hock seng lee berhadhsl.listedcompany.com/newsroom/hsl_annual_report_2016.pdfhsl’s annual general...

HOCK SENG LEE BERHAD(045556-X)

Cover StoryThe two circles represent two decades as HSL celebrates its 20th anniversary as a public listed company. The sea green colour tones are a nod to HSL’s marine engineering expertise while the circles also signify the Group’s complete evolution from a one-ship dredging operation to a multi-faceted construction firm. The recent project photos depict water supply and infrastructure works in the SCORE region and also the rise of the property division with high-end residential products.

We’re building your future today

OUR VISIONTo be a leading, integrated, professional construction company contributing positively to the development of modern environments in the region.

OUR MISSIONTo deliver high quality marine engineering, civil engineering, construction and property development projects on time and on budget to our clients’ total satisfaction.

OUR STRATEGYTo maintain a high performance organisation with dedicated, competent staff who work together to provide dependable project delivery and superior business results.

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A N N U A L R E P O R T 2 0 1 6

The case to invest:Why we’re building your future today

• Record order book of some 30 projects worth RM2.6 billion with RM2.1 billion outstanding as at 31/3/2017

• Mega-projects gaining momentum including Kuching Sewerage P2, Pan-Borneo Highway P7, and Miri Sewerage

• Healthybalancesheetandprofitableeveryreportingperiodsince1996listing

• Strong track record of successful project delivery for over 30 years

• Beneficiary of the Sarawak Corridor of Renewable Energy (SCORE) and ruraldevelopment

• Niche market player specialising in marine engineering eg. land reclamation

• Technicalexpertiseeg.tunneling,ruralwatersupply,floodmitigation,heavyliftetc.

• Large portfolio of equipment including dredgers, tugs and barges, cranes, tunnel boring machines, excavators etc.

• Award-winning property developer with innovative residential, commercial and industrial projects

• WinnerofTheEdgeBillionRinggitClubCorporateAwards-HighestReturnOnEquityOverThreeYearsinconstructionsector

• LargestconstructionfirminEastMalaysiabymarketcapitalisation

• Committed to the highest standards of corporate governance, corporate socialresponsibility and shareholder value

Performance Highlights for 2016

RevenueatRM498.55million

EarningsbeforetaxatRM75.17million

Earningspershareof10.27sen

ReturnonEquityat8%

Totalcashdividenddeclaredfor2016of12%

HOCKSENGLEEGROUP

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H O C K S E N G L E E B E R H A D ( 0 4 5 5 5 6 - X )

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2016 2015 2014 2013 2012 RM'000 RM'000 RM'000 RM'000 RM'000

Revenue 498,546 654,736 604,721 548,449 603,267 Profit ProfitBeforeTax 75,174 101,237 103,152 113,983 121,149 ProfitAfterTax 56,458 76,198 76,927 85,202 90,694

Earnings Per Share (sen) 10.27 13.87 13.99 15.40 16.37 Return on Equity (%) 8.3% 12.2% 13.6% 16.8% 20.4% Property, Plant and Equipment 153,425 127,434 120,266 123,453 113,906 Other Non-current Assets 171,528 194,689 188,186 184,827 159,303 Net Current Assets 393,537 349,747 303,002 244,299 222,237 718,490 671,870 611,454 552,579 495,446 Financed by Share Capital 116,535 116,535 116,535 116,535 116,535 Capital Redemption Reserves 2,165 2,165 2,165 2,165 2,165 Treasury Shares (37,859) (37,859) (37,859) (36,370) (25,672) Retained Earnings 620,271 577,038 515,127 454,691 386,901 Non-controlling Interests 3,036 - - - - Non-current Liabilities 14,342 13,991 15,486 15,558 15,517 718,490 671,870 611,454 552,579 495,446 Net Assets per share RM1.28 RM1.20 RM1.08 RM0.98 RM0.86

20162012 2013 2014 201520162012 2013 2014 201520162012 2013 2014 20152012 2013 2014 2015 2016

56,458

76,198

90,694

85,202

76,927

75,174

101,

237

121,149

113,983

103,152

498,546

654,736

603,

267

548,449

604,

72165

7,879

479,929

537,021

595,968

704,148

Profit after tax(RM’000)

Profit before tax(RM’000)

Revenue(RM’000)

Net assets(RM’000)

FINANCIAL HIGHLIGHTS

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A N N U A L R E P O R T 2 0 1 6

2015

12%

7.00%

5.00%

2012

15.00%

7.50%

2.25%

5.25%

2013

15.00%

6.00%

9.00%

2014

14.00%

6.00%

8.00%

2016

12%

7.00%

5.00%

Cash Dividend Declared

Interim

Final

Special

%

18

20

16

14

12

10

8

6

4

2

0

Trade and other receivables,32.6%

Property development costs,16.2%

Land held for propertydevelopment,18.7%

Cashandcashequivalents,10.1%

Property, plant andequipment,17.6%

Deposits and prepayments,0.4%

Currenttaxrefundable,0.5%

Investment properties,1.0%

Inventories,2.9%

Trade and other payables,16.9%

Deferred tax liabilities,1.6%

Reserves,67.0%

Share capital, 13.4%

Non-controlling interests,0.3%

Loans and borrowings,0.8%

Equity and Liabilities 2016Total:RM872,904,447

Assets 2016Total:RM872,904,447

FINANCIAL HIGHLIGHTS

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ContentsCorporateInformation 5

FromTheChairman 6

Management Discussion and Analysis 9

CorporateSocialResponsibility 12

Happenings 15

ProfileofDirectorsandSeniorManagement 16

StatementonCorporateGovernance 18

AuditCommitteeReport 23

StatementonRiskManagementandInternalControl 25

Financial Statements 26

List of Top 10 Properties 73

Shareholding Analysis 74

OtherInformation 76

NoticeofAGM 77

Form of Proxy

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A N N U A L R E P O R T 2 0 1 6

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HOCK SENG LEE BERHAD is a marine engineering, civil engineering and construction company. It undertakes dredging, land reclamation and earthworks, road and bridge construction, tunneling and other infrastructure and building works.

Its wholly-owned subsidiary Hock Seng Lee Construction Sendirian Berhad is involved in property development and building construction while HSL Land Sdn Bhd’s principal activity is investment in real properties.

CORPORATE INFORMATION

LEGAL FORM AND DOMICILEPublic Limited Liability Company, Incorporated and domiciled in Malaysia

BOARD OF DIRECTORSDato’ Idris Bin Buang(Chairman, Independent, Non-executive Director)

Dato Yu Chee Hoe(Managing Director)

Lau Kiing Kang(Executive Director)

Yii Chee Sing(Executive Director)

Tony Yu Yuong Wee(Executive Director)

Lau Kiing Yiing(Non-executive Director)

Dato’ Mohd. Nadzir Bin Mahmud(Non-executive Director)

Dr Chou Chii Ming(Independent, Non-executive Director)

Tuan Hj Abang Kashim Bin Abang Morshidi(Independent, Non-executive Director)

AUDIT COMMITTEEDato’ Idris Bin Buang (Chairman)Lau Kiing Yiing Dr Chou Chii Ming Tuan Hj Abang Kashim Bin Abang Morshidi

REMUNERATION COMMITTEEDato’ Idris Bin Buang (Chairman)Dato Yu Chee Hoe Dato’ Mohd. Nadzir Bin Mahmud

NOMINATION COMMITTEEDr Chou Chii Ming (Chairman)Lau Kiing Yiing Tuan Hj Abang Kashim Bin Abang Morshidi

COMPANY SECRETARYAugustine Law Sek Hian (MIA No. 10087)

REGISTERED OFFICELot 1004 Jalan Kwong Lee Bank93450 Kuching, Sarawak, Malaysia Tel: 6-082-332755Fax: 6-082-484653Email: [email protected]: www.hsl.com.my

AUDITORSKPMG PLT

REGISTRARTricor Investor & Issuing House Services Sdn Bhd (11324-H)Unit 32-01, Level 32, Tower A,Vertical Business Suite, Avenue 3, Bangsar SouthNo. 8 Jalan Kerinchi,59200 Kuala Lumpur

LISTINGBursa Malaysia (Main Market, Construction Counter)Stock Code: 6238Stock Name: HSL

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Aswellasaccomplishingsoundfinancialperformanceseachquarter, 2016 was a year of unprecedented procurement success and record order book levels setting us up for several busy years to come.

Financial PerformanceFor the financial year ended 31 December 2016, HSLGrouprevenuereachedRM498.55millionwithnetprofitbeforetaxatRM75.17million.

Resultsfortheyearended31December2015sawrevenueat RM654.74 million while net profit before tax was atRM101.24 million.

These are commendable outcomes given the early stages of our new mega-projects and the outgoings needed to get them off the ground. As physical work advances and as we move into the drier middle months of the year, we anticipate substantial progress payments on the new contracts.

At around 15 percent, our pre-tax margins have held ata level similar to last year and remain above the industry average. This is in spite of increased costs for labour, plant and equipment and the impact of the declining ringgit. Consequently,HSLcanclaimtohavemanagedarangeofexigencies successfully.

AdditionaltestimonytoourefficiencyinprojectexecutionandoursoundfinancialmanagementwasrecognitionatTheEdgeBillionRinggitClubAwardsfor2016.HSLwonfortheHighestReturnOnEquityOverThreeYears (ConstructionSector).ThistranslatestoHSLbeingadesirableinvestmentstock. We also won the same award in 2014. Indeed over the

years HSL has been a regular winner of many shareholder value and other awards.

Furthermore, in celebrating the 20-year anniversary of our 1996 listingonBursaMalaysia,HSLGroupcanboastanunbrokensequenceofreportingprofitabilityeveryquarter.

Attractive returnsWe are always committed to sharing our earnings achievements with our loyal shareholders. As such, the Board has recommended a final single-tier tax exemptdividend of 7 percent per ordinary share pending approval attheAnnualGeneralMeeting(AGM)on25May2017.

Added to the interimsingle-tier taxexemptdividendof5percentpaidinOctober2016,thecashdividendfor2016willtotal12percent.Thefinaldividendshallbepayableon23June2017withtheentitlementdatesetfor9June2017,pendingapprovalattheAGM.

With our dividend payout ratios averaging around 20 percent, HSL is a reliable and appealing investment choice. The stock is predominantly institutionally owned with Permodalan Nasional Berhad, in its various forms, a substantial long term shareholder.

Corporate Governance a priorityHSLGroup adheres to thehighest standardsof corporategovernance, firmly believing that business sustainabilityis built on ethical business practices. Our prosperity isonly meaningful when shared with our investors and our community.TheMalaysianCodeofCorporateGovernanceunderpins all that we do, with transparency in decision

Dato’ Haji Idris Bin BuangChairman

On behalf of the Board of Directors of HOCK SENG LEE BERHAD (HSL), I am honoured to present our Annual Report and the Audited Financial Statements for the year ended 31 December 2016.

FROM THE CHAIRMAN


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A N N U A L R E P O R T 2 0 1 6

FROM THE CHAIRMAN

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making and accountability apparent at every level. The Board of Directors is dedicated to ensuring governance frameworksareeffectiveanddriveGroupperformance.

We are fortunate that HSL’s Board has the varied expertise and extensive experience that leads to fruitful deliberations and sound decision-making. Moreover, by separating the roleoftheChairman(IamanIndependentNon-executiveDirector)andtheManagingDirector,thereisabalanceofpoweronHSL’sBoard.OurteamofninemembersincludesfourExecutiveDirectorsandfiveNon-executiveDirectors,three of whom are Independent Directors.

Toenhanceefficiency,theHSLGroupBoardhasseveralsub-committeesreportingtoit.ThesearetheAuditCommittee,Management Committee, Remuneration Committee andNominationCommittee.

Managing the financial performance of the Group is acentral priority of the Board and it reviews the approved Annual Business Plan each quarter. It makes sure appropriate internal controls and risk management systems are in place to safeguard assets and mitigate the challenges inherent in the industry.

HSL’sCharter,CodeofEthicsandSustainabilitystatementsremain fundamental to all our operations and key to our impeccable reputation. Our statement on CorporateGovernance on pages 18 to 22 includes details on howwe manage our operations, finances, risks, resources,accountability and communication to optimise outcomes for all our stakeholders.

AGM / Investor relationsHSL’sAnnualGeneralMeeting(AGM),whichin2016washeldon19May,isanopportunityforDirectorsandseniormanagement to engage with our valued shareholders and respond to their feedback.

This Annual Report is also a means of communicating with investors. In it we review the year’s activities and indicate the direction and prospects for the future.

HSL welcomes enquiries and visits from analysts and fund managers and places a high priority on investor relations. Major investment banks have tracked our stock since its listing and have been unwavering in their positive consensus. They recognise our niche market expertise across the spectrum of marine engineering and infrastructure activities,

The landmark 200-acre mixed development La Promenade involves high-end residential and commercial premises including HSL’snewhighriseofficeheadquarters.

HSL’snewSalesGalleryshowcasesitsinnovativepropertyproducts.

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ourcontinuousprofitabilityandthevibrantdevelopmentofSarawak as the context in which our business operates.

AppreciationLike any thriving corporate entity, HSL is the product of the talent and efforts of its people. Across all our operations, from the Board down, there is a strong work ethic and deep sense of loyalty that elicits exceptional productivity at HSL. I thank all the staff and my esteemed fellow Board members for their commitment over the year.

We also appreciate our professional consultants and associates, sub-contractors, specialist suppliers, bankers and advisors; all of whom are vital to our success. We similarly acknowledge the invaluable guidance and service of the various government departments, councils and agencies.

To our shareholders, who have been savvy enough to invest and enjoy our good results, I express our gratitude for your support and belief in us.

In our vast home state of Sarawak, we are fortunate to enjoy political and economic stability. We are thankful to our astute leadership for the progressive policies that enable business prosperity and create higher standards of living for the rakyat.

Looking aheadWith the value of our projects in hand higher than ever, we are rising to the challenge of ensuring timely and successful project execution and seeing a corresponding reflectionin our bottom line. While acknowledging that the scope and duration of the current mega projects mean greater lead times before we are able to enjoy substantial progress payments, nonetheless, earnings visibility is high for the next several years.

Overall, the local construction industry has reason tofeel bullish about its prospects in Sarawak. The state is experiencing dynamic growth underpinned by the booming SCORE area and the advent of the Pan-Borneo highwaymega-project. With an emphasis on enhancing the socio-economic outlook for rural communities as well as coping with the pressures of urbanisation in the cities, there will beacontinualflowofinfrastructureprojectsahead.HSLiswell placed to be a key participant.

Dato’ Haji Idris Bin BuangChairman

AmongmanyprojectsintheSCOREregionofcentralSarawak,HSLisundertakingbuildingandinfrastructureworksforthefutureSamalajuSubstationEstablishmentProject.

FROM THE CHAIRMAN

A N N U A L R E P O R T 2 0 1 6

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Hock Seng Lee Berhad is a marine engineering, civil engineering and construction company. It has two active wholly-owned subsidiaries, namely Hock Seng Lee Construction Sdn Bhd which is involved in propertydevelopment and HSL Land Sdn Bhd which is involved in investment in real properties.

In2016, theGroupregistered total revenueofRM498.55millionwithprofitbeforetaxofRM75.17million.Revenueandprofitbeforetaxfor2015wereRM654.74millionandRM101.24 million respectively. The fall in revenue is mostly attributable to the completion of projects and the fact that the two mega projects secured in 2016, that is, the Kuching CentralisedWastewaterManagementProject,Phase2andPackage 7 of the Pan Borneo Highway Project, are still in their early stages. Revenue from property development activities in 2016 reached RM63.07 million, up from RM32.16millionin2015.

Clearly the triumphof2016was seeingourprocurementinitiatives bear fruit in a decisive fashion. We set new bench marksintermsofthevalueofnewcontractssecured.Ourorder book peaked at RM2.7 billion mid-year.

WeacquiredRM1.94billionworthofnewprojectsin2016,havingaddedRM275million in2015. Includingpropertyprojects, the value of projects in hand stood at RM2.6 billion of which RM2.1 billion remained outstanding as at 31 December 2016.

The significant injection of new works required thechannelling of resources into site establishment, additional staff recruitment and machinery mobilisation. At the same time, we maintained progress on existing projects, completinganimpressiveRM590millionworthofcontractsduring 2016.

Included were several projects in the growth node towns of thevastSarawakCorridorofRenewableEnergy(SCORE).InTanjung Manis, we completed the Pumping Station and the infrastructureworks for the riverbank filtration system forthe water supply as well as access roadworks to the Halal Hub.InSamalaju,wefinishedtheweirandtherawwaterintake from Sungai Similajau as well as infrastructure works and government quarters for the Samalaju Industrial Park. Similarly, in Mukah, we completed a second package of the RM68millionTingkasrawwaterintakeaswellastheaccessroadtothenewUiTMcampus.

OutsideoftheSCOREregion,projectscompletedincludedvarious roadworks in Bintulu Division and Sri Aman, Sekolah Seni Malaysia and a Petanque complex in Kuching.

There were 14 new projects secured during 2016. Aside from the two mega projects - a section of the Pan-Borneo Highway and the second package of Kuching’s sewerage system - there were further contract wins in the SCOREarea. At Samalaju we now have the Boulevard project and a substation establishment contract worth a combined value of RM122 million.

Work has commenced on our package of the Pan-Borneo Highway which is the stretch from Bintangor Junction to Julau Junction and Sibu Airport to Sg Kua Bridge. This is a challenging package which involves upgrading the existing single carriage way to a superior dual carriage way and constructing various interchanges and bridges, notably the 1.7 km Durin Bridge over Batang Rajang. Together, the earth works, piling, drainage works, road works, interchanges, bridgesandrelatedM&Eworkswillcontinueinto2020.Wehave established an operations centre in Sibu and increased our technical team to handle the works. Further equipment mobilisation, site clearing, earth works, piling and drainage works are presently underway.

We expect to see this project build momentum during this year reaching milestones for progress claims.

Kuching’s Centralised Waste Water Management SystemPackage 2 was the other major project awarded in 2016. It remains in the preliminary planning stages with site and soil investigations taking place. Laser guided tunnel boring is a complex, highly technical endeavour and we look forward to applying our expertise to this important project and to others in the future. In fact, we have just secured through open tender the initial phase of similar sewerage works for Miri city.

Property DevelopmentWe had anticipated a strong 2016 for our property development sector and this was borne out during the year. Hock Seng Lee Construction Sdn Bhd (HSLC), a wholly-owned subsidiary, launched new projects worth some RM84 million. Revenue as at 31 December 2016 hadrisentoRM57.98millionup80percentfromtheRM32.16millionachievedasat31December2015.Thisresultwaspartly due to some sales revenue from new launches in late 2015beingrecognisedin2016.

The robust sales of premium homes at our 200-acre flagshipmixeddevelopmentLa Promenade, was the major contributortothegrowthfigures.LocatedofftheKuching-SamarahanExpressway,theinnovativeprojectembracesamodern living concept with an emphasis on security and

MANAGEMENT DISCUSSION AND ANALYSIS

Sekolah Seni Malaysia, Kuching has Mt. Santubong for a backdrop.

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landscaping. There are 2-tiers of manned guardhouses, electricalperimeter fencing,CCTVand inter-comsystemswhile the environs comprise an impressive pine-tree lined boulevard, abundant linear parks, walking paths and a lake.Thefirstresidentialoffering,calledPrecinct Premiere, includingPhases1and2,isapproximately80percentsoldwith a sales value approaching RM80million. Prices forthe luxury homes range fromRM1.35million toRM3.10million.

Also at La Promenade, we have launched Phase 1 of a second residential estate known as Precinct Luxe with a GrossDevelopmentValueofsomeRM30million.Furtherrelease of double-storey super-link homes within Precinct Luxe will be available for sale during the year. Along the prominent street frontage of La Promenade, we have openedapropertySalesGallery,whileHSL’snewcorporateheadquarters is under construction and due for completion in2018.

To Kuching’s north, the homes at Samariang Aman continue to sell well. Since the completion of our award-winning 642 units for Samariang Aman a few years back, we have builtanadditional250unitsforSamariang Aman 2. Further launches at this estate are scheduled for 2017 and include 84unitsofdouble-storeyterracedanddouble-storeysemi-detached homes for Phases 3 and 6. These have a combined GrossDevelopmentValueofsomeRM45million.

Otherresidentialprojectswhichwillhaveanimpactin2017include Highfields at Batu Kawa where a new phase of 22 unitsofdouble-storeysemi-detachedhomeswithaGrossDevelopment Value of RM17 million has been launched in thefirstquarterof2017.

There are also ongoing commercial and industrial property projects. This year at Vista Industrial Park (VIP) in Kuching, wewill launch Blocks 2 and 3 (55 industrial lots) worthRM68million.Block1isapproximately75percentsold.

Our property development sector is expanding and hasnew projects and phases in the pipeline. There is some dampening of the property market due to fiscal coolingmeasures such as stringent lending rules. However, our results suggest that innovative, well-designed, value-for-money products in strategic locations are still in demand.

Sustainability and CSRAt HSL, we have always believed that being a good corporate citizenmakes good business sense.Our responsibility tosociety is ingrained in all our business practices and is the foundation for our business sustainability model. In this Annual Report we provide a summary of our CorporateSocialResponsibility(CSR)programmeonpages12to14.

ISO / QMSHSL’s Quality Management System (QMS) has beenaccreditedsince2008.Inadditiontoannualexternalauditsby Lloyds Register, we have twice undergone the triennial Renewal of Certification.The QMS entails essential datacollection and internal auditing and is an effective tool for monitoringcoreofficeactivitiesandproceduresaswellasfor project management. The International Organisationfor Standardisation (ISO) released a revision of ISO9001in2015requiringbroadmodificationsandupdates to thecurrent version of 9001:2008 standard. I am pleased toreport that due to the dedication of our staff to the process, we are on track to achieve compliance with the new requirements by 2017.

People firstThe evolution of HSL from a one-ship dredging operation to the fully integrated construction company we are today is the result of our phenomenal human capital. We are very aware that our success over the past three decades is down to the commitment, hard work and capabilities of our employees.As at 31December 2016,HSLGroup had atotalof874permanentstaffofwhom226areoffice-based,with the balance at site or at sea. This represents an increase from the752 staffwe reportedasat31December2015.The additional recruitment is in line with the upsurge in our order book and includes several new engineers for the Pan-Borneo Highway Project, among others.

The strategic management of our human resources is a vital component of our business plan and we closely monitor labour costs, levy expenses and other issues impacting labour supply. In contrast to general construction contractors, the mechanised nature of our specialised operations makes us less reliant on unskilled labour. Some one-third of our workforce have post-secondary qualifications, while only17 percent are foreign.


HSLcontinuesitsstrongpresenceinthecoastalgrowthnodetownsofSCORE(lefttoright):Tg.ManisWaterSupplyandPumpingStationat Sg. Maaw Raw Water Intake Site; Administration buildings for Samalaju Port; Infrastructural Works at Samalaju Industrial Park.

A N N U A L R E P O R T 2 0 1 6

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HSL Annual Dinner is a major event on our social calendar and is an occasion for staff from sites all over the state and fromshipsanddredgersusuallyatsea, tojoinwithofficestaff to celebrate a productive year. The dinner for 2016 saw another large contingent of long service staff receive awards – a reflection of the mutual respect and care staff andmanagement have for one another. Staff members’ children who excelled in government examinations were also given incentive awards on this occasion.

Evenas theGrouphasgrownover theyears,HSL fostersa family-like sense of belonging in the organisation.Ourpeople are only limited by their own abilities and ambitions as we aim to structure satisfying careers and promotions on merit for all our staff. Whether it is sponsoring charity runsorgettingstaffinvolvedinourGreenWeekinitiativesor quarterly newsletter, we promote camaraderie and teamwork. I am very proud of the adaptability, perseverance and skills of our people and know they are paramount to our success.

Business RisksThe Group is exposed to external risks such as adverseeconomic and market conditions and internal risks related totheGroup’soperationsandfinancialmanagement.

It has tobe recognised that theGroup is limited inwhatactions can be taken to manage or mitigate external economicrisks.However,theGrouphasputinplaceariskmanagement framework to identify, manage and mitigate internal operational risks. Project procurement is selective and carefully considered to ensure that the Group hasthe requisite financial and human resource capabilitiesto undertake the projects successfully. Operationalprocedures are in place and are constantly reviewed to manageoperationalcoststhroughimprovedefficiencyandinnovation.

Financial risks and cash flow risks are mitigated bymaintaining substantial cash reserves and ensuring the availability of credit facilities from financial institutions.Withminimalborrowings,thefinancialandcashflowrisksoftheGroupareconsideredlow.

Strong order book buoys prospectsWhile the Malaysian economy is growing at a modest 5 percent at present, the roll out of infrastructure worksunderthe11thMalaysiaPlanandthegovernment’s5-year


Construction Industry Transformation Programme 2016-2020 (“CITP”) has enabled the construction sector toachieveagrowthrateofaround8percentduring2016.

Sarawak generally exceeds these national averages by as much as 2 percent with the construction sector recording some 10 percent growth in recent years and the state attracting a high level of Proposed Capital Investments(bothdomesticand foreign).Thedrawcardof low-pricedelectricity has lured several energy-intensive multi-nationals tosetupoperationsinSarawakwithflowoneffectstothestate’s economy.

Infrastructure spending remains a focus of both state and federal government agendas with the multi-billion Pan-Borneo Highway mega-project a catalyst of growth for the local construction industry. Within this scenario, and given the state’s vision to achieve developed status by 2030, there are ample reasons to anticipate more opportunities for HSL. Nevertheless, we are judicious with our optimism and alert to the uncertainties across global capital markets, adverse foreign currency exchange and subdued consumer sentiment.

We have proven our resilience in the face of industry and economic challenges and will be drawing on our pedigree to strategically manage factors such as the tight labour market, volatility in material and equipment costs and a general weakening of the economic outlook.

We do expect our performance ahead to be buoyed by our strong order book with mega-projects stretching 4-6 years hence. However, with minimal gearing and substantial cash reserves, we have capacity for more. We will carry on bidding for projects particularly those which draw on our competitive edge in marine engineering. There remains a flow of infrastructure contracts from the SCORE initiativeand from power generation needs. We also anticipate vying for affordable housing, water supply, flood mitigation,sewerage works, roads, bridges and building construction contracts.

HSL will continue to undertake projects with the good of the community in mind, with the welfare and development of our staff in mind, with care for the planet we are leaving future generations and with our trademark emphasis on technicalexcellence,profitabilityandshareholdervalue.

We’re building your future today.

Water-related engineering expertise is on show in the upgrading of the water treatment plant at Mukah.

Vista Industrial Park (VIP) Block 1 withaGrossDevelopmentValueofRM65millionofferssome56industriallotsinKuching.

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CORPORATE SOCIAL RESPONSIBILITY

Ethical MarketplaceIntegrating social responsibility across our operations has always been a part of HSL’s business sustainability model. As aleadingSarawak-basedmarineengineeringandinfrastructurefirmformorethan30years,HSLcontinuestoprioritisethe needs of the community we serve.

Weperceivethesocial,environmentalandotherconsequencesofouractivitiesasequallysignificanttothefinancialdrivers and uphold good corporate governance to ensure accountability to all our stakeholders.

HSL’s Board of Directors has the knowledge and experience vital to perform their duties in the best interest of investors. OurAnnualGeneralMeetingistheprimarypointofcontactforengagingshareholdersandtheBoardmembersalwaysenjoy the opportunity to mingle with the attendees over refreshments.

We have presented our merits to groups of analysts and fund managers during their visits to Kuching or our visits toPeninsulaMalaysia throughout2016.Wedisseminate information about theGroup’sdevelopments andfinancialperformanceonaregularbasis.Ourquarterlyfinancialandotherannouncementsaremade inaccordancewith theListing Requirements of Bursa Malaysia, and are made available to the public via our corporate website.

In2016,HSLwasproudtoemergeasaconstructionsectorwinnerofTheEdgeBillionRinggitClubCorporateAwardfortheHighestReturnOnEquity(ROE)OverThreeYears.HSLhadwonthesameawardin2014.Thisreflectsourenduringefficiencyinprojectexecution,soundfinancialmanagementandourdedicationtocreatingvalueforourshareholders.

HSL is committed to transparency, accountability and prudent risk management. We strive for continuous improvement in the effectiveness of our overall quality, management and delivery system so as to remain at the forefront of the industry.

In all our dealings with clients, customers and suppliers, HSL ensures the highest standards of integrity and a cooperative andmutuallybeneficialbusinessrelationship.

EnvironmentEnvironmentalprotectionandpreservation isemphasizedacrossallouroperationsaswebelieveanyprogressmusthavebothshortandlongtermbenefits.Wearealsoconsciousoftheresponsibleuseofresources.Wehavestrictcontrolon business travel and aim to minimize electricity consumption, our carbon footprint and green house gas emissions wherever andwhenever possible.Our officehas had considerable success in reducingpaper consumption throughelectronictechnologiessuchasemail,internaldatabases,restrictedprintingand“double-sided”photocopying.

OurGreenWeekinitiatives,whicharenowheldtwiceyearly,showHSL’songoingefforttoraiseawarenessofrecyclingas well as inculcating in our staff a caring attitude towards the less fortunate in society. We donate collected items to a local charity that raises funds by selling the recyclable items as well as distributing the reusable items to the needy.

Ournaturalenvironmentisstrainedbyrapidpopulationgrowth,urbanizationandindustrialization.HSLplaysitspartin environmental preservation efforts and goes beyond its obligations to undertake tree rescue, strictly controlled proper wastedisposal,dust control etc.Ourdiesel tanksarehoused inapprovedbunkers toensureaccidental spillagesoroverflowscanbecontained.Ourusedengineoilisalsoappropriatelycollectedfordisposal.

HSL’s Property Development Division is moving towards sustainable living and green designs in its developments. Residential estates are enhanced with tree planting, parklands and green verges while buildings are designed with good ventilation and natural light.

Promoting healthy green living is clearly evident at our 200-acre mixed landmark development La Promenade. The high- end guarded and gated residential estate has linear parks, walking and jogging trails as well as a tranquil lake to provides fitnessandleisureoptionstotheresidents.

A N N U A L R E P O R T 2 0 1 6

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Many of HSL’s projects in fact address environmental impact issues. The most noteworthy examples are the centralised sewerage systems in Kuching and Miri, which will alleviate the pollution of rivers and other waterways in both cities. Proper collection and treatment of grey and black water from these cities will safeguard water sources and restore their natural and recreational value for future generations.

HSLalsoundertakesfloodmitigationworks,embankments, revetments, seawallsandvariousbeautificationworks toprotect and enhance our living environment.

CommunityHSL contributes regularly in cash and in-kind to various local charitable organisations to help the underprivileged and less fortunate across all groups in the community. We also encourage staff participation in charitable endeavours.

OurtraditionalChineseNewYearprogrammeinvolvesgrantstovariouscharitiesandalsofundingforfestivegatheringsrun by the city councils.

In pursuit of a healthy work-life balance, HSL sponsors staff participation in a variety of local charity runs including the SpringLiveActiveRunandCMSTribalRun.Over50staff,ledbyseniormanagement,joinedthousandsofrunnerstopromote an active lifestyle and also to raise funds for the disadvantaged in society. We have also supported the yearly BursaBullChargeCharityRun.

HSLisaloyalsupporteroftheSarawakHeartFoundation.OurannualinvolvementinthelocalWorldHeartDayhascontinued with the overwhelming participation by management, staff and families, walking a mile with other members of the community to raise awareness of heart disease.

At HSL, our community efforts focus on social welfare, education, sports development, and etc. We have supported some community sports teams and events such as the Football Association of Sarawak’s development programme, golf tournaments, futsal carnival, swimming competitions and etc.


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HSL also offers selected undergraduate students internships which provide an opportunity to gain working experience through on-the-job training to enhance their academic, personal and career development.

WorkplaceAt HSL, our people are our greatest and most valued asset. We are renowned for the loyalty of our employees. Many of our staff from various divisions and with different job responsibilities have built their careers with HSL. HSL management hostsanannualdinnerforsome800officeandsitestafftoshowitsappreciationfortheireffortthroughouttheyear.Wepresent10,20,25,30and35yearslongserviceawardsaswellasincentivesforthechildrenofstaffwhoexcelingovernment examinations.

Departmental gatherings during festive seasons are also held to foster fellowship and camaraderie among employees.

Asmentionedincommunityengagement,weencouragestaffparticipationinpublicfitnesseventsandwealsosponsorregular badminton sessions for staff to promote the importance of physical activity.

HSL management practices two-way communication with staff and consistently adheres to the personnel policies and proceduressetoutinourcompanyhandbook.WecomplywiththeMalaysiaEmploymentActrespectingstaff’srightsaswell as abiding with wages policies.

TheyearunderreviewsawHSL’sQualityManagementSystem(QMS)guidingtheadministrationofprojectsandensuringallourcoreprocesseswerecarriedoutinanaccurate,efficientandconsistentmanner.OurISO/QMSteamiscurrentlyworkingtowardsupdatingthecurrentversionofISO9001:2008standardtothenewrevision2015.ThetransitiontothenewISOstandardisscheduledby2017.

OtherdevelopmentsincludefurtherrecruitmentandtrainingforSafetyOfficerstostrengthenouron-siteenforcementofsafe work practices and use of personal protective equipment.

Staff are selected to attend training courses locally or beyond to enhance their personal development as well as to continue the process of improvement in the organization. HSL relies considerably on mentoring, on-the-job training and in-house training courses and seminars for skills and knowledge development.

HSL offers rewarding career paths for employees and is well-known for the dedication of its people with a highly stable senior management.

A N N U A L R E P O R T 2 0 1 6

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HAPPENINGS

TheBoardmembersgetdowntobusinessandposeforthealbumattheAnnualGeneralMeeting.

HSLgrabsanothertrophyforthecabinetwitharepeatwinforHighestReturnOnEquityOverThreeYears(constructionsector)atTheEdgeBillionRinggitClubAwards.

HSL staff love getting out into the community including at a career fair organised by Jabatan Tenaga Kerja Sarawak and to promote property products including the latest phases of La PromenadeandtheopeningoftheSalesGallerythere.

StaffenjoytheirappreciationbanquetandluckydrawsatHSL’sAnnualDinner.MDDatoPaulYureceivestheLetterofAwardforour biggest ever project – a package of the Pan-Borneo Highway in the presence of the Prime Minister.

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Board of Directors1. Dato’ Haji Idris Bin Buang male,aged62,Malaysian,appointed23March1996

Dato’HajiIdrisistheGroupChairmanandanindependent,Non-executive Director. A practising advocate and solicitor, he holds a LLB (Hons), University of Buckingham,UnitedKingdom(1982)andwasadmittedasBarristeroftheLincoln’sInnandasAdvocateandSolicitortotheHighCourtofSabahand Sarawak in 1983 and is the proprietor of Idris-BuangandAssociates, a legalfirm inKuching.Dato’Haji Idris iscurrentlyamemberoftheSarawakStateLegislativeCouncil.Dato’ Haji Idris brings to the Board extensive experience on Board procedures, corporate governance regulations and legal perspectives. He is also a director of several private limited companies.

Dato’ Haji Idris attended all four of the Board meetings held during 2016.

2. Dato Yu Chee Hoe male,aged62,Malaysian,appointed17December1978

DatoYuhasbeentheManagingDirectorsince1980andisthedrivingforceofHSL.HeleadstheCompanyinstrategicplanningandbusinessdevelopment;hasarespectedprofilein the industry and keen business acumen. He possesses an in-depthknowledgeoftheconstructionandengineeringfieldswith extensive experience in civil and infrastructure works. He is also a director of several private limited companies.

DatoYuattendedallfouroftheBoardmeetingsheldduring2016.

3. Lau Kiing Kang male,aged52,Malaysian,appointed27April1998

Mr Lau is an Executive Director. He holds a Bachelor ofEngineering(Civil),UniversityofNewSouthWales,Australia(1987) and is the Director of projects with responsibilityfor technical excellence. Mr Lau co-ordinates professional project staff, project management and execution. He has particular experience in road and infrastructure projects. Mr LauhasbeentheChairmanoftheSarawakQuarryAssociationsince its inauguration in 2002. He is also a director of several private limited companies.

Mr Lau attended three of the four Board meetings held during 2016.

4. Yii Chee Sing male,aged48,Malaysian,appointed2January1993

Mr Yii is an Executive Director. He holds a Bachelor of

Building,University ofNew SouthWales,Australia (1993)and is a member of the Australian Institute of Quantity Surveyors(1994).MrYiiisinvolvedinprojectprocurement,project viability studies and property development projects ofHSLGroupaswellastheelectronicofficeenvironment.He is also a director of several private limited companies.

MrYii attendedallof the fourBoardmeetingsheldduring2016.

5. Tony Yu Yuong Wee male, age 36, Malaysian, appointed 23 May 2012

MrTonyYuisanExecutiveDirector.Heisinvolvedinprojectexecution and plans, co-ordinates and monitors all site operations including land based machinery, marine fleet-operation, labour deployment and quality control. Mr Yuholds a Bachelor degree in Business Administration majoring inmarketingfromEdithCowanUniversity,WesternAustralia.He has over 13 years’ experience in the construction industry covering heavy machinery operation to heavy machinery mechanics and marine engineering. He is also a director of several private limited companies.

MrYuattendedall fourof theBoardmeetingsheldduring2016.

6. Lau Kiing Yiing male,aged61,Malaysian,appointed23March1996

Mr Lau is a Non-executive Director. He holds a Bachelor of Commerce,UniversityofCanterbury,NewZealand(1980),hasbeenaCharteredAccountantoftheInstituteofCharteredAccountants ofNewZealand since 1985 and a CharteredAccountant with the Malaysian Institute of Accountants since 1987.He is a fellowmemberof theMalaysian InstituteofTaxation andwas a partner in the accounting firm CroweHorwath. Mr Lau is well-versed in corporate reporting, auditing, taxation and statutory matters. Mr Lau is an IndependentNon-executiveDirectorofTASOffshoreBerhad,a company listed on the Main Market of Bursa Malaysia. He is also a director of several private limited companies.

Mr Lau attended three of the four of the Board meetings held during 2016.

7. Dato’ Mohd. Nadzir Bin Mahmud male,aged75,Malaysian,appointed20November2000

Dato’ Mohd. Nadzir Bin Mahmud is a Non-executive Director. A Barrister-at-Law from Inner Temple, London; hewascalledtotheEnglishBarin1973andadmittedandenrolled as an Advocate and Solicitor to the High Court

PROFILE OF DIRECTORS AND SENIOR MANAGEMENT

17 /////

A N N U A L R E P O R T 2 0 1 6

Malayain1974.Dato’Nadzircompletedhispost-graduatestudies in Business Administration at Harvard UniversityGraduate School of Business Administration USA (1981).He had previously served in various senior management positionsasExecutiveDirectorinbothlocalandinternationalcompanies. As well as offering legal perspectives, Dato’ Nadzir is a highly experienced corporate director, familiar with corporate governance regulations, audit and risk management assessment and company secretarial matters.

Dato’ Mohd. Nadzir Bin Mahmud attended all four of the Board meetings held during 2016.

8. Dr Chou Chii Ming male,aged78,Malaysian,appointed29November2001

Dr Chou is an independent, Non-executive Director. Heholds a Doctor of Letters and a post Doctoral Degree from theIslesInternationaeUniversiteEuropa,CertifiedDoctorofBusinessAdministration(CDBA)oftheOxfordAssociationofManagementUnitedKingdom,isanassociatememberoftheAssociation of International Accountants, London. He began hispublicservicecareer in thefieldofeducation in1958,thenwithKuchingPortAuthorityfrom1966,risingtothepostofGeneralManager(1994-1999).Heisanactivecommunityleader holding numerous prestigious posts. He also brings to the Board his extensive background in management, administration, accounting and company image issues.

The Board has nominated him as the Senior Independent Non-executive Director to whom concerns may be conveyed. Dr ChouattendedallfouroftheBoardmeetingsduring2016.

9. Tuan Hj Abang Kashim Bin Abang Morshidi male,aged68,Malaysian,appointed3January2008

Tuan Hj Abang Kashim Bin Abang Morshidi is an independent, Non-executive Director. He is a professional forester graduatedfromtheUniversityofAberdeenwithaBachelorofScienceinForestryin1972,andaMasterofPhilosophyinNaturalResourcesManagementfromEdinburghUniversityin1979.HehasservedtheGovernmentofSarawakfor32yearsin different capacities namely Deputy Director – Department of Forestry, General Manager – Sarawak Timber IndustryDevelopment Corporation, Permanent Secretary –MinistryofTourismandtheChiefExecutiveOfficer–SarawakTourismBoard. He has attended the Senior Fellows Management Courseat JohnF.KennedySchoolofGovernment,HarvardUniversityin1995.HeisalsoamemberofMalaysianInstituteof Management and Institute of Rimbawan Malaysia. Tuan Hj Abang Kashim brings to the Board extensive understanding of public sector administration and management, as well as policies and procedures.

Tuan Hj Abang Kashim Bin Abang Morshidi attended all four of the Board meetings held during 2016.

Senior Management Mr Lea Ban Phin, a Malaysian male aged 63, is the Projects

Director and oversees the major construction projects of the Group.HejoinedHockSengLeeBerhadon16.7.2009andwas appointed to his current position on 1.7.2016. Mr Lea holdsaBachelorofEngineering(Civil)fromtheUniversityofMalaya,1979.

MdmSonjaGanMeiLin,anAustralianfemaleaged48,istheCorporateAffairsDirector and is responsible for corporatecommunications and investor relations. Mdm Gan joinedHockSengLeeBerhadon1.5.1995andwasappointed toher current position on 1.7.2011. She holds a Bachelor of Arts(Hons),1989andMasterofArts(Hons),1994fromtheUniversityofSydney,Australia.

Mr Ling Lai Kiong, a Malaysian male aged 58, is theGeneralManager – Projects and has overall responsibilityfor construction works and business development. Mr Ling joinedHockSengLeeBerhadon1.12.1999andwaspromoted to his current position on 1.7.2002. He holds a BachelorofScience (CivilEngineering) fromtheUniversityofAston,UnitedKingdom,1983.

MrNicholasTangTiengSoo,aMalaysianmaleaged58,istheGeneralManager–Technicalandhasoverallresponsibilityfor achieving technical excellence for the Group’sconstruction projects. Mr Tang joined Hock Seng Lee Berhad on29.6.1998andwaspromotedtohiscurrentpositionon1.8.2013.HeholdsaBachelorofEngineering(Civil)fromtheUniversityofWollongong,Australia,1982andaMasterofEngineeringScience(Civil)fromtheUniversityofNewSouthWales,Australiain1984.

MrAugustineLawSekHian,aMalaysianmaleaged50, istheGeneralManager – Finance &Admin and has overallresponsibility for finance, accounts, human resources andthe administration of the Group. He joined Hock SengLee Berhad on 1.1.1996 andwas promoted to his currentposition on 1.4.2000. Mr Law qualified as a CertifiedPublicAccountant(MICPA)in1994andisamemberoftheMalaysianInstituteofAccountants(MIA).MrLawisalsotheCompanySecretary.

Family relationship DatoYuCheeHoeandYiiCheeSingarebrothersandTony

YuYuongWeeistheirnephew.LauKiingYiingandLauKiingKang, who are brothers, are the brother-in-laws to theYuBrothers.YiiCheeSingismarriedtoSonjaGanMeiLin.DatoYuCheeHoeandYiiCheeSingaresubstantialshareholdersof HSL by virtue of their substantial interest in Hock Seng Lee EnterpriseSdnBhd.

Otherthantheabove,noneoftheotherdirectorshaveanyfamily relationship with any of the directors and/or substantial shareholdersoftheCompany.

ExceptforSonjaGanasdisclosedabove,thereisnofamilyrelationship between the Senior Management and any directorand/ormajorshareholderoftheCompany.

Conflict of interest DatoYuCheeHoe,LauKiingKang,YiiCheeSingandLau

KiingYiing,eachhaveinterestsincertainprivatecompanieswhich are involved in property development and construction, butthesearenotindirectconflictwiththebusinessofHSL.Dato’ IdrisBuang,Dato’MohdNadzirMahmud,DrChouChiiMing,TuanHjAbangKashimBinAbangMorshidiandTonyYuYuongWeehavenoconflictofinterestwithHSL.

Except for recurrent relatedparty transactionsofa revenuenature which are necessary for the day to day operations of theHSLGroupandforwhichDatoYuCheeHoe,LauKiingKang,YiiCheeSingandLauKiingYiingaredeemedtohaveinterests as disclosed on page 76 of the Annual Report, there arenootherbusinessarrangementswiththeGroupinwhichthe directors have interests.

NoneoftheSeniorManagementhasanyfinancialinterestinanybusinessarrangementinvolvingtheGrouporholdsanydirectorships in public listed companies.

Offences None of the directors or members of the senior management

has been convicted of any offences (other than a trafficoffenceifany)withinthepast5yearsandnopublicsanction/penalty has been imposed on them by any relevant regulatory bodiesduringthefinancialyear.

PROFILE OF DIRECTORS AND SENIOR MANAGEMENT


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TheBoardofDirectors(“theBoard”)ofHockSengLeeBerhad(“HSL”)isfirmlycommittedtogoodcorporategovernanceandrecognises that accountability and transparency at every level of the organisation is essential in safeguarding assets, enhancing shareholdervalueandmaintainingstrongfinancialperformance.

TheBoardispleasedtoprovidethisstatementwhichoutlinesthemannerinwhichHSLGrouphasappliedtheprinciplesoftheMalaysianCodeonCorporateGovernance2012(“theCode”).

BOARD OF DIRECTORS

Principal Responsibilities:TheBoardhas formalisedaBoardCharter (availableonHSLwebsite)whichsetsout theBoard’sstrategic intent. Itoutlines theBoard’s rolesand responsibilities,compositionandoperation.TheBoardCharter servesasasource of reference and primary induction literature, providing insights to prospective and present Board members as well as seniormanagement.TheBoardCharterisreviewedperiodicallyandatleastonceannuallywiththelastreviewundertakenon27February2017.TheBoardassumesfullresponsibilityforthesuccessoftheGroupbytakingstewardshipresponsibilitiesto lead theGroup, focusingona strategicplan,overallmanagement andbusinessperformance,managementofprincipalrisks and controls, the succession plan and human resources management, investor relations and corporate communications, accountability and audit.

• Strategic Plan:TheBoardestablishes the vision for theGroupand setsoverall strategies andobjectives.TheBoard isdedicatedtoabusinessmodelthatbalancesgrowthandprofitabilitywithapositive,ongoing,meaningfulcontributiontoourcommunity.TheGrouphasformulateditsstrategyentrenchingsustainabilityconsiderationswithinallfourkeyareaswhereitsimpactonsocietyisfelt;theMarketplace,theWorkplace,theCommunityandtheEnvironment.TheStatementonCorporateSustainabilityisavailableforreferenceontheCompanywebsite.

The Board reviews and approves the annual business plan which covers the scope of business activities; government initiatives and policies; industry overview and potential opportunities; risk management; the business model and revenue generators;humanresourcesplan;capitalexpenditure;financeplan;criticalsuccessfactors;profitestimatesandtargetsforthe year. The Board evaluates business performance and target achievements quarterly.

• Overall Management: To facilitate effective management, certain functions have been delegated to various Board

Committees in accordance with their respective terms of reference, namely the Management Committee, the AuditCommittee,theRemunerationCommitteeandtheNominationCommittee.TheminutesoftheBoardCommitteemeetingsarepresentedtotheBoardforinformationandthechairmanoftherelevantBoardCommitteeswillreportonthekeyissuesdeliberateduponanddecidedateachBoardmeeting.ThekeymattersreservedspecificallyforthedecisionoftheBoardinclude the approval of the business plan and annual estimates and targets, substantial transactions that are not of a revenue natureintheordinarycourseofbusiness,expenditureandcontractsaboveacertainlimit,majorinvestmentandfinancialdecisions including key policies and procedures and the chart of authority limit for transactions, all banking facilities and chequesignatories,quarterlyreports,announcementstobemadetoBursaMalaysiaandtheannualfinancialstatements.The chart of authority limit is reviewed when required.

TheManagingDirector,DatoYuCheeHoeisthechairmanoftheManagementCommitteewhichcomprisesallExecutiveDirectors.TheManagementCommittee isprimarily responsible fordeveloping theGroup’s strategyandbusinessplanincluding annual estimates for the approval of the Board; overseeing the implementation of the approved strategy and business plan; developing a risk management framework and undertaking an ongoing process for identifying, evaluating and managingthesignificantfinancialrisksfacedbytheGroup;andmanagingtheoperationalactivitiesandroutinebusinessmattersandenteringintotransactionsuptoanapprovedlimit.Eachquarter,theManagementCommitteeapprovesthequarterlyreportsandfinancialstatementsbeforepresentingthemtotheAuditCommitteeandtheBoard,togetherwiththefinancialperformanceevaluation,forreviewandapproval.

• Risk Management and Internal Control System: The Managing Director, with the support of the risk managers who are various department heads, review the risks and exposures and the internal controls that are in place to mitigate such risks, at least annually. In the current economic climate, conscientious monitoring of market indicators, the industry climate and financialmanagementissuesisvital.FurtherdetailsonriskmanagementaresetoutintheStatementofRiskManagementandInternalControlonpage25ofthisAnnualReport.

• Succession Planning and Human Resources Management:TheNominationCommitteeshallcomprisenofewerthanthreeNon-executiveDirectors.It isledbyDrChouChiiMing,theSeniorIndependentDirectoridentifiedbytheBoard.TheNominationCommitteereviewsthecompositionoftheBoardandtheBoard’sCommitteesannually.ThetermsofreferenceoftheNominationCommitteeinclude,amongothers,recommendinganynewdirectornomineetotheBoardandBoardCommittees,takingintoconsiderationthetimecommitmentofthepotentialcandidateanddiversityingender,ethnicityandageandassessingtheperformanceoftheExecutiveDirectorsonanon-goingbasis,bothindividuallyandasaBoardbasedontheKeyPerformanceIndicators(“KPI”)setbytheBoard.Thisisdoneannuallyandexaminesthemixofskills,core competencies, character, experience, integrity and time commitment of the director concerned. The Nomination CommitteealsoreviewstherequiredskillsandcorecompetenciesofNon-executiveDirectorsaswellastheindependenceof the Independent Directors annually. Any new nominations received will be reviewed and put to the Board, which makes all decisions on such appointments.

STATEMENT ON CORPORATE GOVERNANCE

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A N N U A L R E P O R T 2 0 1 6

TheRemunerationCommittee comprises threedirectors ofwhom twoareNon-executiveDirectors. It is ledbyDato’IdrisBinBuang.TheRemunerationCommitteereviewstheremunerationoftheDirectorsannuallyandadvisestheBoardaccordingly.ThedeterminationoftheremunerationpackagesofExecutiveDirectorsisapprovedbythefullBoardbasedonan approved remuneration and bonus matrix premised on the KPI set by the Board. The parameters of the KPI include the achievementoffinancialtargetsandrevenueandprofitgrowth.IndividualDirectorsarerequiredtoabstainfromdeliberatingand voting on their own remuneration. The fees and remuneration for Non-executive Directors are recommended by the BoardandapprovedbytheshareholdersoftheCompanyatitsAGM.

TheManagingDirectortogetherwiththeExecutiveDirectorsensuresmanagementofthehigheststandardinappointing,training, assessing andproviding for succession.TheGroupmaintains a strongorganisation structurewith a dynamicseniormanagementteam.TheGroupvaluesitsemployeesandstrivestofosteracaringatmospherethatnurturescareerdevelopment and balances high expectations for productivity with respect and understanding for each individual.

• Shareholder/Investor Relations and Corporate Communication: The Board is committed to provide timely, complete, and accuratedisclosureofmaterialinformationpertainingtotheGroup’sperformanceandoperationsandtoensuringequalaccesstosuchmaterialinformation,avoidingindividualorselectivedisclosure.TheBoardhasformalisedtheCorporateDisclosurePolicytooutlinetheGroup’sapproachtowardtheformulation,determinationanddisseminationofmaterialinformationandtheinternalproceduralguidelinestofacilitateconsistentdisclosurepracticesacrosstheGroup.

The Board places great importance in ensuring the highest standards of transparency and accountability in the disclosure of information to shareholders, potential investors and the public. The Board endeavours to provide shareholders and thepublicwithabalancedassessmentoftheGroup’sperformance,positionandprospectsonaquarterlybasisviathequarterly reports and press releases and to provide timely and adequate disclosure of information on matters of material impact to the public. The Board values the opportunity to provide an annual report to shareholders and to meet them annually.

TheseniormanagementoftheCompanyfrequentlymeetswithinvestors,analystsandinstitutionalshareholderstodiscusstheGroup’sstrategies,performance,generalmarketconditionsrelevanttothebusinessoftheGroupandnewdevelopmentsaswellasexplainingtheGroup’sbusinessandfinancialobjectives.TheGroupalsoparticipatedinroadshows,analystbriefingsandinvestorconferencesduringtheyear.

TheBoardrecognisesthattheAnnualGeneralMeeting(AGM)providesanimportantopportunitytomeetshareholdersanditwelcomesshareholderstoaskquestionsandshareadialogueontheperformanceoftheGroup.Whereasubstantiveresolutionisputforth,apollisencouraged.In2016,allDirectorsattendedtheAGM.

TheGroupmaintainsacorporateweb-sitewhereshareholdersandthegeneralpubliccanaccessthelatestinformationoftheGroupincludingannualreports,quarterlyreportsandothercorporateannouncementsmadetoBursaMalaysia.

TheCompanyhasimplementede-dividendstopromotegreaterefficiencyofthedividendpaymentsystem.Allshareholderswhohavenotregisteredfore-dividendarestronglyencouragedtodosothroughthestockbrokers’officeswheretheCDSaccounts of the shareholders are maintained.

Board Balance:TheBoardcurrentlyhasninemembers,fourExecutiveDirectorsandfiveNon-executiveDirectorsofwhomthreeie.one-third,areIndependentDirectors.TheprofileofeachDirectorispresentedonpages16to17.

TheChairman,Dato’IdrisBinBuangwhoisanIndependentNon-executiveDirectorleadstheBoardandisresponsibleforitsefficientfunctioning.TheManagingDirector,DatoYuCheeHoe,holdstheexecutiveresponsibilitiesfortheGroup’sbusinessandmanagestheGroupinaccordancewiththestrategiesandpoliciesapprovedbytheBoard.TheseparationoftheroleoftheChairmanandtheManagingDirectorensuresabalanceofpowerandauthority.

DatoYuCheeHoe,whohas extensive experience in theconstruction industry and renownedbusiness acumen, leads theExecutive Directors in taking on the primary responsibility to manage the Group’s business and resources, making andimplementing operational business decisions. The Executive Directors are experienced and hands-on and have intimateknowledgeofthebusinessoftheGroup.

TheNon-executiveDirectorshavetakenonvariousrolesintheBoardCommitteesandcontributesignificantly,especiallyintheenhancementofthecorporategovernanceandcontrolsoftheGroup.Theyareindividualsofhighcalibre,soundreputationandstandingandbringindependentjudgmenttotheBoard’sdecisionmaking.Aswellasbeingwellqualifiedintheirrespectivefields, theybringextensivecorporateandprofessionalworkexperience to theBoard.Togetherwith thehands-on, in-depthindustry knowledge and vast experience of the executive directors, there is a valuable collaboration of expertise and experience, iebusiness,technical,legalandfinancial.ThisrangeofinputsandviewsenablestheBoardtodeliberateonissuesfromvariedperspectivesandsohelpstoensurecarefullyconsidered,prudentdecision-makingatthehelmoftheGroup. TherearethreeIndependentDirectorsandthentherearerepresentativesofthesubstantialshareholder,HockSengLeeEnterpriseSdnBhd,whileDato’Mohd.NadzirMahmudrepresentsanothersubstantialshareholder.TheNominationCommitteereviews



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theperformanceofthedirectorsannuallyandisoftheviewthatthepresentboardiseffectiveandbalancedwithsufficientmembersandtherightmixofskillsandexperienceappropriateforinformedandefficientdecisionmaking.

InlinewiththeMalaysianCodeonCorporateGovernance2012,thetenureofanIndependentDirectorshouldnotexceed9years.Shareholders’approvalwillbesoughtattheAGMtoretainanyIndependentDirectorwhohasservedaconsecutive9-year period with justification.The Nomination Committee has assessed the independence of all Independent DirectorsincludingDato’Haji IdrisBuang,DrChouChiiMingandTuanHajiAbangKashimBinAbangMorshidiwhohave servedasIndependentDirectorsoftheCompanyformorethannineyears.TheBoardconcurredwiththerecommendationoftheNominationCommitteethatDato’HajiIdrisBuang,DrChouChiiMingandTuanHajiAbangKashimBinAbangMorshidicancontinue to bring independent and objective judgments to board deliberations and recommended them to continue to act as IndependentDirectorsoftheCompany.TheBoardshallseekshareholdersapprovaltothateffectatthecomingAGMandthedetailedjustificationtoretainthemasIndependentDirectorsisincludedintheNotestotheNoticeofAGM.

Meetings:To facilitate time planning for the directors, ameeting calendar for all scheduled Board and Board Committeemeetings is circulated to all directors at the beginning of each year. The attendance details of the directors at Board and Board Committeemeetingsareasfollows:

Board ofDirectors

ManagementCommittee

AuditCommittee

RemunerationCommittee

NominationCommittee

No. of meetings held 4 14 4 1 1

Attendance at Board and Board Committee Meetings

Executive DirectorsDatoYuCheeHoeLau Kiing KangYiiCheeSingTonyYuYuongWee

Non-executive DirectorsDato’ Mohd. Nadzir Bin MahmudLauKiingYiing

Independent DirectorsDato’ Idris Bin BuangDrChouChiiMingTuan Hj Abg Kashim Bin Abg Morshidi

4/43/44/44/4

4/43/4

4/4*4/44/4

14/14*14/1414/1414/14

n/an/a

n/an/an/a

n/an/an/an/a

n/a3/4

4/4*4/44/4

1/1n/an/an/a

1/1n/a

1/1*n/an/a

n/an/an/an/a

n/a1/1

n/a1/1*1/1

* chairman of the respective Board and Board committees

Supply of Information:TheDirectorshaveaccesstoallinformationwithintheGroup,whetherinthecapacityasafullBoard,BoardCommitteeorintheirindividualcapacity,toenablethemtodischargetheirduties.Alldirectorsareprovidedwithnoticeswith agenda and appropriate information 7 days prior to each meeting. This includes appropriate Board papers that identify and fairlyaddresstheaffairsoftheGroupandthekeyissuesoftherespectivemeeting.Minutesondeliberationsandconclusionsonissues brought up are taken for all meetings of the Board and its committees and they are circulated to all directors.

TheBoardanditsBoardCommitteeshaveaccesstotheseniormanagementandtotheCompanySecretarywhoattendsallBoardandBoardCommitteemeetings.TheCompanySecretaryisanadvisortotheBoardtoensurethatallBoardprocedures,applicablerulesandregulationsarecompliedwith.TheCompanySecretaryalsoensuresthatdiscussionsanddeliberationsatBoardandBoardCommitteemeetingsareproperlyminutedanddecisionsfromtheBoardorBoardCommitteemeetingsarecommunicatedtothemanagementforaction.TheCompanySecretarykeepshimselfuptodateonregulatoryandstatutorychanges through attending conferences and seminars so that he is able to advise the Board effectively. When necessary, the Board obtains independent professional advice to discharge its duties effectively.

Training and Development: All Directors have completed the mandatory accreditation programme and they are encouraged to keep abreast of trends through general economic, regulatory, industry and technical development seminars.


21 /////

A N N U A L R E P O R T 2 0 1 6

TheNominationCommitteeconductsanannualreviewofthetrainingneedsofdirectors.Duringtheyear,theDirectorshaveattended various training programmes to enhance their knowledge and expertise and they are briefed by the management on their respectiveareaswithupdatesprovidedonnew regulations, changes in lawsandaccounting standards.Conferences,seminars and training programmes attended by the Directors are as follows:

Directors Conferences/Seminars/Training Programme attended

Dato’ Haji Idris Bin Buang - ProposedCompaniesAct,2016–Changesanditsimpactonyou- ProposedCompaniesAct,2016–Anoutlineandcomparison- CapitalMarketDirectorProgrammeforFundManagement

DatoYuCheeHoe - Recent amendments to the Listing Requirements by Bursa Malaysia &CorporateSustainability&IssuanceofSustainabilitystatements

- CorporateGovernanceReportingworkshop

Lau Kiing Kang - CorporateGovernanceSeminar

YiiCheeSing - SeminaronGoodsandServicesTax

TonyYuYuongWee - Latest updates on Bursa Listing Requirements- ThenewMalaysianCodeonCorporateGovernance2016

LauKiingYiing - NominationCommitteeProgrammePart2:EffectiveBoardEvaluation

DrChouChiiMing - NominationCommitteeProgrammePart2:EffectiveBoardEvaluation

Dato’ Mohd. Nadzir Bin Mahmud - Dato’ Mohd Nadzir Bin Muhmud did not attend any formal seminar during the year but kept himself updated through research and reading.

Tuan Hj Abang Kashim Bin Abang Morshidi - CorporateGovernanceSeminar Re-election of Directors:Adirector(includingtheManagingDirector)appointedbytheBoardmustsubmithimselforherselfforre-electionatthenextAGMfollowinghisorherappointmentandatleasteverythreeyearsthereafterinaccordancewiththeCompany’sArticlesofAssociation.Atleastone-thirdoftheDirectorsarerequiredtoretirebyrotationeachyear.

AttheforthcomingAGM,threedirectors,namelyDato’HajiIdrisBuang,MrLauKiingYiingandMrTonyYuYuongWeewillretire by rotation and are seeking re-election.

DIRECTORS’ REMUNERATION

The Level and Make up of Remuneration:Theremunerationpackageofeach individualExecutiveDirector isstructured toreflecthisorherexperience,performanceandscopeofresponsibilities.ThebonusesforExecutiveDirectorsarelinkedtotheirperformances,achievementsongroupfinancialtargetsandthenetearningsgrowthoftheGroup.TheExecutiveDirectorsarenot paid any directors’ fees.

AtthelastAGM,theshareholdersapprovedthepaymentofDirectors’feesofuptoRM214,400.00fortheyear2016andthefees are distributed to Non-executive Directors.

Disclosure:ThedetailsofremunerationoftheDirectorsfortheGroupandfortheCompanyforthefinancialyearended31December 2016 are as follows:-

Fees RM’000

Salaries RM’000

Bonuses RM’000

OthersRM’000

TotalRemuneration

RM’000

ExecutiveDirectorsNon-executive Directors

-214

2,300-

383-

614-

3,297214

Total 214 2,300 383 614 3,511



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

ExecutiveDirectors Non-executive Directors

BelowRM50,000 - 4

RM50,001toRM100,000 - 1

RM500,001toRM550,000 1 -

RM600,001toRM650,000 1 -

RM650,001toRM700,000 1 -

RM1,450,001toRM1,500,000 1 -

The Board has considered the disclosure of the details of the remuneration of each Director and is of the view that the transparency and accountability aspects of corporate governance in relation to Directors’ remuneration are appropriately served by the above disclosureofanalysisbyapplicablebandsofRM50,000,adisclosurerequiredundertheMainMarketListingRequirementsofBursa Malaysia Securities Berhad.

ACCOUNTABILITY AND AUDIT

Financial Reporting:Inpresentingtheannualauditedfinancialstatementsandthequarterlyreportstoshareholders,theBoardaimstopresentabalancedandunderstandableassessmentoftheGroup’sfinancialpositionandprospectsandensuresthatthefinancialresultsarereleasedtoBursaMalaysiaSecuritiesBerhadwithintherequiredtimeframe.

Statement on Directors’ Responsibility for Preparing the Annual Audited Financial Statements: The Directors are responsible forensuringthatthefinancialstatementsgiveatrueandfairviewofthestateofaffairsoftheCompanyandoftheGroupasattheendoftheaccountingperiodandoftheresultsoftheiroperationsandoftheircashflowsforthefinancialyearendingonthat date.

The Directors are responsible for taking reasonable steps to ensure the maintenance of proper accounting and other records andinternalcontrols,theapplicationofappropriateaccountingpoliciesandthesafeguardingoftheassetsoftheGroup.TheDirectorsareoftheopinionthatinpreparingthefinancialstatementsfortheyearended31December2016,theCompanyhasadopted appropriate accounting policies in accordance with the applicable Financial Reporting Standards in Malaysia and the provisionoftheCompaniesAct,2016andthattheseareappliedconsistentlyandaresupportedbyreasonableandprudentjudgments and estimates.

Audit Committee:TheAuditCommitteeassiststheBoardintheeffectivedischargeofitsresponsibilitiesrelatingtofinancialreporting,corporategovernanceandcorporatecontrol.ThecompositionoftheAuditCommitteemeetstheMainMarketListingRequirementswherebyallmembersoftheAuditCommitteeareNon-executiveDirectors,themajorityofwhomareIndependentDirectorsandonememberisaqualifiedaccountant.ThereportoftheAuditCommitteeissetoutonpages23to24.

External Auditors: The Audit Committee recommends to the Board the appointment of the external auditors and theirremuneration. The Board has maintained a transparent, objective and professional relationship with the external auditors.

The Audit Committee reviews with the external auditors, their audit plan and the results of the audit including anyrecommendationsarising.Thereportoftheexternalauditorstomembersissetoutonpages69to72.

Codes and PoliciesTheCodeofEthicsandConductwhichsetsouttheprinciplesandcorporateethicsoftheGroupwhichisperiodicallyreviewedand updated is published on HSL’s corporate website.

This statement is made in accordance with a resolution of the Board of Directors on 27 February 2017.


23 /////

A N N U A L R E P O R T 2 0 1 6

TheAuditCommitteecarriedoutitsdutiesandresponsibilitiesinaccordancewithitstermsofreferenceduringtheyearwiththemainobjectiveofassistingtheBoardofDirectorsintheeffectivedischargeofitsresponsibilitiesrelatingtofinancialreporting,corporate governance and corporate control.

COMPOSITION TheAuditCommitteeshallcomprisenofewerthanthreeNon-executiveDirectors,themajorityofwhommustbeIndependentDirectorswithatleastonememberwhoisamemberoftheMalaysianInstituteofAccountantsoramemberwhofulfilstherequirements of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad. All four members of the Audit Committee areNon-executiveDirectors, ofwhom three are IndependentNon-executiveDirectors. Mr LauKiingYiing isamemberof theMalaysian Institute ofAccountants.The chairmanof theAuditCommittee,Dato’Haji IdrisBinBuang isan IndependentDirector electedby themembersof theAuditCommittee. Themembersof theAuditCommitteeand thechairmanoftheAuditCommitteearere-appointedannuallybytheBoardofDirectorsandthemembersoftheAuditCommitteerespectively.ThepresentmembersoftheAuditCommitteeare:-

Chairman Dato’ Haji Idris Bin Buang Independent, Non-executive Director

Member MrLauKiingYiing(MIA3709) Non-executive Director

Member DrChouChiiMing Independent, Non-executive Director

Member Tuan Hj Abang Kashim Bin Abang Morshidi Independent, Non-executive Director

AUTHORITYTheAuditCommitteeshall,wherevernecessaryandreasonable for theperformanceof itsdutiesandinaccordancewithaprocedure to be determined by the Board of Directors:-i have authority to investigate any matter within its terms of reference;ii have the resources which are required to perform its duties;iii havefullandunrestrictedaccesstoanyinformationpertainingtotheCompanyandtheGroup;iv have direct communication channels with both the internal and external auditors;v be able to obtain independent professional or other advice; andvi be able to convene meetings with the external auditors, internal auditors or both, excluding the attendance of other

directorsandemployeesoftheCompany,wheneverdeemednecessary.

MEETINGS AND REPORTINGTheAuditCommitteemetfourtimesduringtheyear2016.Theattendancedetailsofthemembersatthesemeetingsareasfollows:-

No. of meetings attended

Chairman Dato’ Haji Idris Bin Buang 4/4

Member MrLauKiingYiing(MIA3709) 3/4

Member DrChouChiiMing 4/4

Member Tuan Hj Abang Kashim Bin Abang Morshidi 4/4 Otherdirectorsand relevantmembersof seniormanagementwere invited toattend theAuditCommitteemeetings,whereappropriate,todiscussthefinancialperformance,theauditfindingsandotherfinancialreportingissues.TheAuditCommitteealso met with the external auditors twice in 2016 without the presence of any executive board members and management to discussthestateofaffairsofthesystemofinternalcontrolsandcontrolenvironmentoftheGroupandtomakeenquiriesinrelationtomanagement’scooperationintheauditprocessandfinancialreporting.

The quorum for each meeting is two members and the majority of the members present must be Independent Directors and the CompanySecretaryactasthesecretaryoftheAuditCommittee.MinutesofallAuditCommitteemeetingswerecirculatedtoallmembersoftheBoardofDirectorsandthechairmanoftheAuditCommitteereportsonkeyissuesdeliberatedanddecidedat each meeting to the Board of Directors.

SUMMARY OF THE WORK OF THE COMMITTEE i. ReviewedthequarterlyresultsandtheannualauditedfinancialstatementspriortotheapprovalbytheBoardofDirectors, focusing particularly on:-• any changes in, or implementation of, major accounting policies and practices;• significantadjustmentsarisingfromtheaudit;• significantandunusualevents;• the going concern assumption; and• compliance with accounting standards and other legal requirements.

AUDIT COMMITTEE REPORT


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ii ReviewedthefinancialperformanceoftheGroupandthequarterlyresultsagainstfinancialestimatesapprovedbytheBoard;

iii Reviewed, with the internal auditor, the adequacy and effectiveness of risk management and internal control systems of theGroupandtheRiskManagementReportpreparedbytheRiskManagementCommittee;

iv Reviewed, with the internal auditor, the scope, functions, competency and resources of the internal audit function and ensured it has the necessary authority to carry out its work;

v Reviewed, with the internal auditor, the effectiveness and quality of the control environment, the management information andtheinternalcontrolsystemsoftheCompanyandtheGroup;

vi Reviewed the scope of the internal audit plan, processes and performance and the report of the internal audit, processes or investigations carried out and also reviewed the adequacy and effectiveness of appropriate actions taken by management based on the recommendations of the internal audit;

vii Appraised the performance of the internal audit team members;

viii Met with the external auditor to review their audit plan including the nature and scope of the audit, their evaluation of thesystemofinternalcontrolsincludingtheirauditfindings/externalauditor’smanagementlettersandactionstakenbymanagement to rectify any matter noted and the audit reports;

ix Reviewed, with the internal and external auditors, to ascertain whether adequate assistance and cooperation had been givenbytheemployeesoftheCompanyandtheGrouptotheinternalandexternalauditorstoenablethemtocompletetheirworkeconomically,efficientlyandeffectively;

x ReviewedandrecommendedtheappointmentandremunerationofKPMGPLTastheexternalauditortotheBoardofDirectors for the ensuing year;

xi Reviewed, on a quarterly basis, the recurrent related party transactions of a revenue or trading nature which are necessary forthedaytodayoperationsoftheGroupandensuredthatalltransactionsarecoveredundertheshareholders’mandateand are on normal commercial terms that are not more favourable to the related parties than those generally available to the public;

xii ReviewedtheCirculartoShareholdersinrelationtotheShareholdersMandateforrecurringrelatedpartytransactionsbefore recommending it for Board of Directors’ approval; and

xiii Reviewedthesharebuy-backactivitiesoftheCompanyandreportedonthesametotheBoardofDirectors.

SUMMARY OF WORKS OF INTERNAL AUDIT FUNCTIONTheAudit Committee obtains adequate assurance that the system of internal controls and riskmanagement practices areappropriatetotheGroup’soperations,throughthereviewandauditconductedbytheInternalAudit.Theinternalauditfunctionof theGroup is performed in house and reports functionally to theAudit Committee.This is to safeguard objectivity andindependencewhileadministrativelytheinternalauditorsreporttotheGeneralManager-Finance.Thetotalcostincurredinrelation to the Internal Audit function for the year 2016 was about RM210,000.00.

TheInternalAuditadoptsariskbasedapproachwhenestablishingitsauditplanandstrategy.ItprovidestheAuditCommitteewith independent and objective reports on the state of internal controls and risk management, the extent of compliance with policies and procedures and its recommendation thereon. During the year, the internal audit continued with the ongoing review onthesystemsofinternalcontrolandriskmanagementtoconstantlystrengthenthestateoftheinternalcontroloftheGroup.The major assignments carried out during the year included the audit on purchasing management, property development activities,humanresourcesmanagement,constructioncontractmanagement,recurrentrelatedpartytransactions,theGroup’sriskmanagementandthereviewofthequarterlyreportspreparedbymanagementbeforesubmissiontotheAuditCommittee.In undertaking each audit assignment, the internal auditors reviewed the risk management procedures with emphasis on major riskareas,performedrelevantcomplianceandsubstantiveauditproceduresandreportedthefindings,recommendationsandtheresponsefromthemanagementtotheAuditCommittee.Theinternalauditorshave,wherenecessary,followedupontheimplementationandsatisfactorydispositionsofallauditfindingsandrecommendationsonallpreviousaudits.

TRAININGDuringtheyear,thechairmanandmembersoftheAuditCommitteehaveattendedthefollowingconferencesandseminars:-

Members Conferences/Seminarsattended

Dato’ Haji Idris Bin Buang - ProposedCompaniesAct,2016–Changesanditsimpactonyou- ProposedCompaniesAct,2016–Anoutlineandcomparison- CapitalMarketDirectorProgrammeforFundManagement

LauKiingYiing - NominationCommitteeProgrammePart2:EffectiveBoardEvaluation

DrChouChiiMing - NominationCommitteeProgrammePart2:EffectiveBoardEvaluation

Tuan Hj Abang Kashim Bin Abang Morshidi - CorporateGovernanceSeminar

AUDIT COMMITTEE REPORT

25/////

A N N U A L R E P O R T 2 0 1 6

STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL

RESPONSIBILITYThe Board of Directors of Hock Seng Lee Berhad recognises the importance of sound internal controls and risk management practices togoodcorporategovernance. TheBoardaffirmsitsoverall responsibility tomaintainasoundsystemof internalcontrols and risk management including the review for adequacy and integrity of these systems so as to safeguard shareholders’ investment. In considering the system, the Board noted that such system of internal controls is designed to manage rather than eliminate the risk of failure to achieve business objectives. Accordingly, the internal control systems can only provide reasonable but not absolute assurance against material misstatement or loss.

RISK MANAGEMENT The RiskManagement Framework of theGroup, which is embedded in the Company’smanagement systems, provides astructuredapproachinidentifying,evaluatingandmanagingthekeyrisksfacedbytheGroup.Duringtheyear,theGrouphasreviewed the adequacy and effectiveness of the risk management and internal control system and updated the risk assessment ontheGroup’soperations.ThisinvolvedreviewingandupdatingthekeyriskexposuresoftheGroupandre-assessingtherisksidentified,thestrengthofinternalcontrolsand/oractionplansthatmitigateandmanagetheprimaryrisksandtheresidualrisks.This interactive process enables continual improvement in decision making, minimises losses and maximises opportunities. The risk assessment is subjected to periodic review and updates.

KEY PROCESSES OF INTERNAL CONTROLS ThekeyprocessesofinternalcontrolsoftheGroupcanbesummarisedasfollows:-

Strategic Business Planning and Budgeting Process:TheBoardapproves theGroup’sAnnualBusinessPlanwhich includesanassessmentoftheoverallbusinessenvironmentaffectingtheGroup’soperations,majorrisksandopportunitiesaswellasfinancialestimatesfortheyear,againstwhichtheGroup’sperformanceismonitoredonanongoingbasis.

Financial Reporting:TheAuditCommitteereviewsandapprovestheQuarterlyreportsandannualfinancialstatementsbeforerecommending to the Board for approval. Performance evaluation, including the comparison of actual results against estimates, ispresentedtotheBoard.TheBoardapprovesthequarterlyreportsandtheannualfinancialstatementsbeforeannouncementto Bursa Malaysia Securities Berhad.

Authorisation Procedures:TheGroup has established an organisational structurewith defined lines of accountability anddelegatedauthority.AlltransactionsareapprovedinaccordancewithdelegatedauthoritiesintheChartofFinancialAuthorityLimit approved by the Board.

Operational Risks: The risks inherent in the construction activities are mainly related to: market conditions; escalating/volatile material costs; tendering; execution of construction work and completion of projects within the contract period. The objective oftheGroupistoidentify,evaluate,controlandminimisetherisks.TheExecutiveDirectorsandseniorprofessionalstaffapplytheirexperienceandknowledgetoallaspectsofcontracttendering,proposals,contractingandprojectexecution.Constructionschedules, costs of projects and quality of works are controlled through monthly progress reports to the senior management. Selective and careful project procurement ensures that the relevant know-how including any specialised plant and machinery andsuitablytrainedpersonnelareavailablewithintheGroupfortheprocurementandtheeventualperformanceoftheprojects.TheExecutiveDirectorsvisitthesitesofon-goingprojectsregularly.Wherenecessary,professionalconsultantsmaybeengagedtoadviseonspecialisedfields.Forpropertydevelopment,projectfeasibilitystudiesarecarriedoutbeforetheGroupembarkson any project.

Internal Review and Audit:TheGroupmonitorscompliancewithitsinternalcontrolsthroughinternalreview,whichincludesinternal checking and approval procedures and management review. The system of internal controls is continually reviewed and updatedtoreflectchangingrisksorchangesintheoperatingenvironment.ApartfrominternalreviewontheGroup’spoliciesand procedures, the internal auditor conducts periodic internal audits to monitor and ensure compliance with procedures and evaluatestheeffectivenessofthesystemofinternalcontrolswithintheGroup.TheresultsofsuchreviewsarereportedtotheAuditCommitteeonaquarterlybasis,whichprovidesreasonableindependentassuranceontheeffectivenessoftheGroup’ssystemofinternalcontrols.TheAuditCommitteeconsidersthereportsfromtheinternalauditandmanagementandpresentstheir conclusions to the Board. There were no major internal control weaknesses that required disclosure in the Annual Report.

BOARD’S CONCLUSIONThe Board of Directors is of the view that theGroup’s overall riskmanagement and internal control system is operatingadequatelyandeffectively, inallmaterial aspects toensure that the levelof risk towhich theGroup isexposedhasbeenmanagedappropriatelyandhasreceivedthesameassurancefromtheManagingDirectorandGeneralManagerFinanceoftheCompany.TheBoardconfirmsthatthereisanon-goingprocessinidentifying,evaluatingandmanagingthesignificantrisksfacedbytheGroupthroughout2016anduptothedateofapprovalofthisstatement.

This statement is made in accordance with a resolution of the Board of Directors dated 27 February 2017.


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Directors’ report for the financial year ended 31 December 2016

The Directors have pleasure in submitting their report and the audited financial statements of the Group and of the Company for the financial year ended 31 December 2016.

Principal activitiesThe Company is principally engaged in marine engineering and civil engineering as well as a construction contractor. There has been no significant change in the nature of these activities during the financial year.

Ultimate holding companyThe Company is a subsidiary of Hock Seng Lee Enterprise Sendirian Berhad, of which is incorporated in Malaysia and regarded by the Directors as the Company’s ultimate holding company, during the financial year and until the date of this report.

SubsidiariesThe details of the Company’s subsidiaries are disclosed in Note 5 to the financial statements.

Results Group Company RM RM

Profit for the year attributable to: Owners of the Company 56,422,130 42,214,355 Non-controlling interest 35,995 - 56,458,125 42,214,355 Reserves and provisionsThere were no material transfers to or from reserves and provisions during the financial year under review.

DividendsSince the end of the previous financial year, the amount of dividends paid by the Company were as follows:

i) In respect of the financial year ended 31 December 2015 as reported in the Directors’ Report of that year:

• a final tax exempt dividend of 7% per ordinary share of RM0.20 each totalling RM7,693,233 declared on 25 April 2016 and paid on 23 June 2016.

ii) In respect of the financial year ended 31 December 2016:

• an interim tax exempt dividend of 5% per ordinary share of RM0.20 each totalling RM5,495,172 declared on 18 August 2016 and paid on 10 October 2016.

The Directors are proposing a final tax exempt dividend of 7% per ordinary share of RM0.20 each totalling RM7,693,233 in respect of the financial year ended 31 December 2016, to be paid once approved by shareholders at the forthcoming annual general meeting.

Directors of the CompanyDirectors who served during the financial year until the date of this report are:

Dato’ Haji Idris Bin Haji BuangDato Yu Chee HoeLau Kiing KangYii Chee SingLau Kiing YiingDato’ Mohd Nadzir Bin MahmudDr. Chew Kheng Min @ Chou Chii MingTuan Haji Abang Kashim Bin Abang Morshidi Tony Yu Yuong Wee

Directors’ interests in sharesThe interests of the Directors (including the interests of the spouses or children of the Directors who themselves are not Directors of the Company), in the shares of the Company and of its related corporations as recorded in the Register of Directors’ Shareholdings are as below:

Number of ordinary shares At At 1.1.2016 Bought Sold 31.12.2016

Interest in the holding company, Hock Seng Lee Enterprise Sendirian Berhad

Direct interest Dato Yu Chee Hoe 5,548,234 - - 5,548,234 Yii Chee Sing 2,774,117 - - 2,774,117

FINANCIAL STATEMENTS

27 /////

A N N U A L R E P O R T 2 0 1 6

Directors’ interests in shares (continued)

Number of ordinary shares At At 1.1.2016 Bought Sold 31.12.2016

Interest in the Company

Dato Yu Chee Hoe: Direct interest ^ 1,367,697 - - 1,367,697 Deemed interest 321,267,207 - - 321,267,207

Yii Chee Sing: Direct interest * 694,942 - - 694,942 Deemed interest 321,267,207 - - 321,267,207

Lau Kiing Kang: Direct interest # 1,112,269 171,000 - 1,283,269 Deemed interest 399,513 - - 399,513

Lau Kiing Yiing: Direct interest 287,150 - - 287,150 Deemed interest 396,160 - - 396,160

Dr. Chew Kheng Min @ Chou Chii Ming: Direct interest 124,848 - - 124,848

^ 427,740 shares held through DB (Malaysia) Nominee (Tempatan) Sdn. Bhd.* 412,994 shares held through Kenanga Nominees (Tempatan) Sdn. Bhd.# 24,969 shares held through CIMSEC Nominees (Tempatan) Sdn. Bhd.

The other Directors holding office at 31 December 2016 had not dealt in the shares of the Company and of its related corporations during and at the end of the financial year.

Directors’ benefitsSince the end of the previous financial year, no Director of the Company has received nor become entitled to receive any benefit (other than a benefit included in the aggregate amount of remuneration received or due and receivable by Directors as shown in the financial statements or the fixed salary of a full time employee of the Company) by reason of a contract made by the Company or a related corporation with the 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, other than certain Directors who have significant financial interests in certain companies which traded with the Group in the ordinary course of business as disclosed in Note 26 to the financial statements.

There were no arrangements during and at the end of the financial year which had the object of enabling Directors of the Company to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate.

Issue of shares and debenturesThere were neither changes in the authorised, issued and paid-up capitals of the Company, nor issuances of debentures by the Company, during the financial year.

Options granted over unissued shares No options were granted to any person to take up unissued shares of the Company during the financial year.

Indemnity and insurance costsDuring the financial year, the total amount of indemnity given to and insurance effected for Directors and Officers of the Group and of the Company is RM10,500 (premium paid) and RM10,000,000 (sum insured) respectively.

Other statutory informationBefore the financial statements of the Group and of the Company were made out, the Directors took reasonable steps to ascertain that:

i) all known bad debts have been written off and adequate provision made for doubtful debts, and

ii) any current assets which were unlikely to be realised in the ordinary course of business have been written down to an amount which they might be expected so to realise.



///// 28

Other statutory information (continued)

At the date of this report, the Directors are not aware of any circumstances:

i) that would render the amount written off for bad debts, or the amount of the provision for doubtful debts, in the Group and in the Company inadequate to any substantial extent, or

ii) that would render the value attributed to the current assets in the financial statements of the Group and of the Company misleading, or

iii) which have arisen which render adherence to the existing method of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate, or

iv) not otherwise dealt with in this report or the financial statements, that would render any amount stated in the financial statements of the Group and of the Company misleading.

At the date of this report, there does not exist: i) any charge on the assets of the Group or of the Company that has arisen since the end of the financial year and which secures

the liabilities of any other person, or

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

No contingent liability or other liability of any company in the Group has become enforceable, or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the Directors, will or may substantially affect the ability of the Group and of the Company to meet their obligations as and when they fall due.

In the opinion of the Directors, the financial performance of the Group and of the Company for the financial year ended 31 December 2016 have not been substantially affected by any item, transaction or event of a material and unusual nature nor has any such item, transaction or event occurred in the interval between the end of that financial year and the date of this report.

AuditorsThe auditors, Messrs KPMG PLT (converted from conventional partnership, KPMG, on 27 December 2016), have indicated their willingness to accept re-appointment.

The auditors’ remuneration is disclosed in Note 17 to the financial statements.

Signed on behalf of the Board of Directors in accordance with a resolution of the Directors:

……………………………. …………………………….Dato Yu Chee Hoe Lau Kiing KangDirector Director

Kuching,

Date: 31 March 2017


29 /////

A N N U A L R E P O R T 2 0 1 6

The notes on pages 34 to 66 are an integral part of these financial statements.

Statements of financial position as at 31 December 2016

Group Company 2016 2015 2016 2015 Note RM RM RM RM Assets

Property, plant and equipment 3 153,425,153 127,433,935 123,062,350 107,775,037Investment properties 4 8,551,067 8,914,122 - -Investment in subsidiaries 5 - - 153,600,000 146,600,000Land held for property development 6 162,977,023 185,774,765 37,667,129 62,868,894 Total non-current assets 324,953,243 322,122,822 314,329,479 317,243,931

Property development costs 7 141,213,711 90,944,223 41,629,784 -Inventories 8 25,628,699 13,385,316 19,176,549 12,446,513Trade and other receivables 9 284,690,578 286,133,289 283,456,240 302,965,164Deposits and prepayments 10 3,239,956 7,086,194 2,183,115 6,010,158Current tax refundable 4,696,102 - 1,524,000 -Cash and cash equivalents 11 88,482,158 94,952,452 69,497,729 70,582,075 Total current assets 547,951,204 492,501,474 417,467,417 392,003,910

Total assets 872,904,447 814,624,296 731,796,896 709,247,841

EquityShare capital 12 116,535,200 116,535,200 116,535,200 116,535,200Reserves 12 584,577,529 541,343,804 477,817,407 448,791,457 Equity attributable to owners of the Company 701,112,729 657,879,004 594,352,607 565,326,657

Non-controlling interests 5 3,035,995 - - - Total equity 704,148,724 657,879,004 594,352,607 565,326,657 Non-current liability

Deferred tax liabilities 13 14,341,600 13,991,200 14,426,000 14,014,000

Loans and borrowings 14 6,802,089 - 6,566,000 -Trade and other payables 15 147,555,330 142,052,152 116,452,289 126,048,184Current tax payable 56,704 701,940 - 3,859,000 Total current liabilities 154,414,123 142,754,092 123,018,289 129,907,184

Total liabilities 168,755,723 156,745,292 137,444,289 143,921,184

Total equity and liabilities 872,904,447 814,624,296 731,796,896 709,247,841



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Statements of profit or loss and other comprehensive income for the financial year ended 31 December 2016

Group Company 2016 2015 2016 2015 Note RM RM RM RM

Revenue 16 498,546,059 654,736,059 440,563,740 622,573,397

Cost of sales 16 ( 409,577,129) ( 542,356,379) ( 371,871,221) ( 521,280,903) Gross profit 88,968,930 112,379,680 68,692,519 101,292,494

Other income 307,454 1,090,861 213,257 933,909Administrative expenses ( 17,360,808) ( 15,175,860) ( 15,315,449) ( 13,767,409) Results from operating activities 17 71,915,576 98,294,681 53,590,327 88,458,994

Finance income 18 3,684,663 3,319,058 3,045,458 3,069,743Finance costs 18 ( 425,671) ( 376,741) ( 369,303) ( 318,142)

Net finance income 3,258,992 2,942,317 2,676,155 2,751,601 Profit before tax 75,174,568 101,236,998 56,266,482 91,210,595

Income tax expense 19 ( 18,716,443) ( 25,039,003) ( 14,052,127) ( 22,417,435) Profit and total comprehensive income for the year 56,458,125 76,197,995 42,214,355 68,793,160

Profit and total comprehensive income attributable to:

Owners of the Company 56,422,130 76,197,995 42,214,355 68,793,160Non-controlling interest 35,995 - - - 56,458,125 76,197,995 42,214,355 68,793,160

Basic/Diluted earnings per ordinary share (sen) 20 10.27 13.87



31 /////

A N N U A L R E P O R T 2 0 1 6

Consolidated statements of changes in equity for the financial year ended 31 December 2016

____Non-distributable____ ____Distributable____ Capital Non- Share redemption Treasury Retained controlling Total capital reserve shares earnings Total interest EquityGroup Note RM RM RM RM RM RM RM

At 1 January 2015 116,535,200 2,165,500 ( 37,858,954) 515,126,703 595,968,449 - 595,968,449

Profit and total comprehensive income for the year - - - 76,197,995 76,197,995 - 76,197,995

Dividends to owners of the Company 21 - - - ( 14,287,440) ( 14,287,440) - ( 14,287,440) At 31 December 2015/1 January 2016 116,535,200 2,165,500 ( 37,858,954) 577,037,258 657,879,004 - 657,879,004

Issuance of shares by a subsidiary to non-controlling interest 5 - - - - - 3,000,000 3,000,000

Profit and total comprehensive income for the year - - - 56,422,130 56,422,130 35,995 56,458,125

Dividends to owners of the Company 21 - - - ( 13,188,405) ( 13,188,405) - ( 13,188,405) At 31 December 2016 116,535,200 2,165,500 ( 37,858,954) 620,270,983 701,112,729 3,035,995 704,148,724 (Note 12.1) (Note 12.2) (Note 12.3) (Note 5)

Company

At 1 January 2015 116,535,200 2,165,500 ( 37,858,954) 429,979,191 510,820,937

Profit and total comprehensive income for the year - - - 68,793,160 68,793,160

Dividends to owners of the Company 21 - - - ( 14,287,440) ( 14,287,440) At 31 December 2015/1 January 2016 116,535,200 2,165,500 ( 37,858,954) 484,484,911 565,326,657

Profit and total comprehensive income for the year - - - 42,214,355 42,214,355 Dividends to owners of the Company 21 - - - ( 13,188,405) ( 13,188,405) At 31 December 2016 116,535,200 2,165,500 ( 37,858,954) 513,510,861 594,352,607 (Note 12.1) (Note 12.2) (Note 12.3)




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Statements of cash flows for the financial year ended 31 December 2016


Cash flows from operating activities

Profit before tax 75,174,568 101,236,998 56,266,482 91,210,595Adjustments for: Depreciation of property, plant and equipment 3.3 10,737,212 10,243,247 10,652,230 10,144,889 Depreciation of investment properties 4 363,055 363,056 - - Gain on disposal of property, plant and equipment 17 ( 1,300) ( 553,345) ( 1,300) ( 553,345) Property, plant and equipment written off 17 374,607 136,091 374,607 135,278 Finance income 18 ( 3,684,663) ( 3,319,058) ( 3,045,458) ( 3,069,743) Finance costs 18 425,671 376,741 369,303 318,142 Operating profit before changes in working capital 83,389,150 108,483,730 64,615,864 98,185,816

Change in inventories ( 6,566,934) ( 81,773) ( 6,730,036) 13,711Change in property development costs ( 22,630,833) ( 23,507,337) ( 13,077,658) -Change in trade and other receivables, deposits and prepayments 6,673,526 ( 24,216,292) 23,058,256 ( 20,195,402)Change in trade and other payables 4,925,391 ( 50,707,339) ( 9,965,197) ( 53,965,603) Cash generated from operations 65,790,300 9,970,989 57,901,229 24,038,522

Interest received 2,517,505 2,392,298 1,923,168 2,152,684Taxes paid ( 23,707,380) ( 28,665,423) ( 19,023,127) ( 23,185,435) Net cash generated from/(used in) operating activities 44,600,425 ( 16,302,136) 40,801,270 3,005,771

Cash flows from investing activities

Increase in investment in subsidiary 5 - - - ( 20,000,000)Subscription of shares in a subsidiary - - ( 7,000,000) ( 100,000)Subscription of shares in a new subsidiary by non-controlling interest 3,000,000 - - -Acquisition of property, plant and equipment 3 ( 37,448,444) ( 14,430,996) ( 26,647,210) ( 8,639,484)Proceeds from disposal of property, plant and equipment 334,361 2,330,601 334,360 2,330,601Land held for property development 6 ( 10,570,320) ( 11,770,421) ( 3,350,361) ( 2,741,755)(Placement)/Withdrawal of fixed deposits with original maturities exceeding three months ( 2,961,260) 5,989,746 ( 11,260) 5,989,746 Net cash used in investing activities ( 47,645,663) ( 17,881,070) ( 36,674,471) ( 23,160,892)

Cash flows from financing activities Dividends paid to owners of the Company 21 ( 13,188,405) ( 14,287,440) ( 13,188,405) ( 14,287,440)Amount due from subsidiary - - 1,400,000 ( 31,900,000)Proceeds from loans and borrowings 6,566,000 - 6,566,000 - Net cash used in financing activities ( 6,622,405) ( 14,287,440) ( 5,222,405) ( 46,187,440)

Net decrease in cash and cash equivalents ( 9,667,643) ( 48,470,646) ( 1,095,606) ( 66,342,561)Cash and cash equivalents at beginning of year 94,605,994 143,076,640 70,235,617 136,578,178

Cash and cash equivalents at end of year (i) 84,938,351 94,605,994 69,140,011 70,235,617


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Statements of cash flows for the financial year ended 31 December 2016 (continued)

Note

(i) Cash and cash equivalents

Cash and cash equivalents included in the statements of cash flows comprise the following amounts in statements of financial position:

Group Company 2016 2015 2016 2015 RM RM RM RM

Total deposits placed with licensed banks 40,357,718 33,316,458 22,357,718 13,646,458 Cash and bank balances 48,124,440 61,635,994 47,140,011 56,935,617

Total (see Note 11) 88,482,158 94,952,452 69,497,729 70,582,075 Bank overdraft (Note 14) ( 236,089) - - - Fixed deposit with original maturities exceeding three months ( 3,307,718) ( 346,458) ( 357,718) ( 346,458)

84,938,351 94,605,994 69,140,011 70,235,617



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Notes to the financial statements

Hock Seng Lee Berhad is a public limited liability company, incorporated and domiciled in Malaysia and is listed on the Main Market of Bursa Malaysia Securities Berhad. The address of its principal place of business and registered office is Lot 1004, Jalan Kwong Lee Bank, 93450 Kuching, Sarawak.

The consolidated financial statements of the Company as at and for the financial year ended 31 December 2016 comprise the Company and its subsidiaries (together referred to as the “Group” and individually referred to as “Group entities”).

The Company is principally engaged in marine engineering and civil engineering as well as a construction contractor whilst the principal activities of the subsidiaries are as stated in Note 5 to the financial statements.

The holding company as well as the ultimate holding company during the financial year is Hock Seng Lee Enterprise Sendirian Berhad, a company incorporated in Malaysia.

These financial statements were authorised for issue by the Board of Directors on 31 March 2017.

1. Basis of preparation

(a) Statement of compliance The financial statements of the Group and the Company have been prepared in accordance with Financial Reporting

Standards (“FRSs”) and the requirements of the Companies Act, 1965 in Malaysia.

The following are accounting standards, amendments and interpretations that have been issued by the Malaysian Accounting Standards Board (“MASB”) but have not been adopted by the Group and the Company.

FRS/Amendment/Interpretation Effective date

Amendments to FRS 12, Disclosure of Interests in Other Entities (Annual Improvements to 1 January 2017 FRS Standards 2014-2016 Cycle) Amendments to FRS 107, Statement of Cash Flows – Disclosure Initiative 1 January 2017 Amendments to FRS 112, Income Taxes – Recognition of Deferred Tax Assets for Unrealised Losses 1 January 2017 FRS 9, Financial Instruments (2014) 1 January 2018 IC Interpretation 22, Foreign Currency Transactions and Advance Consideration 1 January 2018 Amendments to FRS 1, First-time Adoption of Financial Reporting Standards (Annual Improvements 1 January 2018 to FRS Standards 2014-2016 Cycle) Amendments to FRS 2, Share-based Payment – Classification and Measurement of Share-based 1 January 2018 Payment Transactions Amendments to FRS 4, Insurance Contracts – Applying FRS 9 Financial Instruments with FRS 4 1 January 2018 Insurance Contracts Amendments to FRS 128, Investments in Associates and Joint Ventures (Annual Improvements to 1 January 2018 FRS Standards 2014-2016 Cycle) Amendments to FRS 140, Investment Property – Transfers of Investment Property 1 January 2018 Amendments to FRS 10, Consolidated Financial Statements and FRS 128, Investments in Associates To be determined and Joint Ventures – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture The Group and the Company plan to apply:

• from the annual period beginning on 1 January 2017 for those amendments that are effective for annual periods beginning on or after 1 January 2017, Amendments to FRS 12, Amendments to FRS 107 and Amendments to FRS 112, which are assessed to be applicable to the Group and the Company.

The initial application of the above mentioned accounting standards, amendments and interpretations are not expected to have any material financial impacts to the current period and prior period financial statements of the Group and the Company.

Migration to new accounting framework

The Group and the Company falls within the scope of IC Interpretation 15, Agreements for the Construction of Real Estate. Therefore, the Group and the Company is currently exempted from adopting the Malaysian Financial Reporting Standards (“MFRS”) and is referred to as a “Transitioning Entity”.

The Group’s and the Company’s financial statements for annual period beginning on 1 January 2018 will be prepared in accordance with the Malaysian Financial Reporting Standards (“MFRSs”) issued by the MASB and International Financial Reporting Standards (“IFRSs”).


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1. Basis of preparation (continued)

(a) Statement of compliance (continued)

The Group and the Company will apply the following MFRSs that are not yet effective:

MFRS/Amendment/Interpretation Effective date

MFRS 9, Financial Instruments (2014) 1 January 2018 MFRS 15, Revenue from Contracts with Customers 1 January 2018 Clarifications to MFRS 15, Revenue from Contracts with Customers 1 January 2018 MFRS 16, Leases 1 January 2019

(i) MFRS 9, Financial Instruments MFRS 9 replaces the guidance in MFRS 139, Financial Instruments: Recognition and Measurement on the classification

and measurement of financial assets and financial liabilities, and on hedge accounting.

Upon adoption of MFRS 9, financial assets will be measured at either fair value or amortised cost. The adoption of MFRS 9 will result in a change in accounting policy.

(ii) MFRS 15, Revenue from Contracts with Customers MFRS 15 replaces the guidance in MFRS 111, Construction Contracts, MFRS 118, Revenue, IC Interpretation 13,

Customer Loyalty Programmes, IC Interpretation 15, Agreements for Construction of Real Estate, IC Interpretation 18, Transfers of Assets from Customers and IC Interpretation 131, Revenue-Barter Transactions Involving Advertising Services.

Upon adoption of MFRS 15, it is expected that the timing of revenue recognition might be different as compared with the current practices. The adoption of MFRS 15 will result in a change in accounting policy.

(iii) MFRS 16, Leases MFRS 16 replaces the guidance in MFRS 117, Leases, IC Interpretation 4, Determining Whether an Arrangement Contains

a Lease, IC Interpretation 115, Operating Leases - Incentives and IC Interpretation 127, Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

The Group is currently assessing the financial impact that may arise from the adoption of MFRS 9, MFRS15 and MFRS 16.

(b) Basis of measurement The financial statements have been prepared on the historical cost basis other than as disclosed in Note 2.

(c) Functional and presentation currency These financial statements are presented in Ringgit Malaysia (RM), which is the Company’s functional currency.

(d) Use of estimates and judgements The preparation of the financial statements in conformity with FRSs requires management to make judgements, estimates

and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

There are no significant areas of estimation uncertainty and critical judgements in applying accounting policies that have significant effect on the amounts recognised in the financial statements other than those disclosed in the ensuing page:

(i) Profitfromconstructioncontracts

The Group and the Company recognise contract revenue and contract costs in profit or loss using the stage of completion method. The stage of completion is determined by reference to the proportion that contract costs incurred for contract work performed to-date bear to the estimated total contract costs.

Significant judgement is required in determining the stage of completion of construction activities, accrual of costs incurred for which claims/billings have yet to be received, estimated total contract revenue and contract costs as well as the recoverability of the carrying amount of the contract work-in-progress. The total contract revenue also includes an estimation of the variations that are recoverable from the contract customers.

The Group and the Company rely when making the estimations and judgements on, inter alia, past experiences and the assessment of their experienced project managers and quantity surveyors.



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1. Basis of preparation (continued)

(d) Use of estimates and judgements (continued)

(ii) Profitfrompropertydevelopment

The Group recognises revenue and costs from property development in profit or loss based on the stage of completion of properties sold, measured by reference to the proportion that property development costs incurred for work performed to-date bear to the estimated total property development costs.

Significant judgement is required in determining the stage of completion of the development activities, extent of property development costs incurred, estimated total property development revenue and costs as well as the recoverability of the development projects. In making such estimations and judgements, the Group relies, as with the construction activities explained above on, inter alia, past experiences and the assessment of its experienced project managers and quantity surveyors.

2. Significant accounting policies

The accounting policies set out below have been applied consistently to the periods presented in these financial statements and have been applied consistently by the Group and the Company, unless otherwise disclosed.

(a) Basis of consolidation

(i) Subsidiaries Subsidiaries are entities, including structured entities, controlled by the Company. The financial statements of subsidiaries

are included in the consolidated financial statements from the date that control commences until the date that control ceases.

The Group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Potential voting rights are considered when assessing control only when such rights are substantive.

The Group also considers it has de facto power over an investee when, despite not having the majority of voting rights, it has the current ability to direct the activities of the investee that significantly affect the investee’s return.

Investment in subsidiaries are measured in the Company’s statement of financial position at cost less any impairment losses, unless the investment is classified as held for sale or distribution. The cost of investments includes transaction costs.

(ii) Business combinations Business combinations are accounted for using the acquisition method from the acquisition date, which is the date on

which control is transferred to the Group.

For new acquisitions, the Group measures the cost of goodwill at the acquisition date as:

• the fair value of the consideration transferred; plus • the recognised amount of any non-controlling interests in the acquiree; plus • if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less • the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.

For each business combination, the Group elects whether it measures the non-controlling interests in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets at the acquisition date.

Transaction cost, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred.

(iii) Acquisitions from entities under common controls Business combinations arising from transfer of interest in entities that are under the control of the shareholders that

controls the Group are accounted for as if the acquisition had occurred at the beginning of the earliest comparative period presented or, if later, at the date that common control was established; for this purpose comparative are restated. The assets and liabilities acquired are recognised at the carrying amounts recognised previously in the group controlling shareholder’s consolidated financial statements. The components of equity of the acquired entities are added to the same components within group equity and any resulting gain/loss is recognised directly in equity.


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2. Significant accounting policies (continued)

(a) Basis of consolidation (continued)

(iv) Loss of control Upon the loss of control of a subsidiary, the Group derecognises the assets and liabilities of the former subsidiary, any

non-controlling interests and the other components of equity related to the former subsidiary from the consolidated statement of financial position. Any surplus or deficit arising on the loss of control is recognised in profit or loss. If the Group retains any interest in the former subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently, it is accounted for as an equity accounted investee or as an available-for-sale financial asset depending on the level of influence retained.

(v) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions,

are eliminated in preparing the consolidated financial statements.

(b) Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of transactions.

Monetary assets and liabilities denominated in foreign currencies at the end of the reporting period are retranslated to the functional currency at the exchange rate at that date.

Non-monetary assets and liabilities denominated in foreign currencies are not retranslated at the end of the reporting date, except for those measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined.

Foreign currency differences arising on retranslation are recognised in profit or loss, except for differences arising on the retranslation of available-for-sale equity instruments or a financial instrument designated as a hedge of currency risk, which are recognised in other comprehensive income.

(c) Financial instruments

(i) Initial recognition and measurement A financial asset or a financial liability is recognised in the statement of financial position when, and only when, the

Group or the Company becomes a party to the contractual provisions of the instrument.

A financial instrument is recognised initially, at its fair value plus, in the case of a financial instrument not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial instrument.

An embedded derivative is recognised separately from the host contract and accounted for as a derivative if, and only if, it is not closely related to the economic characteristics and risks of the host contract and the host contract is not categorised at fair value through profit or loss. The host contract, in the event an embedded derivative is recognised separately, is accounted for in accordance with policy applicable to the nature of the host contract.

(ii) Financial instruments categories and subsequent measurement The Group and the Company categorise financial instruments as follows: Financial assets

(a) Financialassetsatfairvaluethroughprofitorloss Fair value through profit or loss category comprises financial assets that are held for trading, including derivatives

(except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument) or financial assets that are specifically designated into this category upon initial recognition.

Derivatives that are linked to and must be settled by delivery of unquoted equity instruments whose fair values cannot be reliably measured are measured at cost.

Other financial assets categorised as fair value through profit or loss are subsequently measured at their fair values with the gain or loss recognised in profit or loss.

(b) Held-to-maturity investments Held-to-maturity investments category comprises debt instruments that are quoted in an active market and the

Group or the Company has the positive intention and ability to hold them to maturity.

Financial assets categorised as held-to-maturity investments are subsequently measured at amortised cost using the effective interest method.



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(c) Financial instruments (continued)

(ii) Financial instruments categories and subsequent measurement (continued)

Financial assets (continued) (c) Loans and receivables Loans and receivables category comprises debt instruments that are not quoted in an active market.

Financial assets categorised as loans and receivables are subsequently measured at amortised cost using the effective interest method.

(d) Available-for-salefinancialassets Available-for-sale category comprises investment in equity and debt securities instruments that are not held for

trading.

Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost. Other financial assets categorised as available-for-sale are subsequently measured at their fair values with the gain or loss recognised in other comprehensive income, except for impairment losses, foreign exchange gains and losses arising from monetary items and gains and losses of hedged items attributable to hedge risks of fair value hedges which are recognised in profit or loss. On derecognition, the cumulative gain or loss recognised in other comprehensive income is reclassified from equity into profit or loss. Interest calculated for a debt instrument using the effective interest method is recognised in profit or loss.

All financial assets, except for those measured at fair value through profit or loss, are subject to review for impairment [see Note 2(l)(i)].

Financial liabilities

All financial liabilities, other than those categorised as fair value through profit or loss, are subsequently measured at amortised cost.

Fair value through profit or loss category comprises financial liabilities that are derivatives (except for a derivative

that is a financial guarantee contract or a designated and effective hedging instrument) or financial liabilities that are specifically designated into this category upon initial recognition.

Derivatives that are linked to and must be settled by delivery of equity instruments that do not have a quoted price in an active market for identical instruments whose fair values otherwise cannot be reliably measured are measured at cost.

Other financial liabilities categorised as fair value through profit or loss are subsequently measured at their fair values with the gain or loss recognised in profit or loss.

(iii) Financial guarantee contracts A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder

for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument.

Fair value arising from financial guarantee contracts are classified as deferred income and are amortised to profit or loss using a straight-line method over the contractual period or, when there is no specified contractual period, recognised in profit or loss upon discharge of the guarantee. When settlement of a financial guarantee contract becomes probable, an estimate of the obligation is made. If the carrying value of the financial guarantee contract is lower than the obligation, the carrying value is adjusted to the obligation amount and accounted for as a provision.

(iv) Regularwaypurchaseorsaleoffinancialassets A regular way purchase or sale is a purchase or sale of a financial asset under a contract whose terms require delivery

of the asset within the time frame established generally by regulation or convention in the marketplace concerned.

A regular way purchase or sale of financial assets is recognised and derecognised, as applicable, using trade date accounting. Trade date accounting refers to:

(a) the recognition of an asset to be received and the liability to pay for it on the trade date, and

(b) derecognition of an asset that is sold, recognition of any gain or loss on disposal and the recognition of a receivable from the buyer for payment on the trade date.


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(c) Financial instruments (continued) (v) Derecognition A financial asset or a part of it is derecognised when, and only when the contractual rights to the cash flows from the

financial asset expire or control of the asset is not retained or substantially all of the risks and rewards of the ownership of the financial asset are transferred to another party. On derecognition of a financial asset, the difference between the carrying amount and the sum of the consideration received (including any new asset obtained less any new liability assumed) and any cumulative gain or loss that had been recognised in equity is recognised in profit or loss.

A financial liability or a part of it is derecognised when, and only when, the obligation specified in the contract is discharged, cancelled or expired. On derecognition of a financial liability, the difference between the carrying amount of the financial liability extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss.

(d) Property, plant and equipment

(i) Recognition and measurement Items of property, plant and equipment are measured at cost less any accumulated depreciation and any accumulated

impairment losses.

Cost includes expenditures that are directly attributable to the acquisition of asset and any other costs directly attributable to bringing the asset to working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. The cost of self-constructed assets also includes the cost of materials and direct labour. For qualifying assets, borrowing costs are capitalised in accordance with the accounting policy on borrowing cost. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.

When significant parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

The gain or loss on disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and is recognised net within “other income” and “other expenses” respectively in profit or loss.

(ii) Subsequent costs The cost of replacing a component of an item of property, plant and equipment is recognised in the carrying amount of

the item if it is probable that the future economic benefits embodied within the component will flow to the Group or the Company, and its cost can be measured reliably. The carrying amount of the replaced component is derecognised to profit or loss. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.

(iii) Depreciation Depreciation is based on the cost of an asset less its residual value. Significant components of individual assets are

assessed, and if a component has a useful life that is different from the remainder of that asset, then that component is depreciated separately.

Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each component of an item of property, plant and equipment from the date that they are available for use. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term.

Assets under construction are not depreciated until the assets are ready for their intended use.

The principal depreciation rates, residual values and secondary depreciation rates for the current and comparative periods are as follows:

Useful Residual Residual lives value useful lives Leasehold land 41, 60, 61 and 99 years Not set Not applicable Buildings 50 years Not set Not applicable Furniture and fittings 5 and 13 years Not set Not applicable Motor vehicles 10 years Set 10 years Plant, machinery and equipment 5 and 10 years Set 10 years Vessels and wharf 10, 15 and 20 years Set 10 and 15 years



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(d) Property, plant and equipment (continued)

(iii) Depreciation (continued)

Residual values of the assets are determined based on Directors’ best estimates. The depreciable amount is determined after deducting the residual value. Depreciation methods, useful lives and residual values are reviewed, and adjusted as appropriate at the end of the reporting period.

(e) Leased assets

(i) Finance lease Leases in terms of which the Group and the Company assume substantially all the risks and rewards of ownership are

classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.

Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed.

Leasehold land which in substance is a finance lease is classified as property, plant and equipment, or as investment property if held to earn rental income or for capital appreciation or both.

(ii) Operating lease Leases, where the Group or the Company does not assume substantially all the risks and rewards of ownership are

classified as operating leases and, except for property interest held under operating lease, the leased assets are not recognised in the statement of financial position. Property interest held under an operating lease, which is held to earn rental income or for capital appreciation or both, is classified as investment property and measured using fair value model.

Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised in profit or loss as an integral part of the total lease expense, over the term of the lease. Contingent rentals are charged to profit or loss in the reporting period in which they are incurred.

Leasehold land which in substance is an operating lease is classified as prepaid lease payments.

(f) Investment properties Investment properties are properties which are owned to earn rental income or for capital appreciation or for both, but they

are not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes.

Investment properties are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is charged to profit or loss on a straight-line basis over the estimated useful lives, which is the remaining years of lease.

An investment property is derecognised on its disposal or when it is permanently withdrawn from use and no future economic benefits are expected from its disposal. The difference between the net disposal proceeds and the carrying amount is recognised in profit or loss in the period in which the item is derecognised.

Capital work-in-progress under construction is not depreciated until the assets are ready for their intended use.

(g) Land held for property development Land held for property development consists of land or such portions thereof on which no development activities have been

carried out or where development activities are not expected to be completed within the Group’s normal operating cycle of 2 to 3 years. Such land is classified as a non-current asset and is stated at cost less accumulated impairment losses, if any.

Land held for property development is reclassified as property development costs at the point when development activities have commenced and where it can be demonstrated that the development activities can be completed within the Group’s normal operating cycle of 2 to 3 years.

Cost associated with the acquisition of land includes the purchase price of the land, professional fees, stamp duties, commissions, conversion fees, other direct development expenditure and related overheads.


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(h) Property development costs Property development costs comprise costs associated with the acquisition of land and all costs that are directly attributable

to development activities or that can be allocated on a reasonable basis to such activities.

Property development costs not recognised as an expense are recognised as an asset and are stated at the lower of cost and net realisable value.

The excess of revenue recognised in profit or loss over billings to purchasers is shown as accrued billings under trade and other receivables (Note 9) and the excess of billings to purchasers over revenue recognised in profit or loss is shown as progress billings under trade and other payables (Note 15).

(i) Inventories Inventories are measured at 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. (i) Developed properties held for sale Cost of developed properties includes the relevant costs associated with the acquisition of land and development

expenditure which consists of direct costs and appropriate proportions of common costs attributable to developing the properties to completion.

(ii) Consumables Cost of consumables is measured based on the first-in first-out basis and includes expenditure incurred in acquiring the

inventories and bringing them to their existing location and condition.

(j) Construction work-in-progress Construction work-in-progress represents the gross unbilled amount expected to be collected from customers for contract

work performed to date. It is measured at cost plus profit recognised to date less progress billings and recognised losses. Cost includes all expenditure related directly to specific projects and an allocation of fixed and variable overheads incurred in the Group’s construction activities based on normal operating capacity.

Construction work-in-progress is presented as part of trade and other receivables as amount due from contract customers in the statements of financial position for all contracts in which costs incurred plus recognised profits exceed progress billings. If progress billings exceed costs incurred plus recognised profits, then the difference is presented as part of trade and other payables as amount due to contract customers in the statements of financial position.

(k) Cash and cash equivalents Cash and cash equivalents consist of cash on hand, balances and deposits with banks and highly liquid investments which

have an insignificant risk of changes in fair value with original maturities of three months or less, and are used by the Group and the Company in the management of their short term commitments. For the purpose of the statement of cash flows, cash and cash equivalents are presented net of bank overdrafts and pledged deposits.

(l) Impairment

(i) Financial assets All financial assets (except for financial assets categorised as fair value through profit or loss and investment in

subsidiaries) are assessed at each reporting date whether there is any objective evidence of impairment as a result of one or more events having an impact on the estimated future cash flows of the asset. Losses expected as a result of future events, no matter how likely, are not recognised. For an investment in an equity instrument, a significant or prolonged decline in the fair value below its cost is an objective evidence of impairment. If any such objective evidence exists, then the impairment loss of the financial asset is estimated.

An impairment loss in respect of loans and receivables and held-to-maturity investments is recognised in profit or loss and is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account.

An impairment loss in respect of available-for-sale financial assets is recognised in profit or loss and is measured as the difference between the asset’s acquisition cost (net of any principal repayment and amortisation) and the asset’s current fair value, less any impairment loss previously recognised. Where a decline in the fair value of an available-for-sale financial asset has been recognised in the other comprehensive income, the cumulative loss in other comprehensive income is reclassified from equity to profit or loss.

An impairment loss in respect of unquoted equity instrument that is carried at cost is recognised in profit or loss and is measured as the difference between the financial asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset.



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(l) Impairment (continued)

(i) Financial assets (continued)

Impairment losses recognised in profit or loss for an investment in an equity instrument classified as available for sale is not reversed through profit or loss.

If, in a subsequent period, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed, to the extent that the asset’s carrying amount does not exceed what the carrying amount would have been had the impairment not been recognised at the date the impairment is reversed. The amount of the reversal is recognised in profit or loss.

(ii) Other assets The carrying amounts of other assets (except for inventories [refer Note 2(i)] and amount due from contract customers

[refer to Note 2(j)] are reviewed at the end of each reporting period to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated.

For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or cash-generating units.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs of disposal. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash-generating unit.

An impairment loss is recognised if the carrying amount of an asset or its related cash-generating unit exceeds its estimated recoverable amount.

Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amounts of the other assets in the cash-generating unit (group of cash-generating units) on a pro rata basis.

An impairment loss in prior periods are assessed at the end of each reporting period for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount since the last impairment loss was recognised. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Reversals of impairment losses are credited to profit or loss in the financial year in which the reversals are recognised.

(m) Equity instruments Instruments classified as equity are measured at cost on initial recognition and are not remeasured subsequently.

(i) Issue expenses Costs directly attributable to issue of instruments classified as equity are recognised as a deduction from equity.

(ii) Ordinary shares Ordinary shares are classified as equity.

(iii) Repurchase, disposal and reissue of share capital When share capital recognised as equity is repurchased, the amount of the consideration paid, including directly

attributable costs, net of any tax effects, is recognised as a deduction from equity. Repurchased shares that are not subsequently cancelled are classified as treasury shares in the statements of changes in equity.

When treasury shares are distributed as share dividends, the cost of the treasury shares is applied in the reduction of the share premium account or distributable reserves, or both.

When treasury shares are sold or reissued subsequently, the difference between the sales consideration net of directly attributable costs and the carrying amount of the treasury shares is recognised in equity, and the resulting surplus or deficit on the transaction is presented in share premium.

When treasury shares are cancelled, their nominal amounts are eliminated and the difference between their cost and nominal amounts is taken to reserves in the statements of changes in equity as appropriate.


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(n) Employee benefits (i) Short-termemployeebenefits Short-term employee benefit obligations in respect of salaries, annual bonuses, paid annual leave and sick leave are

measured on an undiscounted basis and are expensed as the related service is provided.

A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

(ii) State plans The Group’s contributions to statutory pension funds are charged to profit or loss in the financial year to which they

relate. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payment is available.

(o) Revenue and other income (i) Construction contracts Contract revenue includes the initial amount agreed in the contract plus any variations in contract work, claims and

incentive payments, to the extent that it is probable that they will result in revenue and can be measured reliably. As soon as the outcome of a construction contract can be estimated reliably, contract revenue and contract cost are recognised in profit or loss in proportion to the stage of completion of the contract. Contract expenses are recognised as incurred unless they create an asset related to future contract activity.

The stage of completion is assessed by reference to the proportion that contract costs incurred for work performed to-date bear to the estimated total contract costs.

When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred that are likely to be recoverable. An expected loss on a contract is recognised immediately in profit or loss.

(ii) Property development Revenue from property development activities is recognised based on the stage of completion of properties sold

measured by reference to the proportion that property development costs incurred for work performed to-date bear to the estimated total property development costs.

Where the financial outcome of a property development activity cannot be reliably estimated, property development revenue is recognised only to the extent of property development costs incurred that is probable to be recoverable, and property development costs on the development units sold are recognised as an expense in the period in which they are incurred.

Any expected loss on a development project, including costs to be incurred over the defects liability period, is recognised immediately in profit or loss.

(iii) Rental income Rental income from investment property is recognised in profit or loss on a straight-line basis over the term of the lease.

Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease. Rental income from sub-leased property is recognised as other income.

(iv) Interest income Interest income is recognised in profit or loss as it accrues using the effective interest method.

(v) Dividend income Dividend income is recognised in profit or loss on the date that the Group’s or the Company’s right to receive payment

is established.

(p) Borrowing costs Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are

recognised in profit or loss using the effective interest method.

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the cost of those assets.



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(p) Borrowing costs (continued)

The capitalisation of borrowing costs as part of the cost of a qualifying asset commences when expenditure for the asset is being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation of borrowing costs is suspended or ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are interrupted or completed.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowings costs eligible for capitalisation.

(q) Income tax Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognised in profit or loss except

to the extent that it relates to a business combination or items recognised directly in equity or other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or

substantively enacted by the end of the reporting period, and any adjustment to tax payable in respect of previous financial years.

Deferred tax is recognised using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities in the statements of financial position and their tax bases.

Deferred tax is not recognised for the temporary differences arising from initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the end of the reporting period.

Where investment properties are carried at their fair value in accordance with the accounting policy set out in Note 2(f), the amount of deferred tax recognised is measured using the tax rates that would apply on sale of those assets at their carrying value at the reporting date unless the property is depreciable and is held with the objective to consume substantially all of the economic benefits embodied in the property over time, rather than through sale. In all other cases, the amount of deferred tax recognised is measured based on the expected manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the reporting date. Deferred tax assets and liabilities are not discounted.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax assets and liabilities on a net basis or their tax assets and liabilities will be realised simultaneously.

A deferred tax assets is recognised to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at the end of each reporting period and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Unutilised reinvestment allowance and investment tax allowance, being tax incentives that is not a tax base of an asset, is recognised as a deferred tax asset to the extent that it is probable that the future taxable profits will be available against which the unutilised tax incentive can be utilised.

(r) Earnings per ordinary share The Group presents basic earnings per share (“EPS”) data for its ordinary shares.

Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period, adjusted for own shares held.

(s) Operating segments An operating segment is a component of the Group that engages in business activities from which it may earn revenues

and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. Operating segment results are reviewed regularly by the chief operating decision maker, which in this case is the Group Managing Director, to make decisions about resources to be allocated to the segment and to assess its performance, and for which discrete financial information is available.

(t) Contingent liabilities Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably,

the obligation is not recognised in the statements of financial position and is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events, are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.


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(u) Fair value measurement Fair value of an asset or a liability, is determined as 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 measurement assumes that the transaction to sell the asset or transfer the liability takes place either in the principal market or in the absence of a principal market, in the most advantageous market.

For non-financial asset, the fair value measurement 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.

When measuring the fair value of an asset or a liability, the Group uses observable market data as far as possible. Fair value are categorised into different levels in a fair value hierarchy based on the input used in the valuation technique as follows:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group can access at the measurement date.

Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3: unobservable inputs for the asset or liability.

The Group recognised transfers between levels of the fair value hierarchy as of the date of the event or change in circumstances that caused the transfers.



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Leasehold land Plant, (unexpired (unexpired Furniture machinery Vessels Assets lease term lease term and Motor and and under > 50 years) < 50 years) Buildings fittings vehicles equipment wharf construction TotalGroup RM RM RM RM RM RM RM RM RM

Cost

At 1 January 2015 23,839,582 1,280,021 3,609,402 1,725,857 24,647,025 106,536,379 71,393,545 4,947,174 237,978,985Additions - - - 63,695 1,693,891 3,716,350 505,000 8,452,060 14,430,996Disposals - - - - ( 2,589,557) ( 275,799) ( 1,265,622) - ( 4,130,978)Write-offs - - - ( 47,723) - ( 340,291) - - ( 388,014)Reclassified from investment properties (Note 4) 3,199,354 - - - - - - 1,824,716 5,024,070

At 31 December 2015/ 1 January 2016 27,038,936 1,280,021 3,609,402 1,741,829 23,751,359 109,636,639 70,632,923 15,223,950 252,915,059 Additions 3,689,959 - - 218,171 5,699,500 11,095,188 5,983,063 10,762,563 37,448,444Disposals - - - - ( 629,088) ( 173,080) - - ( 802,168)Write-offs - - - - ( 431,905) ( 6,448,744) ( 4,480,482) - ( 11,361,131)

At 31 December 2016 30,728,895 1,280,021 3,609,402 1,960,000 28,389,866 114,110,003 72,135,504 25,986,513 278,200,204

Accumulated depreciation

At 1 January 2015 682,218 387,061 987,922 1,298,286 10,549,044 56,853,678 46,954,517 - 117,712,726Depreciation for the year (Note 3.3) 211,563 25,470 76,856 105,569 1,577,476 6,351,075 1,906,245 - 10,254,254Disposals - - - - ( 1,215,356) ( 126,470) ( 1,011,896) - ( 2,353,722)Write-offs - - - ( 44,551) - ( 207,372) - - ( 251,923) Reclassified from investment properties (Note 4) 119,789 - - - - - - - 119,789

At 31 December 2015/ 1 January 2016 1,013,570 412,531 1,064,778 1,359,304 10,911,164 62,870,911 47,848,866 - 125,481,124

Depreciation for the year (Note 3.3) 211,563 25,470 76,856 112,472 1,792,867 6,596,281 1,934,050 - 10,749,559Disposals - - - - ( 377,550) ( 91,558) - - ( 469,108)Write-offs - - - - ( 376,860) ( 6,410,919) ( 4,198,745) - ( 10,986,524)

At 31 December2016 1,225,133 438,001 1,141,634 1,471,776 11,949,621 62,964,715 45,584,171 - 124,775,051

Carrying amounts

At 31 December 2015 26,025,366 867,490 2,544,624 382,525 12,840,195 46,765,728 22,784,057 15,223,950 127,433,935

At 31 December 2016 29,503,762 842,020 2,467,768 488,224 16,440,245 51,145,288 26,551,333 25,986,513 153,425,153

3. Property, plant and equipment


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Leasehold land Plant, (unexpired (unexpired Furniture machinery Vessels Assets lease term lease term and Motor and and under > 50 years) < 50 years) Buildings fittings vehicles equipment wharf construction TotalCompany RM RM RM RM RM RM RM RM RM Cost

At 1 January 2015 15,015,276 1,280,021 3,609,402 1,682,078 24,345,005 106,224,635 71,393,545 4,947,174 228,497,136Additions - - - 59,378 1,693,891 3,705,044 505,000 2,676,171 8,639,484Disposals - - - - ( 2,589,557) ( 275,799) ( 1,265,622) - ( 4,130,978)Write-offs - - - ( 47,723) - ( 338,231) - - ( 385,954)

At 31 December 2015/ 1 January 2016 15,015,276 1,280,021 3,609,402 1,693,733 23,449,339 109,315,649 70,632,923 7,623,345 232,619,688Additions 3,689,959 - - 173,596 5,699,500 11,067,203 5,983,063 33,889 26,647,210Disposals - - - - ( 629,088) ( 173,080) - - ( 802,168)Write-offs - - - - ( 431,905) ( 6,448,744) ( 4,480,482) - ( 11,361,131)

At 31 December 2016 18,705,235 1,280,021 3,609,402 1,867,329 28,087,846 113,761,028 72,135,504 7,657,234 247,103,599

Accumulated depreciation

At 1 January 2015 682,218 387,061 987,923 1,272,410 10,364,253 56,655,779 46,954,516 - 117,304,160Depreciation for the year (Note 3.3) 151,669 25,470 76,856 102,049 1,562,290 6,320,310 1,906,245 - 10,144,889Disposals - - - - ( 1,215,356) ( 126,470) ( 1,011,896) - ( 2,353,722)Write-offs - - - ( 44,551) - ( 206,125) - - ( 250,676)

At 31 December 2015/ 1 January 2016 833,887 412,531 1,064,779 1,329,908 10,711,187 62,643,494 47,848,865 - 124,844,651

Depreciation for the year (Note 3.3) 151,669 25,470 76,856 108,022 1,780,056 6,576,107 1,934,050 - 10,652,230Disposals - - - - ( 377,550) ( 91,558) - - ( 469,108)Write-offs - - - - ( 376,860) ( 6,410,919) ( 4,198,745) - ( 10,986,524)

At 31 December 2016 985,556 438,001 1,141,635 1,437,930 11,736,833 62,717,124 45,584,170 - 124,041,249

Carrying amounts

At 31 December 2015 14,181,389 867,490 2,544,623 363,825 12,738,152 46,672,155 22,784,058 7,623,345 107,775,037

At 31 December 2016 17,719,679 842,020 2,467,767 429,399 16,351,013 51,043,904 26,551,334 7,657,234 123,062,350

3. Property, plant and equipment (continued)



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3. Property, plant and equipment (continued)

3.1 Buildings costing RM534,398 (2015: RM534,398) of the Company are built on land leased from a related party.

3.2 No amortisation was provided on a parcel of leasehold land of the Group costing RM8,824,306 acquired in year 2011 as the title of the land is in the process of being issued to the Group, hence details of lease term of the title is still unknown and the lease term undetermined.

3.3 Depreciation for the financial year is allocated as follows:


Recognised in administrative expenses 852,742 825,293 767,760 726,935 Recognised in contract cost (Note 9.2) 9,884,470 9,417,954 9,884,470 9,417,954 Recognised in profit and loss (Note 17) 10,737,212 10,243,247 10,652,230 10,144,889 Capitalised in property development cost (Note 7) 12,347 11,007 - - 10,749,559 10,254,254 10,652,230 10,144,889

4. Investment properties - Group

Leasehold land with unexpired term Asset under more than 50 years construction Total Group RM RM RM

Cost At 1 January 2015 12,932,402 1,824,716 14,757,118 Reclassified to property, plant and equipment ( 3,199,354) ( 1,824,716) ( 5,024,070) At 31 December 2015/1 January 2016 and 31 December 2016 9,733,048 - 9,733,048 Accumulated depreciation At 1 January 2015 575,659 - 575,659 Amortisation for the year (Note 17) 363,056 - 363,056 Reclassified to property, plant and equipment (Note 3) ( 119,789) - ( 119,789) At 31 December 2015/1 January 2016 818,926 - 818,926 Amortisation for the year (Note 17) 363,055 - 363,055 At 31 December 2016 1,181,981 - 1,181,981

Carrying amounts At 31 December 2015 8,914,122 - 8,914,122

At 31 December 2016 8,551,067 - 8,551,067

Fair value At 31 December 2015 10,700,000 - 10,700,000 At 31 December 2016 10,700,000 - 10,700,000

The fair value of the investment properties of the Group as at 31 December 2015 and 31 December 2016 has been derived based

on the Director’s estimation without involvement of any independent valuers using comparison method, whereby the sales price is compared to the sales prices of land in close proximity, adjusted for differences in key attributes such as property size. The fair value of investment properties is categorised as Level 3.


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4. Investment properties – Group (continued)

Level 3 fair value

The following table shows a reconciliation of level 3 fair values:

Group 2016 2015 RM RM

At 1 January 10,700,000 14,700,000 Additions - 1,000,000 Reclassification - ( 5,000,000) At 31 December 10,700,000 10,700,000

5. Investment in subsidiaries

Company 2016 2015 RM RM

Unquoted shares, at cost 153,600,000 146,600,000

On 18 May 2016, the Company subscribed to 70% of the issued and paid up share capital of HSL DMIA JV Sdn. Bhd. for cash consideration of RM10,000,000. HSL DMIA JV Sdn. Bhd. is a joint venture set up for the Group to undertake a construction project. The subscription of shares has no material impact on the results of the Group for the current financial year.

Details of the subsidiaries, all of which are incorporated in Malaysia, are as follows:

Effective Name of subsidiary Principal activities ownership interest and voting interest 2016 2015 % %

Hock Seng Lee Construction Property development and 100 100 Sendirian Berhad building construction HSL Hydro Sdn. Bhd. Presently dormant. 100 100 Its intended activity is shipyard operation.

HSL Land Sdn. Bhd. Property investment 100 100

HSL Management Presently dormant. Services Sdn. Bhd. Its intended activity is general 100 100 management and maintenance services for the gated and guarded property development projects undertaken by HSL Group.

HSL DMIA JV Sdn. Bhd. Construction contractor 70 -

Non-controlling interest in a subsidiary The Group’s subsidiary that have material non-controlling interests (“NCI”) is as follows:

HSL DMIA JV Sdn. Bhd. 2016 RM

NCI percentage of ownership interest and voting interest 30%

Carrying amount of NCI 3,035,995

Profit allocated to NCI 35,995



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5. Investment in subsidiaries (continued) Summarisedfinancialinformationbeforeintra-groupelimination

HSL DMIA JV Sdn. Bhd. 2016 RM

As at 31 December Current assets 26,281,454 Current liabilities ( 16,161,472) Net assets 10,119,982 Year ended 31 December Revenue 22,017,756 Profit for the year 119,982 Total comprehensive income 119,982 Cash flows from operating activities ( 92,495) Cash flows from investing activities 7,183,347 Net increase in cash and cash equivalents 7,090,852

6. Land held for property development

Development Land costs Total Group RM RM RM At 1 January 2015 138,952,665 35,051,679 174,004,344 Additions - 11,770,421 11,770,421 At 31 December 2015/1 January 2016 138,952,665 46,822,100 185,774,765 Additions 302,536 10,267,784 10,570,320 Transfer to property development cost (Note 7) ( 25,043,752) ( 8,324,310) ( 33,368,062) At 31 December 2016 114,211,449 48,765,574 162,977,023 Company At 1 January 2015 56,993,500 3,133,639 60,127,139 Additions - 2,741,755 2,741,755 At 31 December 2015/1 January 2016 56,993,500 5,875,394 62,868,894 Additions - 3,350,361 3,350,361 Transfer to property development cost (Note 7) ( 23,007,000) ( 5,545,126) ( 28,552,126) At 31 December 2016 33,986,500 3,680,629 37,667,129

Included in the land held for property development as at 31 December 2016 are two (2015: two) parcels of land costing RM38,035,203 (2015: RM36,860,680), the titles to which are in the process of being transferred to the Group.


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7. Property development costs

Accumulated costs charged Development to profit Land costs or loss Total RM RM RM RM Group At 1 January 2015 12,915,869 92,978,028 ( 38,417,512) 67,476,385 Development costs incurred during the year - 44,452,288 - 44,452,288 Costs charged to profit or loss - - ( 20,984,450) ( 20,984,450) At 31 December 2015/1 January 2016 12,915,869 137,430,316 ( 59,401,962) 90,944,223 Transfer from land held for property development (Note 6) 25,043,752 8,324,310 - 33,368,062 Development costs incurred during the year - 64,080,527 - 64,080,527 Costs charged to profit or loss ( 1,784,346) ( 12,621,043) ( 27,097,264) ( 41,502,653) Transfer of completed properties to inventories ( 728,312) ( 4,948,136) - ( 5,676,448)

At 31 December 2016 35,446,963 192,265,974 ( 86,499,226) 141,213,711

Company At 1 January 2016 - - - - Transfer from land held for property development (Note 6) 23,007,000 5,545,126 - 28,552,126 Development costs incurred during the year - 16,022,230 - 16,022,230 Costs charged to profit or loss - - ( 2,944,572) ( 2,944,572)

At 31 December 2016 23,007,000 21,567,356 ( 2,944,572) 41,629,784

Property development costs incurred during the financial year include:


Depreciation of property, plant and equipment (Note 3.3) 12,347 11,007 - - Hire of equipment 1,108,815 308,889 747,975 - Interest expenses 726 7,962 - - Personnel expenses (including key management personnel) - Contributions to state plans 112,548 99,222 1,854 - - Wages, salaries and others 1,196,704 964,021 22,157 -

8. Inventories

Group Company 2016 2015 2016 2015 RM RM RM RM At cost Consumables 19,176,549 12,448,539 19,176,549 12,446,513 Developed properties held for sale 6,452,150 936,777 - -

25,628,699 13,385,316 19,176,549 12,446,513

Recognisedinprofitorloss: Inventories recognised as cost of sales 18,525,597 6,287,219 18,360,596 6,029,817



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9. Trade and other receivables


Trade Trade receivables 6,339,931 6,354,863 5,266,520 5,374,945 Progress billings receivables 9.1 173,643,558 154,390,635 145,054,408 148,214,651 Less: Allowance for impairment loss (Note 24.3) ( 608,000) ( 145,000) ( 344,000) ( 136,000) 173,035,558 154,245,635 144,710,408 148,078,651 Amount due from contract customers 9.2 102,820,483 117,429,189 102,820,483 117,429,189 Accrued billings 1,972,450 7,901,457 - -

284,168,422 285,931,144 252,797,411 270,882,785

Non-trade Other receivables 196,060 202,145 125,546 182,379 Amount due from a subsidiary 9.3 - - 30,500,000 31,900,000 GST receivables 326,096 - 33,283 -

522,156 202,145 30,658,829 32,082,379

Total 284,690,578 286,133,289 283,456,240 302,965,164

9.1 Progress billings receivables Progress billings receivables of the Group and of the Company include retention sums of RM31,709,986 (2015: RM37,107,435)

receivable from contract customers.

The retention sums are unsecured, interest-free and are expected to be collected as follows:

Group and Company 2016 2015 RM RM Within 1 year 22,152,784 27,554,630 1-2 years 7,361,789 8,518,799 2-3 years 2,195,413 1,034,006

31,709,986 37,107,435

9.2 Amount due from/to contract customers Group and Company 2016 2015 RM RM Aggregate costs incurred to-date 1,956,665,205 1,906,947,435 Attributable profits 378,871,600 377,626,180

2,335,536,805 2,284,573,615 Progress billings (2,248,288,895) (2,183,904,111)

87,247,910 100,669,504 Amount due to contract customers (Note 15) 15,572,573 16,759,685

Amount due from contract customers 102,820,483 117,429,189


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9. Trade and other receivables (continued)

9.2 Amount due from/to contract customers (continued)

Additions to aggregate costs incurred during the financial year include:

Group and Company 2016 2015 RM RM Depreciation of property, plant and equipment (Note 3.3) 9,884,470 9,417,954 Hire of equipment 7,326,911 14,078,254 Rental of premises 881,812 958,246 Personnel expenses (including key management personnel) - Contributions to state plans 1,204,335 1,083,716 - Wages, salaries and others 14,018,522 13,031,054

9.3 Amount due from a subsidiary Amount due from a subsidiary is unsecured, interest-free and repayable on demand.

10. Deposits and prepayments

Group Company 2016 2015 2016 2015 RM RM RM RM Deposits 2,447,918 2,691,297 1,855,884 2,034,048 Prepayments 792,038 4,394,897 327,231 3,976,110

3,239,956 7,086,194 2,183,115 6,010,158

Prepayments of the Group and of the Company represent amount paid for purchase of construction materials, which are progressively deducted against the physical goods supplied.

11. Cash and cash equivalents

Group Company 2016 2015 2016 2015 RM RM RM RM Deposits placed with licensed banks with original maturities not exceeding three months 37,050,000 32,970,000 22,000,000 13,300,000 Cash and bank balances 48,124,440 61,635,994 47,140,011 56,935,617

85,174,440 94,605,994 69,140,011 70,235,617 Fixed deposit with original maturities exceeding three months 3,307,718 346,458 357,718 346,458

88,482,158 94,952,452 69,497,729 70,582,075

12. Capital and reserves

12.1 Share capital

Group and Company Amount Number Amount Number RM of shares RM of shares 2016 2016 2015 2015 Authorised: Ordinary shares of RM0.20 each 300,000,000 1,500,000,000 300,000,000 1,500,000,000

Issuedandfullypaid: Ordinary shares of RM0.20 each 116,535,200 582,676,000 116,535,200 582,676,000



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12. Capital and reserves (continued)

12.2 Capital redemption reserve Capital redemption reserve arose from the cancellation of 2,165,500 treasury shares on 17 November 2003, whereupon an

amount equivalent to their nominal value was transferred to the reserve.

12.3 Treasury shares The shareholders of the Company, at an Extraordinary General Meeting held on 29 November 2001, approved the Company’s

plan to repurchase its own shares. The mandate was subsequently renewed on a yearly basis. The Directors of the Company are committed to enhance the value of the Company to its shareholders and believe that the repurchase plan can be applied in the best interest of the Company and its shareholders.

The total number of treasury shares held by the Company as at 31 December 2016 is 33,158,781 (2015: 33,158,781).

13. Deferred tax liabilities

Recognised deferred tax Deferred tax (assets)/liabilities are attributable to the following:

Assets Liabilities Net 2016 2015 2016 2015 2016 2015 Group RM RM RM RM RM RM

Property, plant and equipment - - 14,967,200 14,692,300 14,967,200 14,692,300 Financial instruments ( 692,200) ( 797,700) 132,600 163,600 ( 559,600) ( 634,100) Others ( 66,000) ( 67,000) - - ( 66,000) ( 67,000)

Tax (assets)/liabilities ( 758,200) ( 864,700) 15,099,800 14,855,900 14,341,600 13,991,200 Set off 758,200 864,700 ( 758,200) ( 864,700) - -

Net tax liabilities - - 14,341,600 13,991,200 14,341,600 13,991,200

Assets Liabilities Net 2016 2015 2016 2015 2016 2015 Company RM RM RM RM RM RM

Property, plant and equipment - - 15,003,000 14,648,000 15,003,000 14,648,000 Financial instruments ( 690,000) ( 778,000) 113,000 144,000 ( 577,000) ( 634,000)

( 690,000) ( 778,000) 15,116,000 14,792,000 14,426,000 14,014,000

Movements in deferred tax during the year are as follows:

Recognised At Recognised At in profit 31.12.2015/ in profit At 1.1.2015 or loss 1.1.2016 or loss 31.12.2016 RM RM RM RM RM Group Property, plant and equipment 16,154,800 ( 1,462,500) 14,692,300 354,900 15,047,200 Financial instruments ( 599,300) ( 34,800) ( 634,100) ( 5,500) ( 639,600) Others ( 70,000) 3,000 ( 67,000) 1,000 ( 66,000)

15,485,500 ( 1,494,300) 13,991,200 350,400 14,341,600

(Note 19) (Note 19) Company

Property, plant and equipment 16,103,000 ( 1,455,000) 14,648,000 355,000 15,003,000 Financial instruments ( 581,000) ( 53,000) ( 634,000) 57,000 ( 577,000)

15,522,000 ( 1,508,000) 14,014,000 412,000 14,426,000

(Note 19) (Note 19)


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14 Loans and borrowings

Group Company 2016 2015 2016 2015 RM RM RM RM Current Banker acceptances - unsecured 6,566,000 - 6,566,000 - Bank overdraft - unsecured 236,089 - - -

6,802,089 - 6,566,000 -

15. Trade and other payables

Group Company 2016 2015 2016 2015 RM RM RM RM Trade Trade payables 112,084,000 120,835,053 92,047,065 105,136,695 Amount due to contract customers (Note 9.2) 15,572,573 16,759,685 15,572,573 16,759,685 Progress billings 16,664,833 261,588 5,931,676 -

144,321,406 137,856,326 113,551,314 121,896,380

Non-trade GST payables - 1,166,112 - 1,388,429 Accrued expenses 3,233,924 3,029,714 2,900,975 2,763,375

147,555,330 142,052,152 116,452,289 126,048,184

Included in the amount due to contract customers of the Group and of the Company as at 31 December 2016 is advance received from a (2015: one) contract customer of RM1,701,639 (2015: RM5,320,939).

16. Revenue and cost of sales


Revenue - contract revenue 435,478,766 622,573,397 435,478,766 622,573,397 - sale of development properties 63,067,293 32,162,662 5,084,974 -

498,546,059 654,736,059 440,563,740 622,573,397

Cost of sales - contract costs 368,926,649 521,280,903 368,926,649 521,280,903 - property development costs 40,650,480 21,075,476 2,944,572 -

409,577,129 542,356,379 371,871,221 521,280,903



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17. Results from operating activities


Result from operating activities is arrived at after charging: Auditors’ remuneration - statutory audit 119,000 110,000 80,000 76,000 - non audit fee - KPMG PLT 12,000 12,000 12,000 12,000 - Local affiliate of KPMG PLT 17,250 15,450 8,250 8,250 Depreciation of property, plant and equipment (Note 3.3) 10,737,212 10,243,247 10,652,230 10,144,889 Depreciation of investment properties (Note 4) 363,055 363,056 - - Impairment loss on trade receivables 463,000 - 208,000 - Personnel expenses (including key management personnel): - Contributions to state plans 2,066,994 1,825,834 1,977,405 1,745,237 - Wages, salaries and others 22,097,146 21,075,856 21,354,615 20,402,284 Property, plant and equipment written off 374,607 136,091 374,607 135,278 Foreign exchange loss - realised 2,294 2,936 2,294 2,936 Rental expenses on property leases 1,055,192 1,074,526 1,032,392 1,057,726

and after crediting: Gain on disposal of property, plant and equipment 1,300 553,345 1,300 553,345 Hire of vessels, plant and machinery 2,338,696 1,623,397 2,338,696 1,623,397 Rental income from property subleases 214,250 295,500 214,250 295,500 Reversal of impairment loss on receivables - 244,000 - 155,000

18. Finance income and finance costs


Recognisedinprofitorloss

Interestincomeoffinancialassetsthatarenotatfair valuethroughprofitorloss

- interest-bearing deposits 2,572,869 2,285,073 1,933,664 2,035,758 - other financial assets 1,111,794 1,033,985 1,111,794 1,033,985

3,684,663 3,319,058 3,045,458 3,069,743

Interestexpensesoffinancialliabilitiesthatarenot atfairvaluethroughprofitorloss

- other financial liabilities 425,671 376,741 369,303 318,142


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19. Income tax expense

Recognisedinprofitorloss

Group Company 2016 2015 2016 2015 RM RM RM RM Current tax expense Malaysian - current year 18,361,224 26,718,872 13,636,000 24,109,000 - prior year 4,819 ( 185,569) 4,127 ( 183,565)

18,366,043 26,533,303 13,640,127 23,925,435 Deferred tax (income)/expense (Note 13) - current year 356,400 ( 1,482,300) 418,000 ( 1,496,000) - prior year ( 6,000) ( 12,000) ( 6,000) ( 12,000)

350,400 ( 1,494,300) 412,000 ( 1,508,000)

Total income tax expense 18,716,443 25,039,003 14,052,127 22,417,435

Reconciliation of tax expense Profit for the year 56,458,125 76,197,995 42,214,355 68,793,160 Total income tax expense 18,716,443 25,039,003 14,052,127 22,417,435

Profit excluding tax 75,174,568 101,236,998 56,266,482 91,210,595

Income tax at 24% (2015: 25%)* 18,041,000 25,309,000 13,504,000 22,803,000 Non-deductible expenses 676,624 548,872 550,000 430,000 Effect of changes in tax rate - ( 621,300) - ( 620,000)

18,717,624 25,236,572 14,054,000 22,613,000 Over-provision in prior years ( 1,181) ( 197,569) ( 1,873) ( 195,565)

Total tax expense 18,716,443 25,039,003 14,052,127 22,417,435

* With the effect from 1 January 2016, the tax rate of the Company has been reduced from 25% to 24% due to the change in Malaysian corporate tax rate that was announced during the Malaysian Budget 2014.

20. Earnings per ordinary share

Basic earnings per ordinary share The calculation of basic earnings per ordinary share at 31 December 2016 was based on the profit attributable to ordinary

shareholders and the weighted average number of ordinary shares outstanding, as follows:

Group 2016 2015 RM RM

Profit attributable to ordinary shareholders 56,422,130 76,197,995

Weighted average number of ordinary shares 2016 2015 Issued ordinary shares at beginning of year 582,676,000 582,676,000 Less: cumulative effect of treasury shares bought back in previous years ( 33,158,781) ( 33,158,781)

Weighted average number of ordinary shares at end of year 549,517,219 549,517,219

Basic earnings per ordinary share (sen) 10.27 13.87

Diluted earnings per share

No diluted earnings per ordinary share was presented as there is no dilutive potential ordinary shares.



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21. Dividends

Dividends recognised by the Company comprise: Total Sen amount Date of per share RM payment 2016 Final 2015 ordinary 1.40 7,693,233 23 June 2016 Interim 2016 ordinary 1.00 5,495,172 10 October 2016 13,188,405 2015 Final 2014 ordinary 1.60 8,792,268 23 June 2015 Interim 2015 ordinary 1.00 5,495,172 8 October 2015 14,287,440

The Directors are proposing a final single-tier tax exempt dividend of 7% per ordinary share of RM0.20 each totalling RM7,693,233 in respect of the financial year ended 31 December 2016, to be paid once approved by shareholders at the forthcoming annual general meeting.

22. Capital expenditure commitments

Group Company 2016 2015 2016 2015 RM RM RM RM Property, plant and equipment

- Contracted but not provided for 12,759,000 7,452,000 - 626,000 - Authorised but not contracted for 43,912,000 57,039,000 - 1,169,000

56,671,000 64,491,000 - 1,795,000

23. Operating segments

The Group has two reportable segments, as described below, which are the Group’s strategic business units. For each of the strategic business units, the Group Managing Director, who is the group chief operating decision maker, reviews internal management reports at least on a quarterly basis. The following describes the operations in each of the Group’s reportable segments.

Construction : Marine and civil engineering works and construction

Property development : Development of residential and commercial properties

Performance is measured based on segment profit before tax as included in the internal management reports. Segment profit is used to measure performance as management believes that such information is the most relevant in evaluating the results of the segments relative to other entities that operate within these industries.

The activities of the Group are carried out in Malaysia and as such, segmental reporting by geographical locations is not presented.

Segment result, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.


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23. Operating segments (continued)

Other non- Property reportable Inter-segment Group Construction development segment elimination Total 2016 RM RM RM RM RM

Segment profit

Revenue from external customers 435,478,766 63,067,293 - - 498,546,059

Segment profit before tax, interest and depreciation 62,295,113 21,217,476 ( 39,582) 5,836 83,478,843 Depreciation of property, plant and equipment (Note 17) ( 10,652,230) ( 24,832) ( 60,150) - ( 10,737,212) Depreciation of investment properties (Note 17) - - ( 363,055) - ( 363,055) Impairment loss on trade receivables (Note 17) ( 208,000) ( 255,000) - - ( 463,000) Finance income (Note 18) 3,222,000 41,380 421,283 - 3,684,663 Finance costs (Note 18) ( 369,303) ( 56,368) - - ( 425,671)

Segment profit/(loss)before tax 54,287,580 20,922,656 ( 41,504) 5,836 75,174,568

Income tax expense ( 18,716,443) Profit for the year 56,458,125

Segment assets 518,658,188 317,872,593 47,107,753 ( 10,734,087) 872,904,447

Included in the measurement of segment assets are:

Addition to non-current assets other than financial instruments and deferred tax assets: - capital expenditure 26,647,210 67,447 10,733,787 - 37,448,444 - land held for property development - 10,570,320 - - 10,570,320

Segment liabilities 143,630,820 35,023,940 637,054 ( 10,536,091) 168,755,723

Group 2015 Segment profit

Revenue from external customers 622,573,397 32,162,662 - - 654,736,059

Segment profit before tax, interest and depreciation 98,663,777 10,295,258 ( 70,909) 12,858 108,900,984 Depreciation of property, plant and equipment (Note 17) ( 10,204,783) ( 38,464) - - ( 10,243,247) Depreciation of investment properties (Note 17) - - ( 363,056) - ( 363,056) Finance income (Note 18) 3,069,743 25,078 224,237 - 3,319,058 Finance costs (Note 18) ( 318,142) ( 58,599) - - ( 376,741)

Segment profit/(loss) before tax 91,210,595 10,223,273 ( 209,728) 12,858 101,236,998

Income tax expense ( 25,039,003) Profit for the year 76,197,995



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23. Operating segments (continued)

Other non- Property reportable Inter-segment Group Construction development segment elimination Total 2015 (continued) RM RM RM RM RM

Segment assets 467,878,947 299,509,077 47,506,103 ( 269,831) 814,624,296

Included in the measurement of segment assets are:

Addition to non-current assets other than financial instruments and deferred tax assets: - capital expenditure 8,639,484 15,623 5,775,889 - 14,430,996 - land held for property development - 11,770,421 - - 11,770,421

Segment liabilities 143,921,184 11,897,708 993,400 ( 67,000) 156,745,292

Majors customers The following are major customers with revenue equal to or more than 10 percent of the Group revenue: Revenue 2016 2015 Segment RM RM All common control entities of - State and Federal Governments 154,115,988 181,604,088 Construction - One (2015: two) trade receivables 79,803,252 201,543,688 Construction

24. Financial instruments

24.1Categoriesoffinancialinstruments The table below provides an analysis of financial instruments categorised as follows:

(i) Loans and receivables (“L&R”); and (ii) Financial liabilities measured at amortised cost (“FL”).

Carrying L&R/ amount (FL) 2016 RM RM

Group

Financial assets/(liabilities) Trade and other receivables*^ 179,571,549 179,571,549 Cash and cash equivalents 88,482,158 88,482,158 Loans and borrowings 6,802,089 6,802,089 Trade and other payables * ( 115,317,924) ( 115,317,924)

Company

Financial assets/(liabilities) Trade and other receivables*^ 180,602,474 180,602,474 Cash and cash equivalents 69,497,729 69,497,729 Loans and borrowings 6,566,000 6,566,000 Trade and other payables * ( 94,948,040) ( 94,948,040)


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24. Financial instruments (continued)

24.1Categoriesoffinancialinstruments (continued)

Carrying L&R/ amount (FL) 2015 RM RM

Group

Financial assets/(liabilities) Trade and other receivables * 160,802,643 160,802,643 Cash and cash equivalents 94,952,452 94,952,452 Trade and other payables *^ ( 123,864,767) ( 123,864,767) Company

Financial assets/(liabilities) Trade and other receivables * 185,535,975 185,535,975 Cash and cash equivalents 70,582,075 70,582,075 Trade and other payables *^ ( 107,900,070) ( 107,900,070)

* Excluding amount due from/to contract customers and accrued/progress billings. ^ Excluding amount receivable from/payable to Royal Malaysian Custom Department.

24.2Netgainsandlossesarisingfromfinancialinstruments


Loans and receivables 3,221,663 3,563,058 2,837,458 3,224,743 Financial liabilities measured at amortised cost ( 427,965) ( 379,677) ( 371,597) ( 321,078) 2,793,698 3,183,381 2,465,861 2,903,665

24.3 Financial risk management The Group has established a risk management framework with which, and undertake ongoing exercise, to identify, assess

and manage key financial risks such as credit risk, liquidity risk and market risk.

The Group has exposure to the following risks from its use of financial instruments: • Credit risk • Liquidity risk • Market risk

(a) Credit risk Credit risk is the risk of a financial loss to the Group if a customer or counterparty to a financial instrument fails to

meet its contractual obligations. The Group’s and the Company’s exposures to credit risk arise principally from their receivables from customers.

Most of the construction projects undertaken by the Group are government funded. Prior to tendering for construction contracts, credit evaluation on potential customers is carried out.

The Group’s exposure to credit risk for property development is regarded as low as titles to properties are only transferred to purchasers upon full settlement.

In addition, the Company’s also has exposure to credit risk arises from loans and advances to a subsidiary and financial guarantees given to banks for credit facilities granted to a subsidiary.

Receivables

Risk management objectives, policies and processes for managing the risk

• Receivables from external parties Management regularly reviews the credit risks of customers and takes appropriate measures to enhance credit

control procedure.

• Intercompany balances The Company sometimes provides unsecured loans and advances to a subsidiary. The Company monitors the

results of the subsidiary regularly.



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24.3 Financial risk management (continued)

(a) Credit risk (continued)

Receivables (continued) Exposure to credit risk, credit quality and collateral As at the end of the reporting period, the maximum exposure to credit risk arising from receivable is represented by the

carrying amount in the statements of financial position.

Management has taken reasonable steps to ensure that receivables that are neither past due nor impaired are stated at their realisable values. A significant portion of these receivables are regular customers that have been transacting with the Group. The Group uses ageing analysis to monitor the credit quality of the receivables.

As at the end of the reporting period, other than an amount of RM70,844,965 (2015: RM47,354,679) receivable from

the Government and an amount of RM30,500,000 (2015: RM32,000,000) receivable from a subsidiary, there is no other significant concentration of credit risk.

The exposure to credit risk is concentrated in Malaysia as the business activities of the Group are carried out locally.

Impairment losses The Group maintains an ageing analysis in respect of trade and progress billings receivables only. The ageing of trade

and progress billings receivables as at the end of the reporting period was:

Group Company 2016 2015 2016 2015 Age of debts RM RM RM RM

Not past due 126,010,646 130,263,539 107,483,795 124,769,567 Past due 0-90 days 21,123,550 9,618,627 15,096,165 8,702,362 Past due 91-180 days 7,208,310 4,265,766 4,165,626 3,891,314 Past due more than 180 days 25,640,983 16,597,566 23,575,342 16,226,353 179,983,489 160,745,498 150,320,928 153,589,596 Less: Allowance for impairment losses ( 608,000) ( 145,000) ( 344,000) ( 136,000) Total (see Note 9) 179,375,489 160,600,498 149,976,928 153,453,596

The movements in the allowance for impairment losses of trade receivables during the year were: Group Company RM RM At 1 January 2015 389,000 291,000 Impairment loss reversed ( 244,000) ( 155,000)

At 31 December 2015/1 January 2016 145,000 136,000 Impairment loss recognised 463,000 208,000

At 31 December 2016 608,000 344,000

An allowance account in respect of trade receivables is used to record impairment losses. Unless the Group is satisfied that recovery of the amount is possible, the amount considered irrecoverable is written off against the receivables directly.

Financial guarantees

Risk management objectives, policies and processes for managing the risk The Company provides unsecured financial guarantee to banks in respect of banking facilities granted to a subsidiary.

The Company monitors on an on-going basis the results of the subsidiary and repayments made by the subsidiary.

Exposure to credit risk, credit quality and collateral As at the end of reporting period, the maximum exposure to credit risk amounts to RM948,000 (2015: RM1,024,000)

representing the banking facilities utilised by the subsidiary as at the end of the reporting period.

There was no indication that the subsidiary would default on repayment. The financial guarantees have not been recognised since fair value on initial recognition was not material.


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24.3 Financial risk management (continued) (b) Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s

exposure to liquidity risk arises principally from its various payables.

Risk management objectives, policies and processes for managing the risk The Group monitors and maintains a level of cash and cash equivalents deemed adequate by management to ensure,

as far as possible, that it will have sufficient liquidity to meet its liabilities when they fall due.

It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts.

Maturity analysis The table below summarises the maturity profile of the Group’s and of the Company’s financial liabilities (which are

non-derivatives) as at the end of the reporting period based on undiscounted contractual payments:

Carrying Contractual Contractual Under 1-2 2-5 amount interest rate cash flows 1 year years years Group RM % RM RM RM RM 2016 Trade and other payables * 115,317,924 - 115,882,241 112,212,418 2,110,858 1,558,965 Loans and borrowings - unsecured overdraft 236,089 1.25 236,332 236,332 - - - unsecured bankers’ acceptance 6,566,000 4.67 – 4.72 6,591,311 6,591,311 - -

2015 Trade and other payables * 123,864,767 124,545,801 118,859,710 4,009,044 1,677,047

Company 2016 Trade and other payables * 94,948,040 - 95,416,914 92,833,994 1,480,059 1,102,861 Loans and borrowings - unsecured bankers’ acceptance 6,566,000 4.67 – 4.72 6,591,311 6,591,311 - - Financial guarantees - 7,000,000 7,000,000 - -

2015 Trade and other payables * 107,900,070 - 108,499,496 103,567,260 3,454,486 1,477,750 Financial guarantees - - 7,000,000 7,000,000 - -

* Excluding amount due to contract customers and progress billings and GST payable to RMCD. (c) Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and other prices that

will affect the Group’s financial position or cash flows.

(i) Currency risk The Group is exposed to foreign currency risk on purchases that are denominated in a currency other than

Ringgit Malaysia. The currencies giving rise to this risk are primarily United States Dollar (USD), Euro (EUR) and Singapore Dollar (SGD). The amount of purchase in foreign currency is not significant to the Group.

The currency risk is managed on a case to case basis and forward exchange contracts are occasionally used to

hedge certain foreign currency risk.

Exposure to foreign currency risk The Group and the Company do not have any outstanding forward foreign exchange contract as at 31 December

2016.



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24.3 Financial risk management (continued)

(c) Market risk (continued)

(i) Currency risk (continued)

Currency risk sensitivity analysis The exposure to currency risk is not material and hence, sensitivity analysis is not presented.

(ii) Interest rate risk The primary interest rate risk to which the Group is exposed to relate to the short term deposits which are of fixed

rate instruments placed with approved financial institutions. The exposure to a risk of change in their fair value due to changes in interest rates would not be significant as the deposits are usually placed for less than three months.

Exposure to interest rate risk The overdraft facilities of the Group and the Company bear interest ranging from 1.00% to 1.25% (2015: 1.00%

to 1.25%) per annum above the base lending rate of the lender banks and were not utilised as at the end of the reporting period.

Deposits placed with licensed banks (see Note 11) bear interest ranging from 1.85% to 3.58% (2015: 2.10% to 3.70%) per annum.

Interest rate risk sensitivity analysis Management does not expect interest rates for overdraft facilities and deposits placed with licensed banks to

fluctuate materially in the coming year from the current level. Fixed deposits are not exposed to any interest rate fluctuation. As the Company’s exposure to interest rate risk is immaterial, hence does not present the sensitivity analysis.

(iii) Other price risk The Group and the Company do not have any investment in equity securities as at the end of the reporting period

and are therefore not exposed to any other price risk.

24.4 Fair value information The carrying amounts of cash and cash equivalents and short term receivables and payables reasonably approximate their

fair value due to the relatively short term nature of these financial instruments.

25. Capital management The Group’s objectives when managing capital is to maintain a strong capital base and safeguard the Group’s ability to continue

as a going concern, so as to maintain investors, creditors and markets confidence and to sustain the future development of the business. The Directors monitor and are determined to maintain an optimal debt-to-equity ratio that complies with debt covenants and regulatory requirements.

There were no changes in the Group’s approach to capital management during the year.

26. Related parties

Identity of related parties For the purposes of these financial statements, parties are considered to be related to the Group if the Group or the Company has

the ability, directly or indirectly, to control or jointly control the parties or exercise significant influence over the parties in making financial and operating decisions, or vice versa, or where the Group or the Company and the parties are subject to common control. Related parties may be individuals or other entities.

Related parties also include key management personnel defined as those persons having authority and responsibility for planning, directing and controlling the activities of the Group either directly or indirectly. The key management personnel include all the Directors of the Group and certain members of senior management of the Group.

The Group has related party relationship with substantial shareholders and key management personnel.


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26. Related parties (continued)

Significantrelatedpartytransactions Related party transactions have been entered into the normal course of business under normal trade terms. The significant related

party transactions of the Group and the Company are shown below:

2016 2015 Group RM RM

Related parties * Income on hiring vessels, plant and machinery ( 1,855,113) ( 958,710) Purchase of motor vehicles and machinery 289,575 636,000 Purchase of consumables and raw materials 37,468,427 36,853,464 Piling and geotechnical works 7,030,205 1,518,375 Repair and maintenance services 94,545 143,879 Hire of plant and machinery and vessels 3,518,211 3,769,311 Rental of premises 60,000 78,000 Freight and handling charges 1,296,153 593,903

Balances owing to related parties at the end of the reporting period 19,703,292 29,791,678

Company

Related parties (excluding subsidiaries)* Income on hiring vessels, plant and machinery ( 1,855,113) ( 958,710) Purchase of motor vehicles and machinery 289,575 636,000 Purchase of consumables and raw materials 33,751,769 33,987,185 Piling and geotechnical works 7,030,205 1,518,375 Repair and maintenance services 78,642 137,521 Hire of plant and machinery and vessels 3,345,497 3,623,502 Rental of premises 48,000 66,000 Freight and handling charges 1,244,063 556,633

Balances owing to related parties at the end of the reporting period 17,720,237 26,476,141

* Consisting of companies controlled by/or connected to certain substantial shareholders and/or Directors of the Group and

the Company.

Group Company 2016 2015 2016 2015 RM RM RM RM Key management personnel

Directors - Fees 214,400 194,700 214,400 194,700 - Remuneration 2,683,800 2,843,200 2,683,800 2,843,200 - Contributions to state plans 509,922 540,208 509,922 540,208 - Other short-term employee benefits* 99,996 61,088 99,996 61,088

3,508,118 3,639,196 3,508,118 3,639,196 Other key management personnel - Short-term employee benefits 3,798,797 3,706,250 3,406,214 3,320,411

7,306,915 7,345,446 6,914,332 6,959,607

* These include the estimated monetary value of benefits-in-kind enjoyed by the Directors.

Other key management personnel comprise persons, other than the Directors of Group entities, having authority and responsibility for planning, directing and controlling the activities of the entity either directly or indirectly.

Related party transactions were effected based on negotiated terms and all amounts outstanding at the end of the reporting period are unsecured and expected to be settled in cash.



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27. Material litigation On 11 September 2015, the Company (“HSL”) had filed a Writ of Summons to the High Court Kuching against the relevant

defendants.

The Writ sought a declaration that the announcements made by HSL to Bursa Malaysia (Kuala Lumpur Stock Exchange then) on 10 November 1998 were valid and proper consequent to the 1st Defendant’s disclosures to the relevant authorities on 9 November 1998 pertaining to the disposal of all the 1st Defendant’s shares in Hock Seng Lee Enterprise Sdn Bhd, (“HSLE”) (the holding company of HSL) and ceasing to be a substantial shareholder of HSLE and that the 1st Defendant no longer has any deemed interest in HSL.

The Writ also sought a declaration that all the defendants are estopped from claiming the existence of a purported trust and that the two statutory declarations made by two other defendants, namely the 3rd and 4th Defendants in 2013 premised on that alleged purported trust to say that they were holding the HSLE shares in trust for the 1st Defendant and the subsequent transfer of the shares of HSLE from them to the 1st Defendant in 2013 premised on that alleged purported trust was unlawful, ultra vires and/or illegal and therefore null and void.

On 9 March 2016, the Kuching High Court has struck out the action upon application by the defendants. The Board had sought advice from its legal counsel and the notice of appeal has been filed on 11 March 2016 in the Court of Appeal of Malaysia, to reinstate the action.

On 18 August 2016, the Court of Appeal Malaysia has dismissed the appeal by the Company to reinstate the claims which has been struck out by the Kuching High Court. Given the nature of the judgement which does not have any real impact to the Company, the Company had decided not to appeal against the said decision of the Court of Appeal as advised.

On 19 December 2016, HSL has been served as a nominee defendant (as the fifth defendant) through its solicitor, Idris & Company Advocates, an Originating Summons from Yii Chee Ming.

The other parties in the Originating Summons are Dato Yu Chee Hoe (first defendant), Tony Yu Yuong Wee (second defendant), Lau Kiing Kang (third defendant) and Lau Kiing Yiing (fourth defendant) who are also the directors of HSL. The Originating Summons concerns the issues of disclosure to the relevant authoriries by the first, second, third and fourth defendants pertaining to the acquisition and disposal of shares (by himself/their spouses or company connected to himself) in HSLE (the holding company of HSL). The Originating Summons also seeks the removal of the first, second, third and fourth defendants as directors of the Company. There is no order against the Company.

On 16 January 2017, the Company has filed an application in the High Court of Kuching to strike out the said Originating Summons. The hearing date for the application to strike out the Originating Summons which was scheduled on 16 February 2017 has been postponed to 3 April 2017.

The ongoing litigation described above is not expected to have any material effect on HSL’s earnings per share, net assets per share, gearing, share capital or substantial shareholders’ shareholdings for the financial year ended 31 December 2016. Moreover, the Board upon professional advice is confident that the Company has a strong case.


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28. Supplementary financial information on the breakdown of realised and unrealised profit or losses The breakdown of the retained earnings of the Group and of the Company at 31 December, into realised and unrealised profits or

losses, pursuant to paragraphs 2.06 and 2.23 of Bursa Malaysia Main Market Listing Requirements, are as follows:


Total retained earnings - Realised 636,010,192 592,270,264 528,799,923 499,476,494 - Unrealised ( 15,439,219) ( 14,963,175) ( 15,289,062) ( 14,991,583)

620,570,973 577,307,089 513,510,861 484,484,911 Less: Consolidation adjustments ( 299,990) ( 269,831) - -

Total retained earnings 620,270,983 577,037,258 513,510,861 484,484,911

The determination of realised and unrealised profits or losses is based on the Guidance on Special Matter No. 1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosures Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, issued by the Malaysian Institute of Accountants on 20 December 2010.



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Statement by Directors pursuant to Section 251(2) of the Companies Act, 2016

In the opinion of the Directors,

a) the financial statements set out on pages 29 to 66 are drawn up in accordance with Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia, so as to give a true and fair view of the financial position of the Group and of the Company as of 31 December 2016 and of their financial performance and cash flows for the financial year then ended, and

b) the information set out in Note 28 on page 67 to the financial statements has been compiled in accordance with the Guidance on Special Matter No.1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosures Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, issued by the Malaysian Institute of Accountants, and presented based on the format prescribed by Bursa Malaysia Securities Berhad.

Signed on behalf of the Board of Directors in accordance with a resolution of the Directors:

…………………………….Dato Yu Chee HoeDirector

…………………………….Lau Kiing KangDirector

Kuching,

Date: 31 March 2017

Statutory declaration pursuant to Section 251(1)(b) of the Companies Act, 2016

I, Augustine Law Sek Hian, the officer primarily responsible for the financial management of Hock Seng Lee Berhad, do solemnly and sincerely declare that the financial statements set out on pages 29 to 67 are, to the best of my knowledge and belief, 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 above named Augustine Law Sek Hian, NRIC No. 660820-13-5773 at Kuching in the State of Sarawak on 31 March 2017.

..................................................Augustine Law Sek Hian

Before me:

Pesuruhjaya Sumpah MalaysiaTang King HungNo. Q 019


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A N N U A L R E P O R T 2 0 1 6

Independent Auditors’ Report To The Members Of Hock Seng Lee Berhad

Report on the Audit of the Financial Statements

OpinionWe have audited the financial statements of Hock Seng Lee Berhad, which comprise the statements of financial position as at 31 December 2016 of the Group and of the Company, and the statements of profit or loss and other comprehensive income, statements of changes in equity and statements of cash flows of the Group and of the Company for the year then ended, and notes to the financial statements of the Group and of the Company, including a summary of significant accounting policies, as set out on pages 29 to 66.

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 2016 and of their financial performance and cash flows for the year then ended in accordance with Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia.

Basis for OpinionWe 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 opinion.

Independence and Other Ethical ResponsibilitiesWe 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 MattersKey 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 financial 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. The key audit matters are as follows:

1. Recognition of revenue from construction contracts Refer to page 43 (Note 2(o)(i) Significant accounting policies)

The key audit matter How the matter was addressed in our audit

The Group’s and Company’s largest revenue stream relates to construction contracts of which significant management judgment is involved in the assessment of the current and future financial performance of the contracts.

Construction contracts revenue are accounted for based on the stage of completion method. The stage of completion is determined by reference to the proportion of contract costs incurred for contract work performed to-date bear to the estimated total contract costs.

As disclosed in Note 1(d) to the financial statements, the accurate recording of revenue is highly dependent on judgment exercised by management in assessing the valuation of contract variations, claims and penalties for late deliveries, the completeness and accuracy of estimated costs to complete, and the ability to deliver contracts within the contracted time.

We focused on this area as a key audit matter due to the degree of management judgment involved in the estimation of revenue recognized over the contract life. Changes in judgments and the related estimates throughout a contract life can result in material adjustments to revenue and consequently, the profit margin of contracts.

The key risk areas are as follows:-i) Risk of inaccurate estimation of the costs required to

complete the contracts, which affects the accuracy of revenue recognition;

ii) Risk of revenue recognition on variation orders which are disputed; and

iii) Risk of penalties not factored in revenue recognition.

In these key risk areas, our audit procedures included, amongst others:

We evaluated the controls designed and applied by the Group in the process of determining the revenue recognised in the financial statements.

We challenged the basis of estimations applied by the project management team in regard to the required cost to complete the construction contracts and assessed whether there were management biasness. Our procedures include evaluating the historical accuracy of the Group’s estimation process by comparing actual costs with the estimated costs that had previously been estimated, and testing estimated costs to sub-contractor’s contracts and/or suppliers’ quotations.

We tested the validity and accuracy of variations and claims arising from the contract revenue and sub-contract costs to correspondences, supplementary agreements or variation orders to determine that the variations and claims are approved by the contract customers.

We also assessed if any penalties are payable arising from expected and actual delay in completion of contracts by interviewing with the project management teams and evaluated the construction progress against the contracted completion date.



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2. Recognition of revenue from property development activities Refer to page 43 (Note 2(o)(ii) Significant accounting policies)

The key audit matter How the matter was addressed in our audit

The Group’s and Company’s second largest revenue stream relates to property development activities of which significant management judgment is involved in the assessment of the current and future financial performance of the contracts.

Property development revenue is accounted for based on stage of completion of properties sold, measured by reference to the proportion of property development costs incurred for work performed to-date bear to the estimated total property development costs.

As disclosed in Note 1(d) to the financial statements, the accurate recording of revenue is highly dependent on judgment exercised by management in assessing the penalties for late deliveries, the completeness and accuracy of estimated costs to complete, and the ability to deliver the properties within the contracted time.

We focused on this area as a key audit matter due to the degree of management judgment involved in the estimation of revenue over the course of the project life. Changes in judgments and the related estimates throughout a property development life can result in material adjustments to revenue and profit margin recognised on uncompleted houses.

The key risk areas are as follows:-i) Risk of inaccurate estimation of the costs to complete

the properties, which affects the accuracy of revenue recognition;

ii) Risk of customers not able to commit to the purchases and result in the cancellation of sales; and

iii) Risk of penalties not factored in revenue recognition.

In these key risk areas, our audit procedures included, amongst others:

We evaluated the controls designed and applied by the Group in the process of determining the revenue recognised in the financial statements.

We challenged the basis of estimations applied by the project management team in regard to the required cost to complete the properties and assessed whether there were management biasness. Our procedures include evaluating the historical accuracy of the Group’s estimation process by comparing actual costs with the estimated costs that had previously been estimated, and testing estimated costs to contracts and/or suppliers’ quotations.

We checked to the property sales cancellation report after the financial year end to determine that sales cancellation are appropriately reflected in revenue recognition. We identified buyers that defaulted payments and their commitments to complete the purchase by inspecting correspondences with the buyers.

We assessed if any penalties are payable arising from delay in completion of properties by interviewing the project management teams and evaluating the property development progress against the contracted completion date.

Information Other than the Financial Statements and Auditors’ Report ThereonThe Directors of the Company are responsible for the other information. The other information comprises the information included in the annual report, but does not include the financial statements of the Group and of the Company and our auditors’ report thereon.

Our opinion on the financial statements of the Group and of the Company does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements of the Group and of the Company, our responsibility is to read the other information and, in doing so, consider whether the annual report is materially inconsistent with the financial statements of the Group and of the Company or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of the annual report, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Directors for the Financial StatementsThe Directors of the Company are responsible for the preparation of financial statements of the Group and of the Company that give a true and fair view in accordance with Financial Reporting Standards and the requirements of the Companies Act, 1965 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 ability of the Group and of the Company to continue as 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 and the Company or to cease operations, or have no realistic alternative but to do so.


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A N N U A L R E P O R T 2 0 1 6

Auditors’ Responsibilities for the Audit of the Financial StatementsOur 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 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 conducted in accordance with approved standards on auditing in Malaysia, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements of the Group and of the Company, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control of the Group and of the Company.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related 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 ability of the Group or of the Company to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements of the Group and of the Company or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group or the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements of the Group and of the Company, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that gives a true and fair view.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial statements of the Group. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

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 of the current financial 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.

Other Reporting ResponsibilitiesThe supplementary information set out in Note 28 is disclosed to meet the requirement of Bursa Malaysia Securities Berhad and is not part of the financial statements. The Directors are responsible for the preparation of the supplementary information in accordance with Guidance on Special Matter No. 1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, as issued by the Malaysian Institute of Accountants (“MIA Guidance”) and the directive of Bursa Malaysia Securities Berhad. In our opinion, the supplementary information is prepared, in all material respects, in accordance with the MIA Guidance and the directive of Bursa Malaysia Securities Berhad.



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Other MattersThis 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.

KPMG PLT Nicholas Chia Wei Chit(LLP0010081-LCA & AF 0758) Approval Number: 3102/03/18(J)Chartered Accountants Chartered Accountant

Kuching,

31 March 2017


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A N N U A L R E P O R T 2 0 1 6

No Location Land area (acres)

Tenure / Date lease expires

Usage Book Value (RM’000)

Year of acquisition

1 Lot 893 Block 14 Muara Tuang Land District Sarawak

193.2 Leasehold/ 05/06/2066

Commercial/ residential

development

114,151 2006

2 Lots 30, 44 & 83 Block 12 and Lots 3612-3613, 3615, 4282 & 4922 and Part of Lots 3614, 4276-4277 & 4283Muara Tebas Land District Sarawak

56.8 Leasehold/ 08/08/2109

Industrial development

41,630 2010

3 Lots 3588, 3589, 3590, 3591, 3592, 3601, 3626, 3627, 2924 & 2926 Block 12 Muara Tebas Land District Sarawak

84.0 Leasehold/ 14/05/2111

Industrial development

37,667 2012

4 Blocks 2 & 3 of Lot 7077 Block 9Salak Land District Sarawak

278.7 Leasehold/ 08/04/2098

Commercial/ residential

development

35,079 2012

5 Lots 3583-3584, 4279, 4281 & 4284 and Part of Lots 3614, 4276-4277 & 4283 Muara Tebas Land District Sarawak

37.1 Leasehold/ 08/08/2109

Workshop & stockyard for

own use

17,720 2010

6 Lot 7084 Block 9Salak Land District Sarawak

39.2 Leasehold/ 08/04/2098

Residential development

16,747 2005

7 Lots 110 & 112 Block 223 Kuching North Land District Sarawak

5.45 Leasehold/ 31/12/2038

Residential development

10,773 2000

8 Part of Lots 501 & 874 Block 83Kuching Central Land District Sarawak

3.42 Leasehold/ 31/12/2048

Commercial development

9,310 2000

9 Lots 4570-4763, 4767, 5280, 5285-5287 & 5289 Block 225 Kuching North Land District Sarawak

37.8 Leasehold/ 20/08/2066

Mixed development

9,289 2006

10 Lot 1572 Block 12 Buan Land District Sarawak

47.3 Leasehold/ 23/07/2068

Shipyard & workshop for

own use

8,824 2011

LIST OF TOP 10 PROPERTIES as at 31 December 2016


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Size of holdingsNumber of

shareholders/ depositors

Percentage of shareholders/

depositors

Number of shares held

Percentage of issued capital

Less than 100100 – 1,0001,001 – 10,00010,001 – 100,000100,001 – less than 5% of issued shares5% and above of issued shares

879466

2,4181,231

1402

17.119.07

47.0823.97

2.730.04

32,474283,203

11,445,00632,345,766

131,166,863374,243,907

0.010.052.085.89

23.8768.10

TOTAL 5,136 100.00 549,517,219 100.00

SHAREHOLDING ANALYSIS as at 31 March 2017

Authorised share capital : RM300,000,000 divided into 1,500,000,000 ordinary shares of RM0.20 eachIssued and paid-up capital : RM116,535,200 comprising 582,676,000 ordinary shares of RM0.20 eachClass of shares : Ordinary Shares of RM0.20 eachVoting rights : One (1) vote per ordinary shareNo. of treasury shares held : 33,158,781 ordinary shares

ANALYSIS BY SIZE OF HOLDINGS

Direct interests Indirect interests

No. of shares % No. of shares %

Hock Seng Lee Enterprise Sdn BhdDatuk Yii Chi Hau A

Dato Yu Chee Hoe B

Yii Chee Sing C

Estate of Late Yu Chee LiengAmanahRaya Trustees Berhad- Amanah Saham Bumiputera

321,267,20773

1,367,697694,942

-52,976,700

58.460.000.250.13

-9.64

-58.4658.4658.4658.46

-

SUBSTANTIAL SHAREHOLDERSas shown in the Register of Substantial Shareholders

-321,267,207*321,267,207*321,267,207*321,267,207*

-

Direct interests Indirect interests

No. of shares % No. of shares %

Dato Yu Chee Hoe B

Lau Kiing Kang D

Yii Chee Sing C

Lau Kiing YiingTony Yu Yuong WeeDato’ Idris Bin BuangDato’ Mohd. Nadzir Bin MahmudDr Chou Chii MingTuan Hj Abang Kashim Bin Abang Morshidi

1,367,6971,283,269

694,942287,150

---

124,848-

0.250.230.130.05

---

0.02-

58.460.07

58.460.07

-----

DIRECTORS’ INTERESTSas shown in the Register of Directors’ Interests

321,267,207*399,513#

321,267,207*396,160#

-----

A held through RHB Capital Nominees (Tempatan) Sdn BhdB held through himself and DB (Malaysia) Nominee (Tempatan) Sdn BhdC held through himself and Kenanga Nominees (Tempatan) Sdn BhdD held through himself and CIMSEC Nominees (Tempatan) Sdn Bhd* Deemed interested by virtue of his substantial shareholding in Hock Seng Lee Enterprise Sdn Bhd# Shares held by their respective spouses

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A N N U A L R E P O R T 2 0 1 6

TOP 30 SECURITIES ACCOUNT HOLDERS No. of Holdings

Name Shares Held %

1 HOCK SENG LEE ENTERPRISE SENDIRIAN BERHAD 321,267,207 58.46

2 AMANAHRAYA TRUSTEES BERHAD – AMANAH SAHAM BUMIPUTERA 52,976,700 9.64

3 CITIGROUP NOMINEES (TEMPATAN) SDN BHD – EMPLOYEES PROVIDENT FUND 17,881,414 3.25 BOARD

4 AMANAHRAYA TRUSTEES BERHAD – AMANAH SAHAM MALAYSIA 16,449,600 2.99

5 RHB NOMINEES (TEMPATAN) SDN BHD – PLEDGED SECURITIES ACCOUNT FOR 8,060,000 1.47 YII CHEE MING

6 AMANAHRAYA TRUSTEES BERHAD – AMANAH SAHAM NASIONAL 3 IMBANG 6,000,000 1.09

7 CITIGROUP NOMINEES (TEMPATAN) SDN BHD – EMPLOYEES PROVIDENT FUND 5,771,900 1.05 BOARD (NOMURA)

8 AMANAHRAYA TRUSTEES BERHAD – AS 1MALAYSIA 5,275,700 0.96

9 PERTUBUHAN KESELAMATAN SOSIAL 3,972,200 0.72

10 AMANAHRAYA TRUSTEES BERHAD – AMANAH SAHAM BUMIPUTERA 2 3,655,100 0.67

11 AMANAHRAYA TRUSTEES BERHAD – PUBLIC ISLAMIC OPPORTUNITIES FUND 3,119,800 0.57

12 TAN ENG @ TAN CHIN HUAT 2,800,000 0.51

13 RICHARD YU YUONG HUI 2,721,600 0.50

14 MALACCA EQUITY NOMINEES (TEMPATAN) SDN BHD – EXEMPT AN FOR PHILLIP 2,508,100 0.46 CAPITAL MANAGEMENT SDN BHD

15 FRANCIS YU YUONG HOW 1,829,100 0.33

16 HII KIEW HIONG 1,715,400 0.31

17 HSBC NOMINEES (TEMPATAN) SDN BHD – HSBC (M) TRUSTEE BHD FOR ALLIANZ 1,711,200 0.31 LIFE INSURANCE MALAYSIA BERHAD (MEF)

18 CIMB ISLAMIC NOMINEES (TEMPATAN) SDN BHD – CIMB ISLAMIC TRUSTEE BERHAD 1,581,000 0.29 – KENANGA SYARIAH GROWTH FUND

19 TANG SING NGIIK 1,550,000 0.28

20 CITIGROUP NOMINEES (ASING) SDN BHD – CBNY FOR DFA EMERGING MARKETS 1,539,316 0.28 SMALL CAP SERIES

21 AMSEC NOMINEES (TEMPATAN) SDN BHD – NOMURA ASSET MANAGEMENT 1,506,300 0.27 MALAYSIA SDN BHD FOR TENAGA NASIONAL BERHAD RETIREMENT BENEFIT TRUST FUND

22 CITIGROUP NOMINEES (ASING) SDN BHD – CBNY FOR EMERGING MARKET CORE 1,486,112 0.27 EQUITY PORTFOLIO DFA INVESTMENT DIMENSIONS GROUP INC

23 CITIGROUP NOMINEES (TEMPATAN) SDN BHD – KENANGA ISLAMIC INVESTORS BHD 1,356,300 0.25 FOR LEMBAGA TABUNG HAJI

24 AMANAHRAYA TRUSTEES BERHAD – PUBLIC ISLAMIC TREASURES GROWTH FUND 1,259,700 0.23

25 LAU KIING KANG 1,258,300 0.23

26 CITIGROUP NOMINEES (TEMPATAN) SDN BHD – KUMPULAN WANG PERSARAAN 1,199,000 0.22 (DIPERBADANKAN) (MIDF AM IS EQ)

27 CHAN LING LEE 1,134,100 0.21

28 CITIGROUP NOMINEES (TEMPATAN) SDN BHD – KUMPULAN WANG PERSARAAN 969,000 0.18 (DIPERBADANKAN) (NOMURA)

29 AMANAHRAYA TRUSTEES BERHAD – PUBLIC STRATEGIC SMALLCAP FUND 953,500 0.17

30 YU CHEE HOE 939,957 0.17 TOTAL 474,447,606 86.34

SHAREHOLDING ANALYSIS as at 31 March 2017


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Material Contracts Involving Directors And Major ShareholdersThere were no material contracts of the Company and its subsidiaries involving directors and substantial shareholders during the financial year ended 31 December 2016 other than the recurrent related party transactions (“RPT”) as disclosed below.

Recurrent Related Party Transactions (“RPT”)The Shareholder Mandate for the Group to enter into RPT of a revenue and trading nature was renewed at the last Annual General Meeting of Hock Seng Lee Berhad held on 19 May 2016. Details of the RPT conducted during the financial year ended 31 December 2016 pursuant to the Shareholder Mandate are as follows:

The Related Parties include companies with shareholdings by Dato Yu Chee Hoe, Yii Chee Sing, the estate of late Yu Chee Lieng, Datuk Yii Chi Hau and/or Lau Kiing Kang and Lau Kiing Yiing (Lau Brothers) and/or persons connected to them.

Non-Audit FeesThe amount of non-audit fees paid by the Group and the Company to the external auditors for professional services rendered for the financial year ended 31 December 2016 was RM29,250.00 and RM20,250 respectively.

Nature of Transactions Related Parties Value of RPT (RM’000)

Income on hiring plant and machinery and vessels Hock Seng Lee Corporation Sdn Bhd and its subsidiaries (1,855)

Purchase of motor vehicles and machinery Hock Seng Lee Timber Sdn Bhd and its subsidiariesHock Seng Lee Heavy Industries Sdn Bhd

290

Purchase of consumables and raw materials Hock Seng Lee Corporation Sdn Bhd and its subsidiariesMegapron Engineering Sdn BhdLau Kou Chiong & Sons Sdn Bhd

37,468

Repair and maintenance services Hock Seng Lee Timber Sdn Bhd and its subsidiariesHock Seng Lee Holdings Sdn Bhd and its subsidiaries

95

Hire of plant and machinery and vessels Hock Seng Lee Timber Sdn Bhd and its subsidiariesHock Seng Lee Heavy Industries Sdn BhdHock Seng Lee Corporation Sdn Bhd and its subsidiariesMegakina Shipping Sdn BhdJentera Ceria Sdn Bhd

3,518

Rental of premises Hock Seng Lee Realty Sdn BhdHock Seng Lee Timber Sdn BhdHock Seng Lee Holdings Sdn Bhd and its subsidiaries

60

Freight and handling charges Hock Seng Lee Timber Sdn Bhd and its subsidiariesHock Seng Lee Corporation Sdn Bhd and its subsidiariesMegakina Shipping Sdn BhdJentera Ceria Sdn Bhd

1,296

Piling and geotechnical services Borneo Geotechnical Engineering Sdn BhdBorneo Ground Engineering Sdn Bhd

6,919

Trenchless engineering and construction services Red Dot Tunnelling Sdn Bhd 111

Aggregate Gross Value 51,612

OTHER INFORMATION

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A N N U A L R E P O R T 2 0 1 6

NOTICE IS HEREBY GIVEN THAT the Thirty-Sixth Annual General Meeting (“AGM”) of Hock Seng Lee Berhad (“the Company”) will be held at Riverside Majestic Hotel, Jalan Tunku Abdul Rahman, 93100 Kuching, Sarawak, Malaysia at 9.00 am on 25 May 2017 for the following business:

ORDINARY BUSINESS

1. To receive the Audited Financial Statements for the financial year ended 31 December 2016 together with the Reports of the Directors and Auditors thereon.

2. To approve the payment of a final single tier exempt dividend of 7% per ordinary share of RM0.20 each for the financial year ended 31 December 2016 as recommended by the Directors.

3. To approve the payment of Directors’ fees to Non-executive Directors of up to RM214,400 (2015: RM214,400) for the financial year ending 31 December 2017.

4. To approve the payment of Directors’ remuneration (excluding Directors’ fees) to Non-executive Directors of up to an amount of RM60,000 from 1 January 2017 until the next AGM of the Company.

5. To re-elect as a Director, Dato’ Haji Idris Bin Buang, who retires by rotation pursuant to Article 115 of the Company’s Articles of Association.

6. To re-elect as a Director, Mr Lau Kiing Yiing, who retires by rotation pursuant to Article 115 of the Company’s Articles of Association.

7. To re-elect as a Director, Mr Tony Yu Yuong Wee, who retires by rotation pursuant to Article 115 of the Company’s Articles of Association.

8. To re-appoint Messrs KPMG PLT as auditors of the Company and to authorise the Board of Directors to fix their remuneration.

SPECIAL BUSINESSTo consider and if thought fit, pass the following Ordinary Resolutions:

9. PROPOSED RENEWAL OF AUTHORITY FOR SHARE BUY-BACK

“THAT, subject to the Companies Act, 2016, the Company’s Articles of Association and the requirements of Bursa Malaysia Securities Berhad (“Bursa Malaysia”) and any other relevant authorities, the Company be and is hereby authorised to purchase such number of ordinary shares of RM0.20 each (“Shares”) in the Company (“Proposed Share Buy-Back”) as may be determined by the Directors of the Company (“Directors”) from time to time through Bursa Malaysia upon such terms and conditions as the Directors may deem fit, necessary and expedient in the interest of the Company provided that:

i. the maximum number of Shares which may be purchased and/or held by the Company pursuant to this resolution shall not exceed ten percent (10%) of the total issued and paid-up share capital of the Company at the point of purchase provided that in the event that the Company ceases to hold all or any part of such Shares Purchased as a result of cancellation of shares, sale of shares on the market of Bursa Malaysia or distribution of treasury shares to shareholders as share dividends, the Company shall be entitled to further purchase and/or hold such additional number of Shares provided that such further purchase in aggregate with the treasury shares held by the Company at the point of purchase shall not exceed ten percent (10%) of the total issued and paid up share capital of the Company for the time being; and

ii. the maximum amount of funds to be allocated by the Company for the Proposed Share Buy-Back shall not exceed the Company’s latest audited retained earnings of RM513,510,861 as at 31 December 2016.

AND THAT authority be and is hereby given to the Directors to decide in their absolute discretion to either retain the Shares purchased by the Company as treasury shares to be either distributed as share dividends or resold on Bursa Malaysia or subsequently cancelled, or to cancel the Shares so purchased, or a combination of both AND THAT the Directors of the Company be and are hereby authorised to act and to take all such steps and to do all things as they may deem necessary or expedient to implement, finalise and to give full effect to the Proposed Share Buy-Back.

AND FURTHER THAT the authority hereby given shall commence immediately upon passing of this ordinary resolution and shall continue in force until:-

(a) the conclusion of the next AGM of the Company at which time it shall lapse, unless by ordinary resolution passed at that meeting, the authority is renewed, either unconditionally or subject to conditions;

RESOLUTION

1

2

3

4

5

6

7

8

9

NOTICE OF ANNUAL GENERAL MEETING


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(b) the expiration of the period within which the next AGM is required by law to be held;

(c) revoked or varied by ordinary resolution passed by the shareholders in general meeting,

whichever occurs first”

10. PROPOSED RENEWAL OF SHAREHOLDER MANDATE IN RELATION TO THE RELATED PARTY TRANSACTIONS INVOLVING RECURRENT TRANSACTIONS OF A REVENUE OR TRADING NATURE (“Proposed Shareholder Mandate”)

“THAT pursuant to Paragraph 10.09 of Chapter 10 of the Listing Requirements of Bursa Malaysia, the Directors of the Company be and are hereby empowered to enter into recurrent related party transactions of a revenue or trading nature of the activities as set out in Section 3.1.1 of the Circular to shareholders which are necessary for its day-to-day operations and are in the ordinary course of business and are on terms not more favourable to the related party than those generally available to the public at any time until:-

(a) the conclusion of the next AGM of the Company, at which time the shareholder mandate will lapse, unless by a resolution passed at the meeting, the authority is renewed;

(b) the expiration of the period within which the next AGM after the date it is required to be held pursuant to section 340(1) of the Companies Act, 2016 (but shall not extend to such extension as may be allowed pursuant to section 340(2) of the Companies Act, 2016); or

(c) revoked or varied by resolution passed by the shareholders in general meeting,

whichever is the earlier, upon such terms and conditions as the Directors of the Company, may in their absolute discretion deem fit.

AND THAT the Directors of the Company be and are hereby authorised to complete and to do all such acts and things they may consider expedient or necessary to give effect to the Proposed Shareholder Mandate.”

11. To retain as an Independent Director, Dato’ Haji Idris Bin Buang, who has served in that capacity for a cumulative term of more than nine years.

12. To retain as an Independent Director, Dr Chou Chii Ming, who has served in that capacity for a cumulative term of more than nine years.

13. To retain as an Independent Director, Tuan Haji Abang Kashim Bin Abang Morshidi, who has served in that capacity for a cumulative term of more than nine years.

10

11

12

13

NOTICE OF DIVIDEND ENTITLEMENT DATE AND PAYMENTNOTICE IS ALSO HEREBY GIVEN THAT, subject to the approval of the shareholders at the Thirty-sixth AGM a final single tier exempt dividend of 7% per ordinary share in respect of the financial year ended 31 December 2016 will be paid on 23 June 2017 to Depositors whose name appears in the Record of Depositors on 9 June 2017.

A Depositor shall qualify for entitlement to the Dividend only in respect of:

(a) Shares transferred into the Depositor’s Securities Account before 4.00 pm on 9 June 2017 in respect of transfers; and

(b) Shares bought on Bursa Malaysia Securities Berhad on a cum entitlement basis in accordance with the Rules of Bursa Malaysia Securities Berhad.

By Order of the Board

Augustine Law Sek Hian (MIA No. 10087)Company Secretary

Kuching26 April 2017


79 /////

A N N U A L R E P O R T 2 0 1 6

GENERAL MEETING RECORD OF DEPOSITORS1. For the purpose of determining a member who shall be entitled to attend this AGM, the Company shall request Bursa Malaysia

Depository Sdn Bhd to issue a General Meeting Record of Depositors as at 18 May 2017. Only a depositor whose name appears on the General Meeting Record of Depositors as at 18 May 2017 shall be entitled to attend this AGM or to appoint proxies to attend and/or vote on his/her behalf.

PROXY2. A member of the Company entitled to attend and vote at this meeting is entitled to appoint any person as his/her proxy to attend

and vote instead of the member at the meeting.

3. Where a member appoints two proxies, the appointment shall be invalid unless he/she specifies the proportions of his/her holdings to be represented by each proxy.

4. Where a member is an exempt authorised nominee which holds ordinary shares in the Company for multiple beneficial owners in one 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.

5. The instrument appointing a proxy in the case of an individual shall be signed by the appointer, or his/her attorney duly authorised in writing and in the case of a corporation the instrument appointing a proxy must be under Seal or under the hand of an attorney duly authorised in writing.

6. The instrument appointing a proxy must be completed, signed and deposited at the Registered Office of the Company at Lot 1004, Jalan Kwong Lee Bank, 93450 Kuching, Sarawak, Malaysia not less than forty-eight (48) hours before the time set for holding the meeting or any adjournment thereof.

ABSTENTION FROM VOTING7. The payment of Directors’ fees and Directors’ remuneration shall be distributed to the Non-executive Directors. All the Non-

executive Directors of the Company who are shareholders of the Company will abstain from voting on Resolutions 3 and 4 concerning the payment of Directors’ fees and Directors’ remuneration.

8. The Directors and major shareholders and persons connected to them as disclosed in 3.2 of the Circular to Shareholders will abstain from voting on Resolution 10 pertaining to the Proposed Renewal of Shareholder Mandate in relation to the related party transactions involving recurrent transactions of a revenue or trading nature.

EXPLANATORY NOTES ON SPECIAL BUSINESS9. Ordinary Resolution Pursuant To Proposed Renewal of Authority for Share Buy-Back The proposed Ordinary Resolution 9, if passed, will give the Directors of the Company authority to purchase the Company’s

Shares through Bursa Malaysia Securities Berhad up to ten percent (10%) of the issued and paid up share capital of the Company. This authority, unless revoked or varied at a general meeting, will expire at the conclusion of the next AGM of the Company. Further information on the Proposed Renewal of Authority for Share Buy-Back is set out in the Circular to Shareholders of the Company dated 26 April 2017 which is despatched together with the Company’s Annual Report 2016.

10. Ordinary Resolution Pursuant To Proposed Renewal of Shareholder Mandate For Ordinary Resolution 10, further information on the Proposed Renewal of Shareholder Mandate in relation to the related

party transactions involving recurrent transactions of a revenue or trading nature is set out in the Circular to Shareholders of the Company dated 26 April 2017 which is despatched together with the Company’s Annual Report 2016. This mandate, if approved, will expire at the conclusion of the next AGM of the Company unless revoked or varied at a general meeting.

11. Ordinary Resolutions 11, 12 and 13 - To Retain Dato’ Haji Idris Buang, Dr Chou Chii Ming and Tuan Haji Abang Kashim Bin Abang Morshidi as Independent Directors

In line with the Malaysian Code on Corporate Governance 2012, the Nomination Committee has assessed the independence of Dato’ Haji Idris Buang, Dr Chou Chii Ming and Tuan Haji Abang Kashim Bin Abang Morshidi who have served as Independent Directors of the Company for more than nine years. The Board of Directors concurred with the recommendation of the Nomination Committee that Dato’ Haji Idris Buang, Dr Chou Chii Ming and Tuan Haji Abang Kashim Bin Abang Morshidi can continue to bring independent and objective judgements to board deliberations and recommended them to continue to act as independent directors of the Company.

Dato’ Haji Idris Buang has been an Independent Non-executive Director since 1996 and became Chairman of HSL in 2008. Dato’ Idris is familiar with the Group’s unique operations and the Sarawak business climate making his contribution and experience highly valuable. Dato’ Idris is a person of social standing in the local community and has presided over the Company during which time its performance has been exemplary. Dato’ is clearly able to maintain an independent judgment given he has no executive role or shareholding in the Company, is not related to any executive director or other staff members of the Company, not acting as nominee of any executive director or major shareholders of the Company, nor has any other involvement in the day to day business of the Company or being engaged as an advisor or involved in any business transactions with the Group that would compromise his independence. Dato’ has proven to be professional, diligent and able to bring



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independent and objective judgments in board deliberations and putting the interests of the Group to the fore as well as proactively promoting the best practices of internal controls and corporate governance.

Dr Chou joined the board in 2001 and he continues to contribute his extensive experience and knowledge to our Board. Dr Chou is a highly respected community leader and his corporate/community background, robust health and thorough understanding of Board procedures and HSL’s specialised business enables him to provide objective and well-considered input. Dr Chou is clearly able to maintain an independent judgment given he has no executive role or major shareholding in the Company, is not related to any executive director or other staff members of the Company, not acting as nominee of any executive director or major shareholders of the Company, nor has any other involvement in the day to day business of the Company or being engaged as an advisor or involved in any business transactions with the Group that would compromise his independence. He has proven to be professional, diligent and able to bring independent and objective judgments in board deliberations and putting the interests of the Group to the fore as well as proactively promoting the best practices of internal controls and corporate governance.

Tuan Haji Abang Kashim Bin Abang Morshidi joined the board in 2008 and has been contributing his extensive experience and knowledge to our Board. Tuan Haji Abang Kashim Bin Abang Morshidi is a well-respected professional with high level of integrity and has good understanding of Board procedures. He has been able to provide objective and well-considered input in Board deliberation. Tuan Haji Abang Kashim Bin Abang Morshidi is clearly able to maintain an independent judgment given he has no executive role or major shareholding in the Company, is not related to any executive director or other staff members of the Company, not acting as nominee of any executive director or major shareholders of the Company, nor has any other involvement in the day to day business of the Company or being engaged as an advisor or involved in any business transactions with the Group that would compromise his independence. He has proven to be professional, diligent and able to bring independent and objective judgments in board deliberations and putting the interests of the Group to the fore as well as proactively promoting the best practices of internal controls and corporate governance.

FURTHER DETAILS OF DIRECTORS WHO ARE STANDING FOR RE-ELECTION12. Details of Directors who are standing for re-election are set out in the Profile of Directors on pages 16 to 17 of the Annual Report

2016. Information relating to the respective Director’s interest in the securities of the Company and its subsidiaries is set out on pages 26 to 27 of the Annual Report 2016.


HOCK SENG LEE BERHAD(Company No.: 045556-X)

FORM OF PROXY

I/We (full name as per NRIC/company name in block capitals) ............................................................................................................

NRIC/Company No. ............................................................................................................................................................................

of (full address) ...................................................................................................................................................................................

being a member of HOCK SENG LEE BERHAD hereby appoint (full name as per NRIC in block capitals) ..................................... ………………………………………………………………………................................................. NRIC ................................................

of (full address) …………………………………………….................…..………………………………………………..…………………… or failing him/her ………………………………………………….................................................. NRIC ................................................

of (full address) ................................................................................................................................................................................... as my/our proxy to vote for me/us and on my/our behalf at the Annual General Meeting of the Company to be held on 25 May 2017 or at any adjournment thereof.

RESOLUTIONS FOR AGAINST

1. Declaration of a final single tier dividend of 7% per ordinary share for the financial year ended 31 December 2016

2. Approval of the payment of Directors’ fees of up to RM214,400 for the financial year ending 31 December 2017

3. Approval of the payment of Directors’ remuneration (excluding Directors’ fees) of up to an amount of RM60,000 from 1 January 2017 until the next AGM of the Company.

4. Re-election of Dato’ Haji Idris Bin Buang as Director

5. Re-election of Mr Lau Kiing Yiing as Director

6. Re-election of Mr Tony Yu Yuong Wee as Director

7. Re-appointment of Messrs KPMG PLT as auditors of the Company and to authorise the Board of Directors to fix their remuneration

8. Renewal of Authority for the Proposed Share Buy-Back

9. Renewal of Shareholder Mandate in relation to the related party transactions involving recurrent transactions of a revenue or trading nature

10. Retention of Dato’ Haji Idris Bin Buang as an Independent Director

11. Retention of Dr Chou Chii Ming as an Independent Director

12. Retention of Tuan Haji Abang Kashim Bin Abang Morshidi as an Independent Director

(Please indicate with a “ √ ” in the space above how you wish your vote to be cast. If no specific direction as to voting is indicated above, the proxy will vote or abstain from voting as he/she thinks fit.)

Dated this .............. day of ..........………………2017

Signature of shareholder

NOTES:i. A member of the Company entitled to attend and vote at this meeting is entitled to appoint any person as his/her proxy to attend and vote instead

of the member at the meeting.

ii. Where a member appoints two proxies, the appointment shall be invalid unless he/she specifies the proportions of his/her holdings to be represented by each proxy.

iii. Where a member is an exempt authorised nominee who holds ordinary shares in the Company for multiple beneficial owners in one securities account (“omnibus account”), there is no limit to the number of proxies the exempt authorised nominee may appoint in respect of each omnibus account he/she or the member holds.

iv. The instrument appointing a proxy, in the case of an individual, shall be signed by the appointer, or his/her attorney duly authorised in writing, and in the case of a corporation, the instrument appointing a proxy must be under Seal or under the hand of an attorney duly authorised in writing.

v. The instrument appointing a proxy must be completed, signed and deposited at the Registered Office of the Company at Lot 1004, Jalan Kwong Lee Bank, 93450 Kuching, Sarawak, Malaysia not less than forty-eight (48) hours before the time set for holding the meeting or any adjournment thereof.

No. of shares held

The Company SecretaryHOCK SENG LEE BERHADLot 1004 Jalan Kwong Lee Bank93450 KuchingSarawakMalaysia

stamp

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