palm Oil 79,287 Leasehold 54,447 1 N/A Oya Dalat Land District, Complex Processing sq meters (37 years Sarawak expiring 2050)
KUB DEVELOPMENT BERHAD
PT 515, PT 518, PT 524, Vacant Agricultural 46.93 Freehold 4,388 - 1 Dec 2004 PT 520 – PT 523, PT 528 Agricultural hectares – PT 543 and PT 546 – Land PT 555, Bukit Mawat Mukim of Ulu Melaka District of Langkawi, Kedah
HSD 4280, PT No. 606, Vacant Industrial 8.43 Leasehold 700 - 1999 Mukim of Serting Ulu, Development hectares (99 years District of Jempol, Land expiring Negeri Sembilan 2086) ANNUAL REPORT 2017 | 213
List of Properties
Net Book Value as at Age of Date of 31/12/17 Building Acquisition/ Location/Address Description Usage Area Tenure (RM’000) (Years) (Revaluation)
PERAHARTA SDN BHD
Lot 4180N, Bangunan Sri 4-Storey Commercial 56,855 Strata 6,199 34 1983 Kinta, Jalan Sultan Idris Podium sq. feet Title (4 Aug 2006) Shah, Ipoh, Perak Block and 9-Storey Tower Block
Lot 193003-193005 3 Units of Commercial 5,120 Leasehold 257 25 1992 No. 26, 28 & 30, Double-Storey and sq. feet (99 years (3 Aug 2006) Persiaran Orkid 1, Shoplots Residential expiring Taman Orkid Batu Gajah, 2090) Perak
Lot PT 122810-122813 4 Units of Commercial 6,337 Leasehold 365 25 1992 No. 24, 26, 28 & 30, Double-Storey and sq. feet (99 years (16 Sept 2002) Laluan Rokan 15, Shophouses Residential expiring Pekan Razaki, Ipoh, Perak 2092)
PT No. 51, Seksyen 16 Shoplot Malay Commercial 915 Leasehold 1,347 27 4 Dec 2012 Town and District of Reserve sq. meters (67 years Kota Bharu, Kelantan expiring 2061)
PT No. 9139, End terrace Commercial 1,920 Leasehold 1,392 34 28 Dec 2012 District of Setapak, shoplot sq. feet District of Gombak rectangular Selangor in shape with 3-storey shop office
KUB GAZ SDN BHD
Lot 941 Seksyen 9W & Open-sided Industrial 7,187 Freehold 2,976 17 1 Jul 2001 Lot 942 Seksyen 9W, structure sq. feet & Town of Georgetown, for storage 8,739 District of Timur Laut, purposes sq. feet Penang respectively
PTD 40053 Office and Industrial 143,609 Freehold 1,049 30 1 Jul 1998 Mukim of Tebrau, Plant sq.feet District of Johor, Bahru, Johor
Lot 55710 Office and Industrial N/A N/A 5,427 19 1 May 1999 Lorong Kenanga B, Plant Liquid Bulk Terminal Pulau Indah Port Klang, Selangor 214 | KUB MALAYSIA BERHAD (6022-D)
Analysis of Shareholdings as at 30 March 2018
Issued Shares : RM222,585,876.00 of 556,464,690 Ordinary Shares Class of Shares : Ordinary Shares Voting Rights : One vote per Ordinary Share (On a Poll)
ANALYSIS BY SIZE OF SHAREHOLDINGS
Size of No. of % of No. of % of Shareholdings Shareholders Shareholders Shares Held Issued Capital
Less than 100 7,699 13.93 319,464 0.06 100 – 1,000 26,285 47.57 16,821,858 3.02 1,001 – 10,000 18,127 32.80 53,834,493 9.68 10,001 – 100,000 2,846 5.15 90,033,924 16.18 100,001 to less than 5% 303 0.55 105,083,192 18.88 5% and above 1 0.00 290,371,759 52.18 Total 55,261 100.00 556,464,690 100.00
SUBSTANTIAL SHAREHOLDERS
No. of % of No. Names Shares Held Issued Capital
1. Anchorscape Sdn Bhd Shares held in the name of : a) Kenanga Nominees (Tempatan) Sdn Bhd 290,311,470 52.17 b) Own Account 60,289 0.01
DIRECT AND INDIRECT INTERESTS OF DIRECTORS
Direct Indirect % of No. Names Shareholdings Shareholdings Issued Capital
1. Dato’ Ahmad Ibnihajar - - - 2. Datuk Abdul Rahim Mohd Zin 1,050 - 0.00 3. Dato’ Ab Rahim Abu Bakar - - - 4. Datuk Hj Faisyal Datuk Yusof Hamdain Diego - - - 5. Dato’ Jamelah A.Bakar - - - 6. Tunku Alizan Raja Muhammad Alias 10,000 - 0.00 7. Tengku Zahaimi Tuan Hashim - - - 8. Mohammad Farish Nizar Othman - - - 9. Datuk Haji Mohd Haniff Haji Koslan - - - ANNUAL REPORT 2017 | 215
Analysis of Shareholdings as at 30 March 2018
TOP THIRTY (30) LARGEST SHAREHOLDERS
No. of % of No. Names Shares Held Issued Capital
1. Kenanga Nominees (Tempatan) Sdn Bhd Pledged Securities Account for Anchorscape Sdn Bhd 290,311,470 52.17
2. Leong Kong Min 6,866,700 1.23
3. Akauntan Negara Malaysia 5,096,691 0.92
4. Lim Gaik Bway @ Lim Chiew Ah 4,149,100 0.75
5. Alliancegroup Nominees (Tempatan) Sdn Bhd Pledged Securities Account for Lim Lian Seng 3,600,000 0.65
6. Tan Kar Meng 2,557,200 0.46
7. Public Nominees (Tempatan) Sdn Bhd Pledged Securities Account for Tan Yok Son @ Tan Siew Tuan 2,008,800 0.36
8. CIMB Group Nominees (Tempatan) Sdn Bhd Cimb Bank Bhd for Perbadanan Kemajuan Negeri Perak 2,000,000 0.36
9. Tan Leong Yeok 1,500,000 0.27
10. Maybank Nominees (Tempatan) Sdn Bhd Pledged Securities Account for Gan Cheong Poon 1,450,000 0.26
11. RHB Nominees (Tempatan) Sdn Bhd Pledged Securities Account for Ravindran A/L Andikotraman Velu 1,272,400 0.23
12. Chew Huat Heng 1,000,000 0.18
13. Datuk Tay Hock Tiam 1,000,000 0.18
14. RHB Nominees (Tempatan) Sdn Bhd Pledged Securities Account for Mohd Shafie bin Abdullah 1,000,000 0.18 216 | KUB MALAYSIA BERHAD (6022-D)
Analysis of Shareholdings as at 30 March 2018
TOP THIRTY (30) LARGEST SHAREHOLDERS (CONT’D)
No. of % of No. Names Shares Held Issued Capital
15. Stephen Lai Ted Siong 964,000 0.17
16. Alliancegroup Nominees (Tempatan) Sdn Bhd Pledged Securities Account for Kong Kok Choy 930,000 0.17
17. Quek See Kui 897,200 0.16
18. Yeo Hock Kim 835,000 0.15
19. Chor Chee Heung 800,000 0.14
20. Ng Yoke Hin 792,100 0.14
21. Teng Eng Seah 707,400 0.13
22. Pradeep Kumar A/L Chimanlal Ravichand 700,000 0.13
23. Lee Kim Teck 680,000 0.12
24. M & A Nominee (Tempatan) Sdn Bhd Pledged Securities Account for Tang Soon Chye 680,000 0.12
25. Soh Oon Hai 675,000 0.12
26. Nalachakravarthy Odhayakumar 612,000 0.11
27. Chong Ping Jye 610,000 0.11
28. Alliancegroup Nominees (Tempatan) Sdn Bhd Pledged Securities Account for Ng Hock Chuan 600,000 0.11
29. Kenanga Nominees (Tempatan) Sdn Bhd Pledged Securities Account for Jasen Vun Vui Fen 600,000 0.11
30. Public Nominees (Tempatan) Sdn Bhd Pledged Securities Account for Tan Chin Hock 600,000 0.11
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