N2N CONNECT BERHAD ANNUAL REPORT 2011 N2N CONNECT BERHAD (523137-K) Wisma N2N Level 9, Tower 2 Avenue 3, Bangsar South No. 8, Jalan Kerinchi 59200 Kuala Lumpur Tel Fax Helpdesk Email Website : : : : : (603).2241 1818 (603).2241 1616 (603).2241 1333 helpdesk@n2nconnect.com www.n2nconnect.com 2011
01 Corporate Section What s inside The content of N2N Connect Annual Report 2011 Corporate Section Corporate Information 02 Corporate Structure 03 Chairman s Statement 04 Directors Profile 09 Event Highlights 12 Corporate Governance Statement 14 Statement on Internal Control 19 Audit Committee Report 20 Additional Compliance Information 25 Financial Section Directors Report 28 Statement by Directors 32 Statutory Declaration 32 Independent Auditors Report to the Members 33 Statements of Financial Position 35 Statements of Comprehensive Income 36 Statements of Changes in Equity 37 Consolidated Statement of Cash Flows 39 Statement of Cash Flows 41 Notes to the Financial Statements 43 Analysis of Shareholdings 84 Notice of Annual General Meeting 86 Proxy Form N2N Connect Berhad Annual Report 2011
Corporate Section 02 Corporate Information DIRECTORS Izlan bin Izhab (Independent Non-Executive Chairman) Tiang Boon Hwa (Managing Director) Lai Su Ping (Non-Independent Executive Director) Chua Tiong Hoong (Non-Independent Executive Director) Cho Wai Loon (Independent Non-Executive Director) Tan Boon Leng (Independent Non-Executive Director) COMPANY SECRETARIES Ho Mun Yee (MAICSA 0877877) Tam Fong Ying (MAICSA 7007857) REGISTERED OFFICE 3rd Floor 17, Jalan Ipoh Kecil 50350 Kuala Lumpur Telephone no.: 603 4044 3235 Fax no.: 603 4041 3959 E-mail: esprit@espritms.com.my HEAD OFFICE Wisma N2N Level 9, Tower 2 Avenue 3, Bangsar South No. 8, Jalan Kerinchi 59200 Kuala Lumpur Telephone no.: 603 2241 1818 Website: www.n2nconnect.com AUDITORS Morison Anuarul Azizan Chew (AF 001977) Chartered Accountants 18, Jalan 1/64 Off Jalan Kolam Air/Jalan Ipoh 51200 Kuala Lumpur Telephone no.: 603 4048 2888 REGISTRAR Symphony Share Registrars Sdn Bhd (378993-D) Level 6, Symphony House Pusat Dagangan Dana 1, Jalan PJU 1A/46, 47301 Petaling Jaya, Selangor Telephone no. : 603 7841 8000 Fax : 603 7841 8008 PRINCIPAL BANKERS Malayan Banking Berhad AmBank (M) Berhad STOCK EXCHANGE LISTING ACE Market of Bursa Malaysia Securities Berhad Stock Name: N2N Stock Code : 0108
03 Corporate Section Corporate Structure N2N GLOBAL SOLUTIONS SDN BHD ( N2NGS ) 100% 100% N2N CONNECT BERHAD ( N2N ) 100% N2N CONNECT PTE LTD ( N2NS ) NGN CONNECTION SDN BHD ( NGN )
Corporate Section 04 Chairman s Statement Dear Shareholders, On behalf of the Board of Directors of N2N Connect Berhad ( N2N or Company ), it is my pleasure to present the Annual Report and Audited Financial Statements of N2N and its subsidiaries ( Group ) for the financial year ended 31 December 2011 ( Year 2011 ). The year under review was one during which the Group improved its financial performance significantly and gained momentum in its efforts to emerge as the leading local and regional Innovative Application Service Provider for the e-commerce and m-commerce segments of the Financial Industry.
05 Corporate Section FINANCIAL PERFORMANCE HIGHLIGHTS Year 2011 was a period during which the Group focused on building capabilities in Direct Market Access ( DMA ) and Market Message Transfer Protocol ( MMTP ) with various exchanges globally, and delivery of value-added services while continuing to improve internal operational and financial efficiencies. Asian Gateway. As an ongoing conformance exercise, the Group pledged to provide our innovative services and on the mark with world-class trading technologies. INDUSTRY TREND AND DEVELOPMENT Market Overview Revenue for the year increased 38.6% to RM20.7 million as ebrokerconnect TM business grew 4.3% to RM10.35 million while revenue from the provision of managed network services jumped 113.4% to RM10.22 million, reflecting increasing customer acceptance of our one-stop service solutions. Our loss of RM1.47 million for Year 2011 has been reduced sharply from a loss of RM6.50 million a year earlier, reflecting the intensive efforts to improve internal efficiencies while growing the top line. In particular, I draw shareholders attention to the performance of the final October-December 2011 quarter ( 4Q 2011 ) when we recorded a profit of RM0.44 million on revenue of RM5.82 million, a considerable improvement from RM0.13 million and RM4.24 million, respectively, a year earlier. The Group continues to grow revenue locally by migrating existing clients in Malaysia who have yet to join the new trading platform, and by winning new clients. Our efforts to improve our value proposition have resulted in our distinction of being the only one local provider in the industry currently to provide a complete replacement for the Broker Front End system, which will reach the end of its life cycle in 2012. Malaysian Information Technology ( IT ) spending is expected to grow to US$5.2 billion in 2012, from US$4.9 billion in 2011. Business Monitor International forecasts 9% overall growth in Malaysian IT spending in 2011. Demand is expected to stay resilient overall, even as economic growth moderates. IT-friendly budget measures boosted the upturn in 2011 and there was also a boost from previously delayed computer hardware tenders. There will be increasingly attractive opportunities in the IT services area as the government implements measures to make Malaysia a regional services hub. The government has a number of initiatives with favourable implications for demand for IT products and services, including cloud computing for small and medium-sized enterprises ( SME ) and computers for education programmes. The IT market overall has strong growth fundamentals and key sectors will include government, telecoms and finance, including Islamic banking. The National Broadband Initiative has the potential to boost demand across all IT market segments. Industry Developments In Singapore, our ebrokerconnect TM system has been certified and in conformance with the Singapore Exchange ( SGX ) Reach, the world s fastest trading engine in SGX s efforts to secure its position as the In October 2011, the Multimedia Development Corporation ( MDeC ) announced it was allocating RM1.8 million to help SMEs to use cloudcomputing. The funds will be provided in the form
Corporate Section 06 Chairman s Statement of disbursements and benefits for independent software vendors ( ISVs ) to develop cloud solutions for SMEs. The MDeC has also set aside RM2.25 million to deploy cloud software and services developed by ISVs. Malaysia s 2011 budget contained a number of measures to boost the IT industry and help stimulate Information, Communication and Technology ( ICT ) adoption in the country. Key measures included a two-year extension on import tax and sales tax exemption on broadband equipment, and the establishment of the MY Creative Content programme to encourage the development of local content. The tax exemption should stimulate the purchase of various types of connectivity devices, including notebook Personal Computers. (Source: Malaysia Information Technology Report Q1 2012) RESEARCH AND DEVELOPMENT ( R&D ) The Group continues its main focus on its R&D efforts as it believes R&D will remain a critical factor for N2N to maintain its competitive edge and remain a leader in the constantly evolving financial industry. As the Group caters primarily to stockbroking companies and banks outsourcing e-business locally and regionally, factors such as data security, accuracy, capacity, dependability, and speed are critical to the marketability of the Group s services. As such, the Group s R&D scope is to strengthen the performance of its existing e-commerce segment while developing and enhancing new applications and services, particularly its financial suite, GlobalConnect and TraderConnect which incorporates a powerful technical analysis toolkit and innovative trading capabilities to deliver stateof-the-art desktop trading management system. Besides investing about 10% to 15% of its revenue on R&D, the Company will continue to invest in training and development skills for the employees in its R&D team and continue to encourage the development of fresh innovative concepts. FUTURE PROSPECTS As the country s leading online trading service provider with DMA capabilities, we are in a unique position to capitalise on distinctive trends in the provision of technology solutions for the securities industry. A confluence of factors has opened up significant opportunities for N2N at a time when our technological capabilities and business model have matured. Many of the current trading platforms used by stockbrokers in the region are due for replacement. These replacement programmes are coming at a time when brokers want to have more streamlined crossborder trades, both broker-assisted or pure internet trading, simplified risk management and access to fundamental data and tools to facilitate decisionmaking. Of equal significance is the growing trend for the stock exchanges themselves to reduce their role as the provider of technological platforms so that they can focus on their core functions as regulator and promoter of the capital market. Against this backdrop, we have refined our solutions and stepped up our marketing to securities houses
07 Corporate Section and even to some exchanges. The larger securities houses headquartered in Malaysia are themselves expanding in the region and require standardised front and back-end systems which we can provide. The Group will continue to expand its operations in Malaysia, Singapore and Indonesia and to further penetrate overseas markets such as Philippines, Hong Kong and Thailand. I would also like to thank our shareholders for their continued support and confidence to our business. Izlan bin Izhab Chairman Having turned the corner in financial performance, our focus over the next two to three years is to take advantage of this changing landscape to offer our solutions as the standard-bearer for the securities industry. In so doing, we will enhance shareholder value. The Board remains confident that, with a proven global strategy, continued strong execution and further differentiation in products and services, the Group will deliver profitable growth in the coming year. ACKNOWLEDGEMENT On behalf of the Independent Non-Executive Directors, I would like to thank the Executive Directors, the senior management team and all the N2N staff for all their hard work, dedication and invaluable assistance to the Company s standing as pioneers and to the Group as a whole. I am also grateful for the ongoing support of our customers. Many of our customer relationships have strengthened over the recent years with our responsibilities extending to include new solutions that ultimately help their business expand both locally and regionally.
Corporate Section 08 Board of Directors 1 2 3 4 5 6 1. Tan Boon Leng Independent Non-Executive Director 2. Tiang Boon Hwa Managing Director 3. Chua Tiong Hoong Non-Independent Executive Director 4. Izlan bin Izhab Independent Non-Executive Chairman 5. Lai Su Ping Non-Independent Executive Director 6. Cho Wai Loon Independent Non-Executive Director
09 Corporate Section Directors Profile Izlan bin Izhab was first appointed to the Board of the Company on 22 August 2005. He holds a Bachelor of Laws degree from the University of London, UK and attended the Advanced Management Program at the University of Hawaii, USA. He occasionally lectures on Malaysian securities law, companies law and corporate governance for various public and private sector consultancy and training organizations. He was the Executive Vice- President of Corporate and Legal Affairs of Bursa Malaysia Berhad from 1985 until his retirement in 2000. He was also serving as Company Secretary for Kompleks Kewangan Malaysia Berhad from 1975 to 1978, before becoming the Company Secretary for Permodalan Nasional Berhad from 1978 to 1984. He began his career by serving as an Assistant Legal Officer for Majlis Amanah Rakyat in 1973. He is currently a Director of BOX-PAK (Malaysia) Berhad, CIMB Aviva Assurance Berhad, CIMB Aviva Takaful Berhad, K&N Kenanga Holdings Berhad, Malaysia Airports Holdings Berhad and OSK-UOB Investment Management Berhad (formerly known as OSK-UOB Unit Trust Management Berhad). He is also a member of the Board of Governors of Research Institute of Investment Analysts and Bursa Malaysia Berhad s Appeals Committee. He also sits as the Chairman of the Option Committee and as a member of the Audit Committee, Nomination Committee and Remuneration Committee. Izlan bin Izhab 66 years of age, Malaysian Independent Non-Executive Chairman He has no family relationship with any other directors or major shareholders of the Company. There is no conflict of interest with the Company. Within the last 10 years, he has not been convicted for any offences, other than traffic offences, if any. He does not hold any shares in N2N. Tiang Boon Hwa is one of the Company s founders and was first appointed to the Board of the Company on 24 August 2000. He obtained his Diploma in Computer Studies from City and Guilds of London Institute, UK in 1982. His main responsibilities include management of the Group s overall business, technology and financial matters. He started his career as a programmer with SGV Goh Tan Pte Ltd, a Singapore accounting cum software house and was promoted to senior consultant at the age of 25. In 1988, he left SGV Goh Tan Pte Ltd and headed the regional audit division (IT audit) of Citibank N.A South Asia, based in Singapore and was subsequently awarded the Best IT Auditor for Asia Pacific Region in 1989. He joined Computer Associates Pte Ltd in 1990 as an account manager and quickly rose to become the managing director for Computer Associates Pte Ltd s subsidiary in Malaysia in 1992. Later, he joined i2 Technologies Pte Ltd in 1996 as a regional director to set presence in several Asian countries. In 1998, he joined Exact Software Asia Sdn Bhd to start up the Asia Development Centre. Having gained wide exposure in both information technology and business operations, he began his entrepreneur pursuit by starting N2N, in year 2000 together with several friends. Currently, he sits as a member of the Remuneration Committee and Option Committee. He does not hold any directorships on the Board of other public listed companies in Malaysia. Tiang Boon Hwa 49 years of age, Singaporean Managing Director He is a substantial shareholder of the Company and the husband of Lai Su Ping, the non-independent executive director and substantial shareholder of the Company. There is no conflict of interest with the Company. Within the last 10 years, he has not been convicted for any offences, other than traffic offences, if any. Please refer to page 85 of this Annual Report for his securities holding.
Corporate Section 10 Directors Lai Su Ping is one of the Company s founders and currently an Executive Director of marketing and corporate events. She was first appointed to our Board on 10 August 2000. She obtained her Diploma in Marketing from the Chartered Institute of Marketing, UK in 1991. She is primarily responsible for the corporate events and public relations of our Company. She started her career in 1988 as a marketing executive for Yvonex Sdn Bhd and later she joined Kumpulan Jetson Berhad as a project executive specialising in events and exhibition organisation. In 1994, she joined Computer Associates (M) Sdn Bhd as a channel manager where she was instrumental in establishing a customer service team as well as setting up channel sales via the appointment of product distributors. She does not hold any directorships on the Board of other public listed companies in Malaysia. Lai Su Ping 41 years of age, Malaysian Non-Independent Executive Director She is a substantial shareholder of the Company and the wife of Tiang Boon Hwa, the managing director and substantial shareholder of the Company. There is no conflict of interest with the Company. Within the last 10 years, she has not been convicted for any offences, other than traffic offences, if any. Please refer to page 85 of this Annual Report for her securities holding. Chua Tiong Hoong is one of the Company s founders and currently an Executive Director of business development. He was first appointed to the Board of the Company on 10 August 2000. He graduated with a Bachelor of Science in Computer Science (Double Major in Mathematics and Computing) degree from the University of Adelaide (Australia) in 1992. His main responsibility includes managing the day-to-day operations focusing on project implementation and technical operations of our Group. He started his career as a network engineer at Applied Business System Sdn Bhd in 1993. He was later responsible for project development and also managing the company s helpdesk. In 1994, he joined MicroForest Systems (M) Sdn Bhd as a project manager to spearhead the implementation of resource planning, point-of-sales and back-end systems for retail and manufacturing industries. He also supported the multilevel marketing and chemical manufacturing system. From 1997 to 2000, he was with Exact Software Asia Sdn Bhd as an assistant manager responsible for system development, specialising in Enterprise Resources Planning System. He founded N2N together with the founder members in 2000. He does not hold any directorships on the Board of other public listed companies in Malaysia. Chua Tiong Hoong 41 years of age, Malaysian Non-Independent Executive Director He has no family relationship with any other directors or major shareholders of the Company. There is no conflict of interest with the Company. Within the last 10 years, he has not been convicted for any offences, other than traffic offences, if any. Please refer to page 85 of this Annual Report for his securities holding.