ANNUAL REPORT 2018 · Annual Report 2018 03 Group STrucTure Our existing Group structure is as...

ANNUAL REPORT 2018

ContentsTable of

Focus Lumber Berhad (188710-V)

A n n u a l R e p o r t 2 0 1 8

02Corporate Information

03Group Structure

04Directors’ Profile

07Key Senior Management’s Profile

09Management Discussion & Analysis

16Sustainability Statement

25Corporate Governance Overview Statement

38Audit Committee Report

41Directors’ Responsibility Statement

42Statement onRisk Management & Internal Control

48Additional Compliance Information

49Financial Statements

119List of Properties

120Analysis of Shareholdings

123Notice of Twenty-Ninth Annual General Meeting

130Statement Accompanying Notice of Annual General Meeting

Proxy Form

FOCUS LUMBER BERHAD (188710-V)02

CorporateInformaTIon

AUDIT COMMITTEE

Wong Yoke Nyen (Chairman)Datuk Aznam Bin Mansor (Member)Ng Tian Meng (Member)

REMUNERATION COMMITTEE

Ng Tian Meng (Chairman)Wong Yoke Nyen (Member)Datuk Aznam Bin Mansor (Member)

NOMINATION COMMITTEE

Datuk Aznam Bin Mansor (Chairman)Wong Yoke Nyen (Member)Ng Tian Meng (Member)

EMpLOYEES’ SHARE OpTION SCHEME COMMITTEE

Lin Hao Wen (Chairman)Ng Tian Meng (Member)Wong Yoke Nyen (Member)Lin Hao Yu (Member)

COMpANY SECRETARIES

Wong Wai Foong (MAICSA 7001358)Wong peir Chyun (MAICSA 7018710)Liew pui Ling (MAICSA 7058897)

REGISTERED OFFICE

12A, Jalan Teluk Likas88450 Kota Kinabalu, SabahTel No : 088-393255/393257/393258Fax No : 088-393169Email : [email protected]

Senior Independent Non-Executive Director: Datuk Aznam Bin MansorEmail : [email protected]

FACTORY

Mile 3, Jalan Masak, Kampung Ulu PatikangLocked Bag 13 SM-88, 89009 Keningau, SabahTel No : 087-335457/335458/334761/334766Fax No : 087-335459Email : [email protected]

AUDITORS

Ernst & Young (AF:0039)Suite 1-10-W1, 10th FloorCPS Tower, Centre Point SabahNo.1, Jalan Centre Point88000 Kota Kinabalu, Sabah

pRINCIpAL BANKERS

OCBC Bank (Malaysia) BerhadRHB Bank BerhadAmIslamic Bank BerhadPublic Bank BerhadArgo Bank (Malaysia) BerhadUOB (Malaysia) Berhad

SHARE REGISTRAR

Tricor Investor & Issuing House Services Sdn BhdUnit 32-01, Level 32, Tower A, Vertical Business SuiteAvenue 3, Bangsar South, No.8, Jalan Kerinchi59200 Kuala Lumpur, MalaysiaTel No : 03-2783 9299Fax No : 03-2783 9222

STOCK EXCHANGE LISTING

Main Market of Bursa Malaysia Securities Berhad

STOCK NAME/CODE

FLBHD / 5197

WEBSITE

www.focuslumber.com.my

BOARD OF DIRECTORS

Datuk Aznam Bin MansorChairman/Independent Non-Executive Director

Lin Hao WenManaging Director

Lin Fong MingExecutive Director

Lin Hao YuExecutive Director

Wong Yoke NyenIndependent Non-Executive Director

Ng Tian MengIndependent Non-Executive Director

A n n u a l R e p o r t 2 0 1 8 03

GroupSTrucTureOur existing Group structure is as follows:-

UNTUNG RIA SDN BHD(434316-V)

• It principally involved in the generation and sale of electricity.• It reuses bulk waste to generate biomass energy to supply electricity to our Group’s operation.

FOCUS LUMBER BERHAD(188710-V )

100%


Directors’ProfIle

Date appointed: 24 November 2010

Date appointed: 14 July 2009

Age: 60

Age: 40

Gender: Male

Gender: Male

Nationality: Malaysian

Nationality: Taiwanese

Datuk Aznam Bin MansorChairman/Independent Non-Executive Director

Lin Hao WenManaging Director

Datuk Aznam Bin Mansor, is the Chairman and Independent Non-Executive Director of the Company. He is also a member of the Remuneration Committee and Audit Committee as well as the Chairman of Nomination Committee of the Company.

He is an Advocate and Solicitor by profession having been admitted as a Barrister at Law of Lincoln’s Inn in 1984 and admitted and enrolled as an Advocate and Solicitor of the High Court of Malaya in 1986. Upon his admission to the Malaysian Bar, he commenced his legal practice and he has been a partner of his present legal practice, Lee Hishammuddin Allen & Gledhill since 1993. Currently, he is the Independent Non-Executive Chairman and a member of the Audit, Remuneration and Nomination Committee of Mikro MSC Berhad and Sentoria Group Berhad. He is also the Senior Independent Non-Executive Director of the Company.

He has no family relationship with any Director and/or major shareholder of the Company.

He has attended 5 out of 6 Board Meetings held during the financial year ended 31 December 2018.

Mr Lin Hao Wen graduated from Yuan-Ze University, Taiwan with a Bachelor of Computer Science in 2001 and subsequently pursued his Master in Business Administration (Major in Supply Chain Management) in Eastern Michigan University, USA. He graduated in 2006 and started his career with our Group in 2007 as Assistant to the Managing Director overseeing the business operation in the area of production and marketing. Subsequently, on 1 March 2013, he was appointed as the Managing Director of the Company. He is the Chairman of Employees’ Share Option Scheme Committee. He also holds directorship in the subsidiary of the Company.

He is the son of Mr. Lin Fong Ming and the brother of Mr. Lin Hao Yu, whom both are Executive Directors and major shareholders of the Company.


A n n u a l R e p o r t 2 0 1 8 05

Directors’ Profile


Date appointed: 15 July 2016

Age: 69

Age: 42

Gender: Male

Gender: Male



Lin Fong MingExecutive Director

Lin Hao YuExecutive Director

Mr Lin Fong Ming is one of our Company’s founders. He graduated with a Diploma in Science from the Tung Fang Institute of Technology. He possesses about 40 years of experience in the trading of timber and plywood manufacturing. He has been playing an instrumental role in charting the strategic direction of our Group. Under his leadership, our Group has grown from a small company to a major player in the plywood manufacturing industry. With his vast experience in the industry and technical expertise and know-how in the manufacturing of plywood, our Group has been able to produce a wide range of quality plywood that meet customers’ requirements and international quality standards. In year 2013, he resigned the position of Managing Director of our Company due to health reason. And he was re-appointed to our Board as Executive Director on 19 November 2015.

He started his career in the timber industry as a timber trader in Taiwan, attached to a timber trading and plywood manufacturing company in Taiwan. Between 1981 and 2002, he and the other two (2) founders owned a timber trading company in Taiwan where he was a director of the company. Besides the plywood business, he also has investments in property development business in the PRC and a petrol station in Taiwan. Due to his extensive business experience and investments in various countries, he was appointed as the President of the East Malaysia Committee of Taipei Investors’ Association in Malaysia from 2001 to 2004 and Vice National-President of Taipei Investors’ Association Malaysia from 2003 to 2004. He was awarded the Best Overseas Chinese Entrepreneur by the Taiwanese government in 2005 in recognition of his entrepreneurship achievement overseas. In 2008, he was appointed as the Advisory Official in Malaysia for a year by the Taiwanese government to assist the government in handling Taiwanese residence affairs in Malaysia. In 2009, he was appointed for a two (2)-year term as an Overseas Compatriot Affair Commission member by the Taiwan government. His role as a member of the Overseas Compatriot Affair Commission is to act as one of the liaison person between the Taiwanese in Malaysia and the Taiwanese government. He also holds directorship in the subsidiary of the Company.

Mr. Lin Fong Ming is the father to Mr. Lin Hao Wen, the Managing Director and major shareholder of the Company and Mr. Lin Hao Yu, the Executive Director and major shareholder of the Company.


Mr Lin Hao Yu graduated from Advanced Vocational School of Agriculture & Technology in Sheng Li Gung Shan Taiwan major in Electrical & Mechanical Engineering. He has about nineteen (19) years of working experience in the timber industry. Prior to joining our Group, he started his working career with the Company in 1998 as a General Production Manager. Then he left to join a veneer production factory in Cambodia from 2000 to 2003 as a Production and Human Resource Manager. He returned to Malaysia to join a company involved in sawmilling from 2004 to 2008, holding the position as a Production Manager and also in charge of the sales and marketing department.

From 2009 till 2015, he started his own business of sawmill factory. He possesses a sufficient and broad experience in production, marketing, and human resource. In addition, he is familiar with Sabah timber industry and lumber concession and trading operation.

He is also a member of Employees’ Share Option Scheme Committee.

He is the son of Mr. Lin Fong Ming, the Executive Director and major shareholder of the Company and the brother of Mr. Lin Hao Wen, the Managing Director and major shareholder of the Company.



Directors’ Profile

Mr Ng Tian Meng, our Independent Non-Executive Director, is also the Chairman of Remuneration Committee and a member of Audit Committee, Nomination Committee and Employees’ Share Options Scheme Committee of the Company.

He has approximately 30 years of experience in the electrical engineering field involving engineering consultancy, project management, operation, maintenance, testing and commissioning. He started his engineering career and worked in Malayawata Steel Berhad as an Electrical Engineer between May 1981 and July 1983. Subsequently, he worked in several companies involved in the steel, engineering, brewery and camera manufacturing businesses. Currently, he is the Managing Director of Jurutera Perunding M & E NTM (S) Sdn Bhd and NTM Engineering Services Sdn Bhd.

Apart from his extensive working experience, he obtained his Council for National Academic Award Bachelor of Science (Major in Electrical and Electronic Engineering) from Robert Gordon Institute of Technology, Scotland in 1980. He is a corporate member of the Institution of Engineers Malaysia, the Institute of Engineers Australia and the Institute of Electrical Engineers United Kingdom. In addition, he is also a Professional Engineer registered with the Board of Engineers, Malaysia and the Institution of Engineers, Australia and a Chartered Engineer registered with the Engineering Council, United Kingdom.





Age: 60

Age: 63

Gender: Male

Gender: Male



Wong Yoke NyenIndependent Non-Executive Director

Ng Tian MengIndependent Non-Executive Director

Mr Wong Yoke Nyen, our Independent Non-Executive Director, is also the Chairman of the Audit Committee and member of Remuneration Committee, Nomination Committee and Employees’ Share Options Scheme Committee of the Company.

He obtained a Bachelor of Arts with Second Class Honours (First Division) degree, after having completed a course in Accountancy from the City of London Polytechnic, UK (now known as London Metropolitan University, UK) in 1981. He is also a graduate of the Wharton Advance Management Program from The Wharton School of the University of Pennsylvania, USA.

In 1981, he started his career in Baker Rooke, a firm of chartered accountants in London where he gained wide experience and exposure in the areas of auditing, accountancy and management consultancy work. In 1983, he joined Aseambankers Malaysia Berhad (now known as Maybank Investment Bank Berhad). He is a seasoned investment banker with more than thirty (30) years of dedicated corporate finance and investment banking experience. He was the Executive Vice President cum Head of Corporate Finance Division in Aseambankers Malaysia Berhad. In 2004, he started WYNCORP Advisory Sdn Bhd, a private company licensed to provide corporate finance advisory services.

He is currently the Managing Director of WYNCORP Advisory Sdn Bhd. He is also an Independent Non-Executive Director of New Hoong Fatt Holdings Berhad and was an Honorary Advisor to the Master Builders Association Malaysia. He is also an Independent Non-Executive Director of XiDeLang Holdings Limited, Benalec Holdings Berhad and Sentoria Group Berhad.

He brings with him a wealth of expertise and experience in the investment banking and corporate advisory sectors to join the team.



None of the Directors has:• any conviction for offences within the past 5 years other than traffic offences; and particulars of any public sanction or penalty

imposed by the relevant regulatory bodies during the financial year; and• Any conflict of interest with the Company.

A n n u a l R e p o r t 2 0 1 8 07

Key SeniormanagemenT’S ProfIle

Age: 57

Age: 61

Gender: Male

Gender: Male



Chong Sem ChanFactory Manager

Liew Soon HinLogs Purchasing Manager

Mr Chong Sem Chan (“Mr Chong”) graduated from AMC College, Kota Kinabalu, majoring in Accounting Course in 1982. He was a teacher at SRJK Yuk Nam Tenom, Sabah from 1983 till 1991. Then he switched his career path to timber industry being a Packing & Statistics Assistant Supervisor in Evermaster Wood Products Sdn Bhd, a hardwood veneer and plywood manufacturer located in Keningau, Sabah. With his hard work after 8 years, he was promoted as a Factory Manager in 1999.

He then left and worked in Kin Yip Wood Industries Sdn Bhd in Sabah from 2009 till 2010 as a Factory Manager. In the following year, he moved to Blue Leaders Sdn Bhd in Keningau, Sabah as a General Manager cum Veneer & Plywood Factory Manager for four years.

By now Mr. Chong possessed about twenty six (26) years of working experience in the timber industry. He joined Focus Lumber Berhad on 01 March 2015 as a Factory Manager, focusing on plywood production and manufacturing.


Mr Liew Soon Hin was appointed as the Logs Purchasing Manager of the Company in 01 November 2015. He has more than 38 years’ of experience in procurement of logs and inspecting, scaling and grading of the logs purchased. The recruitment was to fulfil the vacant position, where our previous Logs Purchasing Manager, Yang Hsi-Hsien resigned in June 2016. In 1997, he actually joined the Company as Logs Supervisor for 11 years.

He graduated from Chiwen Secondary School in Negeri Sembilan in 1975. Before joining the Company, he started his first job as a Camp Manager at Rimyasa Development Sdn Bhd from 1979 to 1996 where he gained the knowledge and experience of procurement of logs. In 2008, he then worked as a Camp Manager at Gasing Selatan Sdn Bhd, a logs contractor based in Keningau.



None of the Key Senior Management has:• any conviction for offences within the past 5 years other than traffic offences and particulars of any public sanction or penalty

imposed by the relevant regulatory bodies during the financial year;• Any conflict of interest with the Company; and• Any directorship in public companies and listed issuers

Age: 34

Gender: Male


Teh Yong KhimFinancial Controller

Mr Teh Yong Khim (“Mr Teh”) holds a Bachelor of Accounting from University of Malaya. He is a Member of the Malaysian Institute of Accountants (MIA) and also a Permanent Affiliate of the Association of Chartered Certified Accountants (ACCA).

During his final year study at the university, he worked as part-time audit staff at HS Teoh & Co. After graduating from university in August 2008, he pursued his career as an auditor in KPMG Singapore for 3 years where he gained solid experience in the areas of auditing and accountancy.

After returning to Sabah in year 2012, Mr. Teh joined Focus Lumber Berhad as an Accountant. He was then promoted to the position of Financial Controller on 11 June 2018.


Key Senior Management’s Profile

Age: 63

Gender: Male


Lin Fu MaoPurchasing Manager (Store Department)

Mr Lin Fu Mao, origins from Kaohsiung, Taiwan, was appointed as Purchasing Manager in 01 July 2016 mainly to take over Lu Kuan-Cheng’s job, our previous Executive Director who resigned on 03 August 2016. He graduated from Gang Shan Secondary School, Taiwan in 1971.

Before working in Malaysia, he was the Purchasing Supervisor of Pheapimex Fu-Chan (Cambodia) Co. Ltd., a timber related company located in Cambodia from 1995 till 2008.

He then moved to Miri, Sarawak, Malaysia in 2011 for his career and worked in Country Forest Industries Sdn. Bhd., a plywood and veneer manufacturing company as the Purchasing Manager till 2016.

He is the brother-in-law of Mr. Lin Fong Ming, the Executive Director and major shareholder of the Company.

A n n u a l R e p o r t 2 0 1 8 09

Management Discussionand analySISOvERvIEW

Focus Lumber Berhad (“FLBHD” or “the Company”) specialises in the manufacturing and sale of plywood, veneer and laminated veneer lumber (“LVL”). The Company started from a Sendirian Berhad in the early 90’s and has succeeded to list on the Main Market of Bursa Malaysia Securities Berhad on 28 April 2011.

Our wholly-owned subsidiary, Untung Ria Sdn Bhd is involved in the generation, transmission, distribution and sale of electricity. Untung Ria Sdn Bhd reuses bulk waste to generate biomass energy to supply electricity to our manufacturing plant.

Our factory and the biomass power plant of our subsidiary are located at Keningau, Sabah, Malaysia.

BUSINESS OBjECTIvE AND STRATEGIES

FLBHD strives to be a high quality plywood producer in Malaysia. The Company is a California Air Resources Board (“CARB”) Certified Manufacturer with formaldehyde emission of our plywood below 0.05 parts per million. In our plywood manufacturing process, we also adopt the product standard for imported wood veneer and platform (IHPA “C 2000) “C by the International Wood Products Association (“IWPA”), United States (“US”) and export standard specification of Japanese plywood.

Our Group will continue to expand our customer base in the US as we believe that, based on our current good standing in supplying plywood for the use by the Recreational Vehicles (“RV”) sector, we are in a position to procure more customers from the lucrative RV market in which our plywood can command better profit margin. Currently, approximately 69% of our products are sold to US.

In current financial year, we sold our plywood to new customers from United Kingdom. We also sell different thickness of plywood to the customers from Thailand which offer better price as compared to other customers from Asia.

In order to comply with the quality requirement by our customers, we will continue to improve our production facility and machinery, expand our work force, etc. Management is also looking for opportunity to enter into long term agreement with potential logs suppliers in order to ensure the continuous supply of raw materials.

FINANCIAL HIGHLIGHTS

Year ended 31 December2018

RM2017

RM2016

RM2015

RM2014

RM

Sales by segmentManufacturing 202,906,834 175,995,821 201,428,783 180,618,103 150,266,089

Electricity 6,392,695 5,709,089 6,121,766 6,269,100 5,259,150

Intercompany sales (5,871,977) (5,545,518) (6,074,852) (6,154,478) (5,106,717)

Total 203,427,552 176,159,392 201,475,697 180,732,725 150,418,522

Profit before tax 37,749,794 14,741,286 25,257,253 36,317,234 17,295,020

Non-operating income (2,499,608) (1,729,486) (3,495,343) (1,521,218) (615,307)

Operating profit 35,250,186 13,011,800 21,761,910 34,796,016 16,679,713

Operating profit by segmentManufacturing 32,153,359 10,658,238 19,915,199 31,929,683 14,847,630

Electricity 3,096,827 2,353,562 1,846,711 2,866,333 1,832,083

Total 35,250,186 13,011,800 21,761,910 34,796,016 16,679,713


Management Discussion and Analysis

FINANCIAL HIGHLIGHTS (CONTINUED)

Year ended 31 December2018

RM2017

RM2016

RM2015

RM2014

RM

profit after tax 28,415,739 11,716,847 19,180,504 31,722,340 16,032,166

Basic earnings per share 0.275 0.114 0.186 0.307 0.155

Diluted earnings per share 0.274 0.114 0.186 0.307 0.155

Dividends per share 0.16 - 0.06 0.15 0.08

Net assets per share 1.78 1.66 1.55 1.42 1.26

Total assets 197,114,341 185,638,958 185,424,712 159,235,048 140,229,275

Total liabilities 14,303,318 14,153,386 25,655,987 12,459,417 9,695,984

# Year 2014-2016 were not adjusted for new MFRS 15 and MFRS 9, except total assets and total liabilities for year 2016

Financial year 2018 was a comeback for the Company after we had encountered logs supply issue in previous financial year. The Group had recorded revenue of RM203.43 million, an increase of 16% as compared to that in year 2017. At the back of the strong surge in the selling price of plywood during the year, the Group’s operating profit had increased by more than 150%. The shareholders were well rewarded with dividend of 16 sen in year 2018, which represented 60% payout ratio from our earnings per share in year 2018. In addition, our net asset per share continued to grow from RM1.26 in 2014 to RM1.78 per share in year 2018.

MAjOR CHANGES IN STATEMENT OF FINANCIAL pOSITION

Total Assets

As at 31 December 2018, the Group’s non-current assets decreased slightly by RM0.88 million to RM31.55 million. This was mainly attributable to the utilisation of the investment tax allowance of our subsidiary company as well as the depreciation of our property, plant and equipment during the year.

As at the end of the year, the Group had a total current asset amounting to RM165.56 million, which represented an increase of RM12.35 million as compared to 2017. The increase was mainly attributable to the higher inventories and more advances to the log suppliers. As at the reporting date, the Group had recorded higher closing quantity of finished goods, work-in-progress and logs as compared to 2017. Reschedule of break bulk ship in December 2018 was the main cause of higher finished goods on hand while insufficient face and back veneer sheets had also resulted an increase in work-in-progress quantity. However, the increase was offset by lower trade receivables as a result of lower revenue recognised in December 2018 due to the reschedule of the break bulk ship mentioned above.

Included in total current assets were other current financial assets which comprised of derivative instruments and money market fund. Money market funds were reclassified from other investments category due to the adoption of MFRS 9 in 2018. In overall, there was no significant change in the total amount of money market funds and cash and bank balances in 2018 with a total balance of RM99.85 million (2017: RM98.58 million).

Total Liabilities

Current liabilities had decreased by approximately RM0.50 million which was mainly due to lower contract liabilities recorded in 2018. Non-current liability comprised deferred tax liabilities where the variance was mainly due to the movement in temporary differences during the year.

A n n u a l R e p o r t 2 0 1 8 11


DISCUSSION & ANALYSIS OF NON-OpERATIONAL ITEMS

Non-operating income disclosed was the net amount of other operating income and its corresponding expenses. It included distribution income and net fair value changes from money market funds, interest income from fixed deposits as well as net gain generated from rental of investment properties. The detailed breakdown of non-operating income had been disclosed under the Note 32 to the Financial Statements.

Non-operating income had increased by approximately RM0.77 million in 2018. The improvement was mainly arisen from a higher distribution income and fair value gain from money market funds. Higher distribution income was mainly due to higher rate of return in current financial year. The Group also recognised fair value gain from money market fund denominated in US dollar (“USD”) due to the strengthening of USD since the second quarter as compared to USD’s weakening trend in 2017. The money market fund in USD was fully withdrawn in September 2018 and converted to Ringgit Malaysia subsequently.

Given our strong performance in 2018, tax expense had increased significantly by RM6.31 million. The increase was consistent with the surge in our profit before tax in 2018. The effective tax rate had increased from 21% in 2017 to 25% in 2018 because of certain expenses which were not deductible for tax purposes such as share based payment expenses. Note 10 to the Financial Statements provided a reconciliation of income taxes calculated at the statutory rate to the income tax provision.

DISCUSSION & ANALYSIS BY pRODUCT SEGMENT

Manufacturing

Year ended 31 December 2018 2017 2016 2015 2014

plywood (m3)- Production 68,482 66,944 78,288 66,678 61,841

- Sales 63,950 68,377 77,898 65,545 65,555

veneer (m3)- Production 9,295 6,847 11,839 9,759 10,245

- Sales 8,717 7,674 10,926 10,119 10,106

LvL (m3)- Production 1,275 1,698 1,157 2,647 2,097

- Sales 1,356 1,739 1,363 2,482 2,016

Sales of goods (RM)- Plywood 175,077,606 147,960,780 167,116,373 146,559,148 122,966,761

- Veneer 14,568,153 11,375,048 15,637,125 14,399,784 12,134,876

- LVL 2,073,322 2,773,328 2,189,477 3,585,019 2,452,945

Total sales of goods 191,719,081 162,109,156 184,942,975 164,543,951 137,554,582

Freight income (RM)- Plywood 10,599,692 13,216,155 15,584,205 15,149,259 11,987,265

- Veneer 509,724 551,312 795,856 773,779 613,101

- LVL 78,337 119,198 105,747 151,114 111,141

Total freight income 11,187,753 13,886,665 16,485,808 16,074,152 12,711,507

Total revenue 202,906,834 175,995,821 201,428,783 180,618,103 150,266,089



DISCUSSION & ANALYSIS BY pRODUCT SEGMENT (CONTINUED)

Manufacturing (continued)


Price of log (RM/m3) 556 484 462 457 428


Production recovery rate (%) 44.5 44.5 45.0 44.5 49.7

Capital expenditure 4,505,787 5,253,510 635,698 4,573,332 1,998,086

Average selling price of goods

- Plywood (US$) 659 499 515 573 570

- Veneer (US$) 412 345 346 365 366

- LVL (US$) 379 373 384 375 372

- Plywood (RM) * 2,730 2,164 2,145 2,236 1,876

- Veneer (RM) * 1,671 1,482 1,431 1,423 1,201

- LVL (RM) * 1,529 1,595 1,606 1,444 1,217

* Translated using average spot rate of sales transaction Allocation to freight income in years 2014-2016 were based on freight charges recognised in respective years

The manufacturing segment comprises our plywood, veneer and LVL operation. During the year 2018, the manufacturing segment recorded revenue of RM202.91 million, an increase of 15% against the previous year’s revenue of RM176.00 million. This was mainly due to higher selling price of plywood globally despite a lower sales volume as compared to the previous year. The surge in selling price was caused by lower supply in the global market due to logs shortage suffered by the major plywood mills in Southeast Asia region. The plywood shortage had forced plywood mills to curtail production, which led to higher production cost.

Our production resumed its fluency after February 2018 with the production volume increasing slightly by approximately 5%. Lower sales volume was mainly attributable to the rescheduled of break bulk ship in December 2018. Although the new State government had announced the export ban on round logs in May 2018, the supply of logs to local market was still insufficient due to the verification carried out by the task force team set up by the new government. Some major suppliers had decided to halt their timber extraction operation in view of the logs export ban. The operations of certain Forest Management Unit held by major players in the industry were also halted in order to facilitate the investigation carried out by the task force team.

Despite of increasing production unit cost, operating profit from our manufacturing segment had increased significantly by RM21.50 million in year 2018 due to improved profit margin on the back of higher average selling price. Although the production ran smoothly after the first two months in year 2018, the Group’s production of plywood was still limited due to insufficiency of the face and back veneer sheets. The size and quality of logs had reduced the ratio of producing face/back and core veneer sheets. To mitigate this, the Group spent an additional RM1.65 million to source face/back veneer sheets from Africa and People’s Republic of China. Purchase price of logs increased by approximately 15% in 2018 and our unit cost of sales also moved up by around 10%. Nevertheless, the manufacturing segment’s gross profit margin had increased from a restated margin of 18% in 2017 to 33% in 2018.

In 2018, we had sold our premium quality short sized plywood to a new customer from the United Kingdom. Although the sales to Thailand, Hong Kong and local market were higher, there was a drop in export to South Korea and Taiwan. More products were sold to customers from Thailand and Hong Kong by virtue of the higher selling price as compared to customers from South Korea and Taiwan. Higher sales to local market were mainly due to the clearance of fall down grade quality plywood in 2018. The table below shows the proportion of our products sold by destination in 2018 and 2017. Our revenue information based on the geographical location of customers is disclosed under Note 32 to the Financial Statements.

A n n u a l R e p o r t 2 0 1 8 13


DISCUSSION & ANALYSIS BY pRODUCT SEGMENT (CONTINUED)

Sales volume by Destination

2018m3

2017% m3 %

United States 50,701 69 51,695 67

South Korea 11,311 15 15,091 19

Taiwan 3,279 4 6,962 9

Hong Kong 1,307 2 468 <1

Malaysia 2,055 3 1,042 1

Thailand 2,449 3 1,563 2

United Kingdom 1,703 2 - -

Japan 798 1 714 1

Others 420 1 255 <1

Total 74,023 100 77,790 100

Electricity


Sales 6,392,695 5,709,089 6,121,766 6,269,100 5,259,150


Capital expenditure 9,017 - - 262,298 682,560

Price per kWh 0.376 0.376 0.376 0.376 0.376

Electricity segment recorded revenue of RM6.39 million in 2018, an increase of RM0.68 million as compared to RM5.71 million recorded in previous year. Total generation increased slightly by 12% due to higher electricity demand. In 2018, approximately 92% (2017: 97%) of the total electricity generated by our subsidiary company was supplied to our company for its manufacturing process.

Operating profit from electricity segment in 2018 amounted to RM3.10 million, an increase of 31% compared with operating profit of RM2.35 million recorded in previous year. This was mainly due to higher sales of electricity in 2018 as a result of higher electricity requirement.

RISKS AND UNCERTAINTIES

product Demand and price Fluctuations

Our revenues and financial results are primarily dependent on the demand for and selling prices of our products. The demand for and price of plywood could be volatile and is subject to factors such as global economic conditions, the global demand including that of the US RV industry, changes in industry production capacity and other factors which are beyond our control. Declines in demand, and corresponding reductions in prices, for our products may also adversely affect our financial results.

We are unable to predict with any reasonable accuracy, the future market conditions, demand or pricing for any of our products due to those factors beyond our control.

Reliance on the US Market and A Single Customer

76% (2017: 73%) of our revenue was derived from exports to the US market, and 45% (2017: 54%) of our revenue was from Ihlo Sales & Import Co. It is our strategic decision to focus on the US market as we are able to command a better pricing for our plywood due to the higher quality requirements of the RV sector, which is plywood with good finishing and low formaldehyde emission. There is no assurance that another slowdown in the US economy in the future or the loss of Ihlo Sales & Import Co. as our key customer, will not affect our financial performance accordingly.



RISKS AND UNCERTAINTIES (CONTINUED)

Availability of Logs Supply and Fluctuation in Logs prices

Logs being the main raw material for the manufacturing of plywood, is important to us. We may face the risk of shortage in supply of logs as we do not own any timber concessions. Substantially all of our logs are harvested within Sabah. Forestry Department of Sabah controls the volumes that can be harvested every year. Determinations by Forestry Department of Sabah to reduce the volume of timber that may be harvested may reduce our ability to secure log supply and may increase our log purchase costs.

In addition, weather conditions and climate changes are also the factors that may influence the supply of logs as there will be lesser logging activities during the monsoon months due to wet weather conditions. Recent investigation carried out by the task force team formed by the new State Government also resulted shortage of logs supply in the local market.

In short, insufficient log supply might result in reduction in our production, increase in log purchase costs and directly affect our unit production cost.

Foreign Currency Exchange Rates

We sell the majority of our products at prices denominated in USD. A significant portion of our operational costs and expenses are incurred in Ringgit Malaysia (“RM”). Therefore, the strengthening of RM relative to USD will reduce our revenue in RM, reduces operating margin and the cash flow availability. We are also exposed to the risk of exchange rate fluctuations in purchasing of machinery, spare parts and certain expenses denominated in foreign currencies. Exchange rate fluctuations would result in exchange gains or losses, which also lead to significant earnings sensitivity to changes in the RM/USD exchange rate.

The RM/USD exchange rate is affected by a broad range of factors which makes future rates difficult to be predicted accurately.

Competition

We compete with Southeast Asian producers, especially Indonesian producers, which may have lower productions costs than we do. Markets for our products are highly competitive. Our ability to maintain or improve the cost of producing and delivering the plywood products to those markets is crucial. Factors such as cost and availability of raw materials, energy and labour, the ability to maintain high production volume and low production cost per unit, and the quality of our final products and quality of our customer services will affect our earnings. To the extent that if one or more of our competitors become more successful by building up their own key competitive factors, our ability to attract and retain customers could be adversely affected. If we are unable to compete with other competitors effectively, such failure could have a material adverse effect on our business and financial results.

Environment

We are subject to stringent environmental laws and regulations relating to air emissions and pollutants which may affect our business operations. The environmental issues that we may encounter include bulk waste comprising timber materials, smoke from burning wood chip for the boiler and sawdust in the air in the working areas. We have incurred, and will continue to incur capital expenditures and operating costs to comply with environmental laws and regulations. We will also minimize the impact of our operations on the environment by recycling our bulk waste to generate biomass fuel for use in our production plant and office.

However, no assurance can be given that changes in these laws and regulations or their application will not have a material adverse effect on our business, financial condition and operational results.

Our products are subject to third-party certifications (CARB, JAS and Lacey Act) in order to comply with internationally recognised standards, which involve amongst others, the production process including receiving and storing of raw materials, formulations of finished products and processing methods and machinery and/or tools used in production. Demand for our products may be reduced if we are unable to achieve such compliance, or are perceived by the public as failing to comply, with these applicable standards, or if our customers require compliance with such standards for which our operations are not certified.

A n n u a l R e p o r t 2 0 1 8 15


RISKS AND UNCERTAINTIES (CONTINUED)

Workplace Safety and Health Matters

We are also subject to various laws and regulations, including those which are related to workplace safety and workers’ health. We have mitigated, and will continue to mitigate some of these potential workplace safety and health liability by purchasing, amongst others, employees’ liability and workmen compensation insurance policies.

However, the risks of workplace safety and health costs and liabilities will always exist in our operations, and there can be no assurance that claims for damages resulting from our operations will not have any material adverse effect on our financial condition or results of operations.

CApITAL STRUCTURE AND LIqUIDITY

The capital structure of the Company consists of ordinary shares and retained earnings. We manage our capital structure and make adjustments depending on the changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders, issue new shares or repurchase our own shares.

The Company had at its 28th Annual General Meeting held on 4 June 2018, obtained an approval from the shareholders to purchase the shares up to 10% of the total issued share capital of the Company by utilising the funds allocated which shall not exceed the retained profits of the Company. The said approval will be expiring at the conclusion of the forthcoming 29th Annual General Meeting of the Company unless the approval is renewed. At the date of this report, the Company had re-purchased 3,227,800 ordinary shares from the market. The shares re-purchased are held as treasury shares in accordance with Section 127(4) of the Companies Act 2016.

In addition, the Company had also obtained an approval from the shareholders to establish an Employees’ Share Option Scheme of up to 15% of the total number of issued shares of the Company at an Extraordinary General Meeting held on 4 June 2018. The approval of allocation of share options to directors by the shareholders were subsequently obtained at the Extraordinary General Meeting held on 23 October 2018. As at the date of this report, the Company had issued 2,796,000 new ordinary shares from the exercise of the employees’ share options.

In 2018, we had declared three interim single-tier tax exempt dividends totalling to 16 sen per ordinary share for financial year ended 31 December 2018 and all had been paid in year 2018. On 26 February 2019, we also declared an interim single-tier tax exempt dividend of 4.0 sen per ordinary share for financial year ending 31 December 2019 and it would be paid on 16 April 2019.

As at 31 December 2018, the Group’s cash and bank balances were approximately RM51.80 million. On the other hand, other current financial assets which comprised of money market funds amounted to RM48.05 million. Our cash requirements, other than for operating purposes, are primarily for additions to property, plant and equipment, acquisitions, purchase of treasury shares and payment of dividends. The Group has estimated an annual capital expenditure requirement of RM5 million to RM10 million to maintain/improve its manufacturing facilities, unless there is a significant addition of advanced machineries, equipment, etc. Under normal business cycles and in years without a major acquisition or debt repayment, our cash and cash equivalents and cash generated from operations should be sufficient to meet these requirements.

BUSINESS OUTLOOK

Selling price of plywood has come down from its peak since May 2018. However, the price of logs still hovers at the same level due to lower supply in the market. Logs export ban implemented by the new State Government has not benefited the timber downstream industry because some major timber players halted their timber extraction operation. Low supply in the market has resulted in the increase in purchase price of logs. Moreover, the production cost of plywood is increasing due to the impact from revision of minimum wage effective 1 January 2019. On top of that, we anticipate the global demand for plywood will reduce moderately which may further exert pressure in the selling price of the plywood to be lower.

Due to the above uncertainties, management has now planned to slightly decrease our monthly production volume, reduce labour hours as well as implement more cost-cutting measures in order to reduce our production unit cost.

Barring unforeseen circumstances, the Board remains positive with the outlook of the Group.


SustainabilitySTaTemenTGENERAL

Business environment has presently evolved with greater emphasis on how businesses and business operations are impacting the economic, environmental and social issues that are related to their respective businesses. Sustainability evaluation will provide the various stakeholders with a better understanding and critical information on the environment which the businesses are operating in. This would enable a more in-depth analysis of the risks and the potential impact that the businesses are having on the stakeholders.

Focus Lumber Berhad and its subsidiary, Untung Ria Sdn Bhd (collectively known as “the Group”) is in the journey towards building a sustainable impact to economy, environmental and the local community. The Group is pleased to present its Sustainability Statement which showcases its sustainability progress for financial year ended 31 December 2018 in accordance with the Main Market Listing Requirement of Bursa Malaysia Securities Berhad.

STAKEHOLDERS

The Group will continue with its focus to enhance its relationship with all the stakeholders and maximise its shareholders’ value as stakeholders have a significant influence in the Group’s business sustainability. The Group had undertaken several initiatives to address some of the shareholders’ needs and expectations towards the achievement of a long-term sustainable growth.

Below are the highlights of Stakeholders’ area of interest and initiatives undertaken by the Group:-

Stakeholder Areas of Interest Initiatives

Customers • Commodity pricing• Product quality

• Visit customers to understand their needs on our products• Continuous engagement with customers for better customer experience

Shareholders/Investors • Group financial performance• Business strategy and governance

• Annual general meeting • Company website• Annual Reports

Suppliers • Service delivery • Payment schedule• Pricing of services• Services/products quality

• Purchasing contract• Purchasing policy

Employees • Career development• Employee welfare and health & safety

• Training• Meeting / discussion• Informal or festival gathering

Government/Regulators • Compliance• Labour practices• Environmental emissions

• Active engagement with agencies/associations• Attend seminars on related regulatory issues

Community/Association • Community living issue • Donations• Charitable events

A n n u a l R e p o r t 2 0 1 8 17

Sustainability Statement

ECONOMIC

The Group is a high quality plywood manufacturer in Malaysia. The Group places the utmost importance on the approaches to achieve a sustainable business that will grow constantly during changes and challenges in the current global economic environment. In view of that, the Group has drawn up a 5-year business plan on the positioning of the Group. The business plan will be reviewed and measured annually via the presentation of annual budgets at the Board meetings.

Despite the challenging economic and business environment, the Group continues to invest in new advanced machinery with the aim to increase its production capacity, enhance product quality and efficiency of the manufacturing process in order to comply with the buyers’ quality requirements. By installing machinery such as 11 feet veneer rotary lathe and log charger, the Group can focus on producing a variation of plywood sizes to cater for the United States (“US”) market and expanding sales to other regional markets. In the current financial year, we also sold our product to new customers in United Kingdom who require short size plywood.

By setting up a power plant, the Group has also reduced the dependency on fossil fuel and enhanced cost mitigation. Bulk and wood waste are reused to generate biomass energy to supply electricity to the Group’s office, hostel and factory.

ENvIRONMENT

The revenue and wealth of timber industry generally come from the Mother Nature and green forests. As such, it is vital that the Group is committed to reduce environmental impact of its operation by adopting practices such as waste management and launching of recycling programmes to preserve the environment.

Legislation

Through the compliance of the following legislations, the Group would be able to retain the customers’ loyalty:-

(i) The Group has complied with Lacey Act Verification (LCV) program in assuring the legality of sourced forest products used in our products. This can avoid the illegal logs harvesting activities to protect the forest;

(ii) The Group is certified as a California Air Resources Board (“CARB”) Certified manufacturer. This CARB standard is to reduce formaldehyde emissions from composite wood products; and

(iii) Japanese Agricultural Standard (“JAS”) certification for general plywood under the Law Concerning Standardization and proper labelling of Agriculture and Forestry Products (No. 175 of the Law of 1950; revised in 2006).

The Group would have to adhere to these legislations as most of the customers of the Company are concerned about sustainable logging and this forms a substantial part of the Group’s businesses. The Group also works closely with the Sabah Forestry authorities on the proper compliance of the local legislations to ensure that their operations of extracting the logs are not impacted.

Waste Management

The Group is committed to protect the environment to reduce waste which are generated from the production. By adopting the waste management and recycling programs, wood waste from plywood production is used to generate biomass energy to supply electricity to the Group’s office and production plant. Consequentially, the Group manages to reduce cost and reliance on energy fuel.

Technological Upgrades

The consistent upgrading and improvement of the Group’s production and manufacturing facilities does not only cater for cost and production efficiencies; it is also with the intention to enable production with varying quality of logs, to encapsulate the usage of cultured commercial logs to produce products of similar quality. This will assist in the elimination of unscrupulous illegal logging which damages our natural habitat.



SOCIAL

Social sustainability is the ability to develop processes and structures which not only meet the need of the Group’s employees, customers and local communities but also supporting the future generations to maintain a healthy community. Lack of social development may lead to failure to improve the business.

Training and Development

The Group acknowledges that the employees are the most valuable assets to the Group. The Group’s continuous focus is to enhance the employees’ skills and knowledge to perform their tasks efficiently as well as their career growth and development. Every year Management will register their employees for various training programmes held internally and externally to ensure the employees are competitive in today’s market. The training programmes provided mainly focus on enhancement of competency skills, compliance, safety & health and leadership development.

For the financial year ended 31 December 2018, the employees have attended the following training programs: -

1. PENGURUSAN GAJI DAN KIRAAN PCB Organized by: Advision Training Plt

2. INTRODUCTION & IMPLEMENTATION OF LOCK OUT AND TAG OUT (In-house training) Conducted by: Excellence Training & Consultancy Sdn Bhd

3. FOREIGN WORKER 2018: ALLICATION & EMPLOYMENT Organized by: Asia Iknowledge Sdn Bhd

4. TRAINING PLAN FOR PREPARING & IMPLEMENTING RESPONSE PLAN (IN-HOUSE TRAINING) Conducted by: Excellence Training & Consultancy Sdn Bhd

5. SITE SAFETY SUPERVISOR COURSE Organized by: NOSH Global Sdn Bhd

6. UNDANG-UNDANG BURUH (SABAH & SARAWAK SLO) Organized by: SP Training PLT

7. GST TO SST – THE NEW SST MECHANISM & TRANSITIONAL ISSUES Organized by: Malaysian Institute of Accountants

8. SEMINAR UNDANG-UNDANG BURUH Organized by: Jabatan Buruh Sabah

9. DEVELOPING YOUR HR POLICY & EMPLOYEE HANDBOOK Organized by: IPA Training Sdn Bhd

10. Steam engineer’s certificate of competency exam preparation Organized by: Livewebs Network & Technology Sdn Bhd

11. SEMINAR PERCUKAIAN KEBANGSAAN 2018 Organized by: Lembaga Hasil dalam Negeri

12. 2019 BUDGET SEMINAR Organized by: Malaysian Institute of Accountants

13. SAFE HANDLING FORKLIFT OPERATION TRAINING (IN-HOUSE TRAINING) Conducted by: Excellence Training & Consultancy Sdn Bhd

A n n u a l R e p o r t 2 0 1 8 19


SOCIAL (CONTINUED)

Training and Development (continued)

Photos taken during some in-house trainings in factory in 2018:-

Safe handling of forklift operation training

LOCK OUT AND TAG OUT Training



SOCIAL (CONTINUED)

Recruitment and Equal Opportunity

The Group encourages diversity in employment to ensure that the Company has an appropriate mix of skills and talent to conduct its business and achieve the Company’s goals. The Group supports the principal of equal opportunities in respect to employment including hiring, training and career advancement with the aims of not discriminating the employees in terms of gender, age, ethnicity, cultural background or other personal factors by adopting a diversity policy within the Group.

The Group has a total of 1,050 employees for the year 2018. Male employees constitute 62% of the Group’s total workforce since the Company is involved in manufacturing sector.

Non-executive employees consist of 97.33% of the total workforce as most of them are in the manufacturing department. The remaining of 2% and 0.67% are represented by the executives and management level employees respectively.

EMPLOYEEBREAKDOWNBY GENDER

EMPLOYEEBREAKDOWN

BY CATEGORY

DISTRIBUTIONOF FOREIGNWORKERS

62% • Male

38% • Female

0.67% • Management

2.00% • Executive

97.33% • Non-Executive

98% • Indonesia

2% • Filipino


EMPLOYEEBREAKDOWN

BY CATEGORY


62% • Male

38% • Female


2.00% • Executive


98% • Indonesia

2% • Filipino

A n n u a l R e p o r t 2 0 1 8 21


The Group has a total number of 725 foreign workers. 98% of them are Indonesians and 2% are Filipinos respectively. All the foreign workers are hired under the non-executive category.


EMPLOYEEBREAKDOWN

BY CATEGORY


62% • Male

38% • Female


2.00% • Executive


98% • Indonesia

2% • Filipino

Health and Safety

The Group has placed a high level of emphasis on maintaining a safe, clean and healthy working environment for the employees through awareness programme and improved facilities such as fire prevention and emergency rescue facilities. On-going trainings and briefing sessions such as firefighting trainings and Health and Safety awareness talks are organised regularly to educate all the employees on safety issues.

On 20 October 2018, the Group has participated in the 2018 State-level Emergency Response Team (ERT) contest held by the State Fire and Rescue Department at the Likas Sports Complex, Kota Kinabalu, Sabah. The Group won the contest under the manufacturing and processing category.


Employees’ Engagement and Development

The Group encourages employees to acquire new or advanced skills and knowledge through various training programmes as well as organising indoor and outdoor activities regularly for team building and leadership skills development. The Group believes that employees’ development would promote loyalty among the employees. Loyal employees would tend to be more productive in their daily work.

The Group has also provided financial supports to various associations, social events and societies, including donations of about RM242,262.00 in 2018.

During the year, our employees had attended the following social and corporate programmes:-

Company Annual Dinner

The management and employees attending annual dinner at Hotel Perkasa, Keningau.


SOCIAL (CONTINUED)

Health and Safety (continued)

In-house briefing and training are held to raise awareness on safety and health issue to employees especially in manufacturing section.

A n n u a l R e p o r t 2 0 1 8 23


SOCIAL (CONTINUED)

Christmas Gathering

Management and the employees enjoyed the celebration of Christmas and gift exchange session at Mee Woo Hill Resort, Keningau.

Hari Raya Festival

Management and the employees gathered together to enjoy the celebration of Hari Raya at Keningau.



SOCIAL (CONTINUED)

Keningau Silver jubilee Run 2018

Employees participated in the 12.19 km Silver Jubilee Run 2018 on 6 January 2018. The run was to raise fund to meet the expenses of the diocesan silver jubilee celebration in Keningau.

A n n u a l R e p o r t 2 0 1 8 25

Corporate GovernanceovervIew STaTemenTThe Board of Directors (“the Board”) of Focus Lumber Berhad (“FLBHD”) acknowledges the importance of the Principles and Best Practices as set out in the Malaysian Code on Corporate Governance 2017 (“MCCG”) and is committed to adhere to the highest standards of Corporate Governance (“CG Guide”) throughout the Group.

This statement outlines the corporate governance principles and best practices duly adopted by the Group during the financial year ended 31 December 2018. This statement is to be read together with the Corporate Governance Report 2018 (“CG Report”) of the Company which provides the details on how the Company has applied each Practice as set out in the MCCG during the financial year 2018. The CG Report is available on the Company’s website at www.focuslumber.com.my.

The Board are of the opinion that for financial year ended 31 December 2018, the Company complied with the principals and practices as set out in the MCCG, apart from departures on the following practices:-

• Practice 4.5 - Disclosure of the Company’s policies on gender diversity, its targets and measures to meet those targets in the Annual Report;

• Practice 11.2 – Large companies are encouraged to adopt integrated reporting based on a globally recognised framework• Practice 12.2 – All Directors attend General meetings. The Chair of the Audit, Nomination, Risk Management and other

committees provide meaningful response to questions addressed to them• Practice 12.3 – Listed companies with a large number of shareholders or which have meeting in remote locations should

leverage technology to facilitate.

Explanation of these departures are further elaborated in the CG Report.

BOARD LEADERSHIp AND EFFECTIvENESS

Roles and Responsibilities of the Board

The Board is collectively responsible for the overall conduct of the Group’s business and takes full responsibility for the performance of the Company and the Group. The members of the Board exercise due diligence and care in discharging their responsibilities to ensure high ethical standards are applied, through compliance with relevant rules and regulations, directives and guidelines in addition to adopting the best practices in the MCCG and CG Guide, and act in the best interest of all shareholders of FLBHD.

The authority for implementing the Board’s policies is delegated to the Managing Director within the limits authorised by the Board. The Directors bring to the Board considerable knowledge, a wealth of business and professional experience relevant to the Company in the pursuit of its business objectives.

The role of the Chairman and Managing Director are strictly separated and clearly defined to ensure a balance of power and authority. The position of Chairman and Managing Director were held by different individuals. The Chairman is primarily responsible for the orderly conduct and working of the Board by ensuring that all its required functions and responsibilities are met whilst the Managing Director has the overall responsibility for the day-to-day running of the Group’s business operations and implementation of Board policies and decisions. The separation of power seeks to facilitate an appropriate balance of power to prevent any single individual from dominating deliberations and the decision-making process.

The Non-Executive Directors are independent of management and free from any business relationship and decision-making that could interfere with the exercise of their independent judgment to the Company and Group.

The Managing Director as the key personnel is responsible to develop and put the business strategic plan into actions, monitors the Group’s operation progress and growth with the management team and implement corrective actions, where necessary.


Corporate Governance Overview Statement

BOARD LEADERSHIp AND EFFECTIvENESS (CONTINUED)

Roles and Responsibilities of the Board (continued)

The Group has put in place a Board Charter that sets out, among others, the roles of the Board, division of responsibilities between the Chairman and the Managing Director, the duties and responsibilities of Independent Directors, Senior Independent Director, Board Committee, Secretary, structures of the Board Committees, procedures for the conduct of meetings, conflict of interest, etc. The Board had on 29 March 2018 reviewed the Board Charter to be in line with the Main Market Listing Requirements (“MMLR”) of Bursa Malaysia Securities Berhad (“Bursa Securities”) and MCCG. More information on the Board Charter can be found on the Company’s website and is reviewed annually. The following are among the key responsibilities of the Board:-

(a) Reviewing and adopting the Company’s strategic plans;

(b) Overseeing the conduct of the Company’s business;

(c) Identifying principal risks and ensuring the implementation of appropriate internal controls and mitigation measures;

(d) Succession Planning;

(e) Overseeing the development and implementation of a shareholder communications policy for the Company;

(f) Reviewing the adequacy and integrity of management information and internal control system of the Company;

(g) Approve and monitor budgets, major capital commitments, capital management, acquisitions and divestitures;

(h) Review and approve the Company’ financial statements and other reports to ensure the integrity of the Company’s financial and non-financial reporting; and

(i) Monitor compliance with legal, regulatory requirements and ethical standards.

During the financial year under review, Management and Board had discussed on issues related to:-

(i) The proposed and implementation of Employees’ Share Option Scheme (“ESOS”);(ii) Mitigating actions to ensure the adequacy of logs supply as this is the major raw material component of the Company’s

business; and(iii) Enterprise risk management and internal controls system.

Company Secretary

The Company Secretary is responsible for advising the Board on issues relating to compliance with the relevant laws, rules, procedures and regulations affecting the Board and the Group, as well as best practices of governance. He/She is also responsible for advising Directors of their obligations and duties to disclose their interest in securities, disclosure of any conflict of interest in a transaction involving any other parties, prohibition on dealing in securities and restrictions on disclosure of price-sensitive information. All Directors have full and unrestricted access to the advice and services of the Company Secretary.

The Company complies with Practice 1.4 of the MCCG where the Company is supported by the Company Secretaries who are suitably qualified, competent and capable of carrying out the duties required as they are members of the Malaysian Institute of Chartered Secretaries and Administrators. The details of the role and responsibilities of the Company Secretaries are disclosed in the CG Report.

Insider Trading

In line with the MMLR of Bursa Securities and the relevant provisions of the Capital Markets and Services Act 2007, Directors, key management personnel and principal officers of the Company and the Group are prohibited from trading in securities or any kind of property based on price sensitive information and knowledge, which have not been publicly announced. Notices on the closed period for trading in the Company’s shares are circulated to Directors, key management personnel and principal officers who are deemed to be privy to any price sensitive information and knowledge, in advance of whenever the closed period is applicable.

A n n u a l R e p o r t 2 0 1 8 27



Conflict of Interest

Members of the Board are required to make a declaration to that effect at the Board meeting in the event that they have interests in proposals being considered by the Board, including where such interest arises through close family members, in line with various statutory requirements on the disclosure of Director’s interest.

Any interested Directors would abstain from deliberations and decision of the Board on the subject proposal and, where appropriate, excuse themselves from being present in the deliberations.

Code of Conduct and Ethics, Whistleblowing policy and Sustainability policy

In line with the recommendations of the MCCG, the Board has established the Code of Conduct and Ethics, Whistleblowing Policy and Sustainability Policy which are reviewed by the Board annually.

The Code of Conduct and Ethics describes the behaviors expected of our employees and how they relate to our Business Principles and core values.

Meanwhile, the Whistleblowing Policy is designed to create a positive environment in which employees can raise genuine concerns without fear of recrimination and enable prompt corrective action to be taken where appropriate. If any employee believes reasonably and in good faith that malpractice exists in the work place, the employee should report this immediately to his/her manager. However, if for any reason the employee is reluctant to do so, then the employee should report the concerns to either the:

(a) Chairman of the Board (Email address: [email protected]); or

(b) Audit Committee Chairman (Email address: [email protected]).

The full details of the Code of Conduct and Ethics, Whistleblowing Policy and Sustainability Policy can be viewed at the Company’s website at www.focuslumber.com.my.

Board Composition and Balance

Under the Company’s Constitution, the number of Directors shall be not less than two (2). As at 31 December 2018, the Board comprised six (6) directors of which three (3) are Independent Non-Executive Directors, two (2) are Executive Directors and one (1) Managing Director. The composition of the Board is in compliance with Practice 4.1 of the MCCG and Paragraph 15.02 of the MMLR of Bursa Securities.

The composition of the Board fairly reflects the interest of the significant shareholders, without compromising the interest of the minority shareholders.

The presence of Independent Non-Executive Directors on the Board, not only act as a caretaker of the minority shareholders but also fulfills a pivotal role in corporate accountability. The Board places great importance on the balance of its Independent Non-Executive Directors since they serve as an essential source of impartial and professional guidance to protect the interest of the shareholders.

The composition of the Board is fairly balanced and mix in view of skills and experiences which add value in governing the strategic direction of the Group.




Board Diversity

Although the Board currently does not have female among its members, the Board recognises the value of female member on the Board and has adopted a Diversity Policy. The Board further believes that it is more important to have the right mix of skills and talent at the Board to enable the Board to carry out its duties effectively instead of immediately source for female member to meet the 30% women participation on Board level.

With adoption of the Diversity Policy, all persons, regardless of age, gender, ethnicity, cultural background or other personal factors, with appropriate experience and qualifications will be considered equally during recruitment, promotion, remuneration and training.

The Group is also committed to workplace diversity ensuring that we value and respect our differences and that our workplace is fair, accessible, flexible and inclusive; and free from discrimination.

The Diversity Policy is made available at the Company’s website www.focuslumber.com.my.

A brief description of the background of each Director is stated in the Directors’ Profiles in page 4 of this Annual Report.

Board Meetings and Supply of Information

The Board is scheduled to meet quarterly with additional meetings to be convened when there are urgent matters to be discussed and approved by the Board in between these scheduled meetings. The senior management or external advisors are also invited to attend the Board and Board Committee meetings to provide further clarity on agenda items being discussed to enable the Board and/or Board Committees to arrive at a considered and informed decision, where necessary.

The Board held six (6) Board Meetings during the financial year and the attendance record was as follows:-

Directors Total Number of Meetings Attended in 2018

Datuk Aznam Bin Mansor 5/6

Lin Hao Wen 6/6

Ng Tian Meng 6/6

Wong Yoke Nyen 6/6

Lin Fong Ming 5/6

Lin Hao Yu 6/6

The Board regularly reviews reports on progress against financial objectives, business development and also receive regular reports and presentations on strategy and updates, risks profiles and material litigation. Regular reports are also provided by Board Committees on their deliberations and recommendations.

The agenda and supporting papers are distributed in advance for all Board and Board Committee meetings to allow time for appropriate review to facilitate full discussion at the meetings. Board meeting agendas and Board meeting papers which include, among others, comprehensive management reports, minutes of meetings, project or investment proposals and supporting documents are targeted for dissemination to the Directors in sufficient time prior to meeting days. This would enable the Directors to have sufficient preparation time and information to make an informed decision at each meeting.

However, papers that are deemed urgent may still be submitted to the Company Secretary to be tabled to the Board at the Board Meeting, subject to the approval of the Chairman and the Managing Director. Presentations to the Board are prepared and delivered in a manner that ensures a clear and adequate presentation of the object matter.

A n n u a l R e p o r t 2 0 1 8 29



Board Meetings and Supply of Information (continued)

The Board papers include, among others, the following documents or information:

• Reports of meetings of all committees of the Board including matters requiring the Board’s deliberation and approval;• Performance reports of the Group, which include information on financial, strategic business issues, major operational issues

and updates; and• Board papers for other matters for discussion/approval.

All issues raised, discussions, deliberations, decisions and conclusions including dissenting views made at Board meetings along with clear actions to be taken by responsible parties are recorded in the minutes. Where the Board is considering a matter in which a Director has interest, the relevant Director immediately discloses the interest and abstains from participating in any discussion or decision making on the subject matter.

The Board is constantly advised and updated on statutory and regulatory requirements pertaining to their duties and responsibilities. As and when the need arises, the Directors are also provided with ad-hoc reports, information papers and relevant training where necessary to ensure they are appraised on key business, operational, corporate, legal and regulatory and industry matters.

The Board has unrestricted access to the advice and services of the appointed Company Secretary to enable them to discharge their duties effectively.

Authority is also given to the Board to seek independent professional advice, if necessary, at the Company’s expense from time to time in the performance of their duties. All Board Committees also have access to independent professional advice on the same basis.

Board performance Evaluation

A formal evaluation of the Board’s effectiveness assessment has been developed as part of FLBHD Board’s annual activities to assess not only the Board’s performance but also brings to light improvement areas and remedial actions on the Board’s administration and process.

The annual assessment of the Board is based on specific criteria such as the Board composition, Board development, Board strategy and management, and Board meetings and procedures. The evaluation documents were endorsed by the NC and approved by the Board before it was distributed to all the respective Board members for further input. The NC met twice in 2018 to deliberate on the findings from the self-assessment exercise.

The individual Directors each undertake self-assessment of their individual performances during the year based on the required mix of skills, experience, diversity and other qualities, including core competencies and effectiveness of the Board as a whole, the Board committee, each individual Director(s) and Chairman of the Board.

For current financial year assessment, overall rating of the performance evaluation of the Board was above average. The Board consist a good balance of Board structure where none of the Independent Directors are affiliated to the Executive Directors. Directors are encouraged to communicate persuasively in a clear and non-confrontational manner.

Appointment to the Board

The NC may rely on recommendations from existing board members, management or major shareholders in looking for suitable and qualified candidates. In addition, the NC may also engage independent sources, such as independent recruiting firm to identify suitable qualified candidates.

The nominees to the Board will be first considered by the NC. The NC assesses the suitability of candidates, taking into account the required mix of skills, knowledge, expertise and experience, professionalism, integrity, competencies and other qualities, before recommending their appointment to the Board for approval. For the position of independent non-executive director, the NC will evaluate the candidate’s ability to discharge such responsibilities as expected from an independent non-executive director.




Re-election of Directors

In accordance with the Constitution of the Company, one-third (1/3) of the Board, shall retire from office by rotation and be eligible for re-election at each Annual General Meeting (“AGM”). The Directors to retire in every year shall be those who have been longest in office since their last re-election or appointment and all Directors (including the Managing Director) shall retire at least once in every three (3) years. Newly appointed Directors during the year must offer themselves to the shareholders for re-election at the first AGM following their appointment.

The NC had assessed the performance of all the Directors particularly the Directors who are standing for re-election at the 28th Annual General Meeting. The NC found that they met the criteria of character, experience, integrity, competence and time to effectively discharge their respective roles as Directors as prescribed by the MMLR.

Based on the results of the assessment and recommendation by the Board, save for the members who had abstained from deliberations on their own re-election/re-appointment, supported the NC’s views and recommended that shareholders vote in favor of the resolutions for their re-election/ re-appointment at the AGM.

Board Committees

The Board delegates certain of its governance responsibilities to the following Board Committees, which operate within clearly defined Terms of References (“TOR”), primarily to assist the Board in discharging its responsibilities. The Chairman of the various committees will report to the Board the outcome of the respective committee meetings and such reports are incorporated in the minutes of the Board meeting.

The Board had on 29 March 2018, approved the revised TOR of its Board Committees to be in line with the amended MMLR of Bursa Securities.

(a) Audit Committee

The AC is authorised by the Board to investigate any activities within its Terms of Reference and has unrestricted access to both the internal and external auditors and members of the senior management of the Group. The composition of the AC and the activities carried out by the AC are summarised in the AC Report as stated on page 37 of this Annual Report.

The full details of the TOR of the AC are available at the Company’s website www.focuslumber.com.my.

(b) Nomination Committee

The NC comprises of entirely Independent Non-Executive Directors, of which complied with the recommendations under the Code as follows:

Chairman Datuk Aznam Bin Mansor

Member Ng Tian Meng Wong Yoke Nyen

The Chairman of the NC is the Senior Independent Non-Executive Director of the Company.

A n n u a l R e p o r t 2 0 1 8 31



Board Committees (continued)

(b) Nomination Committee (continued)

The NC meets at least once a year. During the financial year ended 31 December 2018, the NC held two (2) meetings to discuss the following matters:

- carried out assessment on the contribution and performance of Board, Board Committees and each individual Director and this includes assessment on the independence of the Independent Directors as well as review the trainings attended by each individual Director. The Board is satisfied with the contribution and performance of each individual Director. The Independent Directors complies with the criteria of Independence based on the MMLR of Bursa Securities;

- adopted the AC Evaluation form and carried out performance assessment of the AC;- reviewed the proposed re-election of Directors who retired in accordance with the Company’s Constitution;- reviewed the terms of reference of NC in line with the MMLR of Bursa Securities and the MCCG; and- reviewed the proposed change in the composition of RC pursuant to Practice 6.2 of the MCCG, where the RC should

only consist of non-executive directors and a majority of them must be Independent Directors.

The detail of the attendance record of the NC meeting is as follows:

Members Total Number of Meeting Attended in 2018

Datuk Aznam Bin Mansor 2/2

Ng Tian Meng 2/2

Wong Yoke Nyen 2/2

The full details of the NC’s TOR are available at the Company’s website www.focuslumber.com.my.

(c) Remuneration Committee

The Board had on 6 February 2018 changed the composition of RC to comprise of solely Independent Non-Executive Directors as follows:-

Chairman Ng Tian Meng

Members Wong Yoke Nyen Datuk Aznam Bin Mansor

The RC held two (2) meetings during the financial year ended 31 December 2018. The details of the attendance at meeting are as follows:

Members Total Number of Meetings Attended in 2018

Ng Tian Meng 2/2

Wong Yoke Nyen 2/2

Datuk Aznam Bin Mansor * 1/1

Lin Hao Wen ** 1/1

* Appointed with effect from 6 February 2018 ** Resigned with effect from 6 February 2018




Board Committees (continued)

(c) Remuneration Committee (continued)

The primary purpose of the RC is to assist the Board in fulfilling its oversight responsibility to shareholders by ensuring that the Company has coherent remuneration policies that fairly and responsibly reward individuals having regard to performance, the risk management framework, the law and the highest standards of governance.

The RC is responsible for recommending to the Board the remuneration of the Executive Directors in all its forms drawing from outside advice, if necessary, and the Executive Directors shall play no part in the decisions on their own remuneration.

Determination of remuneration packages of the Independent Non-Executive Directors, including Independent Non-Executive Chairman, shall be determined by the Board as a whole and the individuals concerned should abstain from discussing their own remuneration. The respective Directors shall play no part in decisions on their own remuneration. The Directors who are shareholders should also abstain from voting at general meetings to approve their fees.

The Group complies with Practice 6.2 of the MCCG as it has a formulated a Bonus Policy and Salary Structure in 2018. which provide a framework for remuneration paid to the members of the Board and the Management Team of the Company.

The details of the Bonus Policy and Salary Structure are disclosed in the CG Report.

The full details of the RC’s TOR are available at the Company’s website www.focuslumber.com.my.

Remuneration procedure

The RC assesses the appropriateness of Directors and Management Team’s remuneration on an annual basis by reference to the principles of this Policy, overall employment market conditions, scope of work and the Company’s financial position.

The RC recommends remuneration for all the Directors to the Board for approval.

Remuneration of the Board

The Independent Non-Executive Directors’ remuneration package reflects the experience, expertise and level of responsibilities undertaken by the Independent Non-Executive Directors.

The Directors’ fees payable to the Independent Non-Executive Directors and any benefit payable to the Directors of the Company shall from time to time be determined and approved by the Shareholders at the Annual General Meeting in accordance with Section 230 of the Companies Act 2016.

The basic salaries of the Executive Directors are fixed and any revision to the basic salary will be reviewed and recommended by the RC to the Board for approval, taking into account the individual performance, economic condition, the inflation price index, achievement of budget and information from independent sources on the rates of salary for similar positions in other comparable companies. The Group also introduces a bonus scheme for all employees, including the Executive Directors. Bonuses payable to the Executive Directors would also subject to review by the RC and approved by the Board. The Executive Directors are not entitled to annual fees.

A n n u a l R e p o r t 2 0 1 8 33



Directors’ Remuneration

The details of the Directors’ remuneration of the Company for the financial year ended 31 December 2018 are provided as below:-

Name of Directors

Salary, bonus & other

emolumentsRM

Benefits-in-kind

RMFeeRM

TotalRM

Independent Non-Executive DirectorDatuk Aznam Bin Mansor 6,000 -* 106,000 112,000

Ng Tian Meng 7,000 20,250* 106,000 133,250

Wong Yoke Nyen 7,000 4,050* 106,000 117,050

Executive Director Lin Fong Ming 509,000 21,608 - 530,608

Lin Hao Wen 817,000 40,501 - 857,501

Lin Hao Yu 493,000 26,730 - 519,730

Total 2,270,139

* Benefits-in-kind related to share options exercised by Independent Non-Executive Director during the year.

The details of the Senior Managements’ remuneration of the Company for the financial year ended 31 December 2018 are provided as below:-

Salary, bonus, EpF & other

emolumentsRM

Benefits-in-kind

RMTotal

RM

Name of Senior ManagementChong Sem Chan 233,850 5,800 239,650

Lin Fu Mao 131,600 23,200 154,800

Liew Soon Hin 125,376 5,800 131,176

Teh Yong Khim 177,350 17,400 194,750

Total 720,376

Tenure of Independent Directors

As at the date of this statement, none of the Independent Directors has served more than nine (9) years on the Board.

However, Datuk Aznam Bin Mansor, Ng Tian Meng and Wong Yoke Nyen, the Independent Directors of the Company, who were appointed on 24 November 2010, will have served the Board of the Company for a cumulative term of nine (9) years on 24 November 2019.

The Board has conducted an annual performance evaluation and assessment of Datuk Aznam Bin Mansor, Ng Tian Meng and Wong Yoke Nyen and recommended them to continue as Independent Directors of the Company to the Shareholders for approval at the Company’s 29th AGM based on the justification as disclosed in the CG Report.



Time Commitment of the Board Members

The Board is mindful of the importance of devoting sufficient time and effort to carry out their responsibilities and enhance their professional skills. Thus, each director is expected to commit sufficient time and is required to notify the Board prior to accepting any additional appointment of directorships in other public listed companies. The notification shall include an indication of time commitment required under the new appointment as recommended by the MCCG. The number of directorships in listed corporations held by any Board member at any one time shall comply with the MMLR of Bursa Securities. Currently, all the Directors of the Company hold not more than five (5) directorships in the public listed corporations.

To facilitate the Directors’ time planning, a corporate calendar is prepared and circulated to all the Directors in advance of each new year. The corporate calendar provides Directors with the scheduled dates for meetings of the Board, Committees of the Board, the AGM and the closed periods for dealings in securities by the Directors based on the targeted dates of announcement of the Company’s quarterly results.

Directors’ Training

The Board also firmly believes that it is important for its Directors to invest the time and effort to update their knowledge and enhance their skill-set through relevant training programs. This will ensure that members of the Board are kept abreast of the latest developments in the areas of the capital markets, regulatory and corporate governance while equipping themselves with the know-how to contribute further to the effectiveness of the Board.

All Directors of the Company had attended and successfully completed the Mandatory Accreditation Programme (MAP) as required by the MMLR of Bursa Securities. The Directors are encouraged to attend continuous education programmes, talks, seminars, workshops and conferences to further enhance their knowledge and to ensure Directors keep abreast with new developments in the business environment and enhance their skills and knowledge.

The Board has assessed the training needs for all the Directors by organizing the training in a group manner for all members to attend during the year. Directors are encouraged to attend at least one (1) training in each financial year. List of schedule of training program is furnished to the Board to enable the Directors to choose the appropriate date and time of which training to attend. During the financial year 2018, the Directors have attended the following training programmes to further enhance their knowledge to enable them to discharge their duties and responsibilities more effectively:

Directors Name of Conferences, Seminars and Training programmes Date

Datuk Aznam Bin Mansor • Corporate Disclosure Policy Under The Listing Requirements• Multilaw Annual General Conference in Bangkok

20 August 201824-29 October 2018

Lin Hao Wen • Corporate Disclosure Policy Under The Listing Requirements • Konvensyen Perburuhan Sabah 2018 (KONPENS)

20 August 201810 October 2018

Lin Hao Yu • Corporate Disclosure Policy Under The Listing Requirements • Konvensyen Perburuhan Sabah 2018 (KONPENS)

20 August 201810 October 2018

Lin Fong Ming • Corporate Disclosure Policy Under The Listing Requirements 20 August 2018

Ng Tian Meng • Kursus ePerolehan Baharu 2018• LHDNM-MEF Seminar 2018 – Sharing The Nation’s Prosperity • Seminar on “Introduction to MBRS”• Corporate Disclosure Policy Under The Listing Requirements • Seminar on “MBRS For Preparers – Financial Statements” • Tax & Business Summit 2018

06-08 March 201812 March 201819 July 201820 August 201811-12 October 201813 November 2018

Wong Yoke Nyen • MCCG and Bursa’s Listing Requirements: Towards Meaningful Disclosure• 1MBD: Its Impact on Malaysia Economy• Corporate Disclosure Policy Under The Listing Requirements

18 January 2018

26 July 201820 August 2018


A n n u a l R e p o r t 2 0 1 8 35


EFFECTIvE AUDIT AND RISK MANAGEMENT

Audit Committee

The AC of the Company comprises three Independent Non-Executive Directors of the Company. The Chairman of the AC is not the Chairman of the Board so as not to impair the objective of the Board’s view of the AC’s findings and recommendation. The composition of the AC is reviewed by the NC and recommended to the Board for approval annually. All the AC members are financially literate, possess the appropriate level of expertise and experience and strong understanding of the Company’s business operation.

The AC is authorised by the Board to investigate any activities within its TOR and has unrestricted access to both the internal and external auditors and members of the senior management of the Company.

The AC recognises the importance of independence of its External Auditor and that no possible conflict of interest whatsoever should arise. Hence, the AC has incorporated a policy in its TOR that a former key audit partner is required to observe a cooling-off period of at least two years before being appointed as a member of the AC.

The AC is responsible to carry out a review of the performance of External Auditor, including assessment of suitability and independence of External Auditor in the performance of their obligations as External Auditor. The AC would obtain the written assurance from the External Auditors which confirmed that they were and had been independent throughout the conduct of the audit engagement in accordance to the terms of all relevant professional and regulatory requirements, including the By-laws of the Malaysian Institute of Accountants.

The AC would also undertake an annual assessment of the quality of audit which encompassed the performance of the External Auditor, including the quality of services, sufficiency of resources, communications and interaction with AC, and their independence, level of non-audit fees, rotation of audit partner, objectivity and professionalism. Assessment questionnaires were used as a tool to obtain input from the Financial Controller.

ACCOUNTABILITY AND AUDIT

Financial Reporting and Disclosure

The Board aims to provide and present a clear, balanced and comprehensive view of the Group’s financial performance and prospects, primarily through the annual audited financial statements, quarterly announcements of results and the annual report as well as corporate announcement on significant developments affecting the Company in accordance with the MMLR. The AC assists the Board in scrutinising information for disclosure to ensure accuracy and completeness and oversee the Group’s financial reporting processes and the quality of its financial reporting.

Relationship with External Auditors

The Company’s transparent and professional relationship with the external auditors is primarily maintained through the AC and the Board. The key features underlying the AC’s relationship with both the internal auditors and the external auditors are detailed in the AC Report of this Annual Report at pages 38 to 41 The AC is of the opinion that the external auditors are independent with respect to the Group, within the meaning of the provisions of the By-Laws on Professional Independence of the Malaysian Institute of Accountants. In addition, to the best of the AC’s knowledge, the AC is not aware of any non-audit services that had compromised the external auditors’ independence for the financial year ended 31 December 2018.

Annually, prior to the commencement of the audit engagement, the External Auditors must confirm to the AC on their independence and during the financial year ended 31 December 2018, the External Auditors have met two times with the AC without the presence of the Executive Management.



RECOGNISE AND MANAGE RISKS

The Board acknowledges its responsibility for maintaining a sound risk management framework and internal control system, which provides reasonable assessment of effective and efficient operations, internal financial controls and compliance with laws and regulations as well as with internal procedures and guidelines. The internal control system also aims at identifying and managing any risks that the Company may encounter in pursuit of its business objectives.

The Statement on Risk Management and Internal Control which provides an overview of the state of risk management and internal control within the Group is disclosed at pages 42 to 47 of this Annual Report.

INTEGRITY IN CORpORATE REpORTING AND MEANINGFUL RELATIONSHIp WITH STAKEHOLDERS

The Board is committed to provide accurate, clear, timely and complete disclosure of material information pertaining to the Company’s performance and operations to shareholders, investors and public generally. In responding to the recommendations contained in the MCCG and the disclosure obligations contained in the MMLR of Bursa Securities, the Group has formalised a Corporate Disclosure Policy.

The disclosures made by the Company and the Group to Bursa Securities, shareholders, investors and media are handled by the Managing Director and/or Company Secretary within the prescribed disclosure requirements under the MMLR and guided by the Corporate Disclosure Guide issued by Bursa Securities. Such disclosures would only be released to Bursa Securities, shareholders, investors and media after having been reviewed and approved by the Board.

To comply with Principle 11.1 of the MCCG and Paragraph 9.21 of the MMLR, the Group also maintains a website at www.focuslumber.com.my that allows all shareholders and investors to gain access to the information relating to annual reports, policies, financial highlights and terms of reference of the respective Board Committees.

Dialogue between the Company and Investors

The Board recognises the importance of an effective communications channel between the Board, stakeholders, institutional investors and the investing public at large, both in Malaysia and internationally, with the objective of providing a clear and complete picture of the Group’s performance and position as much as possible.

In this respect, the Company is committed to keeping the shareholders and investors informed of the Group’s business and corporate developments. Such information is disseminated via the Group’s annual reports, circulars to shareholders, quarterly financial results and the various prescribed announcements made to Bursa Securities from time to time in the Bursa Securities’ website at www.bursamalaysia.com or via the Company’s website. Information that is price sensitive or may be regarded as undisclosed material information about the Group is not disclosed to any party until it is already in the public domain through proper disclosure.

General Meetings

The Group’s AGM and Extraordinary General Meetings represent the primary platforms for direct two-way dialogue and communication between the shareholders, Board and Management of the Group. The Notice of 28th AGM was dispatched to the shareholders together with a copy of the Company’s annual report on 27 April 2018 in excess of the 21 days requirement under the Companies Act 2016. This would allow the shareholders to make the necessary arrangements to attend the AGM in person or through corporate representatives, proxies or attorneys.

The shareholders are encouraged and will be given sufficient opportunity to enquire about the Group’s activities and prospects as well as to communicate their expectations and concerns. Shareholders are encouraged to participate in the open question and answer session on the resolutions to be proposed or about the Group’s operations in general. Shareholders who are unable to attend are allowed to appoint proxies in accordance with the Company’s Constitution to attend and vote on their behalf. The Chairman and Board members are in attendance to respond to the shareholders’ queries and to provide clarification on the queries.

A n n u a l R e p o r t 2 0 1 8 37


INTEGRITY IN CORpORATE REpORTING AND MEANINGFUL RELATIONSHIp WITH STAKEHOLDERS (CONTINUED)

General Meetings (continued)

The External Auditors are also present to provide professional and independent clarification on issues and concerns raised by the shareholders during the meeting. The Board also encourages shareholders to participate, speak and vote at general meetings.

Pursuant to Paragraph 8.29A(1) of the MMLR, any resolutions set out in the notice of any general meeting, or in any notice of resolution which may properly be moved and is intended to be moved at any general meeting of the Company will be subjected to poll voting by the shareholders. The votes cast at the general meeting will be validated by a scrutineer, who is independent of the person undertaking the polling process, is not an officer of the Company and is not interested in the resolution to be passed at the general meeting.

Other than through the issuance of its Annual Reports, the Group has been actively promoting proactive engagements and communications with its shareholders and stakeholders through the following channels:

• Release of financial results on a quarterly basis;• Press releases and announcements to Bursa Securities and subsequently to the media; and• An Investor Relations section on the Group’s website.

The Group would consider introduce electronic voting (e-voting) facilities and make available such facilities in the future meetings if the number of attendees at general meeting increase. This is to ensure that the mandatory poll voting process at all general meetings to be carried out efficiently. In addition, the Company is amending its Constitution to allow the Company to leverage on technology to enhance the communication with the shareholders of the Company and the conduct of the general meetings in future.

COMpLIANCE STATEMENT

The Board is of the opinion that the Group has substantially complied with the Best Practices of the MCCG throughout the financial year ended 31 December 2018.


Audit CommitteerePorTThe Audit Committee (“AC”) was established to assist the Board to ensure timely and accurate financial reporting, proper implementation of risk management policies and internal controls, and compliance with legal and regulatory requirements.

1. MEMBERS

The AC comprises of the following members:-

Chairman Wong Yoke Nyen Independent Non-Executive Director

Members Datuk Aznam Bin Mansor Independent Non-Executive Director

Ng Tian Meng Independent Non-Executive Director

2. MEETINGS OF THE COMMITTEE

During the financial year ended 31 December 2018, five (5) AC meetings were held and the details of attendance of the meetings are as follows:-

Name Total Meeting Attended percentage of Attendance

Wong Yoke Nyen 5/5 100%

Datuk Aznam Bin Mansor 5/5 100%

Ng Tian Meng 5/5 100%

The representatives of the External Auditors, Internal Auditors and other officers of the Group were invited to attend and brief the members on specific issues during the AC meeting.

3. TERMS OF REFERENCE OF THE AUDIT COMMITTEE

The details of the terms of reference of the AC is available on the Company’s website at www.focuslumber.com.my.

4. SUMMARY OF WORK OF THE AUDIT COMMITTEE

The main activities and work carried out by the AC during the financial year 2018 were as follows:-

4.1 Financial Reporting

a. Reviewed the unaudited quarterly financial results of the Group for the fourth quarter of 2017 and the annual audited financial statements of 2017 of the Company at the meetings held on 06 February 2018 and 29 March 2018, respectively;

b. Reviewed the unaudited quarterly financial results of the Group for the first, second, and third quarters of 2018, which were prepared in compliance with the Malaysian Financial Reporting Standard (“MFRS”), International Accounting Standards (IAS) and paragraph 9.22, including Appendix 9B of the Main Market Listing Requirements (“MMLR”) of Bursa Malaysia Securities Berhad (“Bursa Securities”) before recommending to the Board for consideration and approval at the meetings held on 21 May 2018, 20 August 2018 and 29 November 2018 respectively;

A n n u a l R e p o r t 2 0 1 8 39

Audit Committee Report

4. SUMMARY OF WORK OF THE AUDIT COMMITTEE (CONTINUED)

4.1 Financial Reporting (continued)

c. Reviewed related party transactions entered into by the Group and the Company to ensure that such transactions were undertaken in line with the Group’s normal commercial terms and the internal control procedures with regards to such transactions are sufficient;

d. Reviewed and discussed the impact of the new accounting standards MFRS 9 and MFRS 15 on the financial statements where these standards became effective on 1 January 2018; and

e. Obtained assurance from the Financial Controller that:

i. Appropriate accounting policies has been adopted and applied consistently;ii. Prudent judgements and reasonable estimates have been made in accordance with requirements as set out

in MFRS; andiii. The Annual and Quarterly Financial Statements did not contain material misstatements and gave a true and

fair view of the financial position of the Group and Company.

4.2 External Audit

a. Reviewed and approved the External Auditors’ 2018 Audit Planning Memorandum outlining their scope of work and proposed fee for the statutory audit, together with assurance-related fee for the review of the Statement of Internal Control and Risk Management as well as fees from other non-audit related services. The AC recommended and authorised the Management to discuss with the External Auditors for the total statutory audit fee of the Group to be within the prescribed threshold as approved by the AC.;

b. Obtained the written assurance from External Auditors to confirm that they were and had been independent throughout the conduct of their audit engagement;

c. Had two private meetings with the External Auditors on 29 March 2018 and 29 November 2018 without the presence of Executive Directors and Management staff. Significant issues such as recoverability of advances to logs suppliers was highlighted during the meeting with appropriate follow-up action being taken by AC. External auditors are satisfied with the co-operation and the working relationship accorded thus far. The AC Chairman also invited the External Auditors to communicate to him at any time if any incidents or matters had arisen during the course of their audits that needed his attention or that of the AC;

d. Reviewed the audited financial statements for the financial year ended 31 December 2017 before recommending for the Board of Directors’ approval on 29 March 2018;

e. Reviewed and discussed the key audit matters identified by the External Auditors and determined the materiality of the matters raised. Key audit matters highlighted by the External Auditors was the appropriateness of the measurement of carrying amounts of the inventories; and

f. Undertook an annual assessment of the quality of audit which encompassed the performance of External Auditors, including the quality of services, sufficiency of resources, communications and interaction with the AC, and their independence, level of non-audit fees, rotation of audit partner, objectivity and professionalism on 29 March 2018. Assessment questionnaires were used as a tool to obtain input from the Financial Controller. The AC is satisfied with the independence, suitability and performance of Messrs Ernst & Young whereby they have met all the established criteria.



4. SUMMARY OF WORK OF THE AUDIT COMMITTEE (CONTINUED)

4.3 Internal Audit

a. Reviewed and approved the internal audit plans 2019/2020 proposed by Internal Auditor at the meeting held on 29 November 2018; and

b. Reviewed with the Internal Auditor, the internal audit reports, their evaluation of the internal control system and the follow-up on the audit findings at the meetings held on 6 February 2018, 21 May 2018, 20 August 2018 and 29 November 2018.

4.4 Risk Management

Reviewed the report submitted by the Risk Management Committee on key risks facing the Group during the meeting held on 21 May 2018 and 29 November 2018 to ensure that mitigation action plans have been put in place.

5. INTERNAL AUDIT FUNCTIONS

The AC is aware that an independent and adequately resourced internal audit function is essential to assist in ensuring an effective and adequate internal control system.

The Group’s internal audit function is outsourced to a professional internal audit service provider and this ensures that the outsourced internal auditor is independent as it has no involvement in the operations of the Group. The outsourced Internal Auditor reports directly to the AC.

The AC has full and direct access to the Internal Auditor, reviewed the reports on all audits performed and monitors its performance. The AC also reviewed the adequacy of the scope, functions, competency and resources of the outsourced internal audit functions.

The outsourced Internal Auditor carried out internal audits on various operation units within the Group based on a risk-based audit plan approved by the AC. Based on these audits, the outsourced Internal Auditors provided the AC with periodic reports highlighting observations, recommendations and management action plans to improve the system of internal control.

The summary of activities carried out by the outsourced Internal Auditor during the financial period was as follows:-

• Developed the internal audit plan for year 2019/2020.

• Performed internal audit review on the following areas:

No. Audited Area Audit Work Taken On

1 Sales and Marketing• Price Development• Selling to order processing• Discount authorisation• Distribution and Invoicing • Payment to marketing agents (if any)

2 January 2018 to 5 January 2018

2 Conducted follow-up review on Sales and Marketing 22 March 2018 to23 March 2018

3 Production • Production process and reporting• Safety monitoring and reporting• Machinery maintenance

16 July 2018 to 19 July 2018

4 Conducted follow-up review on Production 15 October 2018 to 16 October 2018

A n n u a l R e p o r t 2 0 1 8 41


5. INTERNAL AUDIT FUNCTIONS (CONTINUED)

• Issued reports on the results of the internal audit review, identifying weaknesses with suggested recommendations for improvements to Management for further action to improve the system of internal control.

• Attended the AC meetings held on 6 February 2018, 21 May 2018, 20 August 2018 and 29 November 2018 to table and discuss the audit reports.

The relevant Management members were made responsible for ensuring that corrective actions on reported weaknesses were taken within the required timeframes. The outsourced Internal Auditor conducted follow-up audits on key engagements to ensure that the corrective actions were implemented appropriately.

During the year, the AC has met four (4) times with the Internal Auditors to carry out its responsibilities in reviewing the internal audit function and to assure itself on the soundness of internal control system. The costs incurred for the outsourced internal audit function in respect of the financial year ended 31 December 2018 was RM48,960.00.

The Directors acknowledged their responsibilities as required by the Companies Act 2016 and the Main Market Listing Requirements of Bursa Malaysia Securities Berhad to prepare the financial statements for each financial year so as to give a true and fair view of the state of affairs of the Group and the Company as at end of the financial year and of the results and cash flow of the Group and the Company for the financial year then ended.

In the preparation of the financial statements, the Directors have:

• adopted appropriate accounting policies and apply them consistently;• made judgments and estimates that are reasonable and prudent;• ensured that applicable approved accounting standards have been complied with; and• ensured the financial statements has been prepared on a going concern basis.

The Directors are responsible for ensuring that proper accounting and other records are kept which disclose with reasonable accuracy at any time the financial position of the Group and the Company and to enable them to ensure that the financial statements comply with the Companies Act 2016. The Directors are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for prevention and detection of fraud and other irregularities.

Directors’ ResponsibilitySTaTemenTIn Respect of Financial Statements


Statement on Risk Managementand InTernal conTrolINTRODUCTION

The Board is committed to preserve throughout the Group a sound system of risk management and internal controls and good corporate governance practices as set out in the Board’s Statement on Risk Management and Internal Control made in compliance with Paragraph 15.26(b) of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad and guided by the Statement on Risk Management & Internal Control: Guidelines for Directors of Listed Issuers.

BOARD’S RESpONSIBILITY

The Board acknowledges its responsibility for ensuring the adequacy and effectiveness of the Group’s Risk Management and Internal Control System. This includes the establishment of an appropriate control environment and risk management framework, processes and structures and continually reviewing the adequacy and integrity of the said systems to safeguard shareholders’ investment and the Group’s assets.

Whilst acknowledging its responsibilities, the Board is aware of the limitations that are inherent in any systems of internal control and risk management where such systems is designed to manage, rather than eliminate, the risks that may impede the achievement of the Group’s business objectives. Accordingly, it can only provide a reasonable, but not absolute assurance against material misstatement or losses, fraud or breaches of laws or regulations.

Management is responsible for assisting the Board in implementing the processes for identifying, evaluating, monitoring and reporting risks and internal controls throughout the period. The Board is assisted by the Audit Committee to oversee the implementation of a system of risk management and internal controls. The Risk Management Committee (“RMC”), comprising a Risk Manager and Head of Departments from all functions is established to assist the Audit Committee in overseeing the risk management issues of the Group and to report to the Audit Committee directly on the Group’s overall co-ordination of risk management activity and ensuring that the necessary processes are in place.

The Board is responsible for setting the business direction and for overseeing the conduct of the Group’s operations through various Board Committees. This represents the main platform by which the Group’s performance, risks and conduct are monitored. The Group monitors the effectiveness of the internal control system by a continuous process of improving the internal control system through periodic internal audit reviews. The framework and process are regularly reviewed by the Audit Committee and the outcome of the review is reported to the Board.

The Board is of the view that the Group’s risk management and internal control framework and systems is in place for the financial year under review and up to the date of issuance of the financial statements for identifying, evaluating and managing significant risks faced or could potentially be encountered by the Group.

RISK MANAGEMENT FRAMEWORK

The Board firmly believes that an effective risk management is critical to the Group’s continued profitability and the enhancement of shareholder value. Therefore, the Board has put in place a formal enterprise risk management framework guided by Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) that allows a more structured and focused approach to identify, evaluate, monitor and report the principal risks that affect the achievement of the Group’s business objectives.

The framework is continually monitored to ensure that it is responsive to the changes in the business environment.

The RMC meets at least twice a year at appropriate times and otherwise as required, to review risks that affect the achievement of the Group’s business objectives. The RMC submits its report on the key risks facing the Group to the Audit Committee half-yearly. In the event of significant risks being identified, it will be reported to the Audit Committee immediately.

A n n u a l R e p o r t 2 0 1 8 43

Statement on Risk Management and Internal Control

RISK MANAGEMENT pROCESS

The Management is responsible for reviewing risks on an on-going basis so that risks impeding the achievement of objectives are adequately identified, evaluated, managed and controlled.

On a semi-annually basis, RMC prepares a report detailing the significant risks, the status of risks reviewed and the status of implementation of action plans for review by the Audit Committee. The review undertaken involves the following function/operating units:

The risk management process starts with the identification of all risks affecting the Company’s achievement of its vision and mission and the linkage between risk management and its objectives can be illustrated below:

The risks identified remain the foundation in developing a risk profile and an action plan is to assist the Board of Directors and Management to adequately respond to these risks. All the risks identified are maintained in Risk Register to facilitate monitoring from time to time.

Respective Risk Owner’s Objectives

FOCUS LUMBER BERHAD

STRATEGIC OpERATIONAL FINANCIAL COMpLIANCE

1. Penetration into Existing & new markets

2. Penetrate into industries such as furniture, home decorating and house constructions

3. Investment in new machinery and continuous manufacturing process enhancement

Safety & Health

Human Resource

Accounts & Admin

Sales & Marketing and Import & Export

purchasing (Store & Logs)

production

Maintenance

FOCUS LUMBER BERHAD


RISK MANAGEMENT ACTIvITIES

During the financial year 2018, no new risk has been identified. However, there is a change of Risk Owners in Human Resource department. The said change had been updated in the Risk Register for 2018.

AUDIT COMMITTEE

The Audit Committee supports the Board’s oversight function on risk management and internal control through the following:

• Ensuring an effective risk management process and management of key business risks in accordance with the Group’s tolerance level of risks.

• Assessing the effectiveness of the Group’s internal control system vis-à-vis the risks, control environment and compliance requirements.

• Ensuring an appropriate Whistleblowing policy is in place.

The Audit Committee deliberates on the abovementioned to assess the state of the Group’s management of risks and internal controls and management actions on the control issues identified on a half-yearly basis. The internal control recommendations by the Internal Auditors and the External Auditors are followed-up and reported to the Audit Committee to monitor the implementation of preventive and corrective actions to mitigate related risks.

CONTROL ENvIRONMENT

In striving to operate a sound system of risk management and internal control that drives the Group towards achieving its goals, the Board of Directors has put in place an organisation structure with formally defined lines of responsibility and delegation of authority.

The daily running of business is entrusted to the Managing Director, Executive Directors and the Management Team. This close-to-operations management style enables timely identification and reporting of significant matters.

In order to inculcate a standard of ethical behaviour for directors and employees of the Group, a Code of Conduct and Ethics has been established and communicated to all directors and employees of the Group.

INTERNAL CONTROL

The Group has established its internal control structure and is committed to providing the fundamental discipline on risk management and control. These internal control structures apply to all the Group’s investments and business operations. The Group has continuously been undertaking efforts to enhance its internal control structures within the Group.

The key elements of the Group’s internal control structures are as follows:

• CodeofConductandEthics

The Group’s practice is guided by the Code of Conduct and Ethics, which sets out the principles to guide employees in carrying out their duties and responsibilities to the highest standards of personal and corporate integrity. The Group’s Code of Conduct and Ethics covers such as compliance with respective local laws and regulations, integrity, conduct in the work place, business conduct, protection of the Group’s assets, confidentiality, conflict of interest and fair dealing practices.

Major decisions that require the approval of the Board are only made after detailed appraisal and review. Proposals for major capital expenditure and new investment by the Group are reviewed and approved by the Board of Directors.

Standard operating procedures are established to ensure operations undertaken by staff are properly guided for complete and accurate reporting.


A n n u a l R e p o r t 2 0 1 8 45


INTERNAL CONTROL (CONTINUED)

• WhistleblowingPolicyandProcedures

As the Group expects the highest standards of integrity, probity, transparency and accountability from all employees to preserve and protect the Group’s interests and reputation, the Group takes a serious view of any acts of wrong doing by any of its employees.

The Board has approved a Whistleblowing Policy to allow employees to raise concerns without fear of reprisals on possible improprieties in matters of financial reporting, compliance and other malpractices at the earliest opportunity, and in an appropriate way. Under the Group’s Whistleblowing Policy, the employee should immediately report any malpractice that exists in the work place to his/ her manager. However, if the employee feels reluctant to do so, the employee has an option to either report it to the Chairman of the Board or the Audit Committee Chairman.

Full details of the Group’s Code of Conduct and Ethics and Whistleblowing Policy are published in the Company’s website at www.focuslumber.com.my.

• Informationandcommunication

The Audit Committee holds meetings to deliberate on the findings and recommendations for improvement by the internal auditor on the state of the internal control system and reports to the Board. The Audit Committee also reviews and deliberates on any matters relating to internal control highlighted by the External Auditors during their statutory audit of the financial statements of the Group.

Quarterly performance reports provide Management and the Board of Directors with information on financial performance and key business indicators.

• On-GoingMonitoring

Periodic reviews of adequacy and integrity of selected areas of internal control system are carried out by the internal audit function and results of such reviews are reported to the Audit Committee. The internal audit function thereby provides independent assurance on the areas reviewed by the Internal Auditors to the Board on the effectiveness of the Group’s internal control system.

• Internalauditfunction

Pursuant to Paragraph 9.25(1), Part A of Appendix 9C(30) of the Main Market Listing Requirement of Bursa Malaysia Securities Berhad, the Board is pleased to set out below its internal audit function.

The Group’s internal audit function is outsourced to GovernAce Advisory & Solutions Sdn Bhd (“GovernAce”), a professional internal audit service provider and this ensures that the outsourced internal auditor is independent as it is not involved in the operations of the Group. The outsourced Internal Auditor reports directly to the Audit Committee. The outsourced Internal Auditor is led by a management team, who are registered with professional bodies, which comprised:

(a) Director – Certified Internal Auditor (“CIA”), Certified Practising Accountant with CPA Australia (“CPA”), a Chartered Member of Institute of Internal Auditors Malaysia (“CMIIA”) and Accountants registered with Malaysian Institute of Accountants (“MIA”)

(b) Manager – Certified Internal Auditor (“CIA”)

Mr. Ryan Chong, the Director of GovernAce, leads the team on the Group engagement and he is assisted by Mr. Alex Wong, Manager and Ms. Ong Ai Sim, Senior Consultant. All project management and reporting were conducted by Mr. Ryan Chong, Mr. Alex Wong and Ms. Ong Ai Sim.



INTERNAL CONTROL (CONTINUED)

• Internalauditfunction(continued)

The Group’s Internal Audit plays a pivotal role in improving the effectiveness of risk management, control and governance processes of the Group’s operations. This is effected through its recommendations for improvement in internal controls and other related matters, based on the International Professional Practices Framework (“IPPF”) guided by Institute of Internal Auditors. The audit process also includes the follow-up on the implementation of recommendations of all issues reported to the Audit Committee to ensure improvement actions are taken. Based on the follow-ups conducted during the year, all actions have been implemented towards improvements in the related areas.

During the financial year, a summary of activities carried out by the outsourced Internal Auditor include:

• Developed the internal audit plan for year 2019/2020• Performed internal audit review on the following areas:

No. Audited Area Audit Work Taken On

1 Sales and Marketing• Price Development• Selling to order processing• Discount authorisation• Distribution and Invoicing• Payment to marketing agents (if any)

2 January 2018 to 5 January 2018

2 Conducted follow-up review on Sales and Marketing 22 March 2018 to 23 March 2018

3 Production • Production process and reporting• Safety monitoring and reporting• Machinery maintenance

16 July 2018 to 19 July 2018

4 Conducted follow-up review on Production 15 October 2018 to 16 October 2018

• Issued reports on the results of the internal audit review, identifying weaknesses with suggested recommendations for improvements to management for further action to improve the system of internal control.

• Attended Audit Committee’s meetings to table and discuss the Internal Audit Reports.• Followed-up on the implementation of corrective action plans agreed by Management.

During the year, the Audit Committee has met four (4) times with the Internal Auditors to review the internal audit function and to assure itself on the soundness of internal control system. The costs incurred for the outsourced internal audit function in respect of the financial year ended 31 December 2018 was RM48,960.00.

ASSURANCE FROM THE MANAGEMENT

The Board has also received assurance from the Managing Director and the Financial Controller on 26 March 2019 that the Group’s risk management framework and internal control system are operating adequately and effectively, in all material respects during the financial year ended 31 December 2018, based on the risk management model adopted by the Group.

A n n u a l R e p o r t 2 0 1 8 47


REvIEW OF THE STATEMENT BY EXTERNAL AUDITORS

As required by paragraph 15.23 of the Main Market Listing Requirement of Bursa Malaysia Securities Berhad, the External Auditors have reviewed this Statement on Risk Management & Internal Control. Their review was performed in accordance with Recommended Practice Guide (RPG) 5: Guidance for Auditors on the Review of Directors’ Statement on Internal Control, issued by the Malaysian Institute of Accountants. Based on their review, the External Auditors has reported to the Board that nothing has come to their attention that caused them to believe that this Statement is inconsistent with their understanding of the processes that the Board has adopted in terms of the adequacy and integrity of internal control of the Group. RPG 5 does not require the External Auditors to, and they did not, consider whether this Statement covers all risk and controls, or to form an opinion on the effectiveness of the risk management and internal control systems of the Group.

CONCLUSION

Based on the processes taken through the Board and its Committees during the financial year under review and up to the date of issuance of the financial statements and assurance provided by the Group’s Managing Director and the Financial Controller, the Board is of the view that the risk management and internal control system as described in this Statement is operating adequately and effectively, in all material aspects, to mitigate the Group’s major risks. There were no material losses that had arisen from any inadequacy or failure of the Group’s system of internal control which required additional disclosure in the financial statements. There is continual focus on measures to protect shareholder value and business sustainability.

This statement was approved by the Board of Directors on 26 March 2019.


Additional ComplianceInformaTIonThe following is presented in compliance with the Main Market Listing Requirements of Bursa Malaysia Securities Berhad:-

1. Utilisation of proceeds raised from Corporate proposal

There were no proceeds raised from any corporate proposal during the financial year ended 31 December 2018.

2. Audit and Non-audit Fees

The amount of audit fee paid to the external auditors by the Company and the Group for the financial year ended 31 December 2018 are RM105,000.00 and RM115,000.00 respectively. The amount of non-audit fees paid to the external auditors by the Company and Group for the financial year ended 31 December 2018 is RM18,000.00 and RM24,000.00 respectively for corporate tax compliance and advisory services rendered.

3. Material Contracts

There were no material contracts subsisting or entered into by the Company and its subsidiary involving any Directors or substantial shareholders of the Company or any persons connected to a Director or major shareholder of the Company during the financial year.

4. Recurrent Related party Transactions (“RRpTs”)

RRPTs entered into the Company and the Group are disclosed under Note 28(a) & (b) to the Financial Statements on pages 109 and 110.

5. Employees’ Share Option Scheme (“ESOS”)

The Employees’ Share Option Scheme of the Company (“ESOS”) was implemented on 11 June 2018 and shall be in force for a duration of five (5) years.

The total number of options granted, exercised, lapsed and outstanding under the ESOS is set out in the table below:-

Number of Options as at 31 December 2018

DescriptionAll Eligible Employees

including Directors Directors

Options granted 15,480,000 6,650,000

Options exercised (2,324,000) (610,000)

Options lapsed (80,000) -

Options outstanding 13,076,000 6,040,000

In accordance with the Company’s ESOS By-Laws, not more than 70% of the Company’s ordinary shares available under the Scheme shall be allocated, in aggregate, to Directors and senior management of the Group. Since the commencement of the Scheme up to the financial year ended 31 December 2018, the Company has granted 55.88% of options to the Directors and senior management.

As at financial year ended 31 December 2018, ESOS allocations to Non-Executive Directors are as follows: -

No. Name of Non-Executive DirectorNumber of

Options grantedNumber of

Options exercised

1. Datuk Aznam Bin Mansor 1,500,000 -

2. Wong Yoke Nyen 1,500,000 30,000

3. Ng Tian Meng 1,500,000 150,000

STATEMENTSFINANCIAL

Focus Lumber Berhad (188710-V)

A n n u a l R e p o r t 2 0 1 8

50Directors’ Report

55Statement by Directors

55Statutory Declaration

56Independent Auditors’ Report

60Statements of Comprehensive Income

61Statements of Financial Position

63Statements of Changes in Equity

67Statements of Cash Flows

69Notes to the Financial Statements


Directors’REPORTThe directors have pleasure in presenting their report together with the audited financial statements of the Group and of the Company for the financial year ended 31 December 2018.

PRINCIPAL ACTIVITIES

The principal activities of the Company are the manufacturing and sale of plywood, veneer, laminated veneer lumber (“LVL”), and investment holding.

The principal activities of the subsidiary are the generation and sale of electricity.

Other information relating to the subsidiary is disclosed in Note 14 to the financial statements.

RESULTS

GroupRM

CompanyRM

Profit net of tax 28,415,739 28,016,795

Profit attributable to:

Owners of the Company 28,415,739 28,016,795

There were no material transfers to or from reserves or provisions during the financial year other than as disclosed in the financial statements.

In the opinion of the directors, the results of the operations of the Group and of the Company during the financial year were not substantially affected by any item, transaction or event of a material and unusual nature.

DIVIDENDS

The amounts of dividends paid by the Company since 31 December 2017 were as follows:

RM

In respect of the financial year ended 31 December 2018:

First interim dividend of 6.0 sen per share on 103,200,000 ordinary shares, declared on 26 February 2018 and paid on 27 March 2018 6,192,000

Second interim dividend of 2.0 sen per share on 103,200,000 ordinary shares, declared on 28 May 2018 and paid on 28 June 2018 2,064,000

Third interim dividend of 8.0 sen per share on 105,260,100 ordinary shares, declared on 12 November 2018 and paid on 17 December 2018 8,420,808

16,676,808

On 26 February 2019, the Company declared an interim dividend of 4.0 sen per share in respect of financial year ending 31 December 2019 which is payable on 16 April 2019.

A n n u a l R e p o r t 2 0 1 8 51

Directors’ Report

DIRECTORS

The names of the directors of the Company in office since the beginning of the financial year to the date of this report are:

Datuk Aznam Bin MansorLin Hao Wen*Lin Fong Ming*Lin Hao YuWong Yoke NyenNg Tian Meng

* These directors are also directors of the Company’s subsidiary.

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 or the fixed salary of a full-time employee of the Company as shown in Note 9 to the financial statements) 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 28 to the financial statements.

INDEMNITIES TO DIRECTORS OR OFFICERS

During the financial year, expenses incurred on indemnity given or insurance effected for any director and officer of the Company and its subsidiary during the financial year amounted to RM37,370 (2017: RM37,000).

DIRECTORS’ INTERESTS

According to the register of directors’ shareholdings, the interests of directors in office at the end of the financial year in shares and options over shares in the Company and its related corporations during the financial year were as follows:

Number ordinary shares

1.1.2018 Acquired Sold 31.12.2018

Name of director

Direct Interest:

Ordinary shares of the Company

Lin Fong Ming 9,029,360 140,000 - 9,169,360

Lin Hao Wen 9,029,360 150,000 - 9,179,360

Lin Hao Yu 7,425,460 235,200 - 7,660,660

Indirect interest:

Ordinary shares of the Company

Lin Hao Yu 1,823,300 1,023,800 - 2,847,100*

* Lin Hao Yu deemed to have interests by virtue of shares held by his spouse pursuant to Section 59(11)(c) of the Companies Act, 2016.


Directors’ Report

DIRECTORS’ INTERESTS (CONTINUED)

Number of options over ordinary shares

1.1.2018 Granted Exercised 31.12.2018

Name of director

Share options of the Company

Datuk Aznam Bin Mansor - 1,500,000 - 1,500,000

Lin Hao Wen - 750,000 (150,000) 600,000

Lin Fong Ming - 700,000 (140,000) 560,000

Lin Hao Yu - 700,000 (140,000) 560,000

Wong Yoke Nyen - 1,500,000 (30,000) 1,470,000

Ng Tian Meng - 1,500,000 (150,000) 1,350,000

None of the other directors in office at the end of the financial year had any interest in shares in the Company or its related corporation during the financial year.

ISSUE OF SHARES

During the financial year, the Company issued:

a) 1,714,000 new ordinary shares for cash totalling RM1,731,140 arising from the exercise of the employees’ share options at an exercise price of RM1.01 per ordinary share; and

b) 610,000 new ordinary shares for cash totalling RM725,900 arising from the exercise of the employees’ share options at an exercise price of RM1.19 per ordinary share.

TREASURY SHARES

During the financial year, the Company repurchased 3,097,800 of its issued ordinary shares from the open market at an average price of RM1.55 per share. The total consideration paid for the repurchase including transaction costs was RM4,786,489. The shares repurchased are being held as treasury shares in accordance with Section 127(4) of the Companies Act, 2016.

As at 31 December 2018, the Company held as treasury shares a total of 3,097,800 of its 105,524,000 issued ordinary shares. Such treasury shares are held at a carrying amount of RM4,786,489 and further relevant details are disclosed in Note 24 to the financial statements.

EMPLOYEES’ SHARE OPTION SCHEME (“ESOS”)

At an Extraordinary General Meeting held on 4 June 2018, shareholders approved the establishment of ESOS of up to 15% of the total number of issued shares of the Company to eligible directors and employees.

The committee administering the ESOS comprises four directors, Lin Hao Wen, Lin Hao Yu, Ng Tian Meng and Wong Yoke Nyen.

The salient features and other terms of the ESOS are disclosed in Note 26 to the financial statements.

A n n u a l R e p o r t 2 0 1 8 53

Directors’ Report

EMPLOYEES’ SHARE OPTION SCHEME (“ESOS”) (CONTINUED)

The movement in outstanding options offered to take up unissued ordinary shares and the exercise price is as follows:

Number of options

Date of offer Exercise price 1.1.2018 Granted Exercised Forfeited 31.12.2018

21 June 2018 RM1.01 - 8,830,000 (1,714,000) (80,000) 7,036,000

31 October 2018 RM1.19 - 6,650,000 (610,000) - 6,040,000

- 15,480,000 (2,324,000) (80,000) 13,076,000

The date of expiry of the option is 10 June 2023.

OTHER STATUTORY INFORMATION

a) Before the statements of comprehensive income and statements of financial position of the Group and of the Company were made out, the directors took reasonable steps:

i) 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 satisfied themselves that all known bad debts had been written off and that no allowance for doubtful debts was necessary; and

ii) to ensure that any current assets which were unlikely to realise their values as shown in the accounting records in the ordinary course of business had been written down to an amount which they might be expected so to realise.

b) At the date of this report, the directors are not aware of any circumstances which would render:

i) it necessary to make any allowance for doubtful debts in respect of the financial statements of the Group and of the Company or the amount written off for bad debts inadequate to any substantial extent; and

ii) the values attributed to current assets in the financial statements of the Group and of the Company misleading.

c) At the date of this report, the directors are not aware of any circumstances 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.

d) At the date of this report, the directors are not aware of any circumstances not otherwise dealt with in this report or financial statements of the Group and of the Company which would render any amount stated in the financial statements misleading.

e) At the date of this report, there does not exist:

i) any charge on the assets of the Group or of the Company which has arisen since the end of the financial year which secures the liabilities of any other person; or

ii) any contingent liability of the Group or of the Company which has arisen since the end of the financial year.

f) In the opinion of the directors:

i) 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 will or may affect the ability of the Group or of the Company to meet their obligations when they fall due; and

ii) 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 the operations of the Group or of the Company for the financial year in which this report is made.


AUDITORS

The auditors, Ernst & Young, have expressed their willingness to continue in office.

Auditors’ remuneration is disclosed in Note 7 to the financial statements.

To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young, as part of the terms of its audit engagement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young for the financial year ended 31 December 2018.

Signed on behalf of the Board in accordance with a resolution of the directors dated 26 March 2019.

Lin Hao Wen Lin Hao Yu

Directors’ Report

A n n u a l R e p o r t 2 0 1 8 55

Statement by

Statutory

DIRECTORS

DECLARATION

Pursuant to Section 251(2) of the Companies Act, 2016

Pursuant to Section 251(1)(b) of the Companies Act, 2016

I, Teh Yong Khim, being the officer primarily responsible for the financial management of Focus Lumber Berhad, do solemnly and sincerely declare that the accompanying financial statements set out on pages 60 to 118 are in my opinion correct, and I make this solemn declaration conscientiously believing the same to be true and by virtue of the provisions of the Statutory Declarations Act, 1960.

Subscribed and solemnly declared by the abovenamed Teh Yong Khim at Kota Kinabalu in the State of Sabah on 26 March 2019 Teh Yong Khim

(MIA 36504)

Before me,

We, Lin Hao Wen and Lin Hao Yu, being two of the directors of Focus Lumber Berhad, do hereby state that, in the opinion of the directors, the accompanying financial statements set out on pages 60 to 118 give a true and fair view of the financial position of the Group and of the Company as at 31 December 2018 and of their financial performance and the cash flows for the year then ended in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 2016 in Malaysia.

Signed on behalf of the Board in accordance with a resolution of the directors dated 26 March 2019.

Lin Hao Wen Lin Hao Yu


Independent Auditors’REPORTTo the members of Focus Lumber Berhad (Incorporated in Malaysia)

REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS

Opinion

We have audited the financial statements of Focus Lumber Berhad, which comprise statements of financial position as at 31 December 2018 of the Group and of the Company, and statements of 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 60 to 118.

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 2018, and of their financial performance and their cash flows for the year then ended in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 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 Auditors’ 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 audit 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 the IESBA Code.

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, 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. For each matter below, our description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditors’ responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis of our audit opinion on the accompanying financial statements.

Valuation of inventories

As at reporting date, the Group and the Company held an inventory balance of RM43 million (2017: RM20 million) as disclosed in Note 17 to the financial statements. Inventories consists of raw materials, consumables, work-in-progress and finished goods. Finished goods consist of similar products with various sizes and qualities that come from the same manufacturing process. The costs of conversion of each product from raw materials to finished goods are not separately identifiable. Management judgement is required in determining an appropriate costing basis for the costs allocation between the products on a rational and consistent basis. The Group and the Company use weighted average costing in measuring its finished goods, which includes an element of estimation in the allocation of the costs of conversion. Given its magnitude and the estimation involved, this is considered a key audit matter in our audit.

A n n u a l R e p o r t 2 0 1 8 57

Independent Auditors’ ReportTo the members of Focus Lumber Berhad (Incorporated in Malaysia)

REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED)

Key Audit Matters (Continued)

Valuation of inventories (Continued)

As part of our audit procedure, we obtained an understanding of management’s process in determining an appropriate costing basis, including the allocation of costs of conversion in line with management policies. We tested the costing on samples of finished goods by examining the elements which made up the costs. We also assessed the basis of allocation for the costs that were not separately identifiable between the products were applied on a rational and consistent basis. We had also performed clerical accuracy tests on the allocation of overhead costs.

Details of the Group’s accounting policy in relation to inventories are disclosed in Note 2.15 to the financial statements.

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 Directors’ Report, but does not include the financial statements of the Group and of the Company and our auditors’ report thereon, which we obtained prior to the date of this auditors’ report, and the Annual Report, which is expected to be made available to us after the date of this auditors’ report. Our opinion on the financial statements of the Group and of the Company does not cover the other information and we do not and will 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 identified above 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 on the other information that we obtained prior to the date of this auditors’ report, 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.

When we read the annual report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors of the Company and take appropriate action. Responsibilities of the 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 Malaysian Financial Reporting Standards, International 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.

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 intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.



REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED)

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 judgement and maintain professional scepticism throughout the audit. We also:

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.

circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and of the Company’s internal control.

disclosures made by the 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.

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.

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. 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 auditors’ 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.

A n n u a l R e p o r t 2 0 1 8 59


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 content of this report.

Ernst & Young Chong Ket Vui, DusunAF: 0039 02944/01/2021 JChartered Accountants Chartered Accountant

Kota Kinabalu, Malaysia26 March 2019


Statements ofCOMPREHENSIVE INCOMEFor the financial year ended 31 December 2018

Group CompanyNote 2018

RM2017

RM2018

RM2017

RM

Restated Restated

Revenue from contracts with customers 4 203,427,552 176,159,392 202,906,834 175,995,821

Cost of sales (159,877,585) (156,695,024) (162,227,127) (158,693,136)

Gross profit 43,549,967 19,464,368 40,679,707 17,302,685

Other items of income

Interest income 5 545,201 510,637 542,292 509,198

Other income 6 4,306,735 4,253,971 6,086,580 5,871,780

Other items of expenseAdministrative expenses (8,380,184) (6,098,730) (8,356,722) (6,074,905)

Other expenses (2,271,925) (3,388,960) (2,271,925) (3,419,716)

Profit before tax 7 37,749,794 14,741,286 36,679,932 14,189,042

Income tax expense 10 (9,334,055) (3,024,439) (8,663,137) (2,524,002)

Profit net of tax, representing total comprehensive income for the year 28,415,739 11,716,847 28,016,795 11,665,040

Profit net of tax attributable to:

Owners of the Company 28,415,739 11,716,847 28,016,795 11,665,040

Earnings per share (EPS) attributable to owners of the Company (sen per share):

Basic 11 27.48 11.35

Diluted 11 27.41 11.35

The accompanying accounting policies and explanatory notes form an integral part of the financial statements.

A n n u a l R e p o r t 2 0 1 8 61

Statements ofFINANCIAL POSITIONAs at 31 December 2018

Group Company

Note 2018RM

2017RM

As at 1 January

2017RM

2018RM

2017RM

As at 1 January

2017RM

Restated Restated Restated Restated

Assets

Non-current assetsProperty, plant and

equipment 12 28,887,197 29,434,728 29,379,225 23,355,032 22,020,030 20,073,507

Investment properties 13 2,378,921 2,460,953 2,542,984 2,378,921 2,460,953 2,542,984

Investment in a subsidiary 14 - - - 5,000,000 5,000,000 5,000,000

Intangible asset 15 149,040 149,040 149,040 149,040 149,040 149,040

Deferred tax assets 16 139,532 386,334 886,047 - - -

31,554,690 32,431,055 32,957,296 30,882,993 29,630,023 27,765,531

Current assets

Inventories 17 42,293,704 19,699,419 27,691,764 42,875,089 19,973,684 27,691,764

Trade and other receivables 18 12,129,991 27,235,119 28,317,276 11,912,147 27,102,631 28,277,250

Other current assets 19 10,952,581 6,739,648 4,075,956 10,946,839 6,739,648 4,075,539

Income tax refundable - 813,174 - - 813,174 -

Other current financial assets 20 48,380,225 64,410,184 53,176,698 37,122,931 58,012,585 50,152,046

Cash and bank balances 21 51,803,150 34,310,359 39,205,722 51,346,913 33,554,511 38,709,524

165,559,651 153,207,903 152,467,416 154,203,919 146,196,233 148,906,123

Total assets 197,114,341 185,638,958 185,424,712 185,086,912 175,826,256 176,671,654


Statements of Financial PositionAs at 31 December 2018

Group Company

Note 2018RM

2017RM

As at 1 January

2017RM

2018RM

2017RM

As at 1 January

2017RM

Restated Restated Restated Restated

Equity and liabilities

Current liabilitiesTrade and other

payables 22 9,287,213 9,521,634 18,725,449 9,883,690 11,510,554 21,722,080

Contract liabilities 23 1,045,451 2,200,826 2,629,702 1,045,451 2,200,826 2,629,702

Other current financial liabilities - - 71,030 - - 71,030

Income tax payable 900,375 126 1,644,794 900,001 - 1,644,794

11,233,039 11,722,586 23,070,975 11,829,142 13,711,380 26,067,606

Net current assets 154,326,612 141,485,317 129,396,441 142,374,777 132,484,853 122,838,517

Non-current liability

Deferred tax liabilities 16 3,070,279 2,430,800 2,585,012 2,647,187 2,430,800 2,585,012

Total liabilities 14,303,318 14,153,386 25,655,987 14,476,329 16,142,180 28,652,618

Net assets 182,811,023 171,485,572 159,768,725 170,610,583 159,684,076 148,019,036

Equity attributable to the owners of the Company

Share capital 24 55,759,563 52,483,420 51,600,000 55,759,563 52,483,420 51,600,000

Share premium 24 - - 883,420 - - 883,420

Treasury shares 24 (4,786,489) - - (4,786,489) - -

Employee share option reserve 25 1,096,866 - - 1,096,866 - -

Retained earnings 130,741,083 119,002,152 107,285,305 118,540,643 107,200,656 95,535,616

Total equity 182,811,023 171,485,572 159,768,725 170,610,583 159,684,076 148,019,036

Total equity and liabilities 197,114,341 185,638,958 185,424,712 185,086,912 175,826,256 176,671,654


A n n u a l R e p o r t 2 0 1 8 63

Statements ofCHANGES IN EQUITY

For the financial year ended 31 December 2018

Attributable to owners of the Company

NoteEquity,

totalRM

Share capital

(Note 24)RM

Share premium(Note 24)

RM

Treasury shares

(Note 24)RM

Employee share option

reserve(Note 25)

RM

Retained earnings

RM

Group

Opening balance at 1 January 2018 171,486,393 52,483,420 - - - 119,002,973

Effects of adopting MFRS 15 (821) - - - - (821)

As restated 171,485,572 52,483,420 - - - 119,002,152

Profit net of tax 28,415,739 - - - - 28,415,739

Other comprehensive income - - - - - -

Total comprehensive income for the year 28,415,739 - - - - 28,415,739

Transactions with owners

Purchase of treasury shares (4,786,489) - - (4,786,489) - -

Grant of equity-settled share options 1,915,969 - - - 1,915,969 -

Exercise of employee share options 2,457,040 3,276,143 - - (819,103) -

Dividends on ordinary shares 33 (16,676,808) - - - - (16,676,808)

Total transactions with owners (17,090,288) 3,276,143 - (4,786,489) 1,096,866 (16,676,808)

Closing balance at 31 December 2018 182,811,023 55,759,563 - (4,786,489) 1,096,866 130,741,083


Statements of Changes in EquityFor the financial year ended 31 December 2018


NoteEquity,

totalRM

Share capital

(Note 24)RM


RM

Treasury shares

(Note 24)RM


reserve(Note 25)

RM

Retained earnings

RM

Group

Opening balance at 1 January 2017 159,764,135 51,600,000 883,420 - - 107,280,715

Effects of adopting MFRS 15 4,590 - - - - 4,590

As restated 159,768,725 51,600,000 883,420 - - 107,285,305

Profit net of tax (restated) 11,716,847 - - - - 11,716,847




Transfer pursuant to the Companies Act, 2016 - 883,420 (883,420) - - -

Total transactions with owners - 883,420 (883,420) - - -

Closing balance at 31 December 2017 171,485,572 52,483,420 - - - 119,002,152

A n n u a l R e p o r t 2 0 1 8 65



NoteEquity,

totalRM

Share capital

(Note 24)RM


RM

Treasury shares

(Note 24)RM


reserve(Note 25)

RM

Retained earnings

RM

Company

Opening balance at 1 January 2018 159,684,897 52,483,420 - - - 107,201,477

Effects of adopting MFRS 15 (821) - - - - (821)

As restated 159,684,076 52,483,420 - - - 107,200,656

Profit net of tax 28,016,795 - - - - 28,016,795




Purchase of treasury shares (4,786,489) - - (4,786,489) - -

Grant of equity-settled share options 1,915,969 - - - 1,915,969 -

Exercise of employee share options 2,457,040 3,276,143 - - (819,103) -

Dividends on ordinary shares 33 (16,676,808) - - - - (16,676,808)

Total transactions with owners (17,090,288) 3,276,143 - (4,786,489) 1,096,866 (16,676,808)

Closing balance at 31 December 2018 170,610,583 55,759,563 - (4,786,489) 1,096,866 118,540,643



NoteEquity,

totalRM

Share capital

(Note 24)RM


RM

Treasury shares

(Note 24)RM


reserve(Note 25)

RM

Retained earnings

RM

Company

Opening balance at 1 January 2017 148,014,446 51,600,000 883,420 - - 95,531,026

Effects of adopting MFRS 15 4,590 - - - - 4,590

As restated 148,019,036 51,600,000 883,420 - - 95,535,616

Profit net of tax (restated) 11,665,040 - - - - 11,665,040




Transfer pursuant to the Companies Act, 2016 - 883,420 (883,420) - - -

Total transactions with owners - 883,420 (883,420) - - -

Closing balance at 31 December 2017 159,684,076 52,483,420 - - - 107,200,656



A n n u a l R e p o r t 2 0 1 8 67

Statements ofCASH FLOWSFor the financial year ended 31 December 2018

Group Company

Note2018

RM2017

RM2018

RM2017

RM

Restated Restated

Operating activities

Profit before tax 37,749,794 14,741,286 36,679,932 14,189,042

Adjustments for:

Depreciation of investment properties 13 82,032 82,031 82,032 82,031

Depreciation of property, plant and equipment 12 5,062,299 5,197,687 3,170,749 3,306,667

Grant of equity-settled share options 1,915,969 - 1,915,969 -

Dividend income 6 - - (2,000,000) (1,700,000)

Distribution income from equity instruments 6 (1,758,864) (1,586,391) (1,462,260) (1,505,094)

Gain on disposal of property, plant and equipment 6 - (11,999) - (11,999)

Interest income 5 (545,201) (510,637) (542,292) (509,198)

Deposits for log purchase written off 7 700,000 - 700,000 -

Inventory written off 7 - 199,684 - 199,684

Net fair value (gain)/loss on equity instruments 6,7 (668,344) (60,894) (684,793) 30,756

Property, plant and equipment written off 36 319 36 319

Net fair value gain on derivatives - unrealised 7,6 (189,698) (215,230) (189,698) (215,230)

Foreign exchange loss - unrealised 7 287,108 273,909 287,108 273,909

Total adjustments 4,885,337 3,368,479 1,276,851 (48,155)

Operating cash flows before changes in working capital 42,635,131 18,109,765 37,956,783 14,140,887

Changes in working capital

(Decrease)/increase in inventories (22,594,285) 7,792,661 (22,901,405) 7,518,396

Decrease in trade and other receivables 15,020,082 977,211 15,105,438 1,069,673

Increase in other current assets (4,912,933) (2,663,692) (4,907,191) (2,664,109)

Decrease in trade and other payables (234,421) (3,011,815) (1,626,864) (4,019,526)

Decrease in contract liabilities (1,155,375) (428,876) (1,155,375) (428,876)

Total changes in working capital (13,876,932) 2,665,489 (15,485,397) 1,475,558

Cash flows from operations 28,758,199 20,775,254 22,471,386 15,616,445

Interest received 531,311 476,549 528,402 475,110

Income tax paid (6,734,351) (5,136,780) (6,733,575) (5,136,182)

Net cash flows from operating activities 22,555,159 16,115,023 16,266,213 10,955,373


Statements of Cash FlowsFor the financial year ended 31 December 2018


Group Company

Note2018

RM2017

RM2018

RM2017

RM

Restated Restated

Investing activities

Dividend received - - 2,000,000 1,700,000

Distribution income received 1,758,864 1,586,391 1,462,260 1,505,094

Purchase of equity instruments (82,900,134) (69,420,620) (62,925,842) (59,755,949)

Proceeds from disposal of equity instruments 99,788,135 58,392,228 84,689,987 52,008,854

Withdrawal of short-term deposits - 3,252,205 - 3,252,205

Interest received 13,890 53,610 13,890 53,610

Proceeds from disposal of property, plant and equipment - 12,000 - 12,000

Purchase of property, plant and equipment 12 (4,514,804) (5,253,510) (4,505,787) (5,253,510)

Net cash flows from/(used in) investing activities 14,145,951 (11,377,696) 20,734,508 (6,477,696)

Financing activities

Dividends paid 33 (16,676,808) (6,192,000) (16,676,808) (6,192,000)

Purchase of treasury shares 24 (4,786,489) - (4,786,489) -

Proceeds from exercise of employee share options 2,457,040 - 2,457,040 -

Net cash flows used in financing activities (19,006,257) (6,192,000) (19,006,257) (6,192,000)

Net increase/(decrease) in cash and cash equivalents 17,694,853 (1,454,673) 17,994,464 (1,714,323)

Effect of exchange rate changes on cash and cash equivalents (202,062) (188,485) (202,062) (188,485)

Cash and cash equivalents at 1 January 33,924,523 35,567,681 33,168,675 35,071,483

Cash and cash equivalents at 31 December (Note 21) 51,417,314 33,924,523 50,961,077 33,168,675

A n n u a l R e p o r t 2 0 1 8 69

Notes to theFINANCIAL STATEMENTSFor the financial year ended 31 December 2018

1. CORPORATE 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 registered office of the Company is located at 12A, Jalan Teluk Likas, 88450 Kota Kinabalu, Sabah. The principal places of business of the Company are situated at Mile 3, Jalan Masak, Kampung Ulu Patikang, Locked Bag 13 SM-88, 89009, Keningau, Sabah and Lot No.12A, Jalan Teluk Likas, P.O.Box No.576, 88856, Kota Kinabalu, Sabah.

The principal activities of the Company are the manufacturing and sale of plywood, veneer, LVL, and investment holding.

The principal activities of the subsidiary are generation and sale of electricity.

There have been no significant changes in the nature of the principle activities during the financial year.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.1 Basis of preparation

The financial statements of the Group and of the Company have been prepared in accordance with Malaysian Financial Reporting Standards (“MFRS”), International Financial Reporting Standards and the requirements of the Companies Act, 2016 in Malaysia.

The financial statements have been prepared on the historical cost basis except as disclosed in the accounting policies below.

2.2 Changes in accounting policies

The accounting policies adopted are consistent with those of the previous financial year except as follows:

On 1 January 2018, the Group and the Company adopted the following new and amended MFRSs for annual financial periods beginning on or after 1 January 2018.

Description

Effective for annual periods beginning on

or after

MFRS 2 Classification and Measurement of Share-based Payment Transactions (Amendments to MFRS 2) 1 January 2018

MFRS 9 Financial Instruments 1 January 2018

MFRS 15 Revenue from Contracts with Customers 1 January 2018

MFRS 140 Transfers of Investment Property (Amendments to MFRS 140) 1 January 2018

Annual Improvements to MFRS Standards 2014 - 2016 Cycle 1 January 2018

IC Interpretation 22 Foreign Currency Transactions and Advance Consideration 1 January 2018

Adoption of the above standards and interpretations did not have any material impact on the financial performance or position of the Group and the Company except for those discussed below:

MFRS 9 Financial Instruments

MFRS 9 Financial Instruments replaces MFRS 139 Financial Instruments: Recognition and Measurement for annual periods beginning on or after 1 January 2018, bringing together all three aspects of the accounting for financial instruments: classification and measurement; impairment; and hedge accounting.

The Group and the Company applied MFRS 9 retrospectively, with the initial application date of 1 January 2018 and adjusting the comparative information for the period beginning 1 January 2017.


Notes to the Financial StatementsFor the financial year ended 31 December 2018

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.2 Changes in accounting policies (continued)

MFRS 9 Financial Instruments (continued)

The effects of adopting MFRS 9 are set out below:

a) Classification and measurement

Under MFRS 9, debt instruments are subsequently measured at fair value through profit or loss, amortised cost, or fair value through OCI. The classification is based on two criteria: the Group’s and the Company’s business model for managing the assets; and whether the instruments’ contractual cash flows represent ‘solely payments of principal and interest’ on the principal amount outstanding.

The assessment of the Group’s and the Company’s business model was made as of the date of initial application, 1 January 2018, and then applied retrospectively to those financial assets that were not derecognised before 1 January 2018. The assessment of whether contractual cash flows on debt instruments are solely comprised of principal and interest was made based on the facts and circumstances as at initial recognition of the assets.

The classification and measurement requirements of MFRS 9 did not have a significant impact on the Group and the Company. The Group and the Company continued measuring at fair value all financial assets previously held at fair value under MFRS 139. The following are the changes in the classification of the Group’s and the Company’s financial assets:

Trade receivables previously classified as loans and receivables are held to collect contractual cash flows and give rise to cash flows representing solely payments of principal and interest. This is now classified and measured as debt instruments at amortised cost.

The Group and the Company have not designated any financial liabilities as at fair value through profit or loss. There are no changes in classification and measurement for the Group’s and the Company’s financial liabilities.

b) Impairment

The adoption of MFRS 9 has changed the Group’s and the Company’s accounting for impairment losses for financial assets by replacing MFRS 139’s incurred loss approach with a forward-looking expected credit loss (ECL) approach. MFRS 9 requires the Group and the Company to recognise an allowance for ECLs for all debt instruments not held at fair value through profit or loss and contract assets in the scope of MFRS 15.

As all of the Group’s and the Company’s trade receivables and other current receivables which are measured at amortised cost are short term (i.e., less than 12 months) and due to the Group’s and the Company’s stringent risk management policies in place, the change to a forward-looking ECL approach did not have a material impact on the amounts recognised in the financial statements.

c) Hedge accounting

The changes introduced by MFRS 9 relating to hedge accounting have no impact, as the Group and the Company do not apply hedge accounting.

A n n u a l R e p o r t 2 0 1 8 71




MFRS 15 Revenue from Contracts with Customers MFRS 15 supersedes MFRS 111 Construction Contracts, MFRS 118 Revenue and related interpretations and it

applies, with limited exceptions, to all revenue arising from contracts with its customers. MFRS 15 establishes a five-step model to account for revenue arising from contracts with customers and requires that revenue be recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.

MFRS 15 requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying each step of the model to contracts with their customers. The standard also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract. In addition, the standard requires extensive disclosures.

The Group and the Company adopted MFRS 15 using the full retrospective method of adoption. The effect of the transition on the current period has not been disclosed as the standard provides an optional practical expedient. The Group and the Company did not apply any of the other available optional practical expedients.

The effect of adopting MFRS 15 is as follows:

Impact on the statements of comprehensive income for the year ended 31 December 2017:

Adjustments Group and Company

RM

Increase in revenue from freight services (a) 13,886,665

Decrease in revenue from sale of goods (a) (13,727,354)

Increase in revenue from contracts with customers (a) 159,311

Increase in cost of sales (a),(b) (20,721,441)

Decrease in gross profit (20,562,130)

Decrease in selling and distribution costs (b) 20,555,010

Decrease in profit before tax (7,120)

Decrease in income tax expense 1,709

Decrease in profit net of tax, representing total comprehensive income for the year (5,411)

Impact on basic and diluted EPS for the year ended 31 December 2017:

Group RM

Decrease in basic EPS (0.01)

Decrease in diluted EPS (0.01)





MFRS 15 Revenue from Contracts with Customers (continued)

Impact on the statements of financial position as at:

Group and Company

Adjustments31 December

2017RM

1 January 2017

RM

Assets

Increase in other current assets (a) 2,192,966 2,359,397

Increase in total current assets 2,192,966 2,359,397

Increase in total assets 2,192,966 2,359,397

Liabilities

Decrease in trade and other payables (6,780) (276,345)

Increase in contract liabilities (a) 2,200,826 2,629,702

Increase in total current liabilities 2,194,046 2,353,357

(Decrease)/increase in deferred tax liabilities (259) 1,450

(Decrease)/increase in non-current liability (259) 1,450

Increase in total liabilities 2,193,787 2,354,807

Equity

(Decrease)/increase in retained earnings (821) 4,590

(Decrease)/increase in total equity (821) 4,590

Increase in total equity and liabilities 2,192,966 2,359,397

The change did not have an impact on other comprehensive income for the year. The impact on the statements of cash flows for the year ended 31 December 2017 only relates to the changes in profit before tax and certain working capital adjustments. However, there was no impact on the net cash flows from operating activities. The cash flows from investing and financing activities were not affected.

The nature of these adjustments are described below:

(a) Bundled sales of goods and freight services

Currently, the bundled sales of goods are accounted for as one deliverable and revenue is recognised upon shipment. Under MFRS 15, the sales and the rendering of freight services are separate performance obligations.

A n n u a l R e p o r t 2 0 1 8 73




MFRS 15 Revenue from Contracts with Customers (continued)

(a) Bundled sales of goods and freight services (continued)

Sales of goods

There were no changes identified with respect to the timing of revenue recognition in relation to sales of goods, as control transfers to customers at the date of shipment, which is consistent with the point in time when risks and rewards passed under MFRS 118.

However, there has been a change in the amount of revenue recognised for some goods sold under CIF/CFR Incoterms where the Group and the Company provide freight services. This is because these services are now considered to represent separate performance obligations which are satisfied at a different point in time from the goods. Therefore, some of the transaction price that was previously all allocated to the goods under MFRS 118 is now required to be allocated to these new performance obligations under MFRS 15. This revenue from freight services has been disclosed separately. Disaggregated revenue disclosures are provided in Note 4.

Freight services

As noted above, a proportion of the Group’s and the Company’s sales of goods are sold under CIF/CFR Incoterms, whereby the Group and the Company are responsible for providing freight services after the date that it transfers control of the goods to the customer. Under MFRS 118, freight services were not accounted for as separate services. Instead, all of the revenue relating to the sale was recognised at the date of loading and presented as revenue from sale of goods. Under MFRS 15, it has been concluded that the provision of these services represents separate performance obligations and the Group and the Company act as principal.

As a result, under MFRS 15, a portion of the transaction price is now required to be allocated to these performance obligations and will be recognised over time, on a gross basis, as the services are provided. In some instances, the Group and the Company receive a portion of the transaction price in cash for each shipment at or near the date of shipment under a provisional invoice. Given this, a portion of the transaction price relating to these freight services is received in advance of the Group and the Company providing these services. Such amounts have been recognised as a contract liability upon receipt under MFRS 15 and are then recognised as revenue over time as the services are provided.

This change results in a restatement of comparatives. Also, freight revenue has been separately disclosed. The Group and the Company also recognised the payments made to the shipping companies as prepaid freight charges, classified as other current assets, and are then recognised as expenses over time as the services are provided. Disaggregated revenue disclosures are provided in Note 4.

(b) Other adjustments

Previously, the cost of rendering of freight and distribution services were recognised as selling and distribution costs. Under the MFRS 15, the Group and the Company account for the cost of rendering freight and distribution services as cost of sales.




2.3 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.

Description

Effective for annual periods beginning on

or after

MFRS 9 Prepayment Features with Negative Compensation (Amendments to MFRS 9) 1 January 2019

MFRS 16 Leases 1 January 2019

MFRS 128 Long-term Interests in Associates and Joint Ventures (Amendments to MFRS 128) 1 January 2019

Annual Improvements to MFRS Standards 2015–2017 Cycle 1 January 2019

IC Interpretation 23 Uncertainty over Income Tax Treatments 1 January 2019

MFRS 119 Plan Amendment, Curtailment or Settlement (Amendments to MFRS 119) 1 January 2019

MFRS 3 Definition of a Business (Amendments to MFRS 3) 1 January 2020

MFRS 101 Definition of Material (Amendments to MFRS 101) 1 January 2020

MFRS 108 Definition of Material (Amendments to MFRS 108) 1 January 2020

MFRS 17 Insurance Contracts 1 January 2021

Amendments to MFRS 10 and MFRS 128: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture Deferred

The directors expect that the adoption of the standards above will have no material impact on the financial statements in the period of initial application except as discussed below:

MFRS 16 Leases

MFRS 16 will replace MFRS 117 Leases, IC Interpretation 4 Determining whether an Arrangement contains a Lease, IC Interpretation 115 Operating Lease-Incentives and IC Interpretation 127 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. MFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model.

At the commencement date of a lease, a lessee will recognise a liability to make lease payments and an asset representing the right to use the underlying asset during the lease term. The right-of-use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions), less accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability. The lease liability is initially measured at present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications.

Classification of cash flows will also be affected as operating lease payments under MFRS 117 are presented as operating cash flows, whereas under MFRS 16, the lease payments will be split into a principal (which will be presented as financing cash flows) and an interest portion (which will be presented as operating cash flows).

Lessor accounting under MFRS 16 is substantially the same as the accounting under MFRS 117. Lessors will continue to classify all leases as operating and finance leases. MFRS 16 also requires lessees and lessors to make more extensive disclosures than under MFRS 117.

MFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early application is permitted but not before an entity applies MFRS 15. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach.

Based on the assessment of the Group’s and the Company’s leases contracts as at 31 December 2018, the impact of MFRS 16 to the Group’s and the Company’s financial statements is not expected to be material.

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2.4 Basis of consolidation

The consolidated financial statements comprise the financial statements of the Company and its subsidiary as at the reporting date. The financial statements of the subsidiary 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.

A subsidiary is consolidated when the Company obtains control over the subsidiary and ceases when the Company 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 subsidiary that do not result in the Group losing control over the subsidiary is 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 subsidiary. The resulting difference is recognised directly in equity and attributed to owners of the Company.

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.

2.5 Foreign currency

a) Functional and presentation currency

The financial statements are presented in Ringgit Malaysia (RM), which is also the Company’s functional currency.

b) Foreign currency transactions

Transactions in foreign currencies are measured in the respective functional currencies of the Company and its subsidiary 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 in terms of historical cost are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items 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.




2.6 Property, plant and equipment

All items of property, plant and equipment are initially recorded at cost. Subsequent to recognition, property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. The costs include the cost of replacing part of the property, plant and equipment and borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying property, plant and equipment. The accounting policy for borrowing costs is set out in Note 2.17. The cost of an item of property, plant and equipment is recognised as an asset if, and only if, it is probable that future economic benefits associated with the item will flow to the Group and the Company and the cost of the item can be measured reliably.

When significant parts of plant and equipment are required to be replaced in intervals, the Group and the Company recognise such parts as individual assets with specific useful lives and depreciation, respectively. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in profit or loss as incurred.

Depreciation is computed on a straight-line basis over the estimated useful lives of the assets as follows:

- Leasehold land: 74 and 83 years

- Factory and office buildings: 20 to 40 years

- Motor vehicles: 4 years

- Heavy equipment: 5 years

- Plant and machinery: 5 to 20 years

- Furniture, fittings, office equipment and renovation: 5 years

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 de-recognition of the asset is included in the profit or loss in the year the asset is derecognised.

2.7 Investment properties

Investment properties are initially measured at cost, including transaction costs. Subsequent to initial recognition, investment properties are measured at cost less accumulated depreciation and accumulated impairment losses. The depreciation policy for investment properties is in accordance with that for depreciable property, plant and equipment as described in Note 2.6.

A property interest under an operating lease is classified and accounted for as an investment property on a property-by-property basis when it is held to earn rentals or for capital appreciation or both. Any such property interest under an operating lease classified as an investment property is carried at fair value.

Investment properties are derecognised when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gain or loss on the retirement or disposal of an investment property is recognised in profit or loss in the year of retirement or disposal.

Transfers are made to or from investment property only when there is a change in use. For a transfer from investment property to owner-occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. For a transfer from owner-occupied property to investment property, the property is accounted for in accordance with the accounting policy for property, plant and equipment set out in Note 2.6 up to the date of change in use.

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2.8 Fair value measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

- in the principal market for the assets or liability; or - in the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible by the Group and the Company.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Group and the Company would use, if any, valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities;

Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable; or

Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group and the Company determine whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

For the purpose of fair value disclosures, the Group and the Company have determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.

2.9 Current versus non-current classification

The Group and the Company present assets and liabilities in statement of financial position based on current/non-current classification. An asset is current when it is:

(i) Expected to be realised or intended to be sold or consumed in normal operating cycle;(ii) Held primarily for the purpose of trading;(iii) Expected to be realised within twelve months after the reporting period; or(iv) Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve

months after the reporting period.

All other assets are classified as non-current.




2.9 Current versus non-current classification (continued)

A liability is current when:

(I) It is expected to be settled in normal operating cycle;(ii) It is held primarily for the purpose of trading;(iii) It is due to be settled within twelve months after the reporting period; or(iv) There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting

period.

The Group and the Company classify all other liabilities as non-current.

Deferred tax assets and liabilities are classified as non-current assets and liabilities.

2.10 Intangible assets

Intangible assets acquired separately are measured initially at cost. Following initial acquisition, intangible assets are measured at cost less any accumulated amortisation and accumulated impairment losses.

Intangible assets with finite useful lives are amortised over the estimated useful lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method are reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in profit or loss.

Intangible assets with indefinite useful lives or not yet available for use are tested for impairment annually, or more frequently if the events and circumstances indicate that the carrying value may be impaired either individually or at the cash-generating unit level. Such intangible assets are not amortised. The useful life of an intangible asset with an indefinite useful life is reviewed annually to determine whether the useful life assessment continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in profit or loss when the asset is derecognised.

2.11 Impairment of non-financial assets

The Group and the Company assess at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when an annual impairment assessment for an asset is required, the Group and the Company make an estimate of the asset’s recoverable amount.

An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (“CGU”) fair value less costs of disposal and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or group of assets.

Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows expected to be generated by the asset 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. In determining fair value less costs of disposal, recent market transactions are taken into account, if available. If no such transaction can be identified, an appropriate valuation model is used.

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2.11 Impairment of non-financial assets (continued)

The Group and the Company base its impairment calculation on detailed budgets and forecast calculations which are prepared separately for each of the Group’s and the Company’s CGU to which the individual assets are allocated. These budgets and forecast calculation are generally covering a period of five years. For longer periods, a long-term growth rate is calculated and applied to project future cash flows after the fifth year.

Impairment losses of continuing operations are recognised in profit or loss.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exist, the Group and the Company estimate the asset’s or CGU’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increase cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised previously. Such reversal is recognised in profit or loss.

2.12 Subsidiary

A subsidiary is an entity over which the Group has all the following:

- power over the investee (i.e existing rights that give it the current ability to direct the relevant activities of the investee);

- exposure, or rights, to variable returns from its investment with the investee; and- the ability to use its power over the investee to affect its returns.

In the Company’s separate financial statements, investment in a subsidiary is accounted for at cost less impairment losses. On disposal of such investment, the difference between net disposal proceeds and their carrying amounts is included in profit or loss.

2.13 Financial instruments – initial recognition and subsequent measurement

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

a) Financial assets

Initial recognition and measurement

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

A financial instrument is initially measured at fair value plus or minus, for an item not at fair value through profit or loss, transaction costs. However, a trade receivable without a significant financing component is initially measured at the transaction price.




2.13 Financial instruments – initial recognition and subsequent measurement (continued)

a) Financial assets (continued)

Subsequent measurement

Categories of financial assets are determined on initial recognition and are not reclassified subsequently unless there is a change in the business model for managing financial assets in which case all affected financial assets are reclassified on the first day of the first reporting period following the change of the business model.

For purposes of subsequent measurement, financial assets are classified in four categories:

a) Financial assets at amortised cost (debt instruments);b) Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments);c) Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon

derecognition (equity instruments); andd) Financial assets at fair value through profit or loss

Financial assets at amortised cost (debt instruments)

This category is the most relevant to the Group and the Company. The Group and the Company measure financial assets at amortised cost if both of the following conditions are met:

a) The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows; and

b) The 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.

Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.

The Group’s and the Company’s financial assets at amortised cost include trade receivables and other receivables.

Financial assets at fair value through OCI (debt instruments)

The Group and the Company measure debt instruments at fair value through OCI if both of the following conditions are met:

a) The financial asset is held within a business model with the objective of both holding to collect contractual cash flows and selling; and

b) The 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.

For debt instruments at fair value through OCI, interest income, foreign exchange revaluation and impairment losses or reversals are recognised in the statement of profit or loss and computed in the same manner as for financial assets measured at amortised cost. The remaining fair value changes are recognised in OCI. Upon derecognition, the cumulative fair value change recognised in OCI is recycled to profit or loss.

The Group and the Company do not have any financial assets at fair value through OCI.

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Subsequent measurement (continued)

Financial assets designated at fair value through OCI (equity instruments)

Upon initial recognition, the Group and the Company can elect to classify irrevocably its equity instruments as equity instruments designated at fair value through OCI when they are not held for trading. The classification is determined on an instrument-by-instrument basis.

Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognised as other income in the statement of profit or loss when the right of payment has been established, except when the Group and the Company benefit from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments designated at fair value through OCI are not subject to impairment assessment.

The Group and the Company do not have any financial assets designated at fair value through OCI.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets held for trading, financial assets designated upon initial recognition at fair value through profit or loss, or financial assets mandatorily required to be measured at fair value. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets with cash flows that are not solely payments of principal and interest are classified and measured at fair value through profit or loss, irrespective of the business model. Notwithstanding the criteria for debt instruments to be classified at amortised cost or at fair value through OCI, as described above, debt instruments may be designated at fair value through profit or loss on initial recognition if doing so eliminates, or significantly reduces, an accounting mismatch.

Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognised in the statement of profit or loss.

This category includes derivative instruments and listed equity instruments which the Group and the Company had not irrevocably elected to classify at fair value through OCI. Dividends on listed equity instruments are also recognised as other income in the statement of profit or loss when the right of payment has been established.

A derivative embedded in a hybrid contract, with a financial liability or non-financial host, is separated from the host and accounted for as a separate derivative if: the economic characteristics and risks are not closely related to the host; a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and the hybrid contract is not measured at fair value through profit or loss. Embedded derivatives are measured at fair value with changes in fair value recognised in profit or loss. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the fair value through profit or loss category.

A derivative embedded within a hybrid contract containing a financial asset host is not accounted for separately. The financial asset host together with the embedded derivative is required to be classified in its entirety as a financial asset at fair value through profit or loss.






Derecognition

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e., removed from the statement of financial position) when:

a) The rights to receive cash flows from the asset have expired; orb) The Group and the Company have transferred its rights to receive cash flows from the asset or has assumed

an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (i) the Group and the Company have transferred substantially all the risks and rewards of the asset, or (ii) the Group and the Company have neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group and the Company have transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Group and the Company continue to recognise the transferred asset to the extent of its continuing involvement. In that case, the Group and the Company also recognise an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group and the Company have retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group and the Company could be required to repay.

Impairment of financial assets

The Group and the Company recognise an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group and the Company expect to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).

For trade receivables, a simplified approach in calculating ECLs is applied. Therefore, the Group and the Company do not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group and the Company have established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.

A financial asset is considered in default when contractual payments are 180 days past due. However, in certain cases, a financial asset may be considered to be in default when internal or external information indicates that the Group and the Company are unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group and the Company. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.

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b) Financial liabilities

Initial recognition and measurement

Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.

The Group’s and the Company’s financial liabilities include trade and other payables and derivative financial instruments.

Subsequent measurement

The measurement of financial liabilities depends on their classification, as described below:

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.

Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Group and the Company that are not designated as hedging instruments in hedge relationships as defined by MFRS 9. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.

Gains or losses on liabilities held for trading are recognised in the statement of profit or loss.

Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, and only if the criteria in MFRS 9 are satisfied. The Group and the Company have not designated any financial liability as at fair value through profit or loss.

Trade and other payables

After initial recognition, trade and other payables are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised, as well as through the EIR amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the statement of profit or loss.

This category generally applies to trade and other payables.





b) Financial liabilities (continued)

Derecognition

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. 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 the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit or loss.

c) Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.

2.14 Cash and cash equivalents

Cash and short-term deposits in the statement of financial position comprise cash at banks and on hand and short-term deposits with a maturity of three months or less, which are subject to an insignificant risk of changes in value.

For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and short-term deposits, as defined above.

2.15 Inventories

Inventories are valued at the lower of cost and net realisable value. Costs incurred in bringing the inventories to their present location and condition are accounted for as follows:

- Raw materials: purchase costs on a weighted average basis.

- Finished goods and work in progress: costs of raw materials, direct labour, other direct costs and appropriate proportions of manufacturing overheads based on normal operating capacity. These costs are determined using the weighted average basis.

- Consumables: purchase costs on weighted average basis.

Where necessary, allowance is provided for damaged, obsolete and slow moving items to adjust the carrying value of inventories to the lower of cost and net realisable value.

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

2.16 Provisions

Provisions are recognised when the Group and the Company have a present obligation (legal and 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. Where discounting is used, the increase in the provision due to the passage of time is recognised as finance cost.

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2.17 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.

2.18 Employee benefits

a) Defined contribution plans

The Malaysian companies in the Group make contributions to the Employees’ Provident Fund (“EPF”) 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.

b) Employee share option plans

Employees of the Group and of the Company receive remuneration in the form of share options as consideration for services rendered. The cost of these equity-settled transactions with employees is measured by reference to the fair value of the options at the date on which the options are granted. This cost is recognised in profit or loss, with a corresponding increase in the employee share option reserve over the vesting period. The cumulative expense recognised at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s and the Company’s best estimate of the number of options that will ultimately vest. The charge or credit to profit or loss for a period represents the movement in cumulative expense recognised at the beginning and end of that period.

No expense is recognised for options that do not ultimately vest, except for options where vesting is conditional upon a market or non-vesting condition, which are treated as vested irrespective of whether or not the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied. The employee share option reserve is transferred to retained earnings upon expiry of the share options. When the options are exercised, the employee share option reserve is transferred to share capital if new shares are issued, or treasury shares if the options are satisfied by the reissuance of treasury shares.

2.19 Leases

The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date: whether fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset, even if that right is not explicitly specified in an arrangement.

a) As lessee

Finance leases, which transfer to the Group and the Company 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.




2.19 Leases (continued)

a) As lessee (continued)

Leased assets are depreciated over the estimated useful life of the asset. However, if there is no reasonable certainty that the Group and the Company 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 and the Company retain 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.

Contingent rents are recognised as revenue in the period in which they are earned.

2.20 Revenue from contracts with customers

Revenue from contracts with customers is recognised when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Group and the Company expect to be entitled in exchange for those goods or services. The Group and the Company have generally concluded that they are the principal in their revenue arrangements because they typically control the goods or services before transferring them to the customer.

Sale of wood products

Revenue from sale of plywood, veneer and LVL is recognised at the point in time when control of the asset is transferred to the customer, generally on delivery of the finished goods. The normal credit term is 30 days upon delivery.

The Group and the Company consider whether there are other promises in the contract that are separate performance obligations to which a portion of the transaction price needs to be allocated (e.g., freight service). In determining the transaction price for the sale of wood products, the Group and the Company consider the effects of variable consideration, the existence of significant financing components, non-cash consideration, and consideration payable to the customer (if any).

Freight services

The Group and the Company provide freight services that are bundled together with the sale of wood products to certain customers. The freight services can be obtained from other providers and do not significantly customise or modify the wood products.

Contracts for bundled sales of wood products and freight services are comprised of two performance obligations because the promises to supply wood products and provide shipping services are capable of being distinct and separately identifiable. Accordingly, the Group and the Company allocate the transaction price of freight services based on the stand-alone selling prices while the transaction price of sale of wood products is determined using the residual approach. The stand-alone selling prices of freight services are determined based on the market charges.

The Group and the Company recognise revenue from freight services over time, using an output method to measure progress towards complete satisfaction of the service, because the customer simultaneously receives and consumes the benefits provided by the Group and the Company.

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2.20 Revenue from contracts with customers (continued)

Sale of electricity

Revenue from sale of electricity is recognised over time upon consumption by customers.

Contract balances

Contract assets

A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Group and the Company perform by transferring goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognised for the earned consideration that is conditional.

Trade receivables

A receivable represents the Group’s and the Company’s right to an amount of consideration that is unconditional (i.e., only the passage of time is required before payment of the consideration is due).

Contract liabilities

A contract liability is the obligation to transfer goods or services to a customer for which the Group and the Company have received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the Group and the Company transfer goods or services to the customer, a contract liability is recognised when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the Group and the Company perform under the contract.

2.21 Taxes

a) Current income tax

Current income 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 at the reporting date.

Current income 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. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

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 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 investment in subsidiary, 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.




2.21 Taxes (continued)

b) Deferred tax (continued)

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 investment in subsidiary, 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.

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 in 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.

c) Goods and services tax (“GST”)

Revenues, expenses and assets are recognised net of the amount of GST except:

- Where the amount of GST incurred in a purchase of assets or services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and

- Receivables and payables that are stated with the amount of GST included.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statements of financial position.

A n n u a l R e p o r t 2 0 1 8 89



2.22 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 management of the Company who regularly review 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 32, including the factors used to identify the reportable segments and the measurement basis of segment information.

2.23 Share capital and share issuance expenses

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.

2.24 Treasury shares

When share of the Company, that have not been cancelled, recognised as equity are reacquired, the amount of consideration paid is recognised directly in equity. Reacquired shares are classified as treasury shares and presented as a deduction from total equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of treasury shares. When treasury shares are reissued by resale, the difference between the sales consideration and the carrying amount is recognised in the equity.

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

The preparation of the Group’s and of the Company’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of assets or liabilities affected in the future periods.

3.1 Judgement made in applying accounting policies

There are no critical judgements made by management in the process of applying the Group’s and the Company’s accounting policies on the amounts recognised in the financial statements.

3.2 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.

Costs of conversion of inventories

Finished goods consist of plywood, veneer and LVL with various sizes and qualities that come from the same manufacturing process. The costs of conversion of each product from raw materials to finished goods are not separately identifiable. Significant judgment is required in determining an appropriate costing basis for the costs allocation between the products on a rational and consistent basis. The carrying amount of inventories of the Group and of the Company are disclosed in Note 17.



4. REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregated revenue information

Set out below is the disaggregation of the revenue from contracts with customers:

2018Manufacturing

RMElectricity

RMTotal

RM

Group

Type of goods or service

Sale of veneer, plywood and LVL 191,719,081 - 191,719,081

Freight income 11,187,753 - 11,187,753

Sale of electricity - 520,718 520,718

Total revenue from contracts with customers 202,906,834 520,718 203,427,552

Timing of revenue recognition

Goods transferred at a point in time 191,719,081 - 191,719,081

Services transferred over time 11,187,753 520,718 11,708,471


Company

Type of goods or service

Sale of veneer, plywood and LVL 191,719,081 - 191,719,081

Freight income 11,187,753 - 11,187,753

Total revenue from contracts with customers 202,906,834 - 202,906,834

Timing of revenue recognition

Goods transferred at a point in time 191,719,081 - 191,719,081

Services transferred over time 11,187,753 - 11,187,753


A n n u a l R e p o r t 2 0 1 8 91


4. REVENUE FROM CONTRACTS WITH CUSTOMERS (CONTINUED)

Disaggregated revenue information (continued)

2017Manufacturing

RMElectricity

RMTotal

RM

Restated Restated

Group

Type of goods or serviceSale of veneer, plywood and LVL 162,109,156 - 162,109,156

Freight income 13,886,665 - 13,886,665

Sale of electricity - 163,571 163,571


Timing of revenue recognitionGoods transferred at a point in time 162,109,156 - 162,109,156

Services transferred over time 13,886,665 163,571 14,050,236


Company

Type of goods or serviceSale of veneer, plywood and LVL 162,109,156 - 162,109,156

Freight income 13,886,665 - 13,886,665


Timing of revenue recognitionGoods transferred at a point in time 162,109,156 - 162,109,156

Services transferred over time 13,886,665 - 13,886,665


Contract balances

31 December 1 January2018

RM2017

RM2017

RM

Restated Restated

Group

Trade receivables (Note 18) 7,851,290 21,736,266 21,635,697

Contract liabilities (Note 23) 1,045,451 2,200,826 2,629,702

Company

Trade receivables (Note 18) 7,781,083 21,658,408 21,631,010

Contract liabilities (Note 23) 1,045,451 2,200,826 2,629,702

Trade receivables are non-interest bearing and are generally on terms of 30 days (2017: 30 days). Lower sales in December 2018 resulted in decrease in trade receivables in 2018.



4. REVENUE FROM CONTRACTS WITH CUSTOMERS (CONTINUED)

Contract balances (continued)

The contract liabilities decreased in 2018 and 2017 due to the continuous decrease in the Group’s obligation in the performance of freight services to the customers in United States.

The amount of revenue recognised from amounts included in contract liabilities at the beginning of the year is RM2,197,346 (2017: RM2,629,702).

Performance obligations

Information about the Group’s performance obligations are summarised below:

Sale of goods

The performance obligation is satisfied upon delivery of the goods on the ship rail and payment is generally due within 30 days from delivery.

As at the reporting date, the open sales orders accepted by the Group and the Company amounted to RM38,571,827 (2017: RM79,163,160).

Sale of electricity

The performance obligation is satisfied over time upon consumption by customers.

Freight services

The performance obligation is satisfied over-time and payment is generally due within 30 days from delivery of the goods on the ship rail.

As at the reporting date, the transaction price allocated to the performance of freight services that are expected to be recognised within one year amounted to RM1,045,451 (2017: RM2,194,046).

A n n u a l R e p o r t 2 0 1 8 93


5. INTEREST INCOME

Group Company2018

RM2017

RM2018

RM2017

RM

Interest income from:

Fixed deposits 13,890 34,088 13,890 34,088

Foreign currency account 213,678 60,892 213,678 60,892

Current account 317,633 415,657 314,724 414,218

545,201 510,637 542,292 509,198

6. OTHER INCOME

Group Company2018

RM2017

RM2018

RM2017

RM

Dividend income - - 2,000,000 1,700,000

Distribution income from equity instruments 1,758,864 1,586,391 1,462,260 1,505,094

Gain on disposal of property, plant and equipment - 11,999 - 11,999

Net gain on foreign exchange

- realised 1,229,734 - 1,229,734 -

Net fair value gain on derivatives

- realised - 1,804,672 - 1,804,672

- unrealised - 215,230 - 215,230

Net fair value gain on equity instruments 668,344 60,894 684,793 -

Rental income from

- land 14,151 14,151 74,151 74,151

- investment properties 252,000 240,000 252,000 240,000

- car park lot 8,640 8,640 8,640 8,640

Sundry income 375,002 311,994 375,002 311,994

4,306,735 4,253,971 6,086,580 5,871,780



7. PROFIT BEFORE TAX

The following amounts have been included in arriving at profit before tax:

Group Company2018

RM2017

RM2018

RM2017

RM

Employee benefits expense (Note 8) 24,354,902 22,277,740 23,576,499 21,452,825

Auditors’ remuneration:

- statutory audit 110,000 90,000 100,000 80,000

- under provision in prior year 5,000 - 5,000 -

- other services 24,000 24,000 18,000 18,000

Deposits for log purchase written off 700,000 - 700,000 -

Depreciation of investment properties (Note 13) 82,032 82,031 82,032 82,031

Depreciation of property, plant and equipment (Note 12) 5,062,299 5,197,687 3,170,749 3,306,667

Direct operating expenses arising from investment properties

- rental generating properties 111,458 109,856 111,458 109,856

Inventory written off - 199,684 - 199,684

Non-executive directors’ remuneration (Note 9) 859,841 322,600 859,841 322,600

Net fair value (gain)/loss on derivatives

- unrealised (189,698) - (189,698) -

- realised 1,474,515 - 1,474,515 -

Net fair value loss on equity instruments - - - 30,756

Net loss on foreign exchange

- realised - 3,115,051 - 3,115,051

- unrealised 287,108 273,909 287,108 273,909

Property, plant and equipment written off 36 319 36 319

Rental of car park lot 8,640 8,649 8,640 8,649

Rental of land 66,200 65,600 66,200 65,600

Rental of office premises 184,000 178,000 184,000 178,000

8. EMPLOYEE BENEFITS EXPENSE

Group Company2018

RM2017

RM2018

RM2017

RM

Salaries, wages, bonuses, incentives and allowances 22,183,904 21,483,301 21,419,780 20,672,643

Contributions to defined contribution plan 667,000 698,271 654,704 685,813

Social security contributions 98,930 96,168 97,150 94,369

Share options granted under ESOS 1,394,128 - 1,394,128 -

Other benefits 10,940 - 10,737 -

24,354,902 22,277,740 23,576,499 21,452,825

Included in employee benefits expense of the Group and the Company are executive directors’ remuneration amounting to RM2,068,324 (2017: RM1,866,000) as further disclosed in Note 9.

A n n u a l R e p o r t 2 0 1 8 95


9. DIRECTORS’ REMUNERATION

Group and Company

2018RM

2017RM

Executive:

Fees and meeting allowance 19,000 15,000

Salaries and bonus 1,800,000 1,851,000

Share options granted under ESOS 249,324 -

Total executive directors’ remuneration (excluding benefits-in-kind) (Note 8) 2,068,324 1,866,000

Estimated money value of benefits-in-kind 30,789 -

Total executive directors’ remuneration (including benefits-in-kind) 2,099,113 1,866,000

Non-executive:

Fees and meeting allowance 338,000 322,600


Total non-executive directors’ remuneration (Note 7) 859,841 322,600

Total directors’ remuneration 2,958,954 2,188,600

Included in the analysis above is remuneration for directors of the Company and its subsidiary in accordance with the requirements of Companies Act, 2016. Expenses incurred on indemnity given or insurance effected for any director and officer of the Company and its subsidiary during the financial year amounted to RM37,370 (2017: RM37,000).

10. INCOME TAX EXPENSE

Major components of income tax expense

Major components of income tax expense for the financial years ended 31 December 2018 and 2017 are:

Group Company2018

RM2017

RM2018

RM2017

RM

Restated Restated

Statements of comprehensive income:

Current income tax:

- Malaysian income tax 8,633,949 3,099,700 8,632,925 3,099,174

- Over provision in respect of previous years (186,175) (420,762) (186,175) (420,960)

8,447,774 2,678,938 8,446,750 2,678,214

Deferred income tax (Note 16):

- Origination and reversal of temporary differences 766,973 345,326 97,863 (153,649)

- Under/(over) provision in respect of previous years 119,308 175 118,524 (563)

886,281 345,501 216,387 (154,212)

Income tax expense recognised in profit or loss 9,334,055 3,024,439 8,663,137 2,524,002



10. INCOME TAX EXPENSE (CONTINUED)

Reconciliation between tax expense and accounting profit

The reconciliation between tax expense and the product of accounting profit multiplied by the applicable corporate tax rate for the years ended 31 December 2018 and 2017 are as follows:

Group Company2018

RM2017

RM2018

RM2017

RM

Restated Restated

Profit before tax 37,749,794 14,741,286 36,679,932 14,189,042

Tax at Malaysian statutory tax rate of 24% (2017: 24%) 9,059,951 3,537,909 8,803,184 3,405,370

Adjustments:

Income not subject to taxation (585,664) (399,935) (994,804) (768,697)

Non-deductible expenses 926,635 307,052 922,408 308,852

Over provision of current income tax in respect of previous years (186,175) (420,762) (186,175) (420,960)

Under/(over) provision of deferred income tax in respect of previous years 119,308 175 118,524 (563)

Income tax expense recognised in profit or loss 9,334,055 3,024,439 8,663,137 2,524,002

Current income tax is calculated at the Malaysian statutory tax rate of 24% (2017: 24%) of the estimated assessable profit for the year.

11. EARNINGS PER SHARE

Basic earnings per share amounts are calculated by dividing profit for the year, net of tax, attributable to owners of the Company by the weighted average number of ordinary shares outstanding during the financial year.

Diluted earnings per share amounts are calculated by dividing profit for the year, net of tax, attributable to owners of the Company by the weighted average number of ordinary shares outstanding during the financial year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.

The followings reflect the profit and share data used in the computation of basic and diluted earnings per share for the years ended 31 December:

Group2018

RM2017

RM

Restated

Profit net of tax attributable to owners of the Company used in the computation of basic and diluted earnings per share 28,415,739 11,716,847

A n n u a l R e p o r t 2 0 1 8 97


11. EARNINGS PER SHARE (CONTINUED)

Group2018 2017

Number ofshares

Number ofshares

Restated

Weighted average number of ordinary shares for basic earnings per share computation * 103,404,253 103,200,000

Effects of dilution:

- Share options 247,706 -

Weighted average number of ordinary shares for diluted earnings per share computation * 103,651,959 103,200,000

Basic earnings per ordinary share (sen) 27.48 11.35

Diluted earnings per ordinary share (sen) 27.41 11.35

* The weighted average number of shares takes into account the weighted average effect of changes in treasury shares transactions during the year.

Since the end of the financial year, certain directors and employees have exercised the options to acquire 472,000 (2017: Nil) ordinary shares. On 3 January 2019, the Company acquired 130,000 shares in the Company through purchases on the Bursa Malaysia Securities Berhad. There have been no other transactions involving ordinary shares or potential ordinary shares since the reporting date and before the completion of these financial statements.

12. PROPERTY, PLANT AND EQUIPMENT

Long termleasehold

landRM

Factoryand

officebuildings

RM

Motorvehicles,

heavyequipment,

plant andmachinery

RM

Furniture,fittings,

officeequipment,

andrenovation

RMTotal

RM

Group

Cost:

At 1 January 2017 700,080 10,586,939 125,992,902 1,487,069 138,766,990

Additions - 377,217 4,708,705 167,588 5,253,510

Disposals - - (3,700) - (3,700)

Written off - - (64,796) (971,853) (1,036,649)

At 31 December 2017 and 1 January 2018 700,080 10,964,156 130,633,111 682,804 142,980,151

Additions 600,000 1,733,527 2,106,401 74,876 4,514,804

Reclassification - - (55,739) 55,739 -

Written off - - - (270) (270)

At 31 December 2018 1,300,080 12,697,683 132,683,773 813,149 147,494,685



12. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

Long termleasehold

landRM

Factoryand

officebuildings

RM

Motorvehicles,

heavyequipment,

plant andmachinery

RM

Furniture,fittings,

officeequipment,

andrenovation

RMTotal

RM

Group

Accumulated depreciation:

At 1 January 2017 85,147 9,101,106 98,851,968 1,349,544 109,387,765

Depreciation charge for the year (Note 7) 9,461 165,553 4,940,057 82,616 5,197,687

Disposals - - (3,699) - (3,699)

Written off - - (64,770) (971,560) (1,036,330)




Written off - - - (234) (234)

At 31 December 2018 111,312 9,496,504 108,456,119 543,553 118,607,488

Net carrying amount:At 31 December 2017 605,472 1,697,497 26,909,555 222,204 29,434,728

At 31 December 2018 1,188,768 3,201,179 24,227,654 269,596 28,887,197

Company

Cost:

At 1 January 2017 700,080 10,586,939 97,144,647 1,438,810 109,870,476

Additions - 377,217 4,708,705 167,588 5,253,510

Disposals - - (3,700) - (3,700)

Written off - - (64,796) (971,853) (1,036,649)


Additions 600,000 1,733,527 2,102,901 69,359 4,505,787


Written off - - - (270) (270)

At 31 December 2018 1,300,080 12,697,683 103,832,018 759,373 118,589,154

A n n u a l R e p o r t 2 0 1 8 99


12. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

Long termleasehold

landRM

Factoryand

officebuildings

RM

Motorvehicles,

heavyequipment,

plant andmachinery

RM

Furniture,fittings,

officeequipment,

andrenovation

RMTotal

RM

Company


At 1 January 2017 85,147 9,101,106 79,299,553 1,311,163 89,796,969


Disposals - - (3,699) - (3,699)

Written off - - (64,770) (971,560) (1,036,330)




Written off - - - (234) (234)

At 31 December 2018 111,312 9,496,504 85,128,405 497,901 95,234,122

Net carrying amount:At 31 December 2017 605,472 1,697,497 19,501,306 215,755 22,020,030

At 31 December 2018 1,188,768 3,201,179 18,703,613 261,472 23,355,032

13. INVESTMENT PROPERTIES

Group and Company

2018RM

2017RM

Cost:

At 1 January and 31 December 3,651,348 3,651,348


At 1 January 1,190,395 1,108,364

Depreciation charge for the year (Note 7) 82,032 82,031

At 31 December 1,272,427 1,190,395

Net carrying amount:At 31 December 2,378,921 2,460,953

The strata title to the investment properties is being processed by the relevant authority.

The estimated fair value of the investment properties is approximately RM3,750,000 (2017: RM3,750,000) as shown in Note 29.



14. INVESTMENT IN A SUBSIDIARY

Company2018

RM2017

RM

CostUnquoted shares 5,000,000 5,000,000

Details of the subsidiary, which is a private limited company incorporated and domiciled in Malaysia, are as follows:

Name of subsidiaryCountry of incorporation Principal activities

Proportion of ownership interest (%)

2018 2017

Untung Ria Sdn. Bhd. * Malaysia Generation and sale of electricity. 100% 100%

* Audited by Ernst & Young, Malaysia.

15. INTANGIBLE ASSET

Group Company2018

RM2017

RM2018

RM2017

RM

At cost:Investment in Golf and Country Club membership 149,040 149,040* 149,040 149,040*

* Previously classified as other investment.

16. DEFERRED TAX

Deferred income tax as at reporting date relates to the following:

As at1 January

2017RM

Recognised in profitor loss

RM

As at 31 December

2017RM


RM

As at 31 December

2018RM

Restated Restated Restated

Group

Deferred tax liabilities:Property, plant and equipment (4,672,844) 378,470 (4,294,374) 360,049 (3,934,325)Derivatives - (34,608) (34,608) (45,528) (80,136)Other items (48,070) 48,070 - - -

(4,720,914) 391,932 (4,328,982) 314,521 (4,014,461)

Deferred tax assets:Derivatives 17,047 (17,047) - - -Unutilised investment tax allowances 3,004,902 (970,757) 2,034,145 (1,158,870) 875,275Other items - 250,371 250,371 (41,932) 208,439

3,021,949 (737,433) 2,284,516 (1,200,802) 1,083,714

(1,698,965) (345,501) (2,044,466) (886,281) (2,930,747)

A n n u a l R e p o r t 2 0 1 8 101


As at1 January

2017RM


RM

As at 31 December

2017RM


RM

As at 31 December

2018RM

Restated Restated Restated

Company

Deferred tax liabilities:Property, plant and equipment (2,553,989) (26,751) (2,580,740) (55,218) (2,635,958)Derivatives - (34,608) (34,608) (45,528) (80,136)Other items (48,070) 48,070 - - -

(2,602,059) (13,289) (2,615,348) (100,746) (2,716,094)

Deferred tax assets:Derivatives 17,047 (17,047) - - -Other items - 184,548 184,548 (115,641) 68,907

17,047 167,501 184,548 (115,641) 68,907

(2,585,012) 154,212 (2,430,800) (216,387) (2,647,187)

2018RM

2017RM

Restated

Group

Presented after appropriate offsetting as follows:Deferred tax assets 139,532 386,334

Deferred tax liabilities (3,070,279) (2,430,800)

(2,930,747) (2,044,466)

Company

Presented after appropriate offsetting as follows:Deferred tax assets - -

Deferred tax liabilities (2,647,187) (2,430,800)

(2,647,187) (2,430,800)

16. DEFERRED TAX (CONTINUED)

Deferred income tax as at reporting date relates to the following (continued):



17. INVENTORIES

Group Company2018

RM2017

RM2018

RM2017

RM

CostRaw materials 5,850,332 437,350 5,850,332 437,350

Work-in-progress 8,908,786 3,885,508 8,908,786 3,885,508

Finished goods 22,769,272 11,173,110 23,350,657 11,447,375

Consumables 4,765,314 4,203,451 4,765,314 4,203,451

42,293,704 19,699,419 42,875,089 19,973,684

During the year, the amount of inventories recognised as an expense in cost of sales of the Group and the Company was RM138,751,841 and RM144,376,698 (2017: RM135,973,583 and RM137,971,695) respectively.

18. TRADE AND OTHER RECEIVABLES

Group Company2018

RM2017

RM2018

RM2017

RM

Current

Trade receivablesThird parties 7,781,083 21,658,408 7,781,083 21,658,408

Related party 70,207 77,858 - -

7,851,290 21,736,266 7,781,083 21,658,408

Other receivablesWorkers recruitment and staff advances 252,765 324,312 252,765 324,312

Deposits 1,531,129 1,404,937 1,383,492 1,350,307

Sundry receivables 13,383 13,321 13,383 13,321

GST recoverable 2,481,424 3,756,283 2,481,424 3,756,283

4,278,701 5,498,853 4,131,064 5,444,223

Total trade and other receivables 12,129,991 27,235,119 11,912,147 27,102,631

Add: Cash and bank balances (Note 21) 51,803,150 34,310,359 51,346,913 33,554,511

Total financial assets measured at amortised cost 63,933,141 61,545,478 63,259,060 60,657,142

Trade receivables are non-interest bearing and are generally on 30-day (2017: 30-day) terms. They are recognised at their original invoiced amounts which represent their fair values on initial recognition.

Amount due from a related party represents amount due from a company in which a director and a close family member of a director of the Company are directors. The amount is unsecured, non-interest bearing and is repayable on demand.

A n n u a l R e p o r t 2 0 1 8 103


19. OTHER CURRENT ASSETS

Group Company2018

RM2017

RM2018

RM2017

RM

Restated Restated

Deposits for log purchase 9,282,061 4,390,415 9,282,061 4,390,415

Prepaid freight charges 1,049,371 2,192,966 1,049,371 2,192,966

Prepaid operating expenses 621,149 156,267 615,407 156,267

10,952,581 6,739,648 10,946,839 6,739,648

20. FINANCIAL ASSETS

Group Company2018

RM2017

RM2018

RM2017

RM

Derivatives not designated as hedging instruments

Foreign exchange forward contracts 333,898 144,200 333,898 144,200

Financial assets at fair value through profit or lossEquity instruments (quoted in Malaysia) 48,046,327 64,265,984 36,789,033 57,868,385

Total financial assets at fair value 48,380,225 64,410,184 37,122,931 58,012,585

Debt instruments at amortised costTrade and other receivables (Note 18) 12,129,991 27,235,119 11,912,147 27,102,631

Cash and bank balances (Note 21) 51,803,150 34,310,359 51,346,913 33,554,511

Total financial assets 112,313,366 125,955,662 100,381,991 118,669,727

Total current 112,313,366 125,955,662 100,381,991 118,669,727

Derivatives not designated as hedging instruments reflect the positive change in fair value of those foreign exchange forward contracts that are not designated in hedge relationships, but are, nevertheless, intended to reduce the level of foreign currency risk for expected sales and purchases.

Financial assets at fair value through profit or loss include investments in listed equity shares. Fair values of these equity shares are determined by reference to published price quotations in an active market.



21. CASH AND CASH EQUIVALENTS

Group Company2018

RM2017

RM2018

RM2017

RM

Cash at bank and on hand 51,417,314 33,924,523 50,961,077 33,168,675

Short-term deposits with licensed banks 385,836 385,836 385,836 385,836

Cash and bank balances 51,803,150 34,310,359 51,346,913 33,554,511

Deposits with maturity of more than 3 months (385,836) (385,836) (385,836) (385,836)

Cash and cash equivalents 51,417,314 33,924,523 50,961,077 33,168,675

Cash at banks earn interest at floating rates based on daily bank deposit rates. The weighted average effective interest rate of short-term deposits with licensed banks as at 31 December 2018 for the Group was 3.60% (2017: 3.60%) per annum.

Deposits are made for a period of 12 months (2017: 12 months).

22. TRADE AND OTHER PAYABLES

Group Company2018

RM2017

RM2018

RM2017

RM

Restated Restated

Current

Trade payablesThird parties 5,315,393 4,789,055 5,223,797 4,741,543

Amount due to a subsidiary - - 707,145 2,078,376

5,315,393 4,789,055 5,930,942 6,819,919

Other payablesAccruals 3,032,933 3,932,779 3,013,861 3,914,857

Deposits received 44,400 42,400 44,400 42,400

Sundry payables 894,487 757,400 894,487 733,378

3,971,820 4,732,579 3,952,748 4,690,635

Total financial liabilities carried at amortised cost 9,287,213 9,521,634 9,883,690 11,510,554

Trade payables are non-interest bearing and are normally settled on terms of 30 to 60 days (2017: 30 to 60 days). Sundry payables are non-interest bearing and are generally granted on terms of 30 to 60 days (2017: 30 to 60 days).

A n n u a l R e p o r t 2 0 1 8 105


23. CONTRACT LIABILITIES

Group Company2018

RM2017

RM2018

RM2017

RM

Restated Restated

Advances from contract customers - 6,780 - 6,780

Deferred freight income 1,045,451 2,194,046 1,045,451 2,194,046

1,045,451 2,200,826 1,045,451 2,200,826

Current 1,045,451 2,200,826 1,045,451 2,200,826

24. SHARE CAPITAL, SHARE PREMIUM AND TREASURY SHARES

Share capital

Group and CompanyNumber of

ordinary shares Amount2018 2017 2018

RM2017

RM

Issued and fully paidAt 1 January 103,200,000 103,200,000 52,483,420 51,600,000

Transfer from share premium account pursuant to the Companies Act, 2016

- - - 883,420

Exercise of employee share options 2,324,000 - 3,276,143 -

At 31 December 105,524,000 103,200,000 55,759,563 52,483,420

The holders of ordinary shares are entitled to receive dividends as and when declared by the Company. All ordinary shares carry one vote per share without restrictions and rank equally with regard to the Company’s residual assets.

During the financial year, the Company issued:

a) 1,714,000 new ordinary shares for cash totalling RM1,731,140 arising from the exercise of the employees’ share options at an exercise price of RM1.01 per ordinary share; and

b) 610,000 new ordinary shares for cash totalling RM725,900 arising from the exercise of the employees’ share options at an exercise price of RM1.19 per ordinary share.

The Company has an Employees’ Share Option Scheme under which options to subscribe for the Company’s ordinary shares have been granted to directors and employees of the Group.



24. SHARE CAPITAL, SHARE PREMIUM AND TREASURY SHARES (CONTINUED)

Share premium

Group and Company

2018RM

2017RM

At 1 January - 883,420

Transfer to share capital account pursuant to the Companies Act, 2016 - (883,420)

At 31 December - -

Treasury shares

Group and CompanyNumber of

ordinary shares Amount2018 2017 2018

RM2017

RM

At 1 January - - - -

Purchase of treasury shares 3,097,800 - 4,786,489 -

At 31 December 3,097,800 - 4,786,489 -

Treasury shares relate to ordinary shares of the Company that are held by the Company. The amount consists of the acquisition costs of treasury shares net of the proceeds received on their subsequent sale or issuance.

The Company acquired 3,097,800 (2017: nil) shares in the Company through purchases on the Bursa Malaysia Securities Berhad during the financial year. The total amount paid to acquire the shares was RM4,786,489 (2017: nil) and this was presented as a component within shareholders’ equity.

The directors of the Company are committed to enhancing the value of the Company for its shareholders and believe that the repurchase plan can be applied in the best interests of the Company and its shareholders. The repurchase transactions were financed by internally generated funds. The shares repurchased are being held as treasury shares.

25. EMPLOYEE SHARE OPTION RESERVE

RM

Group and Company

At 1 January 2018 -

Transactions with ownersGrant of equity-settled share options 1,915,969

Exercise of employee share options (819,103)

At 31 December 2018 1,096,866

Employee share option reserve represents the equity-settled share options granted to directors and employees (Note 26). The reserve is made up of the cumulative value of services received from employees recorded over the vesting period commencing from the grant date of equity-settled share options and is reduced by the expiry or exercise of the share options.

A n n u a l R e p o r t 2 0 1 8 107


26. EMPLOYEES’ SHARE OPTION SCHEME (“ESOS”)

At an Extraordinary General Meeting held on 4 June 2018, the shareholders of the Company approved the establishment of ESOS of up to 15% of the total number of issued shares of the Company to eligible directors and employees. Under the ESOS, all employees or directors are entitled to a grant of options, once they have been in service for more than 6 months as at 11 June 2018.

The terms and conditions relating to the grants of the new share option programme are as follows; all options are to be settled by physical delivery of shares:

Grant date Number of options Vesting conditionsContractual

life of options

Options granted to employees- 21 June 2018 8,830,000 20% options issued for each calendar year 5 years

Options granted to directors- 31 October 2018 6,650,000 20% options issued for each calendar year 5 years

Movement of share options during the financial year

The following table illustrates the number and weighted average exercise prices (“WAEP”) of, and movements in, share options during the financial year:

Group and Company2018 2017

Number WAEPRM

Number WAEPRM

Outstanding at 1 January - - - -

- Granted 15,480,000 1.09 - -

- Forfeited (80,000) 1.01 - -

- Exercised (2,324,000) 1.06 - -

Outstanding at 31 December 13,076,000 1.09 - -

Exercisable at 31 December 772,000 1.18 - -

- The weighted average fair value of options granted during the financial year was RM0.35 (2017: Nil).

- The weighted average share price at the date of exercise of the options exercised during the financial year was RM1.46 (2017: Nil).

- The range of exercise prices for options outstanding at the end of the year was RM1.01 to RM1.19 (2017: Nil). The weighted average remaining contractual life for these options is 4.44 years (2017: Nil).



26. EMPLOYEES’ SHARE OPTION SCHEME (“ESOS”) (CONTINUED)

Fair value of share options granted

The fair value of the share options granted under the ESOS is estimated at the grant date using a binomial option pricing model, taking into account the terms and conditions upon which the instruments were granted. It takes into account historic dividends and share price fluctuation covariance of the Company.

The following table lists the inputs to the option pricing models for the year ended 31 December 2018:

Directors2018

Employees2018

Dividend yield (%) 4.44 5.22Expected volatility (%) 34.92 36.53Risk-free interest rate (% p.a.) 3.76 3.85Expected life of option (years) 4.61 4.97Weighted average share price (RM) 1.35 1.15

The expected life of the options is based on the ESOS duration and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is indicative of future trends, which may not necessarily be the actual outcome.

27. COMMITMENTS

a) Capital commitments

Capital expenditure as at the reporting date is as follows:

Group and Company

2018RM

2017RM

Capital expenditure

Approved but not contracted for:

- Property, plant and equipment 2,237,043 418,754

b) Operating lease commitments - as lessee

The Group and the Company have entered into commercial leases on certain properties. These cancellable and non-cancellable leases have tenure of between four and ten years with renewal option. These leases have no contingent rent provision included in the contracts. The Group and the Company are restricted from subleasing the leased properties to third parties.

Future minimum rentals payable under non-cancellable operating leases at the reporting date are as follows:

Group and Company

2018RM

2017RM

Not later than 1 year 20,200 20,200

Later than 1 year but not later than 5 years 34,733 54,933

54,933 75,133

A n n u a l R e p o r t 2 0 1 8 109


27. COMMITMENTS (CONTINUED)

c) Operating lease commitments - as lessor

The Group has entered into commercial leases on certain properties. These leases are cancellable and have lease terms of between one and two and half years with renewal options. These leases do not have contingent rent provision included in the contracts.

The Company has entered into commercial leases on certain properties. These leases are cancellable and have lease terms of between one and five years with renewal options. These leases do not have contingent rent provision included in the contracts.

28. RELATED PARTY TRANSACTIONS

a) Sale and purchase of goods and services

In addition to the related party information disclosed elsewhere in the financial statements, the following significant transactions between the Group and related parties took place at terms agreed between the parties during the financial year:

Group Company2018

RM2017

RM2018

RM2017

RM

Dividend income received from a subsidiary - - (2,000,000) (1,700,000)

Sale of plywood to a related party * - (119,090) - (119,090)

Sale of electricity to a related party # (520,718) (163,571) - -

Purchase of electricity from subsidiary - - 5,871,977 5,545,518

Rental income received from subsidiary - - (60,000) (60,000)

Rental of office paid to a director 184,000 178,000 184,000 178,000

* A company in which a close family member of a director, Lin Hao Yu, had interest.# A company in which a director, Lin Hao Yu, and his spouse are directors.

b) Compensation of key management personnel

The remuneration of directors and other members of key management during the financial year were as follows:

Group and Company

2018RM

2017RM

Short-term employee benefits 2,433,600 2,535,825

Defined contribution plan 50,880 61,820


Estimated money value of benefits-in-kind 30,789 -

3,025,309 2,597,645



28. RELATED PARTY TRANSACTIONS (CONTINUED)

b) Compensation of key management personnel (continued)

Included in the total remuneration of key management personnel are:

Group and Company

2018RM

2017RM

Directors’ remuneration 2,099,113 1,866,000

Directors’ interests in ESOS

During the financial year:

- 6,650,000 (2017: Nil) share options were granted to the directors of the Company under ESOS (Note 26) at an exercise price of RM1.19 (2017: Nil) each.

- Certain directors exercised options for 610,000 (2017: Nil) ordinary shares of the Company at a price of RM1.19 (2017: Nil) each, with a total cash consideration of RM725,900 paid to the Group.

At the reporting date, the total number of outstanding share options granted by the Company to the above-mentioned directors under the ESOS amounts to 6,040,000 (2017: Nil).

29. FAIR VALUE MEASUREMENT

a) Assets measured at fair value

Fair value measurement usingQuoted prices

in active markets(Level 1)

RM

Significant observable

inputs(Level 2)

RM

Significant unobservable

inputs(Level 3)

RMTotal

RM

Group

At 31 December 2018

Quoted equity instruments (Note 20) 48,046,327 - - 48,046,327

Derivatives financial assets (Note 20) - 333,898 - 333,898

At 31 December 2017Quoted equity instruments (Note 20) 64,265,984 - - 64,265,984


Company

At 31 December 2018

Quoted equity instruments (Note 20) 36,789,033 - - 36,789,033


At 31 December 2017Quoted equity instruments (Note 20) 57,868,385 - - 57,868,385


There were no transfers between Level 1 and Level 2 during the financial years ended 31 December 2018 and 31 December 2017.

A n n u a l R e p o r t 2 0 1 8 111


29. FAIR VALUE MEASUREMENT (CONTINUED)

b) Assets not carried at fair value but for which fair value is disclosed

The following table shows an analysis of the Group’s and the Company’s assets not measured at fair value but for which fair value is disclosed:

Quoted prices in active markets(Level 1)

RM

Significant observable

inputs(Level 2)

RM

Significant unobservable

inputs(Level 3)

RMTotal

RM

Carrying amount

RM

Group and Company

At 31 December 2018Investment properties - - 3,750,000 3,750,000 2,378,921

At 31 December 2017Investment properties - - 3,750,000 3,750,000 2,460,953

Determination of fair value

Investment properties

In the current financial year, valuation was performed by an accredited independent valuer based on the comparison approach. This approach entails comparing the investment properties with similar property in the locality which was recently sold or are being marketed with adjustments made for location, accessibility, size, shape, age and condition of the building, topography, tenure, title restriction, if any, land use zoning and other relevant characteristics to arrive at the market value of the investment properties.

In the previous financial year, the fair value of the investment properties was estimated by the directors by reference to the valuation performed by an independent professional valuer in prior year with appropriate consideration on the recent property market trend in Kota Kinabalu, Sabah.

c) 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 18

Trade and other payables 22

The carrying amounts of the financial assets and liabilities are reasonable approximation of fair values due to their short-term nature.



30. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

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 policies and procedures for the management of these risks. The Audit Committee provides independent oversight to the effectiveness of the risk management process.

These are, and have been throughout the current and previous financial years, the Group’s and the Company’s policies that no trading in derivatives for speculative purposes shall be undertaken. The Group and the Company do not apply hedge accounting.

The following sections provide details regarding the Group’s and the Company’s exposure to the above-mentioned financial risks and the objectives, policies and processes for the management of these risks.

There have been no changes to the Group’s and the Company’s exposure to these financial risks or the manner in which they manage and measure the risks.

a) Credit risk

Credit risk is the risk of loss that may arise on outstanding financial instruments should a counterparty defaults 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 investment securities, and cash and bank balances), the Group and the Company minimise credit risk by dealing exclusively with high credit rating counterparties.

The Group’s and the Company’s objectives are to seek continual revenue growth while minimising losses incurred due to increased credit risk exposure. The Group and the Company trade only with recognised and creditworthy third parties. These are the Group’s and the Company’s policies 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 with the result that the Group’s and the Company’s exposure to bad debts is not significant.

The following are credit risk management practices and quantitative and qualitative information about amounts arising from expected credit losses for each class of financial assets.

Trade receivables

The Group and the Company provide for lifetime expected credit losses for all trade receivables using a provision matrix. The provision rates are determined based on the Group’s and the Company’s historical observed default rates analysed in accordance to days past due. The loss allowance provision as at 31 December 2018 and 31 December 2017 are determined as follows, the expected credit losses below also incorporate forward looking information such as historical credit loss experience specific to the debtors and the economic environment.

A n n u a l R e p o r t 2 0 1 8 113


30. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)

a) Credit risk (continued)

Trade receivables (continued)

The information about the credit risk exposure on the Group’s and the Company’s trade receivables using a provision matrix is as follows:

Trade receivables

CurrentRM

1 to 30 days past RM

31 to 60 days past RM

TotalRM

Group

At 31 December 2018Gross carrying amount 7,811,607 39,683 - 7,851,290Loss allowance provision - - - -

At 31 December 2017Gross carrying amount 21,436,090 278,227 21,949 21,736,266

Loss allowance provision - - - -

Company

At 31 December 2018Gross carrying amount 7,781,083 - - 7,781,083Loss allowance provision - - - -

At 31 December 2017Gross carrying amount 21,405,585 252,823 - 21,658,408

Loss allowance provision - - - -

Exposure to credit risk

At the reporting date, the Group’s and the Company’s maximum exposure to credit risk is represented by the carrying amount of each class of financial assets recognised in the statements of financial position.

Credit risk concentration profile

The Group determines concentrations of credit risk by monitoring the country and industry sector profile of its trade receivables on an ongoing basis. The credit risk concentration profiles of the trade receivables at the reporting date are as follows:

Group2018 2017

RM % of total RM % of total

By country:USA 5,052,692 64 19,950,300 92


Korea 1,596,162 21 1,367,220 6

Taiwan 133,957 2 340,888 2

India 425,397 5 - -

Canada 85,482 1 - -

Malaysia 70,207 1 77,858 <1

7,851,290 100 21,736,266 100




a) Credit risk (continued)

Credit risk concentration profile (continued)

Company2018 2017

RM % of total RM % of total

By country:USA 5,052,692 65 19,950,300 92


Korea 1,596,162 21 1,367,220 6

Taiwan 133,957 2 340,888 2

India 425,397 5 - -

Canada 85,482 1 - -

7,781,083 100 21,658,408 100

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. All the financial liabilities of the Group and the Company are due within one year.

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.

The investments in financial assets are mainly short term in nature and have been mostly placed in fixed deposits and funds.

d) Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates.

The Group has transactional currency exposures arising from sales, and purchase of plant and machinery that are denominated in a currency other than in RM. The foreign currency in which these transactions are denominated is mainly US Dollars (“USD”).

Approximately 98% (2017: 99%) of the Group’s sales are denominated in foreign currencies whilst almost 99% (2017: 99%) of the Group’s trade receivables are denominated in foreign currencies.

The Group also holds cash and cash equivalents denominated in foreign currencies for working capital purposes. At the reporting date, such foreign currency balances (mainly in USD) amounted to RM32,411,090 (2017: RM14,340,400) for the Group and the Company.

A n n u a l R e p o r t 2 0 1 8 115



d) Foreign currency risk (continued)

Sensitivity analysis for foreign currency risk

The following table demonstrates the sensitivity of the Group’s and of the Company’s profit net of tax to a reasonably possible change in the USD exchange rates against the functional currency of the Group entities, with all other variables held constant.

Change in currency rateIncrease in

profit net of tax

Group and Company2018

RM2017

RM

USD/RM +5% 456,988 1,611,410

A 5% decrease in the currency rate shown above would have resulted in an equivalent, but opposite effect to profit net of tax, with all other variables held constant.

31. CAPITAL MANAGEMENT

The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and 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 adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the years ended 31 December 2018 and 31 December 2017.

The Group and its subsidiary are not subject to any externally imposed capital requirements.

32. SEGMENT INFORMATION

For management purposes, the Group is organised into business units based on their products and services, and has two reportable operating segments as follows:

i. The manufacturing segment is business of manufacturing and sale of plywood, veneer and LVL; and

ii. The electricity segment is the business of generation and sale of electricity.

Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. 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.

Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties.



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A n n u a l R e p o r t 2 0 1 8 117


32. SEGMENT INFORMATION (CONTINUED)

Note Nature of adjustments and eliminations to arrive at amounts reported in the consolidated financial statements

A Inter-segment revenues are eliminated on consolidation.

B Addition to depreciation consist of:

2018RM

2017RM

Depreciation of investment properties 82,032 82,031

C Addition to segment profit consists of:

Distribution income from equity instruments 1,758,864 1,586,391

Net fair value changes on equity instruments 668,344 60,894

Rental income from investment properties 252,000 240,000

Interest income from fixed deposits 13,890 34,088

Depreciation of investment properties (82,032) (82,031)

Direct operating expenses arising from investment properties (111,458) (109,856)

2,499,608 1,729,486

D Additions to non-current assets consist of:

Property, plant and equipment 4,514,804 5,253,510

E The following items are added to segment assets to arrive at total assets reported in the consolidated statement of financial position:

2018RM

2017RM

Restated

Equity instruments 48,046,327 64,265,984

Deferred tax assets 139,532 386,334

Investment properties 2,378,921 2,460,953

50,564,780 67,113,271

F The following items are added to segment liabilities to arrive at total liabilities reported in the consolidated statement of financial position:

2018RM

2017RM

Restated

Deferred tax liabilities 3,070,279 2,430,800



32. SEGMENT INFORMATION (CONTINUED)

Geographical information

Revenue information based on the geographical location of customers is as follows:

2018RM

2017RM

Australia 84,732 -

Canada 230,592 306,847

China 372,677 -

Hong Kong 2,568,745 775,526

India 426,695 370,125

Korea 20,569,519 26,409,898

Malaysia 3,964,298 1,801,372

Japan 2,110,383 1,718,041

Taiwan 6,129,830 12,214,269

Thailand 6,208,966 3,383,310

United Kingdom 5,777,422 -

USA 154,983,693 129,180,004

203,427,552 176,159,392

33. DIVIDENDS

Group and Company

2018RM

2017RM

Recognised during the financial year:

Dividends on ordinary shares:

First interim dividend for 2018: 6.0 sen per share 6,192,000 -

Second interim dividend for 2018: 2.0 sen per share 2,064,000 -

Third interim dividend for 2018: 8.0 sen per share 8,420,808 -

16,676,808 -

34. AUTHORISATION OF FINANCIAL STATEMENTS FOR ISSUE

The financial statements for the year ended 31 December 2018 were authorised for issue in accordance with a resolution of the directors on 26 March 2019.

A n n u a l R e p o r t 2 0 1 8 119

List ofPROPERTIESHeld by the Group as at 31 December 2018

No. Locations Tenure

Land Area and Gross Built-Up Area

Approximate Age of

Building

Description and Current

Use

Net Book Value as at

31 December 2018

Effective Year of

Purchase

1 Mile 3, Jalan Masak,Kampung Ulu Patikang,Locked Bag 13 SM-8889009 Keningau, SabahMalaysia

99 years lease expiring on31.12.2081

Land area94,700 square metersGross built-up area31,370.47 square meters

27 years Industrial landand building

RM3,232,256 1991

2 11F, Wisma Perindustrian,Jalan Istiadat, 88400 LikasKota Kinabalu, SabahMalaysia


Land area11,610 square metersGross built-up area990.20 square meters

21 years Commercialbuilding

RM2,378,921 1997

3 Kampung Ulu PatikangKeningau, SabahMalaysia


Land area0.703 hectares

N/A Industrial land RM592,755 2018


Analysis ofSHAREHOLDINGSAs at 29 March 2019

Total number of Issued share : 105,996,000 ordinary shares Number of treasury shares : 3,227,800 ordinary shares Class of shares : Ordinary shares Voting rights of shareholders : One vote per ordinary share

DISTRIBUTION OF SHAREHOLDINGS AS AT 29 MARCH 2019

Size of holdings No. of holders % No. of shares %

1 - 99 13 0.331 481 0.000

100 - 1,000 493 12.558 387,700 0.377

1,001 - 10,000 2,387 60.800 12,104,539 11.779

10,001 - 100,000 930 23.688 28,716,400 27.943

100,001 - 5,138,409 (*) 100 2.547 39,034,710 37.983

5,138,410 and above (**) 3 0.076 22,524,370 21.918

Total 3,926 100.000 102,768,200 100.000

* Less than 5% of issued shares** 5% and above of issued shares

SUBSTANTIAL SHAREHOLDERS AS AT 29 MARCH 2019

Direct Indirect

No. of shares % No. of shares %

1 LIN FONG MING 9,169,360 8.922 - -

2 LIN HAO WEN 9,179,360 8.932 - -

3 LIN HAO YU 7,841,460 7.630 - -

DIRECTORS’ SHAREHOLDINGS AS AT 29 MARCH 2019

No. of ShareOptions Under

No. of Ordinary Shares Held the EmployeeDirect Indirect Share Option

No. of shares % No. of shares % Scheme

1 LIN FONG MING 9,169,360 8.922 - - 560,000

2 LIN HAO WEN 9,179,360 8.932 - - 600,000

3 LIN HAO YU 7,841,460 7.630 2,847,100 (1) 2.770 560,000

4 DATUK AZNAM BIN MANSOR - - - - 1,500,000

5 WONG YOKE NYEN 300,000 0.292 - - 1,200,000

6 NG TIAN MENG 300,000 0.292 - - 1,200,000

(1) Deemed interest by virtue of shares held by his wife, Christina Phang Ya Yun pursuant to Section 59(11)(c) of the Companies Act 2016.

A n n u a l R e p o r t 2 0 1 8 121

Analysis of ShareholdingsAs at 29 March 2019

LIST OF TOP THIRTY LARGEST SHAREHOLDERS AS AT 29 MARCH 2019

No. Name of Shareholders No. of Shares Held %

1 LIN FONG-MING 9,169,360 8.922

2 LIN, HAO-YU 7,041,460 6.851

3 PUBLIC NOMINEES (ASING) SDN BHDPLEDGED SECURITIES ACCOUNT FOR LIN, HAO-WEN (E-KKU/KNG)

6,313,550 6.143

4 RHB CAPITAL NOMINEES (ASING) SDN BHDWU CHIEN-CHANG

3,483,800 3.389

5 LIN HAO WEN 2,865,810 2.788

6 CHRISTINA PHANG YA YUN 2,847,100 2.770

7 HLB NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES ACCOUNT FOR LIM PEI TIAM @ LIAM AHAT KIAT

1,685,000 1.639

8 FONG TING WONG 1,661,300 1.616

9 CITIGROUP NOMINEES (TEMPATAN) SDN BHDEMPLOYEE PROVIDENT FUND BOARD (PHEIM)

1,566,000 1.523

10 RHB CAPITAL NOMINEES (ASING) SDN BHDHSUEH CHEN-SHENG

1,231,000 1.197

11 CHEE SAI MUN 1,172,100 1.140

12 GAN KHO @ GAN HONG LEONG 1,120,000 1.089

13 RHB NOMINEES (ASING) SDN BHD PLEDGED SECURITIES ACCOUNT FOR LIN HAO YU

800,000 0.778

14 AFFIN HWANG NOMINEES (ASING) SDN. BHD. EXEMPT AN FOR DBS VICKERS SECURITIES (SINGAPORE) PTE LTD (CLIENTS)

682,500 0.664

15 LEE KOK HIN 629,200 0.612

16 CIMSEC NOMINEES (ASING) SDN BHD EXEMPT AN FOR CGS-CIMB SECURITIES (SINGAPORE) PTE. LTD. (RETAIL CLIENTS)

606,100 0.589

17 HLB NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES ACCOUNT FOR LIM PAY KAON

600,000 0.583

18 PUBLIC NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES ACCOUNT FOR FRANCIS KONG @ KONG FEN SHIN (E-KKU/LBN)

600,000 0.583

19 KENANGA NOMINEES (ASING) SDN BHDEXEMPT AN FOR PHILLIP SECURITIES PTE LTD (CLIENT ACCOUNT)

552,900 0.538


Analysis of ShareholdingsAs at 29 March 2019

LIST OF TOP THIRTY LARGEST SHAREHOLDERS AS AT 29 MARCH 2019 (CONTINUED)

No. Name of Shareholders No. of Shares Held %

20 ALLIANCEGROUP NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES ACCOUNT FOR YAP CHING CHEONG (6000187)

500,000 0.486

21 RONIE TAN CHOO SENG 500,000 0.486

22 LOH KOK WAI 498,700 0.485

23 CHEE SAI MUN 496,900 0.483

24 GOH CHING MUN 480,000 0.467

25 GAN KHO @ GAN HONG LEONG 418,700 0.407

26 CHONG YEE VUI 388,000 0.377

27 CITIGROUP NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES ACCOUNT FOR FRANCIS KONG @ KONG FEN SHIN (470294)

350,000 0.340

28 TAN LEAN HENG 348,000 0.338

29 MALACCA EQUITY NOMINEES (TEMPATAN) SDN BHD EXEMPT AN FOR PHILLIP CAPITAL MANAGEMENT SDN BHD

337,200 0.328

30 PUBLIC INVEST NOMINEES (ASING) SDN BHD EXEMPT AN FOR PHILLIP SECURITIES PTE LTD (CLIENTS)

313,900 0.305

49,258,580 47.916

A n n u a l R e p o r t 2 0 1 8 123

Notice of Twenty-NinthANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN THAT the Twenty-Ninth Annual General Meeting of FOCUS LUMBER BERHAD will be held at Zara’s Boutique Hotel, Harbour City, Jalan Pantai Baru, Sembulan, 88100 Kota Kinabalu, Sabah on Monday, 27 May 2019 at 11.00 a.m. to transact the following businesses:-

A G E N D A

Ordinary Business

1. To receive the Audited Financial Statements for the financial year ended 31 December 2018 together with the Reports of the Directors and Auditors thereon.

(Please refer to Note 2)

2. To approve the payment of Directors’ Fees and Benefits of RM366,600.00 for a period from this 29th Annual General Meeting until the next Annual General Meeting of the Company. (Resolution 1)

3. To re-elect the following Directors who retire pursuant to Article 67 of the Company’s Constitution:-

(i) Lin Hao Wen (Resolution 2)(ii) Lin Fong Ming (Resolution 3)

4. To consider and if thought fit, to pass the following resolution:-

“THAT Messrs PKF Malaysia having consented to act, be hereby appointed as the Auditors of the Company in place of the retiring Auditors, Messrs Ernst & Young, and to hold office until the conclusion of the next Annual General Meeting AND THAT the Directors be authorised to determine their remuneration. (Resolution 4)

Special Business

To consider and, if thought fit, to pass the following resolutions, with or without modifications as Ordinary/ Special Resolutions of the Company:-

5. Ordinary Resolution IContinuing in Office as Independent Non-Executive Director – Datuk Aznam Bin Mansor

“THAT authority be and is hereby given to Datuk Aznam Bin Mansor who will serve as an Independent Non-Executive Director of the Company for a cumulative term of nine years on 24 November 2019, to continue to serve as an Independent Non-Executive Director of the Company until the conclusion of the next Annual General Meeting.” (Resolution 5)

6. Ordinary Resolution IIContinuing in Office as Independent Non-Executive Director – Wong Yoke Nyen

“THAT authority be and is hereby given to Wong Yoke Nyen who will serve as an Independent Non-Executive Director of the Company for a cumulative term of nine years on 24 November 2019, to continue to serve as an Independent Non-Executive Director of the Company until the conclusion of the next Annual General Meeting.” (Resolution 6)


Notice of Twenty-Ninth Annual General Meeting

7. Ordinary Resolution IIIContinuing in Office as Independent Non-Executive Director – Ng Tian Meng

“THAT authority be and is hereby given to Ng Tian Meng who will serve as an Independent Non-Executive Director of the Company for a cumulative term of nine years on 24 November 2019, to continue to serve as an Independent Non-Executive Director of the Company until the conclusion of the next Annual General Meeting.” (Resolution 7)

8. Ordinary Resolution IVAuthority to Allot Shares Pursuant to Sections 75 and 76 of the Companies Act 2016

“THAT pursuant to Sections 75 and 76 of the Companies Act 2016, the Directors of the Company be and are hereby authorised to allot shares in the Company at any time and upon such terms and conditions and for such purposes as the Directors may in their absolute discretion deem fit provided that the aggregate number of shares allotted pursuant to this resolution does not exceed 10% of the total number of issued share of the Company for the time being and that the Directors be and are also empowered to obtain approval for the listing of and quotation for the additional shares so issued from Bursa Malaysia Securities Berhad and that such authority shall continue to be in force until the conclusion of the next Annual General Meeting of the Company after the approval was given or at the expiry of the period within which the next Annual General Meeting is required to be held after the approval was given, whichever is earlier, unless such approval is revoked or varied by the Company at a general meeting.” (Resolution 8)

9. Ordinary Resolution VProposed Renewal of Shareholders’ Mandate for the Authority to the Company to Purchase Its Own Shares up to Ten Per Centum (10%) of the Total Number of Issued Shares (“Proposed Renewal of Share Buy-Back Mandate”)

“THAT subject always to the Companies Act 2016 (“the Act”), the Constitution of the Company, the Main Market Listing Requirements of Bursa Malaysia Securities Berhad (“Bursa Securities”) (“Listing Requirements”) and all other applicable laws, guidelines, rules and regulations, the Company be and is hereby authorised, to the fullest extent permitted by law, to purchase such number of issued shares in the Company as may be determined by the Directors of the Company from time to time through Bursa Securities upon such terms and conditions as the Directors may deem fit and expedient in the interest of the Company provided that:

i. the aggregate number of issued shares in the Company (“Shares”) purchased (“Purchased Shares”) and/or held as treasury shares pursuant to this ordinary resolution does not exceed ten per centum (10%) of the total number of issued shares of the Company as quoted on Bursa Securities as at point of purchase; and

ii. the maximum fund to be allocated by the Company for the purpose of purchasing the shares shall not exceed the aggregate of the retained profits of the Company based on the latest audited financial statements and/or the latest management accounts (where applicable) available at the time of the purchase,

A n n u a l R e p o r t 2 0 1 8 125


(“Proposed Share Buy-Back”).

AND THAT the authority to facilitate the Proposed Share Buy-Back will commence immediately upon passing of this Ordinary Resolution and will continue to be in force until:

a. the conclusion of the next Annual General Meeting of the Company following at which time the authority shall lapse unless by ordinary resolution passed at the meeting, the authority is renewed, either unconditionally or subject to conditions;

b. the expiration of the period within which the next annual general meeting of the Company is required by law to be held; or

c. revoked or varied by ordinary resolution passed by the shareholders of the Company at a general meeting,

whichever occurs first, but shall not prejudice the completion of purchase(s) by the Company of its own Shares before the aforesaid expiry date and, in any event, in accordance with the Listing Requirements and any applicable laws, rules, regulations, orders, guidelines and requirements issued by any relevant authorities.

AND THAT the Directors of the Company be and are hereby authorised, at their discretion, to deal with the Purchased Shares until all the Purchased Shares have been dealt with by the Directors in the following manner as may be permitted by the Act, Listing Requirements, applicable laws, rules, regulations, guidelines, requirements and/or orders of any relevant authorities for the time being in force:

i. To cancel all or part of the Purchased Shares;

ii. To retain all or part of the Purchased Shares as treasury shares as defined in Section 127 of the Act;

iii. To distribute all or part of the treasury shares as dividends to the shareholders of the Company;

iv. To resell all or part of the treasury shares;

v. To transfer all or part of the treasury shares for the purposes of or under the employees’ share scheme established by the Company and/or its subsidiaries;

vi. To transfer all or part of the treasury shares as purchase consideration;

vii. To sell, transfer or otherwise use the shares for such other purposes as the Minister may by order prescribe; and/or

viii. To deal with the treasury shares in any other manners as allowed by the Act, Listing Requirements, applicable laws, rules, regulations, guidelines, requirements and/or orders of any relevant authorities for the time being in force.

AND THAT the Directors of the Company be and are authorised to take all such steps as are necessary or expedient [including without limitation, the opening and maintaining of central depository account(s) under Securities Industry (Central Depositories) Act, 1991, and the entering into all other agreements, arrangements and guarantee with any party or parties] to implement, finalise and give full effect to the Proposed Share Buy-Back with full powers to assent to any conditions, modifications, variations and/or amendments (if any) as may be imposed by the relevant authorities.” (Resolution 9)



10. Special ResolutionProposed Alteration of the Existing Memorandum and Articles of Association by replacing with a New Constitution (“Proposed Alteration”)

“THAT the existing Memorandum and Articles of Association of the Company be hereby altered by replacing with a new Constitution as set out in the Appendix I attached to the Annual Report 2018 with effect from the date of passing this special resolution.

AND THAT the Directors of the Company be hereby authorised to do all such acts and things and to take all such steps as they deem fit, necessary, expedient and/or appropriate in order to complete and give full effect to the Proposed Alteration with full powers to assent to any condition, modification, variation and/or amendment as may be required or imposed by the relevant authorities.” (Resolution 10)

11. To consider any other business of which due notice shall be given in accordance with the Companies Act 2016.

BY ORDER OF THE BOARDWONG WAI FOONG (MAICSA 7001358)WONG PEIR CHYUN (MAICSA 7018710)LIEW PUI LING (MAICSA 7058897)Company SecretariesKuala Lumpur

Date: 26 April 2019

NOTES:

1. Appointment of Proxy

i. A member entitled to attend and vote at the meeting is entitled to appoint proxy(ies) (or in case of a corporation, a duly authorised representative) to attend and vote in his stead. A proxy may, but need not be a member of the Company.

ii. The instrument appointing a proxy shall be in writing (in the common or usual form) under the hand of the appointer or of his attorney duly authorised in writing or if the appointer is a corporation, either under seal or under the hand of an officer or attorney duly authorised.

iii. A member shall be entitled to appoint not more than two (2) proxies to attend and vote at the same meeting and that where the member appoint two (2) proxies, such appointment shall be invalid unless he specifies the proportions of his shareholdings to be represented by each proxy.

iv. Where a member of the Company is an authorised nominee as defined in the Securities Industry (Central Depositories) Act, 1991 (“SICDA”), it may appoint not more than two (2) proxies in respect of each securities account it holds in ordinary shares of the Company standing to the credit of the said securities account.

v. Where a member of the Company is an exempt authorised nominee which holds ordinary shares in the Company for multiple beneficial owners in one (1) securities account (“omnibus account”), there is no limit to the number of proxies which the exempt authorised nominee may appoint in respect of each omnibus account it holds.

A n n u a l R e p o r t 2 0 1 8 127


NOTES (CONTINUED):

1. Appointment of Proxy (Continued)

vi. Where the authorised nominee appoints two (2) proxies, or where an exempt authorised nominee appoints two (2) or more proxies, the proportion of shareholdings to be represented by each proxy must be specified in the instrument appointing the proxies.

vii. The instrument appointing a proxy and the power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that power or authority shall be deposited at the Share Registrar of the Company at Tricor Investor & Issuing House Services Sdn. Bhd. (11324-H) of Unit 32-01, Level 32, Tower A, Vertical Business Suite, Avenue 3, Bangsar South, No.8 Jalan Kerinchi, 59200 Kuala Lumpur or alternatively, the Customer Services Centre at Unit G-3, Ground Floor, Vertical Podium, Avenue 3, Bangsar South, No. 8, Jalan Kerinchi, 59200 Kuala Lumpur, not less than forty-eight (48) hours before the time for holding the meeting or any adjournment thereof.

viii. Only the members whose names appear on the Record of Depositors as at 17 May 2019 shall be entitled to attend and vote at this meeting or appoint proxy(ies) to attend and vote on their behalf.

2. Audited Financial Statements for the financial year ended 31 December 2018

The Audited Financial Statements in Agenda 1 is meant for discussion only as the approval of the shareholders is not required pursuant to the provisions of Sections 248(2) and 340(1)(a) of the Companies Act 2016. Hence, this Agenda is not put forward for voting by shareholders.

3. Resolution 1 – Directors’ Fees and Benefits

Pursuant to Section 230(1) of the Companies Act, 2016, the fees of the directors and any benefits payable to the directors shall be approved at a general meeting.

The Proposed Resolution 1 for the Directors’ fees and benefits proposed for the period from this 29th Annual General Meeting up to the date of next Annual General Meeting are calculated based on the current Board size and number of scheduled Board and Committee Meetings held from the 29th Annual General Meeting until the next Annual General Meeting. This resolution is to facilitate payment of Directors’ fees and benefits on a current financial year basis. In the event the proposed amount is insufficient, (e.g. due to more meetings or enlarged Board size), approval will be sought at the next Annual General Meeting for the shortfall.

4. Resolutions 2 and 3 – Re-election of Directors

Lin Hao Wen and Lin Fong Ming are standing for re-election as Directors of the Company and being eligible, have offered themselves for re-election at the 29th Annual General Meeting.

The Board had through the Nominating Committee (“NC”) carried out the assessment on the Directors and agreed that they meet the criteria as prescribed by Paragraph 2.20A of the Main Market Listing Requirement (“MMLR”) of Bursa Malaysia Securities Berhad (“Bursa Securities”) on character, experience, integrity, competence and time to effectively discharge their role as Directors.

5. Resolution 4 – Appointment of Auditors

The Company’s existing Auditors, Messrs Ernst & Young will hold office until the conclusion of the forthcoming 29th Annual General Meeting of the Company to be held on 27 May 2019.

The proposed change of Auditors is in line with good corporate governance of revisiting the appointment of the Company’s Auditors from time to time.

The Board and the Audit Committee had considered the profile, resources, experience, fee and engagement proposal as well as the size and complexity of the Group’s operations and recommended that Messrs PKF Malaysia, who has given their consent to act as Auditors of the Company, be appointed as the Auditors of the Company.



NOTES (CONTINUED):

6. Explanatory Notes on Special Business

i. Resolutions 5, 6 and 7 – Continuing in Office as Independent Non-Executive Directors

The Board had conducted an annual performance evaluation and assessment of Datuk Aznam Bin Mansor, Wong Yoke Nyen and Ng Tian Meng, who will have served the Board as Independent Non-Executive Directors (“INEDs”) of the Company for a cumulative term of nine (9) years on 24 November 2019 and recommended them to continue to act as INEDs based on the following justifications:-

a. They fulfil the criteria under the definition of “Independent Director” as stated in the MMLR of Bursa Securities, and thus, they would be able to function as a check and balance, bring an element of objectivity to the Board;

b. Their tenure with the Company have neither impaired nor compromise their independent judgement and ability to act in the best interest of the Company. They continue to remain objective and are able to exercise their independence judgement in expressing their view and participating in deliberations and decision making of the Board and Board Committee in the best interest of the Company;

c. They have vast experience in a diverse range of business and have good understanding of the Company’s business operation;

d. They continue to exercise due care during their tenure as INEDs of the Company and carried out their professional duties in the interest of the Company and shareholders;

e. They have devoted sufficient time and commitment to discharge their responsibility and professional obligations as INEDs; and

f. They do not have any business dealings with the Company.

ii. Resolution No. 8 - Authority to Allot Shares

The proposed Resolution No. 8 is proposed for the purpose of granting a renewed general mandate (“General Mandate”) and empowering the Directors to allot shares in the Company up to an amount not exceeding in total 10% of the total number of issued shares of the Company for such purpose as the Directors consider would be in the interest of the Company.

The authority, unless revoked or varied by the Company at a general meeting, will expire at the next Annual General Meeting.

The General Mandate is to provide flexibility to the Company to allow new securities without the need to convene separate general meeting to obtain its shareholders’ approval so as to avoid incurring additional cost and time. The purpose of this General Mandate is for possible fund raising exercises including but not limited to further placement of shares for purpose of funding current and/or future investment projects, working capital, repayment of bank borrowings, acquisitions and/or for issuance of shares as settlement of purchase consideration.

As at the date of this Notice, the Company did not issue any shares pursuant to the Mandate granted to the Directors at the Twenty-Eighth Annual General Meeting because there were no investment(s), acquisition(s) or working capital that require fund raising activity.

A n n u a l R e p o r t 2 0 1 8 129


NOTES (CONTINUED):

6. Explanatory Notes on Special Business (Continued)

iii. Resolution No. 9 - Proposed Renewal of Share Buy-Back Mandate

The proposed resolution 9, if passed will give the Company the authority to purchase its own ordinary shares of up to ten per cent (10%) of the total number of issued shares of the Company. Please refer to the Statement to Shareholders dated 26 April 2019 for further information.

iv. Resolution 10 – Proposed Alteration

This proposed Special Resolution, if passed, will enable the Company to alter its existing Memorandum and Articles of Association by replacing with a new Constitution which is drafted in accordance with the relevant provisions of the Companies Act 2016, relevant amendments of Chapter 7 and other Chapters of the MMLR of Bursa Securities and other provisions of laws and regulations that are applicable to the Company.

For further information on the Proposed Alteration, please refer to Appendix I attached to the Annual Report 2018.


Statement Accompanying Notice ofANNUAL GENERAL MEETING

Authority for Directors to Allot Shares Pursuant To Sections 75 and 76 of the Companies Act 2016

Kindly refer to item 6(ii) of the Explanatory Notes on Special Business of the Notice of 29th Annual General Meeting for the detail of the authority for Director to allot shares in the Company pursuant to Sections 75 and 76 of the Companies Act 2016 on page 128.

Pursuant to Paragraph 8.27(2) of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad

ProxyFORMI/We I.C./Passport/Company No.

of

being a member/members of Focus Lumber Berhad hereby appoint

of

or failing whom, of

or failing whom the Chairman as my/our proxy/proxies to vote for me/us and on my/our behalf at the Twenty-Ninth Annual General Meeting of the Company, to be held at Zara’s Boutique Hotel, Harbour City, Jalan Pantai Baru, Sembulan, 88100 Kota Kinabalu, Sabah on Monday, 27 May 2019 at 11.00 a.m. and, at every adjournment thereof for/against* the resolution(s) to be proposed thereat.

Item Agenda Resolution For Against

1.Ordinary BusinessReceive the Audited Financial Statements for the financial year ended 31 December 2018 together with the Reports of the Directors and Auditors thereon.

2. Approval on the payment of Directors’ Fees and Benefits of RM366,600 from this 29th Annual General Meeting until the next Annual General Meeting of the Company

1

3(i) Re-election of Lin Hao Wen who retires pursuant to Article 67 of the Company’s Constitution, as Director of the Company.

2

3(ii) Re-election of Lin Fong Ming who retires pursuant to Article 67 of the Company’s Constitution, as Director of the Company.

3

4. Appointment of Messrs PKF Malaysia as Auditors in place of the retiring Auditors, Messrs Ernst & Young and to authorize the Directors to determine their remuneration.

4

5.Special BusinessApproval on the continuation of office for Datuk Aznam Bin Mansor as an Independent Non-Executive Director of the Company

5

6. Approval on the continuation of office for Wong Yoke Nyen as an Independent Non-Executive Director of the Company

6

7. Approval on the continuation of office for Ng Tian Meng as an Independent Non-Executive Director of the Company

7

8. Authority to allot shares pursuant to Sections 75 and 76 of the Companies Act 2016. 89. Proposed Renewal of Share Buy-Back Mandate. 910. Proposed Alteration of the Existing Memorandum of Association and Articles of Association by

replacing with a new Constitution10

Please indicate with an “x” in the spaces provided whether you wish your votes to be cast for or against the resolutions. In the absence of specific directions, your proxy will vote or abstain as he thinks fit.

Dated this day of 2019 Signature/Common Seal of Shareholder(s) *Strike out whichever in not desired. (Unless

otherwise instructed, the proxy may vote as he thinks fit).

CDS account no. No. of shares held

Notes:

(a) A member entitled to attend and vote at the meeting is entitled to appoint proxy(ies) (or in case of a corporation, a duly authorised representative) to attend and vote in his stead. A proxy may, but need not be a member of the Company.

(b) The instrument appointing a proxy shall be in writing (in the common or usual form) under the hand of the appointor or of his attorney duly authorised in writing or if the appointer is a corporation, either under seal or under the hand of an officer or attorney duly authorised.

(c) A member shall be entitled to appoint not more than two (2) proxies to attend and vote at the same meeting and that where the member appoint two (2) proxies, such appointment shall be invalid unless he specifies the proportions of his shareholdings to be represented by each proxy.

(d) Where a member of the Company is an authorised nominee as defined in the Securities Industry (Central Depositories) Act, 1991 (“SICDA”), it may appoint not more than two (2) proxies in respect of each securities account it holds in ordinary shares of the Company standing to the credit of the said securities account.

(e) Where a member of the Company is an exempt authorised nominee which holds ordinary shares in the Company for multiple beneficial owners in one (1) securities account (“omnibus account”), there is no limit to the number of proxies which the exempt authorised nominee may appoint in respect of each omnibus account it holds.

(f) Where the authorised nominee appoints two (2) proxies, or where an exempt authorised nominee appoints two (2) or more proxies, the proportion of shareholdings to be represented by each proxy must be specified in the instrument appointing the proxies.

(g) The instrument appointing a proxy and the power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that power or authority shall be deposited at the Share Registrar of the Company at Tricor Investor & Issuing House Services Sdn. Bhd. (11324-H) of Unit 32-01, Level 32, Tower A, Vertical Business Suite, Avenue 3, Bangsar South, No.8 Jalan Kerinchi, 59200 Kuala Lumpur, or alternatively the Customer Service Centre at Unit G-3, Ground Floor, Vertical Podium, Avenue 3, Bangsar South, No. 8, Jalan Kerinchi, 59200 Kuala Lumpur not less than forty-eight (48) hours before the time for holding the meeting or any adjournment thereof.

(h) Only the members whose names appear on the Record of Depositors as at 17 May 2019 shall be entitled to attend and vote at this meeting or appoint proxy(ies) to attend and vote on their behalf.

AFFIXSTAMP

Fold here

Fold here

THE SHARE REGISTRAR

TRICOR INVESTOR & ISSUING HOUSE SERVICES SDN BHD (11324-H)

Unit 32-01, Level 32, Tower A, Vertical Business Suite Avenue 3, Bangsar South, No. 8, Jalan Kerinchi 59200 Kuala Lumpur, WP Kuala LumpurMALAYSIA

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