Corporate Vision To be the BEST AND MOST SOUGHT AFTER financial services provider in the region. Corporate Missions. Core Beliefs and Values

Transcription

1 Corporate Vision To be the BEST AND MOST SOUGHT AFTER financial services provider in the region. Corporate Missions We will be a leading enabler of financial and investment services for our customers. We will exceed the expectations of our stakeholders by committing to our shared values. We will form alliances with our stakeholders. We will be creative, provide quality services and consistently improve our productivity. We will aspire to be a responsible corporate citizen. Core Beliefs and Values Accountability Achievement Action Attitude Challenge Commitment Consistency Community Integrity Productivity Partnership Professionalism 2

2 AVENUE CAPITAL RESOURCES BERHAD AVENUE annual report 2005 Contents Corporate Information 2 The Board of Directors 3 Group Structure 4 Five-Year Financial Highlights 5 Directors Profile 6 Chairman s Statement 9 Statement on Corporate Governance 12 Audit Committee Report 17 Statement of Internal Control 20 Statement of the Directors Responsibilities 22 Corporate Calendar 23 Financial Statements 25 List of Properties 58 Analysis of Shareholdings 59 Analysis of ICULS Holdings 61 Analysis of Warrant Holdings 63 Notice of Annual General Meeting 65 Statement Accompanying Notice of AGM 68 Proxy Form 1

3 Annual Report 2005 Corporate Information BOARD OF DIRECTORS Tan Sri Samshuri bin Arshad Independent Non-Executive Chairman Mr Gooi Hoe Soon Non-Executive Deputy Chairman Datuk Siti Maslamah binti Osman Non-Executive Director Encik Mohd Ariffin bin Marzuki Non-Executive Director Dato Lim Tong Lim Tong Yaim Non-Executive Director Datuk Dr. Baharun Azhar bin Raffiai Independent Non-Executive Director Mr Ooi Giap Ch ng Independent Non-Executive Director Tengku Zafrul bin Tengku Abdul Aziz Group Managing Director Mr Lim Poh Seong Non-Executive Director (Alternate to Dato Lim Tong Yong) REGISTERED OFFICE Level 1, Bangunan Avenue No. 8, Jalan Damansara Endah Damansara Heights Kuala Lumpur, Malaysia Tel: Fax: Website: REGISTRAR PFA Registration Services 1301, Level 13 Uptown 1 No. 1, Jalan SS21/58 Damansara Uptown Petaling Jaya Tel: Fax: PRINCIPAL BANKERS Malayan Banking Berhad RHB Bank Berhad Southern Bank Berhad SOLICITORS Mazlan & Associates A. Zahari & Rakan-rakan Ho, Loke & Koh Lee Hishammuddin Allen & Gledhill STOCK EXCHANGE LISTING Main Board Bursa Malaysia Securities Berhad COMPANY SECRETARIES Miss Wong Wei Fong (MAICSA ) Miss Kuan Hui Fang (MIA 16876) 2

4 AVENUE CAPITAL RESOURCES BERHAD Board of Directors 1 Tan Sri Samshuri bin Arshad (Independent Non-Executive Chairman) 5 Dato Lim Tong Lim Tong Yaim (Non-Executive Director) 2 Mr Gooi Hoe Soon (Non-Executive Deputy Chairman) 6 Datuk Dr. Baharun Azhar bin Raffiai (Independent Non-Executive Director) 3 Datuk Siti Maslamah binti Osman (Non-Executive Director) 7 Mr Ooi Giap Ch ng (Independent Non-Executive Director) 4 Encik Mohd Ariffin bin Marzuki (Non-Executive Director) 8 Tengku Zafrul bin Tengku Abdul Aziz (Group Managing Director) 3

5 Annual Report 2005 Group Structure as at 31 January 2005 AVENUE CAPITAL RESOURCES BERHAD A.A.Assets Nominees (Tempatan) Avenue Securities A.A.Assets Nominees (Asing) Avenue Unit Trust Management Berhad (now known as Avenue Invest Berhad) Soon Theam Securities Avenue Options & Futures Services Kestrel Securities Avenue Asset Management Services Avenue Asset Management Services (Labuan) Ltd ACRB Capital Affinity Land Ultimate Acres PLB Property Management DCA (M) Pemaju Corp. AAB Damansara Flyingvest AAB Avenue II Piuco Entertainment Venture (M) Affluent Acres Pentaville Investments Ltd 17% Pos Malaysia & Services Holdings Berhad AAB Avenue I Gombak Equipment Gain Synergy 50% Affluent Development 4 Wholly-Owned Subsidiary Associated Company

6 AVENUE CAPITAL RESOURCES BERHAD Five-Year Financial Highlights Turnover (RM million) Profit/(loss) before taxation (RM million) Basic earnings/(loss) per share (sen) Shareholders fund (RM million) Total assets (RM million) Net tangible assets per share (RM) 5

7 Annual Report 2005 Directors Profile Tan Sri Samshuri bin Arshad Tan Sri Samshuri bin Arshad, aged 63, a Malaysian, was appointed to the Board on 20 October 1999 as an Independent Non- Executive Director and as the Chairman of the Board on 19 November He is also the Chairman of the Nominating Committee and a member of the Audit Committee. Tan Sri Samshuri was attached to the Royal Malaysian Police Force where he served for more than 34 years before retiring in 1997 upon reaching the compulsory retirement age of 55 years. His last appointment with the Royal Malaysian Police Force prior to his retirement was as the Deputy Inspector General of Police, a position which he held for 3 1 /2 years. He had wide regional and international exposures and networking, serving as Head of Missions for the International Police Association, Association of Asean Police Forces and United Nations Crime Prevention Commission (Vienna). Tan Sri Samshuri is also the Chairman of Comintel Corporation Berhad and a director of Unisem (M) Bhd. Tan Sri Samshuri does not have any family relationship with any Directors and/or substantial shareholders of the Company or any personal interest in any business arrangement involving the Company. He has had no convictions for any offences within the past 10 years. Mr Gooi Hoe Soon Mr Gooi Hoe Soon, aged 45, a Malaysian was appointed to the Board as a Non-Executive Director on 20 October 1999 and as the Group Managing Director on 18 March He is now the Non-Executive Deputy Chairman and a member of the Audit Committee. Mr Gooi is a member of the Malaysian Institute of Certified Public Accountants and the Malaysian Institute of Accountants. He has more than 20 years of experience in the fields of accounting and corporate finance and was a finance director of several private and public listed companies on the Bursa Malaysia Securities Berhad ( Bursa Securities ). He has been instrumental in the successful implementation of several corporate exercises, which include the merger and acquisition and corporate debt restructuring exercises undertaken by public listed companies. Mr Gooi is the Executive Director Dealing of Avenue Securities, a member company of the Bursa Securities. He also sits on the boards of Hup Seng Industries Bhd, Pos Malaysia & Services Holdings Berhad and Paos Holdings Berhad. Mr Gooi does not have any family relationship with any Directors and/or substantial shareholders of the Company or any personal interest in any business arrangement involving the Company. He has had no convictions for any offences within the past 10 years. Datuk Siti Maslamah binti Osman Datuk Siti Maslamah binti Osman, aged 58, a Malaysian, was appointed to the Board on 12 October 2001 as a Non-Executive Director. She is the Chairperson of the Remuneration Committee. Datuk Siti is a Fellow of the Chartered Institute of Management Accountants, United Kingdom and a member of the Malaysian Institute of Accountants. She was the Accountant General of Malaysia, a position she held since October 2000, before her retirement in She has more than 31 years of experience in the field of accounting in various Government Agencies, holding various appointments including as Treasury Accountant in Telecommunication Department, Finance Manager in Bank Simpanan Nasional and Senior Accountant in various divisions of the Accountant General s Department. She also sits on the boards of Malaysia Airport Holdings Berhad, Island & Peninsular Berhad, BIMB Holdings Berhad, Bank Islam Malaysia Berhad and Takaful Malaysia Berhad. 6 Datuk Siti does not have any family relationship with any Directors and/or substantial shareholders of the Company or any personal interest in any business arrangement involving the Company. She has had no convictions for any offences within the past 10 years.

8 AVENUE CAPITAL RESOURCES BERHAD Encik Mohd Ariffin bin Marzuki Encik Mohd Ariffin bin Marzuki, aged 55, a Malaysian, was appointed to the Board on 12 October 2001 as a Non-Executive Director. He is also a member of the Remuneration Committee. Encik Mohd Ariffin is a Fellow Member of the Association of Chartered Certified Accountants, United Kingdom. He began his career with Bank Pembangunan dan Infrastuktur (M) Bhd as an Assistant Finance Manager. He subsequently joined Bank Simpanan Nasional in 1986 as Giro Manager and was promoted to Director of Risk Management in Currently he is the Director of Finance Department. He is also a director of Permodalan BSN Berhad. Encik Mohd Ariffin does not have any family relationship with any Directors and/or substantial shareholders of the Company or any personal interest in any business arrangement involving the Company. He has had no convictions for any offences within the past 10 years. Dato Lim Tong Lim Tong Yaim Dato Lim Tong Yong, aged 55, a Malaysian, was appointed to the Board on 26 April 2001 as a Non-Executive Director. He is also a member of the Nominating Committee. Dato Lim obtained his Bachelors Degree in Malay Studies from Nanyang University, Singapore in Thereafter, he worked as a lecturer in Taylor s College from 1972 to 1973, Nanyang University from 1973 to 1974 and Culin College in Singapore from 1974 to From 1979 to 1984, he served as the Marketing Manager of Maran Edible Oil, a company involved in palm kernel crushing. Later in 1987, he established Paos Industries, a company producing value added products from oil palm, such as finished soap, animal feed, cocoa butter substitute and soap chips. Dato Lim is the founder and a director of Paos Holdings Berhad and the Group Chief Executive Officer of Pantai Holdings Berhad. Dato Lim does not have any family relationship with any Directors and/or substantial shareholders of the Company or any personal interest in any business arrangement involving the Company other than his direct interest in Pantai Holdings Berhad, a substantial shareholder of the Company. He has had no convictions for any offences within the past 10 years. Datuk Dr. Baharun Azhar bin Raffiai Datuk Dr. Baharun Azhar bin Raffiai, aged 66, a Malaysian, was appointed to the Board on 12 October 2001 as an Independent Non-Executive Director. He is also the Chairman of the Audit Committee and a member of the Nominating and Remuneration Committees. Datuk Dr. Baharun holds a Ph.D from King s College, University of Cambridge, United Kingdom and a BA(Hons) from King s College, University of Durham, United Kingdom. He was attached to Malaysian Government for more than 34 years before retiring in His last appointment prior to his retirement was as the Director General, Research Division of the Prime Minister s Department, a position which he held for 6 years. During his career, he has been assigned to various government positions including Commissioner for Orang Asli Affairs and Secretary of National Security Council, Prime Minister s Department. He is also a director of Chase Perdana Berhad. Datuk Dr. Baharun does not have any family relationship with any Directors and/or substantial shareholders of the Company or any personal interest in any business arrangement involving the Company. He has had no convictions for any offences within the past 10 years. 7

9 Annual Report 2005 Directors Profile (cont d) Mr Ooi Giap Ch ng Mr Ooi Giap Ch ng, aged 46, a Malaysian, was appointed to the Board on 30 November 2000 as an Independent Non- Executive Director. Mr Ooi graduated with a Bachelor of Law Degree and a Bachelor of Economics Degree from the Australian National University and was called to the Malaysian Bar in He has more than 17 years of experience in law practice, mainly in the area of commercial and corporate law. He is currently a partner of a legal firm in Kuala Lumpur. He is also a director of Mulpha International Bhd, Meda Inc. Berhad and CME Group Berhad. Mr Ooi does not have any family relationship with any Directors and/or substantial shareholders of the Company or any personal interest in any business arrangement involving the Company. He has had no convictions for any offences within the past 10 years. Tengku Zafrul bin Tengku Abdul Aziz Tengku Zafrul bin Tengku Abdul Aziz, aged 32, a Malaysian, was appointed to the Board on 7 April 2003 as an Executive Director and was subsequently appointed as the Group Managing Director on 5 April Tengku Zafrul Aziz graduated with a Bsc (Hons) Economics and Accounting from University of Bristol, United Kingdom and later completed his Master of Art in Finance and Investment from University of Exeter, United Kingdom. He began his career as a corporate finance executive in a merchant bank and subsequently left to join a foreign research house as an investment analyst and rose to be the director. He then became the advisor to the President for Tenaga Nasional Berhad prior to joining the investment banking department of a leading merchant bank. He is also the treasurer of Young Professionals Chamber of Malaysia (PROMUDA), Deputy President of University of Bristol Alumni Association and the executive secretary of the Kuala Lumpur Business Club. Tengku Zafrul Aziz does not have any family relationship with any Directors and/or substantial shareholders of the Company or any personal interest in any business arrangement involving the Company. He has had no convictions for any offences within the past 10 years. Mr Lim Poh Seong Mr Lim Poh Seong, aged 39, a Malaysian, was appointed to the Board on 18 May 2005 as the alternate director to Dato Lim Tong Yong. Mr Lim is a qualified accountant by profession and a Fellow of the Association of Chartered Certified Accountants. He started his career as an auditor with a major public accounting firm in Kuala Lumpur in He then progressed to be the assistant general manager and senior corporate finance manager of two Malaysia public listed companies respectively. He joined Pantai Holdings Berhad as financial controller in He is now the executive director in Pantai Holdings Berhad. Mr Lim does not have any family relationship with any Directors and/or substantial shareholders of the Company or any personal interest in any business arrangement involving the Company. He has had no convictions for any offences within the past 10 years. 8

10 AVENUE CAPITAL RESOURCES BERHAD Chairman s Statement DEAR SHAREHOLDERS, Financial Year 2005 was a remarkable year for Avenue Group, both in the financial and non-financial aspects. I am delighted to report that we have demonstrated our ability to deliver robust profits on the back of strong revenue growth. During the year we have achieved several milestones and we have adopted several strategies that will enable us to expand in key market areas and introduce new product offerings. Our financial year 2005 results have indicated that we have had a successful year. The year also saw the successful transition of the new leadership to Tengku Zafrul Aziz, who took over the reins from Mr Gooi Hoe Soon as the Group Managing Director, on 5 April Today, Avenue Group is financially strong and has built a strong brand-name. More importantly, it has a group of motivated people. BUSINESS OVERVIEW The Group recorded a significant improvement in performance for the financial year ended 31 January 2005, with a profit after tax of RM24.38 million and earnings per share of 3.16 sen. This is a significant turnaround from the previous year s loss of RM million. Revenue grew by 26% to RM88.57 million as compared to the previous year. The significant improvement is mainly attributed to organic growth across all the business units. Net brokerage income rose by 17% to RM51.34 million while fees contribution from corporate finance and advisory division grew by more than 14 times. As at January 2005, the Group s assets under management stood at RM2.45 billion, 18% higher as compared to January The unit trust division also generated encouraging results. As at January 2005, total funds under management was RM1.07 billion, up 15% from the previous year. Both businesses experienced continued strength in fixed-income products, as equity market remained volatile throughout the year. Our research team created a historical first for the Group by achieving several accolades last year. The Edge s Analyst All Stars Poll voted us the most improved local research house and the second best local research house while the Asiamoney s poll named us the second best local brokerage house. In my last statement, I mentioned that research would be one of the key focus areas for that year. These accolades have proved that we have achieved our deliverables. We are also the proud owner of Bangunan Avenue, an office building located in Damansara Heights, Kuala Lumpur, which was acquired by Avenue Group in Bangunan Avenue is now the corporate office for almost the entire Group s business operations. With the Group together under one roof, I am confident that we can improve the way we conduct our business by developing more economies of scale, improving cost effectiveness and strengthening teamwork. ECONOMIC AND BUSINESS OUTLOOK The overall outlook for 2005 is still positive but some moderation in growth is to be expected. The pace of slowdown in China and India is expected to be modest. In order to prevent its economy from overheating, China has implemented several policy measures to engineer a soft landing while in the United States, a series of interest rate hikes by the Federal Reserve to preempt inflation may crimp growth. In Malaysia, the real GDP is expected to expand by 5% - 6% in 2005 lower than 2004 but still commendable. The focus policies in 2005 is on sustaining the momentum of economic growth and improving the long-term competitiveness and resilience of the Malaysian economy. On the industry front, Y.A.B. Dato Seri Abdullah Ahmad Badawi, Malaysia s Prime Minister and the Finance Minister, proposed several measures in his maiden Budget 2005 to help strengthen Malaysia s capital market. One of them was to allow five major foreign stockbrokers and up to five leading global fund managers to operate in Malaysia. Their presence will hopefully help increase liquidity, improve the distribution network and promote Malaysia s investment instruments globally. 9

11 Annual Report 2005 Chairman s Statement (cont d) Looking at the year ahead, our industry faces a number of challenges: regionalisation of local investment banks, new entrants of foreign players, continued poor market sentiment which sees low trading volume and the already low commission rates. Our challenge to increase value for our shareholders and grow earnings per share, will require greater effort from all of us. We have identified several strategies to enable us to lay the foundation for a more profitable growth for this financial year, and for the years ahead. Reaching into new markets We will continue to focus on organic growth - focusing on new customers and expanding into the regional market. In April 2005, our unit trust division launched three new funds, Avenue TacticalEXTRA, Avenue DividendEXTRA and Avenue AsnitaBond to further expand our market share, product choice and introduce more value added services. There are more new funds in the pipeline and we hope to be able to launch them within the year. We have also recently announced our intention to merge our unit trust and asset management businesses. The aim is to create a pool of operating synergies. We believe that it will result in better products and services for our investors and not forgetting the administrative savings, which will be passed on to our investors. Islamic market We note that the Islamic capital market is increasingly commanding global attention, as a vehicle for adding quality options to financial products and services. On the back of this recognition and the potential of Syariah products in today s markets, we had in April 2005, announced that we would be entering into a joint venture with Bank Muamalat Malaysia Berhad to initiate the first Malaysian Islamic asset management company. This partnership will be a good platform for Avenue to tap into the regional Islamic markets. Research The research team will continue to focus on the big and medium-cap stocks. In tandem with increased talents joining the team, we have been producing more research reports in anticipation of more foreign research in the market. Despite the foreign research and competition, we believe, research will be the area where we can differentiate ourselves to the clients. Hopefully, with this, we can attract their business. In addition, we would also use this to penetrate the foreign-end clients business in the regional market. The Board is delighted that Avenue Group has a strong management team to take the Group forward and who, will no doubt, will ensure that we meet all the key performance indicators that we have set for the Group for this year ahead. 10

12 AVENUE CAPITAL RESOURCES BERHAD C h a i r m a n s S t a t e m e n t DIVIDEND The Directors have recommended the payment of a final gross dividend of 1% per ordinary share, less income tax of 28%. The proposed dividend is subject to the approval by the shareholders at the forthcoming Annual General Meeting of the Company and is payable in respect of all ordinary shares in issue. The proposed dividend, although small, is nevertheless significant for the Company as this will be the first dividend to be declared since the last dividend in financial year CORPORATE RESPONSIBILITY Despite facing the challenges in the industry, we do try to make a difference in the community. It was very unfortunate that we started Year 2005 with the news of the Asian Tsunami disaster, which claimed thousands of innocent lives in this region. To support the disaster relief efforts, the management, staff and remisiers of Avenue Group donated monetary assistance towards this cause. We are also one of the co-sponsors for the Golden Bull Award 2005, which is organised by Nanyang Siang Pau. It is aimed to give due recognition to all outstanding small and medium sized entrepreneurs (SME) in Malaysia. We hope that we can partly contribute in terms of instilling the entrepreneurial spirit for emerging SMEs, and encourage more SMEs to excel in their respective industries to help accelerate Malaysia s economic performance. Our contributions, so far, have been quite limited but we do intend to work more towards creating good values for both shareholders and the community. ACKNOWLEDGEMENTS On behalf of the Board of Directors, I would like to express our heartfelt gratitude to the management and staff of Avenue Group for their tremendous efforts, strong commitment and continued dedication over the past 3 years. As a result of these efforts, Avenue Group is turning to be a remarkable and profitable organisation. We wish to express our deepest appreciation to all our valued clients and business partners for their continued support and faith in us. We would also like to extend our gratitude to the Ministry of Finance, Securities Commission, Bursa Malaysia Securities Berhad, and all other relevant authorities for their guidance and assistance throughout the year. Finally, we would like to thank our shareholders, who have been supporting and believing in us and who have continued to have confidence in us. TAN SRI SAMSHURI BIN ARSHAD Chairman 18 May

13 Annual Report 2005 Statement on Corporate Governance The Board is responsible in ensuring high standards of corporate governance are maintained in all activities undertaken by the Group, which are essential to protect and enhance the shareholders value. This report has been prepared in accordance to the principles and best practices as set out in the Malaysian Code on Corporate Governance. 1. THE BOARD OF DIRECTORS The Group operates under the overall control of the Board, which is ultimately accountable for the strategic directions of the Group s activities and competent management of the Group s business operations and performance, as well as enhancing its risk management processes and structures. The Directors possess a mix of skills and experiences ranging from business and finance, corporate and legal to general disciplines. Their diverse backgrounds and experience add value and provide invaluable inputs from different perspectives. A profile of each Director is presented on pages 6 to Board Balance The Board is made up of the Chairman, who is independent and non-executive, the Deputy Chairman, who is nonexecutive and non-independent, the Group Managing Director and five other non-executive Directors, of which two of them of independent. To better manage the Group, the Board members have separate roles. The day-to-day management of the Group s business falls under the responsibility of Group Managing Director who is also responsible to implement the strategies and policies approved by the Board. The presence of majority of non-executive Directors and the independent non-executive Directors who are influential in the Board s decision making process ensures the balance of power in the exercise of objective and independent judgement on corporate issues dealt with at the Board. It also ensures that the interests of the major stakeholders and the minority shareholders are effectively promoted and represented through the Board. 1.2 Supply of Information The Directors are provided with timely and relevant information, which includes quarterly and annual financial statements, board papers recommending business and operational proposals and decisions, corporate and business development plans, status reports and minutes of meetings so that they can maintain full and effective control over the strategic, financial, operational and compliance issues. All Directors have access to the Group s senior management and the advice and services of the company secretaries and legal advisors. If required, the Directors, whether as a full Board or in their individual capacity may take independent professional advice in the furtherance of their duties at the Company s expense. 1.3 Appointments to the Board The Nomination Committee established by the Board will oversee the selection process and to consider the appointment of new directors, before seeking the final approval of the Board. It will also carry out a review and assessment on the effectiveness of the Board as a whole and on the contribution of individual Directors. 12

14 AVENUE CAPITAL RESOURCES BERHAD S t a t e m e n t o n C o r p o r a t e G o v e r n a n c e 1.4 Meeting and Procedures The Board of Directors meets regularly and has a formal schedule of matters specifically reserved for its decision. These matters include determining and reviewing strategies of the Group, overseeing the compliance and statutory obligations, operational issues and financial review and reporting. The Board has met five times during the financial year under review and the following shows the attendance of the Directors: Director Attendance Director Attendance Tan Sri Samshuri bin Arshad 5/5 Dato Lim Tong Lim Tong Yaim 5/5 Mr Gooi Hoe Soon 5/5 Datuk Dr. Baharun Azhar bin Raffiai 5/5 Datuk Siti Maslamah binti Osman 5/5 Mr Ooi Giap Ch ng 5/5 Encik Mohd Ariffin bin Marzuki 4/5 Tengku Zafrul bin Tengku Abdul Aziz 5/5 1.5 Retirement and Re-election In accordance with the Company s Articles of Association ( Articles ), all Directors who are appointed by the Board shall retire and are subject to re-election by the shareholders at the first annual general meeting ( AGM ) after their appointment. The Articles also provide that one-third of the Directors for the time being, shall retire from office by rotation at each AGM and be eligible for re-election. 1.6 Directors Training All Directors have attended the Mandatory Accreditation Programme. The Directors have also attended various courses accredited to the Continuing Education Programme during the year. The Board will continue to attend selected courses and trainings from time to time to update and develop knowledge and capabilities relevant in fulfilling their duties. 1.7 Directors Remuneration The Remuneration Committee evaluates the annual performance of the executive Directors and recommends to the Board their aggregate levels of bonus and incentive expenditures. The recommendation will reflect their contributions for the year, in tandem with the Group s corporate objectives, culture and business strategies. In the case of non-executive Directors, the remuneration reflects the level of responsibilities undertaken by the nonexecutive Directors concerned. They received an annual fee, which are subjected to the shareholders approval, and are reimbursed for attendance allowances for each meeting they attend. The determination of the remuneration for non-executive Directors is a matter for the Board as a whole. All Directors are also eligible to participate in the Company s Employees Share Option Scheme. Details of the Directors remuneration for the financial year ended 31 January 2005 are as follows: Salaries & Other Emoluments Fees Total RM RM RM Executive Directors 488, ,320 Non-executive Directors - 168, ,000 13

15 Annual Report 2005 Statement on Corporate Governance (cont d) The number of Directors whose total remuneration for the financial year fall within the respective band is as follows: Executive Non-executive RM50,000 and below - 7 RM450,001 - RM500, COMMITTEES OF THE BOARD The Board has delegated specific task of monitoring executive actions and determining the rewards of executive Directors to the Board committees, which have all been established with formal terms of reference. 2.1 Audit Committee The Audit Committee assist the Board to meet its responsibilities regarding financial reporting and strengthens the independence of external auditors through the ability to communicate with non-executive Directors. It also monitors the work of the internal audit functions and also assesses the effectiveness of the Group s system of internal control. The Audit Committee meets the external auditors annually to discuss the annual financial statements and their audit findings, including where necessary, the audit plan and any other matters arising on the annual reporting. The report of the Audit Committee is set out on pages 17 to Remuneration Committee The Committee members are: Datuk Siti Maslamah binti Osman - Chairperson Encik Mohd Ariffin bin Marzuki Datuk Dr. Baharun Azhar bin Raffiai The Committee shall recommend to the Board the remuneration packages of managing directors, executive directors and senior management of the Company in all its forms, drawing outside advice as necessary. The determination of remuneration packages of non-executive Directors is a matter for the Board as a whole. 2.3 Nominating Committee The Committee members are: Tan Sri Samshuri bin Arshad - Chairman Datuk Dr. Baharun Azhar bin Raffiai Dato Lim Tong Yong The Committee shall recommend to the Board on the following: Candidates for all directorships to be filled by the shareholders or the Board; and Directors to fill the seats on Board Committee The Committee shall assess annually the effectiveness of the Board as a whole, the Board Committees and contribution of each individual Director. The Committee will also review the required mix of skills, experience and other qualities including core competencies, which non-executive Directors should bring to the Board. 14

16 AVENUE CAPITAL RESOURCES BERHAD S t a t e m e n t o n C o r p o r a t e G o v e r n a n c e 2.4 Options Committee The Options Committee was established by the Board to administer the Company s Employee Share Option Scheme ( ESOS ), which was implemented on 10 June The Option Committee ensures that the scheme is administered in accordance with the ESOS bye-laws which has been approved by shareholders of the Company. 3. ACCOUNTABILITY AND AUDIT 3.1 Financial Reporting It is the commitment of the Board to provide a balanced, clear and meaningful assessment of the Group s financial performance and prospects. As such, the Board ensures that the quarterly result announcements are made on a timely basis and that the annual financial statements of the Group are made out in accordance with the applicable approved accounting standards and the provisions of the Companies Act, The Statement of Directors Responsibilities is set out on page Internal Control The Board has overall responsibility for maintaining a sound system of internal control to provide reasonable assurance of the effectiveness of the Group s business operations and risk management. The Board is assisted by the Audit Committee and the internal audit function. The Statement of Internal Control is set out on pages 20 and Relations with the Auditors The Audit Committee meets with the external and internal auditors at least twice a year to discuss on audit plans, findings and the financial statements. This is further described in the Audit Committee Report as set out on pages 17 to 19. The audit fees paid or payable to the external auditors, Messrs. Deloitte KassimChan, by the Group during the financial year are disclosed in the financial statements. There are no non-audit fees paid or payable during the financial year. 4. SHAREHOLDERS COMMUNICATION AND INVESTOR RELATION The Board acknowledges the need of its shareholders and potential investors to be informed of the Group s performance and major developments. As such, the Company ensures that the quarterly announcements of the Group s financial are made on a timely basis to provide its shareholders with an overview of the Group s performance and operations. In addition, numerous general announcements and press releases were made to update the shareholders on the status of the entire Group s restructuring exercise and other significant developments. General meetings convened by the Company remains the principal avenue for the opportunity to communicate with all shareholders and provide forums for discussion between the Directors and shareholders. Shareholders are encouraged to participate, seek clarification and make suggestions during the annual general meetings. Information on the Company and the Group s products and services is also available at the Company s website at 15

17 Annual Report 2005 Statement on Corporate Governance (cont d) 5. ADDITIONAL COMPLIANCE INFORMATION 5.1 Material Contracts There were no material contracts (not being contracts entered into in the ordinary course of business) entered into by the Company and its subsidiary companies involving Directors and major shareholders, either still subsisting at the end of the financial year ended 31 January 2005 or entered since the end of the previous financial year. 5.2 Recurrent Related Party Transactions At the Extraordinary General Meeting ( EGM ) held on 21 July 2004, the Company has obtained a mandate from its shareholders for Avenue Group to enter into recurrent related party transactions involving the interest of Minister of Finance, Incorporated ( MOF ) and/or persons connected with MOF. Details of the related party transactions which amounted to a total of RM1,353,000 in gross income during the financial year ended 31 January 2005 pursuant to the said shareholders mandate are as follows: Contracting Nature of Name of Nature of Interested Party of the Group Transaction Related Party Relationship Related Parties Avenue Asset Fund Management Pos Malaysia & MOF, being a major MOF Management Services Holdings shareholder of Avenue, Services Berhad ( PSH ) has 26% effective shareholdings in PSH Avenue Securities Placement of shares Tenaga Nasional MOF, being a major MOF Berhad ( TNB ) shareholder of Avenue has a deemed interest of 37% in TNB via Khazanah Nasional Berhad 5.3 Share Buy-Back At the EGM held on 21 July 2004, the Company has obtained shareholders approval pertaining to the renewal of authority to purchase its own shares of up to 10% of its issued and paid-up share capital. Details of the share buyback during the financial year are as follows: Date No of Shares Bought Back Total and Held as Treasury Shares Consideration 21 July RM December RM

18 AVENUE CAPITAL RESOURCES BERHAD Audit Committee Report The Audit Committee was established to assist the Board in ensuring the effectiveness of the Group s system of internal control. MEMBERS AND ATTENDANCE The members of the Audit Committee, appointed by the Board, and the details of their attendance of meetings during the year are as follows: Datuk Dr. Baharun Azhar bin Raffiai 5/5 (Chairman/Independent Non-Executive Director) Tan Sri Samshuri bin Arshad 5/5 (Independent Non-Executive Director) Mr Gooi Hoe Soon 4/5 (Non-Independent Non-Executive Director) There were five meetings held during the financial year. The group managing director, head of internal audit and representatives of the external auditors attended some of the meetings by invitation to brief the Committee on specific issues. TERMS OF REFERENCE 1. Membership The Committee shall be appointed by the Board and shall consist of not less than three members, the majority of whom shall be independent non-executive directors and at least one member shall be a member of the Malaysian Institute of Accountants or one of the associations of accountants specified in Part II of the 1st Schedule of the Accountants Act, The Committee shall not consist of any alternate directors of the Company. In the event of any vacancy in the Committee resulting in the non-compliance of the above, the Board must fill the vacancy within 3 months. The Chairman shall be elected by the Committee from among their members and who shall be an independent nonexecutive director. 2. Meetings The Committee must ensure that other directors and senior management attend any particular meeting only at the Committee s invitation, specific to the relevant meeting. The Company Secretary shall act as the secretary of the Committee. Meetings shall be held at least four times a year. The quorum for any meeting shall be two members who shall be independent non-executive directors. 17

19 Annual Report 2005 Audit Committee Report (cont d) 3. Authority The Committee is authorised by the Board and shall: a) have authority to investigate any matter within its terms of reference; b) have the resources which are required to perform its duties; c) have full and unrestricted access to any information pertaining to the Group; d) have direct communication channels with the external auditors and the internal auditors; e) be able to obtain independent professional or other advice as necessary; and f) be able to convene meetings with the external auditors, excluding the attendance of the executive members of the Committee, whenever deemed necessary. 4. Duties of the Committee The duties of the Committee are: a) to review with the external auditors the audit plan, their evaluation of the system of internal controls and their audit reports; b) to review the assistance given by the employees of the Company to the external auditors; c) to review the adequacy of the scope, functions and resources of the internal audit department and that it has the necessary authority to carry out its work; d) to review the internal audit programme and processes, the results of the internal audit programme, processes or investigation undertaken and whether or not appropriate action is taken on the recommendations of the internal audit function; e) to review reports prepared by the officers of a subsidiary company relating to compliance with statutory and regulatory requirements and the necessary remedial actions to be taken, if any; f) to review the quarterly results and year end financial statements, prior to the approval by the Board, focusing particularly on: any changes in accounting policies and practices; significant adjustments arising from the audit; the going concern assumption; and compliance with accounting standards and other legal requirements. g) to monitor any related party transaction and conflict of interest situation that may arise within the Company or Group including any transaction, procedure or course of conduct that raises questions of management integrity; h) to consider and recommend the nomination and appointment of external auditors, the audit fees and any questions of resignation, dismissal or re-appointment; and 18 i) to report promptly to the Bursa Malaysia Securities Berhad ( Bursa Securities ) where the Committee is of the view that a matter reported by it to the Board has not been satisfactorily resolved resulting in a breach of the Listing Requirements of Bursa Securities.

20 AVENUE CAPITAL RESOURCES BERHAD A u d i t C o m m i t t e e R e p o r t SUMMARY OF ACTIVITIES During the financial year under review, the Committee carried out the following activities: reviewed the quarterly and annual financial statements and ensured that the financial reporting and disclosure requirements had been complied with before recommending them for the approval of the Board; reviewed the adequacy of the scope and the audit plans for the Group prepared by both the internal and external auditors; reviewed and discussed the audit reports for the Group prepared by the external auditors, their findings and management responses thereto; reviewed and discussed the internal audit reports prepared by the internal audit function, the findings, management responses and audit recommendations; reviewed the related party transactions entered into by the Group with its related corporations; reviewed the allocation of shares options during the year to ensure that this was in compliance with the allocation criteria determined by the ESOS Options Committee and ESOS Bye-Laws; and reviewed and approved the minutes of the Committee meetings. INTERNAL AUDIT FUNCTION The internal audit function was established to independently conduct regular and systematic reviews of the Group s system of internal control so as to provide assurance that the system continues to operate satisfactorily and effectively and as such, assist the Committee in discharging its duties and responsibilities. The internal audit function of the Group is carried out by the internal audit division of Avenue Securities, a wholly-owned subsidiary of the Company. The main roles of the function are as follows: a) ascertaining the adequacy of its internal controls and procedures that are specifically designed to detect and/or prevent violations; b) ascertaining the efficiency and effectiveness of policies and procedures in relation to credit control and risk management; c) reviewing the relevance, reliability and integrity of financial and operational information generated and the means used to identify, measure, classify and report such information; d) ascertaining that the financial and accounting records and reports contain accurate, reliable, timely, complete and relevant information and are prepared in compliance with applicable approved accounting standards; e) coordinating with the external auditors in planning of audit activities, developing common auditing techniques, exchanging work papers and participating in onsite reviews; f) performing special reviews and/or investigations as requested by management or the Committee; g) ascertaining the extent to which the Group s assets are accounted for and safeguard from losses of all kinds; and h) identifying opportunities to improve the operations of and processes in the Company and the Group. During the financial year it has carried out 20 assignments and reviews. The audit findings were discussed with senior management before they were tabled to the audit committees with recommendations made to the respective managements. 19

21 Annual Report 2005 Statement of Internal Control The Malaysian Code on Corporate Governance requires listed companies to maintain a sound system of internal control to safeguard shareholders investment and the Group s assets. The Board is pleased to present below the internal control statement, which has been prepared in accordance with the Statement on Internal Control: Guidance for Directors of Public Listed Companies. RESPONSIBILITY The Board of Directors acknowledges its responsibility for the Group s system of internal control, which is designed to identify and manage the risks facing the business in pursuit of its objectives and for reviewing the adequacy and integrity of this system. The system of internal control covers risk management and financial, operational and compliance controls to safeguard shareholders investments and the Group s assets. This system is designed to manage, rather than to eliminate, the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. RISK MANAGEMENT FRAMEWORK The Board reviews the financial statement and status reports of the Group on a quarterly basis, assessing the risk strategy and the overall management of principal areas of risk. The operations of the Group are subject to a variety of financial risks, including credit risk, liquidity risk and cashflow risk. The Group has formulated a financial risk management framework which principal objective is to minimise the Group s exposure to risks and/or costs associated with its operating, financing and investing activities. Management committees have been established at each business unit and at the Group level to monitor and manage such risks, including the control over capital expenditure and cashflow management. The credit control of each business unit is entrusted with the responsibility of managing credit risk and monitoring credit ratings. It is primarily involved in managing and enhancing asset quality, formulating and reviewing credit policies as well as documentation of credit policies and procedures for adherence by the business unit. To assist the business units and support departments in managing operational risk in their respective functional areas on a more effective and efficient basis, the internal audit department has identified inherent risks of the various activities undertaken by each business unit by developing a template for each business function. This risk-based approach manages operational risk by addressing the probability of an event occurring and identifying those activities which have the highest level of inherent risk. The process of reviewing the adequacy and the integrity of internal control policies and practices is a continuous process and the Board will from time to time reviews the monitoring and reporting process to ensure their effectiveness on the whole. 20

22 AVENUE CAPITAL RESOURCES BERHAD S t a t e m e n t o f I n t e r n a l C o n t r o l INTERNAL CONTROL The following are the key elements of the Group s system of internal control: policies and procedures manuals clearly documented the policies, procedures and practices adopted by the Group to ensure clear accountabilities and control procedures as well as proper segregation of tasks among departments and staff are in place for all business units; the compliance function, which include the Audit Committees and Internal Audit Functions, assist the Board to oversee the management of risks and review the efficiency and effectiveness of the internal controls of the Group; regular internal audits are carried out according to approved annual audit plan to review the adequacy and integrity of the internal control systems of the business units. It acts as a service to the business by assisting with the continuous improvement of controls and procedures. The reports are submitted to the Audit Committees, which review the findings with the respective management at the Committee meetings. These, together with the external auditors reports, provide reasonable assurance that control procedures are in place and are being followed; regular and comprehensive information covering financial and cashflow performance, operational status reports are provided to the Board and senior management to facilitate the monitoring control process in ensuring that the business operates smoothly; and detailed annual budgeting process where each business units prepare budgets, business plans and other expenditure requirements which are approved by the management committees of the respective business units and at the Group. The actual results against these budgets are reviewed monthly by the management committees, with major variances being followed up and management actions taken, where necessary. This statement was made in accordance with the resolution of the Board dated 18 May

23 Annual Report 2005 Statement of the Directors Responsibilities The Directors are required by the Companies Act, 1965 of prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Group and of the Company as at the end of the financial year and of their results and cash flows for the financial year then ended. In preparing the financial statements, the Directors have: ensured that all appropriate and applicable approved accounting standards have been consistently applied; made judgements and estimates that are reasonable and prudent; and prepared the financial statements on a going concern basis. The Directors are responsible for ensuring that the Group and the Company maintain adequate accounting records which disclose with reasonable accuracy the financial position of the Group and the Company which enable them to ensure that the financial statements comply with the requirements of the Companies Act, 1965 and applicable approved accounting standards in Malaysia. The Directors are also responsible for taking such steps as are reasonably open to them to safeguard the assets of the Group and the Company to prevent and detect fraud and other irregularities. 22

24 AVENUE CAPITAL RESOURCES BERHAD Corporate Calendar 25 March 2004 Avenue Unit Trust organised a 1-day seminar on Tax & Investment for corporate investors in Kuala Lumpur. 1 April 2004 Avenue Unit Trust's 10th sales centre was officially opened in Kuching, Sarawak April 2004 Avenue Unit Trust's annual investment roadshows were held nationwide throughout the month as a forum to meet and update investors, both existing and potential investors. 21 July 2004 The 76th annual general meeting of Avenue was held at Bangunan THB Satu in Damansara Heights. It was followed by an extraordinary general meeting. 9 September 2004 Avenue Securities officially opened its 2nd electronic access facility in Teluk Intan, Perak Darul Ridzuan. 30 June 2004 The Avenue website, showcasing the Group's activities and services, was launched. 3-4 August 2004 Avenue co-sponsored a regional conference in Kuala Lumpur organised by Euromoney, aptly titled Remaking Malaysia: Investing In the New Malaysia. As the co-sponsor, Avenue hosted a workshop session titled A New Investment Strategy for a New Malaysia. 20 September 2004 The underwriting ceremony in conjunction with the listing of Ekowood International Berhad was held. Avenue Securities was the adviser, joint lead placement agent, managing underwriter and underwriter. 16 July 2004 Avenue Unit Trust jointly with The Sun and Nanyang Siang Pau organised a 20- weekly contest Avenue Composite Index Challenge. 17 August 2004 Avenue Securities organised its first telecommunications conference in Kuala Lumpur titled Technology Development and Future Strategic Direction of Service Providers September 2004 Avenue co-sponsored in the Malaysian Market Summit 2004 with the theme, Strengthening the Malaysian Capital Market Towards Global Compatibility organised by The Asian Strategy & Leadership Institute. The summit is aimed at identifying the key challenges faced by the industry and how best to respond to them. 23

25 Annual Report 2005 Corporate Calendar (cont d) 18 October 2004 The 3rd electronic access facility of Avenue Securities was officially opened in Kluang, Johor Darul Takzim. 5 January 2005 Launch of Fotronics Corporation Berhad s prospectus for its IPO exercise of 50,745,000 of ordinary shares. Avenue Securities was the adviser, sponsor, placement agent and underwriter. 18, 23 & 25 November 2004 Avenue Unit Trust organised a 1-day investment talk for corporate and retail investors in Penang, Johor Bahru and Kuala Lumpur. 17 December 2004 Avenue Composite Index Grand Challenge held at Corus Hotel, Kuala Lumpur where the grand prize is RM100,000 in cash. Picture courtesy of NST 7 January 2005 The management, staff and remisiers of Avenue Group donated monetary assistance towards the Malaysian Tsunami Disaster Fund to support the disaster relief efforts. 29 November 2004 Avenue hosted its Hari Raya Open House at Kuala Lumpur Golf & Country Club. A total of 400 staff, clients and guests attended the function. 4-5 December 2004 This year's Avenue Group's Get-Away for all staff was held at the A 'Famosa Resort in Malacca. Staff members from all branches and sales centres joined in the 2-day trip. 25 December 2004 Avenue Securities made a significant achievement when it was voted The most improved local research house and The second best local research house. 7-9 January 2005 Avenue Unit Trust was the main sponsor for the inaugural money expo held at Mid Valley Exhibition Centre. The expo was aimed at educating the public on the latest personal financial products and its benefits. 24