SUMATEC RESOURCES BERHAD - Fundamental Analysis - AR 2016 (b).pdf · SUMATEC RESOURCES BERHAD (428355-D) A L REPORT 2016 SUMATEC RESOURCES BERHAD (428355-D) Level 15-2 Bangunan Faber

Annual Report 2016

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SUMATEC RESOURCES BERHAD(428355-D)

ANNUAL REPORT 2016

www.sumatec.com


Level 15-2Bangunan Faber Imperial CourtJalan Sultan Ismail50250 Kuala Lumpur, MalaysiaTel : 603-2692 4271Fax : 603-2732 5388

The leading Malaysian Independent Oil & Gas

Operator focused on developing proven oil &

gas assets

OVERVIEW00 Vision & Mission 01 Code of Business Conduct02 About Us03 Corporate Information04 Corporate Structure05 Board of Directors’ Profile08 Senior Management’s Profile10 Management Discussion and Analysis15 Five-Year Financial Highlights16 Financial Calendar

GOVERNANCE17 Statement on Corporate Governance30 Audit Committee Report33 Statement on Risk Management and

Internal Control39 Other Additional Compliance

Information42 Statement on Director’s Responsibility

FINANCIAL REVIEW43 Financial Statements

OTHER INFORMATION126 Analysis of Shareholdings129 Analysis of Warrant Holdings135 List of Properties136 Notice of Annual General Meeting

* Form of Proxy

CONTENTS

20th

ANNUAL GENERAL MEETING

will be held at 11.00 am on Thursday15 June 2017 at Shah Alam 2 (Ground Floor)

Shah Alam Convention Centre, No. 4 Jalan Perbadanan 14/9, 40000 Shah Alam

Selangor, Malaysia

1

Through innovation, efficiency and safety we will improve the performance of the Company’s oil and gas assets

To ensure that communities benefit from our presence, we are committed to:

► Engage in local employment and national succession planning

► Practice transfer of skills and knowledge from foreign staff to local

► Conduct local community projects to improve their health, education and / or welfare through corporate social responsibility programs

► Respect local society and their traditions► Minimise impact on local community that may be

caused by our operations

We will respect and earn the respect of the countries in which we operate. This is integral to our successful performance.

Wherever we operate, we are committed to:

► Observe local laws and rules► Respect the sovereignty of the state

SUMATEC understands that the performance of employees as a collective and/or individual is key to the success of the company.

We therefore aim to achieve maximum work satisfaction and performance by committing to:

► Respect and promote employees’ rights► Offer rewarding working conditions► Provide a safe and healthy working environment► Realise each employee’s individual potential

through training and job promotion► Respect the cultural diversity of our employees► Ensure equal opportunity without discrimination

SUMATEC will achieve high standards of efficiency by committing to:

► Always seek growth opportunities► Promote innovation throughout our operations► Be flexible and take measured business risks

without compromising safety► Free and fair competition for all suppliers► Maintain transparency in the way we conduct

operations► Protect our staff and operations through

appropriate policies and regulations► Refrain from accepting/offering improper

payments, gifts or engaging in bribery or any form of corrupt business practices

► Expect similar standards from our partners and contractors

Business Employees

Host Countries Local Communities

CODE OF BUSINESSCONDUCT

Annual Report 2016

Sumatec Resources Berhad (428355-D)

2

The Group, which completed its financial and business restructuring plan in November 2013, saw itself entering the upstream sector via a joint investment agreement with Markmore Energy (Labuan) Limited and CaspiOilGas LLP to develop the Rakushechnoye Oil and Gas Field in West Kazakhstan (“Rakushechnoye Field”).

In realising its vision to be a leading Malaysian Independent Oil and Gas operator, Sumatec will continue to look for opportunities to acquire and develop new and under-performing oil and gas fields. Our target assets will be mainly onshore and with certified proven reserves, as this reduces the capital cost of infrastructure required and also eliminates the risk of no show of hydrocarbon. We will only select the assets that provide maximum return for shareholder investment through short term production enhancement and long term sustainable production growth.

Sumatec Resources Berhad (SUMATEC-1201) is listed on the Main Market of Bursa Securities.

ABOUTUS

Annual Report 2016

3

CORPORATE INFORMATION

BOARD OF DIRECTORS

Michael Lim Hee KiangIndependent Non-Executive Director (Chairman)

Abu Talib Bin Abdul Rahman Managing Director

Dato’ Ahmad Johari Bin Abdul RazakIndependent Non-Executive Director(Resigned effective from 19 April 2017)

Mahusni Bin HasnanIndependent Non-Executive Director

Mohamad Bin Ismail Independent Non-Executive Director

Datuk Che Mokhtar Bin Che AliIndependent Non-Executive Director(Resigned effective from 19 April 2017)

Liew Boon KeatNon-Independent Non-Executive Director

Wan Kamaruddin Bin Dato’ Biji Sura @ Wan AbdullahNon-Independent Non-Executive Director

Chan Yok PengNon-Independent Non-Executive Director(Resigned effective from 3 March 2017)

PRINCIPAL OFFICER

Present Abu Talib Bin Abdul RahmanManaging Director(Appointed effective from 1 January 2017)

Dr Chang Kok Lip (Felix)Chief Technical Officer(Appointed effective from 3 January 2017)

Ahmad Syazali Bin Abdul KhalilBranch Manager / General Director(Appointed effective from 3 January 2017)

FormerChan Yok PengManaging Director(Resigned effective from 31 December 2016)

Roshidah Binti Abdullah Chief Financial Officer (Resigned effective from 31 October 2016)

AUDIT COMMITTEE

Present Mahusni Bin HasnanChairman(Appointed effective from 25 October 2016)

Michael Lim Hee KiangMember(Re-designated effective from 25 October 2016)

Mohamad Bin Ismail Member

FormerDatuk Mohd Nasir Bin AhmadMember (Ceased effective from 2 June 2016)

REMUNERATION COMMITTEE

Present Datuk Che Mokhtar Bin Che AliChairman(Resigned effective from 19 April 2017)

Liew Boon KeatMember(Appointed effective from 23 November 2016)

Michael Lim Hee KiangMember

FormerTan Sri Abu Talib Bin OthmanChairman (Ceased effective from 2 June 2016)

Chan Yok PengMember(Ceased effective from 11 October 2016)

NOMINATION COMMITTEE

Present Datuk Che Mokhtar Bin Che AliChairman(Resigned effective from 19 April 2017)

Liew Boon KeatMember (Appointed effective from 23 November 2016)

Michael Lim Hee KiangMember

FormerTan Sri Abu Talib Bin OthmanChairman (Ceased effective from 2 June 2016)

ESOS COMMITTEE

PresentMichael Lim Hee KiangChairman(Appointed effective from 11 October 2016)

Abu Talib Bin Abdul RahmanMember(Appointed effective from 11 October 2016)

Datuk Che Mokhtar Bin Che AliMember(Resigned effective from 19 April 2017)

FormerDatuk Mohd Nasir Bin AhmadChairman (Ceased effective from 2 June 2016)

Chan Yok PengMember(Ceased effective from 9 January 2017)

INVESTMENT COMMITTEE

Present Mohamad Bin Ismail Chairman(Re-designated effective from 11 October 2016)

Abu Talib Bin Abdul Rahman Member(Appointed effective from 11 October 2016)

Datuk Che Mokhtar Bin Che AliMember(Resigned effective from 19 April 2017)

Former Chan Yok Peng Member (Ceased effective from 9 January 2017)

Wan Kamaruddin Bin Dato’ Biji Sura @ Wan AbdullahMember (Ceased effective from 11 October 2016)

QHSE RISK COMMITTEE

Present Mohamad Bin IsmailChairman

Abu Talib Bin Abdul Rahman Member(Appointed effective from 9 January 2017)

Liew Boon KeatMember(Appointed effective from 11 October 2016)

Former Chan Yok Peng Member (Ceased effective from 9 January 2017)

Wan Kamaruddin Bin Dato’ Biji Sura @ Wan AbdullahMember (Ceased effective from 11 October 2016)

COMPANY SECRETARIESLim Seck Wah(MAICSA 0799845)

M. Chandrasegaran A/L S. Murugasu (MAICSA 0781031)

REGISTERED OFFICELevel 15-2, Bangunan Faber Imperial Court,Jalan Sultan Ismail, 50250 Kuala Lumpur.Tel: 603-2692 4271Fax: 603-2732 5388E-mail: [email protected]

PRINCIPAL PLACE OF BUSINESSSuite 22.02, Level 22The Gardens North TowerMid Valley City, Lingkaran Syed Putra,59200 Kuala Lumpur.

SHARE REGISTRARMega Corporate Services Sdn BhdLevel 15-2, Bangunan Faber Imperial Court,Jalan Sultan Ismail, 50250 Kuala Lumpur.Tel: 603-2692 4271Fax: 603-2732 5388E-mail: [email protected]

AUDITORSMessrs SJ Grant Thornton Chartered Accountants Level 11, Sheraton Imperial Court,Jalan Sultan Ismail, 50250 Kuala Lumpur.

SOLICITORSShearn Delamore & CoBahari & BahariMorgan Lewis Stamford LLCSignum Law Firm Abu Talib ShahromMunhoe & Mar

PRINCIPAL BANKERSAlliance Bank Malaysia Berhad Alliance Islamic Bank Berhad Al-Rajhi Banking & Investment Corporation (Malaysia) Berhad

STOCK EXCHANGE LISTINGMain MarketBursa Malaysia Securities BerhadStock Name : SUMATECStock Code : 1201


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CORPORATE STRUCTURE

SUMATEC CORPORATION SDN. BHD.

SUMATEC OIL AND GAS LLP (Registered in the Republic of Kazakhstan)

Sumatec Development

Sdn. Bhd.

Sumatec Petroleum Development

Sdn. Bhd.

100%

100%

100% 100%

Annual Report 2016

5

BOARD OF DIRECTORS’ PROFILE

MICHAELLIM HEE KIANG CHAIRMAN / INDEPENDENT NON-EXECUTIVE DIRECTORAGE 69, MALE, MALAYSIAN

Position in the Company ► Appointed as Independent Non-Executive

Director: 23 January 2014► Appointed as Chairman: 25 August 2016► Chairman of the ESOS Committee► Member of Audit, Nomination and Remuneration

Committees

Qualification► Bachelor of Laws with Honours, Victoria

University of Wellington, New Zealand► Master of Laws with Distinction, Victoria

University of Wellington, New Zealand

Working Experiences ► 1973: Admitted to practise law in the Supreme

Court of New Zealand► 1974: Practising law in the High Court of Borneo,

Kuching and the High Court of Brunei► 1975 – 1997: Lecturer in the Law Faculty of

University Malaya► 1978: Joined Messrs Shearn Delamore & Co► 1979 – 2010: Became partner in Shearn

Delamore & Co until his retirement on 1 January 2010

► He is currently a consultant with the legal firm, Messrs Jeff Leong, Poon & Wong

Directorship in Public Companies ► DKSH Holdings (Malaysia) Berhad► Selangor Properties Berhad► Paragon Union Berhad► Hektar Real Estate Investment Berhad

ABU TALIB BIN ABDUL RAHMANMANAGING DIRECTORAGE 64, MALE, MALAYSIAN

Position in the Company ► Appointed as Non-Independent Non-Executive

Director: 1 July 2016► Re-designated as Managing Director: 1 January

2017► Member of Investment, ESOS and Quality Health

Safety & Environment Risk Committees

Qualification► Bachelor of Laws, University of London ► Certificate of Legal Practice from Lembaga

Kelayakan Malaysia

Working Experiences ► 1979 – 1980: Served as Legal Officer of Bank

Pertanian Malaysia► 1980 – 1981: Manager of Asiavest Merchant

Bankers Berhad ► 1981 – 1986: Accountant in Bank Bumiputera

Malaysia Berhad ► 1986 – 1991: Served as partner of two legal

firms ► 1991 – 2016: Managing and founding partner of

Abu Talib Shahrom (Legal Firm)► Former Director of United Engineers (Malaysia)

Berhad► Served as Company Secretary to several Public

Listed Companies► Now, he is serving as director to several private

companies► Ceased practice as advocate, solicitors and notary

public since 1 January 2017

Directorship in Public Companies ► Ranhill Holdings Berhad ► Senai Desaru Expressway Berhad


6

MAHUSNI BIN HASNANINDEPENDENT NON-EXECUTIVE DIRECTORAGE 53, MALE, MALAYSIAN

Position in the Company ► Appointed as Independent Non-Executive Director:

20 October 2016► Chairman of Audit Committee

Qualification► MBA in Finance, University of Hull, England► Bachelor of Arts (Hons) Degree in Accounting and

Finance, Thames Valley University, London, England

Working Experiences ► 1990 – 1992: Started as an Assessment Officer in

Inland Revenue Department ► 1992 – 1993: Senior Tax Consultant in Arthur

Anderson Tax Services Sdn Bhd► 1994 – 1997: Senior Executive Officer in Issues and

Investment Division in Securities Commission► 1997 – 2001: General Manager Corporate and

Group Financial Controller in Amtel Holdings Berhad

► 2002 – 2003: First Vice President in Affin Merchant Bank Berhad

► 2006 – 2007: Executive Director in Aftaas Corporate Advisory Services Sdn Bhd

► June – August 2007: Group General Manager – Corporate Finance & Planning in Terengganu Incorporated Berhad

► November 2007 – January 2011: Chief Financial Officer in Scomi India, Head of Commercial Alliances in Scomi International, Head of Sosma in Scomi Chemical, Senior General Manager – Strategic Development

► March 2011 – December 2011: Chief Executive Officer in JP Logistics Sdn Bhd (subsidiary of Johor Port Berhad)

► 2012 – 2014: Chief Executive Officer in Seaport Worldwide Sdn Bhd (subsidiary of Johor Port Berhad)

Directorship in Public Companies ► He does not hold any directorships in any other

public companies

BOARD OF DIRECTORS’ PROFILE CONT’D

MOHAMAD BIN ISMAIL INDEPENDENT NON-EXECUTIVE DIRECTORAGE 66, MALE, MALAYSIAN

Position in the Company ► Appointed as Independent Non-Executive

Director: 15 August 2013► Chairman of Investment and Quality Health Safety

& Environment Risk Committees► Member of Audit Committee

Qualification► Bachelor of Science (Chemistry), University of

Malaya

Working Experiences ► 1977 – 2005: Started his career as a Reservoir

Engineer (Exploration and Production Department) with PETRONAS and later on assumed various positions in the PETRONAS Group of Companies, both locally and abroad

► 2006: Appointed as Vice President (Business Development) of Bergesen Worldwide Offshore, a public listed company based in Oslo, Norway

► 2010: Started own business


public companies

Annual Report 2016

7

BOARD OF DIRECTORS’ PROFILE CONT’D

LIEW BOON KEATNON-INDEPENDENT NON-EXECUTIVE DIRECTORAGE 46, MALE, MALAYSIAN


Director: 1 July 2016► Member of the Nomination, Remuneration,

and Quality Health Safety & Environment Risk Committees

Qualification► Bachelor of Business Administration (BBA)

Degree in Finance and Economics, University of Kentucky, United States of America

Working Experiences ► 1997 – 2001: Started as a Manager in the Finance

Division with Tenaga Nasional Berhad (TNB) subsidiary company, Tenaga Nasional Engineering and Consultancy Sdn Bhd where he worked in the Project and Implementation Fibre Optic Cable in the Central and Eastern part of Malaysia

► 2001 – 2002: Appointed as Vice President (Business Development) Citibank Berhad, a Global Consumer Bank, USA

► 2002 – Present: Joined Markmore Group of Companies in the Finance and Investment Division and appointed as Group Financial Controller.


public companies

Note:► None of the Directors has any family relationship with any other

Director and / or major shareholder nor conflict of interest in business arrangement involving the Company.

► None of the Directors has been convicted of any offences for the past ten (10) years other than traffic offences, if any.

► Directors’ interests in securities of the Company are disclosed on page 45 of the Annual Report.

WAN KAMARUDDIN BIN DATO’ BIJI SURA @ WAN ABDULLAHNON-INDEPENDENT NON-EXECUTIVE DIRECTORAGE 60, MALE, MALAYSIAN

Position in the Company ► Appointed as Executive Vice Chairman:

27 August 2003► Re-designated as Non-Independent Non-

Executive Director: 17 January 2014

Qualification► Bachelor of Science Degree in Mechanical

Engineering, Brighton Polytechnic, United Kingdom

Working Experiences ► Started as an Engineer with Tenaga Nasional

Berhad in the operations and turbine maintenance department

► Joined Sarawak Shell in the Upstream Project Development and Implementation

► Seconded to Shell Malaysia Trading as the Project Manager to the PETRONAS/Shell joint-venture Multi Product Pipeline and Klang Valley Distribution Project


public companies


8

ABU TALIB BIN ABDUL RAHMANMANAGING DIRECTORAGE 64, MALE, MALAYSIAN


Director: 1 July 2016► Re-designated as Managing Director: 1 January

2017► Member of Investment, ESOS and Quality Health

Safety & Environment Risk Committees

Qualification► Bachelor of Laws, University of London ► Certificate of Legal Practice from Lembaga

Kelayakan Malaysia

Working Experiences ► 1979 – 1980: Served as Legal Officer of Bank

Pertanian Malaysia► 1980 – 1981: Manager of Asiavest Merchant

Bankers Berhad ► 1981 – 1986: Accountant in Bank Bumiputera

Malaysia Berhad ► 1986 – 1991: Served as partner of two legal firms ► 1991 – 2016: Managing and founding partner of

Abu Talib Shahrom (Legal Firm)► Former Director of United Engineers (Malaysia)

Berhad► Served as Company Secretary to several Public

Listed Companies► Now, he is serving as director to several private

companies► Ceased practice as advocate, solicitors and notary

public since 1 January 2017

Directorship in Public Companies ► Ranhill Holdings Berhad ► Senai Desaru Expressway Berhad

SENIOR MANAGEMENT’S PROFILE

DR CHANG KOK LIP (FELIX)CHIEF TECHNICAL OFFICER(BASED IN KAZAKHSTAN)AGE 64, MALE, AUSTRALIAN

Position in the Company ► Appointed as Chief Technical Officer : 3 January

2017

Qualification► Bachelor of Science in Physics, Victoria University

of Wellington, New Zealand► Bachelor of Science (Honours) in Geophysics,

Victoria University of Wellington, New Zealand► Master of Science in Meteorology, Victoria

University of Wellington, New Zealand► PHD in Seismology, Victoria University of

Wellington, New Zealand

Working Experiences ► He has 33 years’ experience in the Oil and Gas

industry, having extensive involvement ranging from seismic data acquisition/processing planning, 2D/3D seismic interpretation, exploration and production mappings, regional mappings, sequence stratigraphy, prospect/field evaluation to proposing well locations for exploration/appraisal drillings as well as identifying sweet spots to enable wellbores to be placed in the most productive areas of the reservoirs in the development of oil and gas fields. At specialist level, he has been involved in fault-seal evaluation, acoustic/elastic impedance modelling, seismic amplitude variation with offset analysis, later prediction and reservoir characterization works

► Dr Chang began his career in 1983 as Exploration/Production Seismologist with Sarawak/Sabah Shell Berhad until 1989

► From 1989 to 1992, he was posted to Shell E&P Research Laboratory in Rijswijk, Netherlands where he conducted fault seal studies, pattern recognition, rock physics and reservoir characterization works on producing oil fields located offshore Nigeria gearing towards predicting the lateral continuity of oil bearing reservoirs and identifying any by-passed oil accumulations in the fields

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Annual Report 2016

SENIOR MANAGEMENT’S PROFILE CONT’D

► He returned to Malaysia in 1992 to become a consultant providing geophysical services to oil & gas companies in Malaysia, including amongst others, Teknosif Sdn Bhd, Crest Petroleum Berhad, International Petroleum Corporation, Genting Oil & Gas Ltd and PETRONAS Carigali spanning a period of ten years conducting specialised geophysical studies and reviewing the hydrocarbon prospectivity of concession areas in Indonesia, Myanmar, Vietnam, Australia, Irian Jaya, Malaysia, Uzbekistan, Siberia and China

► In 2002, he joined Santos Limited in Adelaide, South Australia, working in an integrated team specially set up to fast track the development of a newly discovered gas field located offshore in Gippsland Basin. The field came on stream in less than 3 years since its discovery well below the budgeted cost. He also conducted several geophysical studies on onshore oil and gas fields in Cooper Basin

► From 2005 to 2009 he lived in Yangon, Myanmar, working three years for PETRONAS Carigali Myanmar Ltd, and the remaining two years for Rimbunan Petrogas Ltd as Chief Geophysicist. He reviewed more than 15 onshore and offshore blocks in Myanmar to assess their hydrocarbon potential

► From 2010 to 2011, he was the exploration adviser to MKS Limited and led a team to explore a remote frontier area in the Papuan Fold Belt, Papua New Guinea, utilising satellite imageries, gravity data, surface geological information and a microbial survey to assess the hydrocarbon potential of the license area

► He joined CLIQ Energy Berhad, Malaysia in 2012 until 2016 as Vice President (Exploration) to lead the exploration function to identify, evaluate and screen technically and commercially viable oil and gas assets for qualifying acquisition

Directorship in Public Companies ► He does not have any directorship in Public

Companies

DR CHANG KOK LIP (FELIX)(Continued)

AHMAD SYAZALI BIN ABDUL KHALILBRANCH MANAGER / GENERAL DIRECTORAGE 39, MALE, MALAYSIAN

Position in the Company ► Appointed as Branch Manager / General Director :

3 January 2017

Qualification► Bachelor of Commerce in Management Accounting &

Taxation, University of Auckland, New Zealand

Working Experiences ► He joined UEM Group in year 2001 until 2007, where he

involved in audit and corporate planning, HSE and lead Business Development projects for the manufacturing division

► He joined Markmore Sdn Bhd as Vice President Investment/Business Development from year 2007 until 2010

► From April 2010 until March 2012, he was Head of Manufacturing Unit in East Coast Economic Regional Development Council (ECERDC) involved in development of industrial parks in petro-chemical/polymers, automotive assembling and part manufacturing, palm oil downstream, Halal products manufacturing, ship building & repairing, development of free zones, development of potential National commodity – Kenaf and other high-impact projects

► He joined PETRONAS Chemicals Group Berhad (PCG) as Head Special Projects, Strategic Planning & Business Development where he led PCG’s venture into bio-chemicals/unconventional chemicals and development of bio polymers strategy roadmap

► With ASSA Consulting, he worked as Business Development Consultant from May2014 until Jun 2015.

► From 2015 until 2016, he worked as Head, Group Special Projects & Safety Office of the Chief Operating Officer of Hektar Real Estate Investment Trust (REIT)

Directorship in Public Companies ► He does not have any directorship in Public Companies

Note:► None of the Senior Management has any family relationship with any

other Director and / or major shareholder nor conflict of interest in business arrangement involving the Company.

► None of the Senior Management has been convicted of any offences for the past ten (10) years other than traffic offences, if any.


10

MANAGEMENT DISCUSSIONAND ANALYSIS

OPERATING LANDSCAPE REVIEW

2016 ended marginally better than 2015 for crude oil. The price began with almost USD25 per barrel and ended more than USD56 on 30 December 2016. It was a roller-coaster ride and many oil & gas majors were forced to cut their spending for the year further hampering exploration activities across the globe.

However, due to a series of international events such as worries on Venezuela economic instability, political uprising in Ghana as well as Nigeria and Canadian forest fire to name a few has caused the prices to sharply increase in Q2.

It was not until OPEC members held an unplanned meeting in September that restored confidence in the market. OPEC surprisingly decided to put a ceiling to production to combat declining oil prices. Another OPEC announcement on 30 November follow suit and the price shot up by almost a fifth after that instilling the much-needed optimism in the market.

The world is still consuming some 35 billion barrels of oil each year. The natural gas use increases more than other fuel sources in terms of quantity of energy consumed, led demand from the industrial and electrical power sectors. Without steadily exploiting new sources of oil production, normal depletion is likely to become a serious concern by the end of this decade.

Our industry is living through a period of profound change. But that is nothing new: the past 65 years have seen huge changes to the global energy landscape. Our task as an industry is to take the steps necessary to provide the energy to meet the world’s growing demand and ensure our sector remains resilient to the many factors that may buffet us in the near term. We must continue to invest in energy, in all its forms, to meet future needs.

In response to the positive market sentiment, the Company has announced its corporate exercise to raise more funds in order to further strengthen and expand the operations in Kazakhstan.

Annual Report 2016

11

2016 IN FOCUS

Field development and oil production activities at Rakushechnoye Field

We mentioned in our Annual Report last year that for 2016, the plan was to develop up to 10 new wells in the Triassic zone whereby approximately 40% of the planned capital expenditure in 2016 would be spent on drilling new oil wells and the remaining 60% on appraisal wells for natural gas and gas condensate reserves, which are contained in the deeper reservoir zones. However, with the persisting low oil prices, we have decided to defer the above plans to 2017 and beyond

so as to preserve the value of the hydrocarbon reserves that we have in the Field.

As a result, our field activities had been limited to a minimum level of monitoring and supervising of oil production operations throughout the year. Phase 2 of Gas Development and Production Agreement

In December 2013, our Company signed a Gas Development and Production Agreement with Markmore Energy (Labuan) Limited (“MELL”) whereby we are entrusted to develop and deliver to MELL the gas development, implementation and production plan that will meet the minimum supply of 120 Million Standard Cubic Feet of gas per day from Rakushechnoye Field.

During the year, we carried out the following activities as stipulated under Phase 2 of the agreement:

• We supervised the preparation of the technical specifications and engineering designs for the various surface facilities (gas separation facility, LPG plant, pipeline), the site survey, the preparation of tender documents for environmental studies and process facilities;

• We reviewed and reassessed field development strategy including gas utilisation programs, and identifying possible locations for new gas wells;


12

MANAGEMENT DISCUSSION& ANALYSIS CONT’D

• We engaged with the various committees of the Government of Kazakhstan on permits and licenses application; and

• We engaged in negotiation with identified parties on gas sales and offtake arrangement.

The addendum to GDPA was executed on 1 September 2016 to revise the Phase 2 implementation period from 24 months to 30 months.

Therefore, Phase 2 work is to be carried out over a period of 30 months from 1 January 2015 to 30 June 2017.

FINANCIAL PERFORMANCE REVIEW The Group did not register any oil-related revenue during the year under review due to the low oil price environment mentioned above. As such, for 2016, the Group’s revenue were derived from the GDPA, totalling RM46.41 million as

compared to a revenue of RM62.58 million in 2015.In view of the cancelled sale of the remaining 49% equity stake in Semua Group and various litigations that arose in 2016 in relation to the associates, the Company has decided to impair its investment in and amount owed from Semua Group, totalling RM22.64 million. In addition, due to the corporate guarantee provided earlier when Semua Group was a subsidiary, the Company made a provision for litigation costs amounting to RM71.42 million. Consequently, the Group reported a loss after tax of RM62.02 million (2015 : profit of RM37.86 million). To ensure sustained liquidity in the face of the prevailing market condition, we undertook a private placement exercise in 2016. Other initiatives included renegotiating prices and payment terms with suppliers as well as consolidating various operational and support functions.

Annual Report 2016

13


Field2P Reserves Sumatec’s

share of oil reserves

(%)

Oil Reserves accrued to Sumatec

(million bbl)

Sub-surface Contract valid until

Oil/Condensate(million bbl)

Gas(million

boe)

Total(million

boe)

Rakushechnoye 32.8 89.3 122.1 50%3 16.4 August2025

CORPORATE SOCIAL RESPONSIBILITY Whilst the Board recognises that sustainable business practices will lead to robust business growth in the long run, during this challenging operating environment, the Board made a conscious decision to focus only on sustainable practices that are of high priority and have immediate impact on business if they are not complied with. On that score, all matters relating to regulatory compliance and employees’ health, safety and welfare at workplace are of utmost importance. Hence, our Company continuously monitors the effectiveness of measures put in place to ensure compliances in the abovementioned areas.

FUTURE OUTLOOK

While year 2016 was the “year of tough decisions”, 2017 shall be characterise as “the slow road back”. Supply and demand balances are seemingly return to a sustained equilibrium, although the OPEC decision to cut production should help accelerate the drawdown of global oil inventories, even if OPEC countries do not completely deliver on their announced production cuts. This should be supportive of crude oil prices as we go into 2017.

Having said that, the Board however remains bullish on the potential of our oil and gas assets to deliver sustainable growth to our shareholders in the long-term. Rakushechnoye Field has 32.8 million bbl1 of 2P oil reserves, of which almost 16.4 million bbl is accrued to our Company under the Joint Investment Agreement signed in March 2012 with Markmore Energy (Labuan) Limited and CaspiOilGas LLP. Upon successful completion of the Proposed Acquisition of Borneo Energy, our Company will be entitled to the profit on the combined 2P oil reserves of 85.2 million bbl and gas reserves of 89.3 million boe2, with up to 9 years remaining under the respective exploration and production contracts.

Note:1 bbl = barrel2 boe = barrel of oil equivalent3 Under the Gas Development and Production Agreement, the Group will be paid a producer’s fee at the rate of USD0.75 per ‘000 standard cubic feet of gas produced, whilst the profits on oil reserves are to be shared between our Company and CaspiOilGas LLP based on 50:50 sharing ratio.

OPERATIONS OUTLOOK

With the Proposed Corporate Exercise recently announced on 17 February 2017, we are now more optimistic that the commercialisation of Rakushechnoye Field’s gas reserves can be implemented as initially planned. It is anticipated that the gas revenue can contribute positively to our Group’s financial position and generate a more stable income base for future growth. Although gas development may incur more capital expenditures initially, the expected returns on investment are higher and more robust. The growing demand for gas and its by-products such as LPG is on an increasing trend in the Central Asian region. This demand for more gas and the less volatile gas price as compared to that of oil have added to the conduciveness of the gas development of Rakushechnoye Field.


14


ACKNOWLEDGEMENT On behalf of the Board of Directors and SUMATEC Management Team, we would like to take this opportunity to express our immense appreciation to our shareholders, vendors, suppliers, business associates, regulatory authorities and government agencies in Malaysia and Kazakhstan for their unwavering support throughout the year. We are also grateful to our senior management team and employees for their commitment, hard work and dedication to the Group. We are pleased to welcome Encik Abu Talib Bin Abdul Rahman, Mr. Liew Boon Keat and Encik Mahusni Bin Hasnan to the Board following their appointment in 1 July 2016 and 20 October 2016 respectively. We are certain that their years of experience in the corporate sector will further strengthen the Board. Certainly, our heartiest thanks goes out to all fellow Board members for their expertise and guidance in steering our Company in the past year. On 31 October 2016, we bid farewell to Puan Roshidah Binti Abdullah, the previous Chief Financial Officer, who has decided to pursue other interests. We thank her for the past contribution. On 31 December 2016, the previous Managing Director Mr. James Chan has been re-designated to Non-Executive Director and later resigned from the board on 3 March 2017. We thank him for his past contributions. The Board is pleased to re-designate Encik Abu Talib Bin Abdul Rahman as the Managing Director of the Company effective from 01 January 2017. With his vast experience in the oil and gas industry, we are confident that Encik Abu Talib together with the rest of the employees will be able to deliver value to our shareholders and stakeholders. The Board would also like to extend the appreciation for the commitment, hard work and dedication of the management and all employees of the Company. Your co-operation and professional work ethics will be integral towards seeing SUMATEC grow to greater heights of success.

Annual Report 2016

15

FIVE-YEAR FINANCIALHIGHLIGHTS

2012 2013 2014 2015

(Restated) 2016

Key Financial DataStatement of Comprehensive Income:Revenue RM'000 1,543 - 81,117 62,583 46,407

Earnings/ (Loss) Before Interest, Tax, Depreciation & Amortisation RM'000 (36,460) 87,576 61,729 63,007 (45,111)

Profit/ (Loss) After Taxation RM'000 (105,448) 64,259 48,904 37,859 (62,018)

Profit/ (Loss) Attributable to Equity Holders RM'000 (99,735) 73,599 48,904 37,828 (62,018)

Statement of Financial Position:Share Capital RM'000 75,027 431,896 487,577 490,146 541,256

Shareholders' Equity RM'000 (137,831) 426,782 610,591 650,880 637,729

Total Assets RM'000 551,475 453,675 681,396 769,456 832,302

Net Assets RM'000 (67,311) 426,584 610,591 650,880 637,729

Total Borrowings RM'000 82,238 17,953 22,635 22,530 22,530

Cash And Cash Equivalents RM'000 71 4,835 1,384 895 141

Ratio Analysis:Basic Earnings/ (Loss) Per Share sen (46.53) 12.58 1.50 1.08 (1.65)

Net Assets Per Share RM (0.31) 0.14 0.19 0.19 0.17

Gearing Ratio times NM 0.04 0.04 0.03 0.04

Return on Shareholders' Equity % NM 17.2 8.0 5.8 (9.7)

Valuation:Market Capitalisation RM'000 39.7 848.4 714.0 437.6 290.0 Note:NM: Not Meaningful


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FINANCIALCALENDAR

30 May 2016 Announcement of the unaudited consolidated results for the first quarter ended 31 March 2016

23 Nov 2016 Announcement of the unaudited consolidated results for the third quarter ended 30 September 2016

25 Aug 2016Announcement of the unaudited consolidated results for the second quarter ended 30 June 2016

27 Apr2017Notice of Annual General Meeting and issuance of Annual Report for the financial year ended 31 December 2016

15 Jun 2017Twentieth Annual General Meeting

24 Feb 2016 Announcement of the unaudited consolidated results for the fourth quarter ended 31 December 2015

28 Feb 2017Announcement of the unaudited consolidated results for the fourth quarter ended 31 December 2016

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Annual Report 2016

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STATEMENT ONCORPORATE GOVERNANCE

The Board of Directors of the Company (“The Board”) is committed to ensure high standards of corporate governance and the establishment and implementation of a proper framework and controls that are in line with the principles and best practices pursuant to the Malaysian Code of Corporate Governance 2012 (“The Code”) and Main Market Listing Requirements of Bursa Malaysia Securities Berhad (“Bursa Securities”) (“MMLR”).

The Board recognises the importance of good corporate governance as it underpins the Group’s objective to achieve sustainable growth in its businesses in the long run. The Board will continuously evaluate the status of the Company and Group’s corporate governance practices and procedures with a view to adopt and implement the best practices of The Code wherever applicable.

The Board is pleased to report herein the manner in which the Company has applied the principles of The Code and the extent to which it has complied with the best practices of The Code throughout the financial year ended 31 December 2016 and to the date of this statement.

I. BOARD CHARTER

The Board Charter which was established on 17 February 2014, outlines the manner in which the Board’s constitutional powers and responsibilities will be exercised and discharged, having regard to principles of good corporate governance, international best practices and applicable laws and regulations.

The Charter includes an overview of:• Board structure, composition and appointment process;• Board’s independence policy;• Board’s roles and responsibilities including authorities reserved for the Board;• Director’s ethics and conduct;• Delegation of duties to the management and Board Committees; and• Board processes including conduct of meetings and Board’s performance assessment.

The Board Charter will be reviewed on an annual basis to ensure that it remains consistent with the Board’s objectives and current laws and practices.

II. ROLES AND RESPONSIBILITIES OF THE BOARD

The Board is responsible in promoting and protecting the interests of shareholders and stakeholders of the Company and the Group by overseeing and appraising the Company’s strategies, policies and performance. It plays a key role in charting the strategic direction of the Group and in ensuring the effective execution of these strategies by management. Specifically, the Board’s key objectives are:

• To oversee the conduct of the Group’s businesses, including the formulation of strategy and performance objectives, in conformance with the Company’s values and governance framework, including establishing and observing high ethical standards;

• To approve and monitor the progress of major capital expenditure, fund-raising, acquisitions and divestitures;• To fulfil statutory and fiduciary responsibilities by monitoring the operational, financial and risk management

processes of the Group;• To ensure compliance with environment, safety, health and other relevant legislations governing its oil and gas

operations;• To ensure the adequacy and effectiveness of system of internal controls and risk management framework;• To review and evaluate the performance of the Managing Director (“MD”) periodically, his or her compensation

package and ensure succession planning for the MD is in place; and• To provide sufficient information to shareholders at the general meetings on the Company’s performance and

major developments affecting its state of affairs.


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STATEMENT ON CORPORATE GOVERNANCECONT’D

II. ROLES AND RESPONSIBILITIES OF THE BOARD (CONTINUED)

Matters specifically reserved for the Board include:

• Appointment of a Chairman;• Appointment and removal of MD, Chief Financial Officer and Chief Operating Officer;• Appointment and removal of Company Secretary;• Appointment of Directors to fill a vacancy or as an additional Director;• Establishment of Board Committees, their membership and delegated authorities;• Appointment, re-appointment or removal of the Company’s external auditors (on the recommendation of the Audit

Committee);• Approval of dividends;• Approval of quarterly and annual financial statements;• Approval of strategic plan and budget, at least annually;• Significant changes to organisation structure;• Approval of major capital expenditure, acquisitions and divestitures in excess of authority levels delegated to

management;• Approval of major related party transactions;• Major financing facilities;• Calling of meetings of the shareholders;• Determining the form and operation of the Company’s various equity plans;• Determination of the Company’s hedging policy; • Approval of Limits of Authority (“LOA”) of the Company; and• Any other specific matters nominated by the Board from time to time.

The Board has also established various Board Committees, namely the Audit Committee, Nomination Committee, Remuneration Committee, ESOS Committee, Investment Committee and Quality Health Safety and Environment (“QHSE”) Risk Committee to examine specific issues within their respective terms of reference as approved by the Board. The Committees report to the Board with their recommendations. The ultimate responsibility for decision making, however, lies with the Board as a whole. The roles and responsibilities of these Committees are spelt out in the subsequent sections of this report.

Separation between the Chairman and the MD

The Board recognizes that having separate individuals as Chairman and MD of the Company will contribute towards more effective functioning of the Board and it allows for better dynamics for check and balance between the Board and management. The Board Charter provides that the Chairman of the Board shall at all times be separate from the MD.

The Chairman of the Board is responsible for: • Chairing meetings of the Board and of the shareholders;• Providing leadership to the Board and ensuring that the Board operates effectively as a group and is able to fulfil its

fiduciary obligations; • Ensuring that Board decisions have been implemented by management; and • Promoting constructive and respectful relationship between the Board and management.

The MD has the overall responsibility of executing the Group’s strategies and plans as approved by the Board and driving the Group’s performance towards achievement of its vision and mission. In carrying out his duties, the MD is expected to display strong leadership qualities especially in managing cross cultural operations and is able to rally the support of all key stakeholders to ensure smooth running of the day-to-day-operations of the Group.

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Annual Report 2016

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Separation between the Chairman and the MD (Continued)

The Board has delegated its authority to the MD and Senior Management as specified in the Company’s LOA. These include authorities for:• Acquisition of assets;• Incurring of capital expenditure for oil field operations;• Incurring of operating expenses;• New acquisitions, investments and divestiture;• Hiring and compensation policy for employees;• Banking operations and payment; and• Making press releases and announcement to Bursa.

The MD and the Senior Management remain accountable to the Board for the authority that is delegated to them.

Code of Ethics and Conduct

The Board has made a commitment to create a corporate culture within the Company and the Group to operate the business in an ethical manner and to uphold the highest standards of professionalism and exemplary corporate conduct in relation to interactions with the Company’s stakeholders.

In addition to the Group’s code of conduct which is applicable to all employees and directors of the Company and the Group, Board members are also expected to conform to the Director’s code of ethics and conduct (“Director’s Ethics”). The Director’s Ethics provide guidelines on the manner in which Directors should conduct themselves in fulfilling and discharging their fiduciary duties, specifically:

• Directors will act at all times with honesty and integrity and will observe the highest standards of ethical behavior;• Directors will ensure that no decision or action is taken that has the effect of prioritizing their personal interests

over the Company’s interests;• Directors are expected to declare their respective shareholdings, direct or indirect if any, in the Company and

related companies;• Directors are expected to also declare their interest, direct or indirect, in contracts or proposed contracts with the

Company or subsidiary companies. The Directors concerned are to abstain from deliberating and voting in respect of these transactions or in matters affecting their personal, business or professional interests;

• Directors will be expected to participate in all induction and orientation programs and any continuing education or training arranged for them;

• The Board shall assess the training needs of its members from time to time and shall ensure that they have access to appropriate continuing education programs to update their knowledge and enhance their skills to sustain active participation at Board deliberation;

• The Board collectively, and each Director individually, has the right to seek independent professional advice, subject to the approval of the Chairman, or the Board as a whole;

• The Directors shall devote time and effort to attend meetings and to know what is required of the Board and each of its members, and to discharge those functions effectively; and

• Directors shall limit their directorship of companies to a number which they can sufficiently devote their time and maintain effectiveness. All Directors are to notify the Chairman of the Board prior to their accepting any new directorship. Likewise the Chairman shall also notify the Board if he has new directorship or significant commitments outside of the Company.



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Promoting Sustainability

The Board has taken steps to ensure that the Group’s strategies will promote sustainability, particularly with respect to environmental, social and governance aspects of the business.

Access to Information

The Board is supplied with relevant information and reports on financial, operational, corporate, regulatory, business development and audit matters, by way of Board reports for decisions to be made on an informed basis and effective discharge of Board’s responsibilities.

Good practices have been observed for timely dissemination of meeting agenda, including the relevant Board and Board Committee papers to all Directors prior to the Board and Committee meetings, to give effect to Board decisions and to deal with matters arising from such meetings. Any Director may request matters to be included in the agenda. Urgent papers may be presented and tabled at meetings under supplemental agenda. The issues are deliberated and discussed thoroughly by the Board prior to decision making. All deliberations, discussions and decisions of the Board are minuted and recorded accordingly.

In addition, the Board members are updated on the Company’s activities and its operations on a regular basis. All Directors have access to all information of the Company on a timely basis, in an appropriate manner and quality necessary to enable them to discharge their duties and responsibilities.

Presentations and briefings by the Management of the Group and external advisers, where applicable, are also held at Board Meetings to advise the Board and furnish relevant information and clarification for the Board to arrive at a considered decision. Members of the Board, either collectively or individually, have the right to seek independent professional advice on any matter raised by management for consideration by the Board. The relevant Board members will be required to obtain the approval from the Chairman and upon approval, proceed with the engagement of the independent advisor. The cost of such engagement shall be borne by the Company.

Company Secretaries

The Company Secretaries are responsible for advising the Board on issues relating to compliance with the relevant laws, rules, procedures and regulations, as well as best practices of governance. They are also responsible for advising the Board of their obligations and duties to disclose their interests in securities, ensures compliance with Board policies and procedures. They brief the Board on the proposed contents and timing of material announcements to be made to regulators.

The Board have unrestricted access to the advice and services of qualified, experienced and competent Company Secretaries to enable them to discharge their duties effectively. The Board is regularly updated and advised by the Company Secretaries on statutory and regulatory requirements, and the resultant implications of any changes therein to the Company.

The Company Secretaries attend all Board and Board Committees meetings and ensures that meetings are properly convened, and that accurate and proper records of the proceedings and resolutions passed are taken and maintained accordingly. The appointment and removal of the Company Secretaries, if any, are decided and agreed by the Board as a whole.


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Annual Report 2016

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III. BOARD STRENGTH AND EFFECTIVENESS

Composition of the Board

Throughout the financial year under review, the Company has ensured that at least one-third (1/3) of the Board members are independent directors. As at the date of this statement, the Board comprised one (1) Independent Non-Executive Chairman, one (1) Managing Director, two (2) Non-Independent Non-Executive Directors and four (4) Independent Non-Executive Directors. This is far exceeding the requirements of Paragraph 15.02 of the MMLR that requires at least 1/3 of the Board members to be independent directors. On 1 January 2017, Encik Abu Talib bin Abdul Rahman, the Non-Independent Executive Vice Chairman was appointed Managing Director replacing Mr. Chan Yok Peng.

The Board is of the opinion that the current size and composition of the Board is well-balanced, with their diverse background and areas of specialisation, collectively bringing with them a wide range of experience and expertise in areas such as legal, finance, oil & gas and business operations to reflect the Board’s commitment to ensure the effective stewardship and control of the Company and the Group. A brief description of the background of each director is set out on pages 5 to 7 of this Annual Report.

The Board has set up six (6) board committees to assist the Board in discharging its responsibilities effectively. They are the Audit Committee, Nomination Committee, Remuneration Committee, ESOS Committee, QHSE Risk Committee and Investment Committee.

Audit Committee

The details on the Audit Committee are included in the Audit Committee Report as disclosed on pages 30 to 32 of this Annual Report.

Nomination Committee - Selection and Assessment of Directors

A Nomination Committee established on 17 February 2014 with specific terms of reference by the Board, comprises exclusively of Non-Executive Directors. As at 31 December 2016, the committee members are as follows:

1. Datuk Che Mokhtar Bin Che Ali - Chairman (Independent Non-Executive Director) - re-designated effective from 25 October 2016;

2. Mr. Michael Lim Hee Kiang - Member (Independent Non-Executive Director); and3. Mr. Liew Boon Keat - Member (Non-Independent Non-Executive Director) - appointed effective from 23 November

2016.

Tan Sri Abu Talib bin Othman ceased to become a member effective from 2 June 2016.

The Nomination Committee is primarily responsible for recommending suitable appointments to the Board, taking into consideration the Board structure, size, composition and the required mix of expertise and experience which a Director should bring to the Board. It assesses the effectiveness of the Board as a whole, the Board Committees and the contribution of each Director to the Board.

The final decision on the appointment of a candidate recommended by the Nomination Committee rests with the whole Board. The Board is entitled to the services of the Company Secretary who would ensure that all appointments are properly made upon obtaining all necessary information from the incoming director.

During the financial year, the Nomination Committee met once and was attended by all members, to assess and recommend appointment of new Board members, to assess the balance composition of Board members based on merits, Directors’ contribution and Board effectiveness.



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III. BOARD STRENGTH AND EFFECTIVENESS (CONTINUED)

Nomination Committee - Selection and Assessment of Directors (Continued)

The performance and effectiveness of the Board, Board Committees and contribution by individual directors to the Board were assessed annually using evaluation survey questionnaires covering performance criteria that the Board determines as important to its effectiveness. The results of the questionnaires are complied with a report for the Chairman, which is then presented to the Nomination Committee and then to the Board for evaluation and consideration.

The Board believes that diversity at the Board level is important as it helps to enhance overall Board effectiveness. Board diversity encompasses, among other things, the varied skills, background, knowledge, subject-matter expert, industry experience, age and gender brought in by any member or prospective member to the Board. At this stage of the Company’s life, the Board considers skills, industry experience and knowledge to be the main criteria for new director nomination consideration.

The Board believes that the current mix of skills and experience of its respective Board members is sufficient for the discharge of its duties and responsibilities effectively.

Appointment and Re-election of Directors

In accordance with Article 87.1 of the Articles of Association of the Company, at every Annual General Meeting (“AGM”), one-third (or the number nearest to one-third) of the Directors shall retire from office by rotation and may offer themselves for re-election. The Articles of Association also provide that all Directors are subject to retirement by rotation at least once in every three (3) years and shall be eligible for re-election. An election of the retiring Directors shall take place every year.

Any person appointed as a Director, either to fill a casual vacancy or as an addition to the existing Directors, shall hold office only until the conclusion of the next AGM, and shall be eligible for re-election but shall not be taken into account in determining the directors who are to retire by rotation at that meeting.

The names of Directors who are due for re-election and/or re-appointment have been identified and disclosed in the Notice of the AGM and the particulars of these Directors are disclosed on pages 5 to 7 of the Annual Report. The Board is satisfied that the Directors, who are required to stand for re-election and re-appointment at the AGM, will continue to demonstrate the necessary commitment to be fully effective members of the Board and therefore recommend for their re-election and/or re-appointment.

Remuneration Committee - Directors’ Remuneration

The Remuneration Committee comprises of Non-Executive Directors. As at the date of this statement, the committee members are as follows:

1. Datuk Che Mokhtar bin Che Ali - Chairman (Independent Non-Executive Director) - appointed effective from 11 October 2016;

2. Mr. Michael Lim Hee Kiang - Member (Independent Non-Executive Director); and3. Mr. Liew Boon Keat - Member (Non-Independent Non-Executive Director) - appointed effective from 23 November

2016;

Tan Sri Abu Talib bin Othman and Mr. Chan Yok Peng ceased to become members effective from 2 June 2016 and 11 October 2016 respectively.


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Annual Report 2016

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Remuneration Committee - Directors’ Remuneration (Continued)

The Remuneration Committee, established on 17 February 2014, has been entrusted by the Board to determine that the levels of remuneration are sufficient to attract and retain Directors who have the quality required to provide stewardship to the Group. The Remuneration Committee is entrusted under its terms of reference to assist the Board, amongst others, to recommend to the Board the remuneration of the Executive Directors, if any, and that of the MD, Chief Operating Officer and Chief Financial Officer. In the case of Non-Executive Directors, the level of remuneration shall reflect the experience and level of responsibilities undertaken by the Non-Executive Directors concerned. In all instances, the deliberations are conducted with the Directors concerned abstaining from discussions on their individual remuneration.

During the financial year under review, the Committee met once and were attended by all members.

For the financial year ended 31 December 2016, details of Directors’ remuneration paid or payable to all Directors of the Company and Group, categorized into appropriate components, are as follows:

Executive Directors

(RM)

Non-Executive Directors

(RM)Fees 5,826 420,258Salary and allowances 1,272,000 -Meetings allowance 13,000 109,000Benefits-in-kind - -Total 1,290,826 529,258

The number of Directors whose remuneration falls into the following bands is as follows:Executive

Directors *Non-Executive

Directors *RM50,000 and below 1 5RM50,001 – RM100,000 - 3RM100,001 – RM150,000 - 1RM1,250,001 – RM1,300,000 1 -

* Including two directors that resigned during the financial year and three new directors which were subsequently appointed. At the end of the financial year under review and to the date of this statement, there are nine directors.

ESOS Committee

The ESOS Committee has a delegated authority to administer the ESOS and to decide on all relevant matters incidental thereto in accordance with the ESOS Bye-Laws including, but not limited to, the power to determine the criteria for eligible employees, the entitlement for eligible employees and the granting of options to such eligible employee.

As at the date of this statement, the ESOS Committee comprises of:

1. Mr. Michael Lim Hee Kiang - Chairman (Independent Non-Executive Director) - appointed on 11 October 2016; 2. Datuk Che Mokhtar bin Che Ali - Member (Independent Non-Executive Director); and

3. Encik Abu Talib bin Abdul Rahman - Member (Managing Director) - appointed on 11 October 2016.



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ESOS Committee (Continued)

Datuk Mohd Nasir bin Ahmad and Mr. Chan Yok Peng ceased to become members effective from 2 June 2016 and 9 January 2017 respectively.

The ESOS Committee shall recommend ESOS allocations to Directors for approval by the Board as a whole with the relevant individual Director abstaining in respect of his individual allocation and subject to the approval of the shareholders of the Company at a general meeting.

The ESOS Committee shall be vested with such powers and duties as are conferred upon it by the Board including the powers:

• To administer the ESOS and to grant Options in accordance with the Bye-Laws;• To recommend to the Board to establish, amend and revoke Bye-Laws, rules and regulations to facilitate the

implementation of the Scheme;• To construe and interpret the provisions hereof in the best interest of the Company; and• Generally, to exercise such powers and perform such acts as are deemed necessary or expedient to promote the

best interest of the Company.

Subject to the foregoing, the ESOS Committee shall exercise its discretion in such manner as it deems fit.

As at 31 December 2016, a total of 2,090,000 ESOS options allocated to the employees of the Company remains unexercised.

Below is the summary of movement in the outstanding ESOS during the financial year:

SUMATEC RESOURCES BERHAD EMPLOYEES’ SHARE OPTION SCHEME (“ESOS”)

As at 1 January 2016 Lapsed/Forfeited Exercised Balance Unexercised as at 31 December 2016

58,090,000 (39,200,000) (16,800,000) 2,090,000

The ESOS Committee meets as and when necessary and can also make decisions by way of circular resolutions.

Investment Committee

The Investment Committee is responsible for assisting the Board to ensure that all Company’s proposals for investments in new businesses are sufficiently and thoroughly evaluated from all aspects including, but not limited to, risks, technical qualifications, pricing and financial returns, and resources.

The Investment Committee Charter will be reviewed on an annual basis to ensure that it remains consistent with the Board’s objectives and best practices. The Investment Committee meets as and when required.

As at the date of this statement, the members of the Investment Committee comprise of:

1. Encik Mohamad bin Ismail - Chairman (Independent Non-Executive Director) - re-designated effective from 11 October 2016;

2. Datuk Che Mokhtar bin Che Ali - Member (Independent Non-Executive Director) - re-designated effective from 11 October 2016; and

3. Encik Abu Talib bin Abdul Rahman - Member (Managing Director) - appointed effective from 11 October 2016.

Encik Wan Kamaruddin bin Dato’ Biji Sura @ Wan Abdullah and Mr. Chan Yok Peng ceased to become members effective from 11 October 2016 and 9 January 2017 respectively.

During the financial year under review, the Committee met once and were attended by all members.


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Annual Report 2016

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QHSE Risk Committee

The QHSE Risk Committee is responsible with a delegated authority to administer and be responsible for assuring continuous compliance by the Company with all applicable quality, safety, health and environmental laws and regulations vested in management of the Company.

As at the date of this statement, the QHSE Risk Committee comprise of:

1. Encik Mohamad bin Ismail - Chairman (Independent Non-Executive Director);

2. Encik Abu Talib bin Abdul Rahman - Member (Managing Director) - appointed effective from 9 January 2017; and

3. Mr. Liew Boon Keat - Member (Non-Independent Non-Executive Director) - appointed effective from 11 October 2016.

Encik Wan Kamaruddin bin Dato’ Biji @ Wan Abdullah and Mr. Chan Yok Peng ceased to become members effective from 11 October 2016 and 9 January 2017 respectively.

The Committee did not convene any meetings in 2016.

IV. INDEPENDENCE OF THE BOARD

The Independent Non-Executive Directors are of high credibility, caliber and have the necessary skill and experiences to carry sufficient weight in Board decisions. The Independent Non-Executive Directors bring to bear objective and independent views, advice and judgment which are particularly important in ensuring that the strategies proposed by the Management are fully discussed and examined, and take account of the long term interests, not only of the Group, but also of shareholders, stakeholders and the many communities in which the Company conduct its business.

Under Paragraph 3.2 of The Code, any director should not hold office in the capacity of an independent director for more than 9 years. Currently, none of the five (5) independent directors has served on the Board for more than nine (9) years. The tenure of nine (9) years, however, is not the conclusive criteria in determining Board member’s ability to exercise independent judgment. The Board also considers whether the director is independent of management and free of any business or other relationships that could, or reasonably perceived to, materially interfere with the exercise of his unfettered or independent judgment. Family ties and cross directorships may also be relevant in considering interests and relationships which may compromise independence of directors. The Board follows the “independent director” criteria prescribed by the MMLR in assessing the independence of directors.

Upon completion of the nine (9) years as independent director, the independent director may continue to serve the Board after being re-designated as non-independent director. However, should the Board wish to retain the director as an independent director beyond the nine (9) years, the Board shall seek shareholders’ approval subject to provision of strong justification for such an extension.

V. COMMITMENT OF DIRECTORS

Board meetings are scheduled in advance at the beginning of the new financial year to enable directors to plan ahead and fit the year’s meeting into their own schedules. The Board meets at least quarterly with additional meetings convened as and when necessary.



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V. COMMITMENT OF DIRECTORS (CONTINUED)

Board and Board Committee papers which are prepared by the Management, provide the relevant facts and analysis to facilitate the Board to make informed decision. The meeting agenda, the relevant reports and Board papers are furnished to Directors and Board Committee members within reasonable time ahead of the meetings to allow the Directors ample opportunity to peruse the papers for effective discussion and decision making during meetings.

At the quarterly Board meetings, the Board reviews the business performance of the Group and discusses major operational and financial issues. The reports of the Audit Committee, Nomination Committee, Remuneration Committee, ESOS Committee, Investment Committee and QHSE Risk Committee are also presented and discussed at Board meetings. All pertinent issues discussed at Board meetings in arriving at the decisions are properly recorded by the Company Secretary by way of minutes of meetings.

Board Meetings and Attendance

During the financial year ended 31 December 2016, the Board of Directors met ten (10) times.

Details of the Board attendance at the meetings for financial year ended 31 December 2016 are set out below:

Director Attendance %Tan Sri Abu Talib bin OthmanIndependent Non-Executive Director - Retired effective from 2 June 2016

4 out of 4 100

Encik Wan Kamaruddin bin Dato’ Biji Sura @ Wan AbdullahNon-Independent Non-Executive Director

10 out of 10 100

Mr. Chan Yok PengManaging Director from 4 January 2016 up to 31 December 2016

10 out of 10 100

Mr. Michael Lim Hee Kiang Independent Non-Executive Director

10 out of 10 100

Encik Mohamad bin IsmailIndependent Non-Executive Director

8 out of 10 80

Datuk Che Mokhtar bin Che AliIndependent Non-Executive Director

10 out of 10 100

Datuk Mohd Nasir bin AhmadIndependent Non-Executive Director - Retired effective from 2 June 2016

4 out of 4 100

Dato’ Ahmad Johari bin Tun Abdul RazakIndependent Non-Executive Director

6 out of 10 60

Encik Abu Talib bin Abdul RahmanNon-Independent Non-Executive Director - appointed effective from 1 July 2016

6 out of 6 100

Mr. Liew Boon KeatNon-Independent Non-Executive Director - appointed effective from 1 July 2016

6 out of 6 100

Encik Mahusni bin Hasnan Independent Non-Executive Director - appointed effective from 20 October 2016

2 out of 2 100


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Annual Report 2016

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V. COMMITMENT OF DIRECTORS (CONTINUED)

Directors’ Training - Continuing Education Programmes

The Board is mindful of the importance for its members to undergo continuous training to enhance their skills and knowledge, and to keep abreast with the relevant changes in laws, regulation and industry business environment, and the impact such changes have on the Group to enable them to discharge their duties more effectively.

Except as disclosed below, other directors have not attended any training programme during the year due to their tight schedules and other commitments.

Details of programmes attended by directors are as follows:

Director Name of Seminars / Training programmes attended

Organiser

Mr. Michael Lim Hee Kiang : Updates on the Campanies Bill 2015 BoardRoom Corporate Services (KL) Sdn Bhd

: Updates on the proposed Malaysian Code on Corporate Governance 2016

: Updates on Listing Requirements of Bursa Malaysia - Impact to Board and Audit Committee and Disclosure in Annual Report and Announcement

: Risk Awareness Programme Tricor Roots Consulting Sdn Bhd

Dato’ Ahmad Johari bin Tun Abdul Razak

: Business Sustainability Tricor Knowledge House Sdn Bhd

: Companies Bill 2015 Suruhanjaya Syarikat Malaysia

Mr. Liew Boon Keat : Mandatory Accreditation Programmes for Directors of Public Listed Companies

Iclif Leadership and Governance Centre

Encik Mahusni bin Hasnan : Mandatory Accreditation Programmes for Directors of Public Listed Companies

Bursatra Sdn Bhd

Throughout the current financial year, all Directors received updates and briefings, particularly on regulatory requirements and changes to the Malaysian Financial Reporting Standards that would affect the Group’s financial statements.

VI. INTEGRITY IN FINANCIAL REPORTING

It is the Board’s commitment to present a balanced and meaningful assessment of the Group’s financial performance and prospects at the end of each reporting period and financial year, primarily through the quarterly announcement of Group’s results to Bursa Securities, as well as the annual financial statements of the Company and the Group. A statement by the Directors of their responsibilities in the preparation of financial statements is set out on page 42 of this Annual Report.



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VI. INTEGRITY IN FINANCIAL REPORTING (CONTINUED)

In assisting the Board to discharge its duties in financial reporting, the Board has established an Audit Committee, comprising wholly of Independent Non-Executive Directors. One of the key responsibilities of the Audit Committee in its specific terms of reference is to ensure that the financial statements of the Group and Company comply with applicable financial reporting standards in Malaysia. Such financial statements comprise the quarterly financial results announced to Bursa Securities and the annual statutory financial statements.

In assessing the independence of external auditors, the Audit Committee requests for written assurance by the external auditors, confirming that they are, and have been, independent throughout the conduct of the audit engagement with the Company in accordance with the independence criteria set out by the International Federation of Accountants and the Malaysian Institute of Accountants.

The Audit Committee report is disclosed on pages 30 to 32 of this Annual Report.

VII. RISK MANAGEMENT AND INTERNAL CONTROL

The Board’s Statement on Risk Management and Internal Control is set out on pages 33 to 38 of this Annual Report.

VIII. WHISTLEBLOWING POLICY

In order to strengthen corporate governance practices across the Group, a whistleblowing policy was established to encourage employees to report suspected and/or known misconduct, wrongdoings, corruption, fraud, waste and/or abuse involving resources of the Company.

All concerns raised via the whistleblowing channels will be treated fairly and properly. The Group’s Whistleblowing Policy also includes provisions to safeguard the confidentiality of the whistleblower, ensure no retaliation against the whistleblower if he or she has acted in good faith and measures to avoid abuse of the policy for purposes of making false or malicious allegations.

IX. TIMELY AND HIGH QUALITY DISCLOSURE

The Board is aware of the need to establish corporate disclosure policies and procedures to enable comprehensive, accurate and timely disclosures relating to the Company and its subsidiaries to be made to the regulators, shareholders and stakeholders. On this basis, the Board authorises the MD to be responsible to ensure compliance with the corporate disclosure requirements as stipulated in the MMLR, and to disclose material information to regulators, shareholders and stakeholders on a timely basis.

As recommended by the Code, the Company will seek to leverage on the latest and most innovative information technology available to promote more efficient and effective ways to communicate with both its shareholders and stakeholders. The Company has made available on its website, the Company’s Annual Reports, announcements to Bursa Securities, media releases and news, a Corporate Governance section and presentations made to shareholders and analysts.

Specific contact details are provided on the Company’s website to address queries from shareholders and other public at www.sumatec.com.


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X. RELATIONSHIP WITH SHAREHOLDERS AND INVESTORS

Shareholder participation at general meeting

In addition to the quarterly financial reports and annual report, AGM remains the principal forum for communication and interaction between the Board and Senior Management with the shareholders.

The shareholders are encouraged to participate in the proceedings and raise any questions relating to the proposed resolutions as well as the Company’s business operations and affairs. The Chairman, Board of Directors and Senior Management will respond to shareholders’ question on matters pertaining to the Group’s performance and seek to explain concerns raised by the shareholders. The External Auditors are also present to provide their professional and independent clarification, if required, on issues highlighted by the shareholders.

The Notice to the AGM together with Form of Proxy are circulated to the shareholders at least twenty one (21) days before the date of the AGM, which gives shareholders sufficient time to prepare themselves to attend the AGM or to appoint a proxy to attend and vote on their behalf. Each item of special business included in the Notice to the AGM is accompanied by an explanatory statement for the proposed resolution to facilitate the full understanding and evaluation of issues involved. The outcome of the AGM was announced to Bursa Securities on the same day as the meeting.

Communication and engagement with shareholders

The Board recognises the importance of being transparent and accountable to the Company’s investors and has maintained various channels of communication with investors and shareholders. These include the quarterly announcements on financial results to Bursa Securities, relevant announcements and circulars when necessary, and the Annual and Extraordinary General Meetings. Investors and shareholders may also access online Investor Relation section, News and Media via the Company’s website at www.sumatec.com.

The Group’s website is updated from time to time to provide current and comprehensive information about the Group.

Investor and Media Relations

The Company engages with the investment community, whenever appropriate, to share our strategy and vision and to discuss our operations and business whilst ensuring timely and fair dissemination of information. The Board values the relationship the Company has with investors and communication with them is important to the Board and management.

The key spokesperson for the Company’s investor relations activities is the MD, who engages with research analysts and fund managers directly. Additionally, the Company calls for media briefings to update members of the press on major announcements made by the Company or on business operation matters.

This Statement on Corporate Governance was approved by the Board of the Company on 28 February 2017.



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AUDIT COMMITTEE REPORT

The Board of Directors of the Company is pleased to present the report on the Audit Committee of the Board for the financial year ended 31 December 2016. The Audit Committee Report provides insights into the manner in which the Audit Committee discharged its functions for the Group in 2016.

1. COMPOSITION

The Board has established the Board Audit Committee with members as follows:

Name Designation

Encik Mahusni Bin Hasnan(Chairman)

Independent Non-Executive Director

Mr. Michael Lim Hee Kiang(Member)


Encik Mohamad bin Ismail(Member)


In compliance with the Malaysian Code on Corporate Governance 2012 and Paragraph 15.09 (1)(b) of the MMLR, all three (3) members of the Audit Committee are Independent Non-Executive Directors which fulfill the criteria of independence as defined in the MMLR.

Encik Mahusni Bin Hasnan holds a MBA in Finance from University of Hull and Bachelor of Arts (Hons) Degree in Accounting & Finance, Thames Valley University. In this regard, the Company is in compliance with Paragraph 15.09(c)(ii) under the MMLR.

2. MEETINGS

The Audit Committee held five (5) meetings during the financial year 2016. The details of each member’s attendance at the Audit Committee meetings are as follows:

NameNumber of

Meetings Attended%

attendance

Encik Mahusni Bin Hasnan 1/1 100%

Mr. Michael Lim Hee Kiang 5/5 100%

Encik Mohamad bin Ismail 5/5 100%

The Managing Director, the Chief Financial Officer (resigned on 31 October 2016) and the Internal Audit Manager attended all meetings upon invitation by the Audit Committee. Representatives of the external auditors also attended the relevant Audit Committee meetings on invitation by the Committee.

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3. SUMMARY OF ACTIVITIES

During the financial year 2016, the Audit Committee carried out the following activities in accordance with its terms of reference:

(i) Reviewed the quarterly unaudited financial statements of the Group to recommend to the Board for approval;

(ii) Reviewed the annual audited financial statements of the Group and the Company with the external auditors prior to submission to the Board of Directors for their approval;

The review of the financial statements was, inter-alia, to ensure compliance with: Provisions of the Companies Act, 1965; MMLR; Applicable approved accounting standards in Malaysia; and Other legal and regulatory requirements.

In reviewing the annual audited financial statements, the Audit Committee discussed with the management and the external auditors the accounting principles and standards that were applied and their judgment of the items that may affect the financial statements as well as issues and reservations arising from the statutory audit, if any;

(iii) Reviewed and discussed the internal audit reports on a quarterly basis with the management and the internal auditor;

(iv) Reviewed the Internal Audit Plan and assessed the adequacy of the scope, functions, competency and resources of the internal audit function;

(v) Reviewed the statement on compliance with the Malaysian Code on Corporate Governance, Audit Committee report and Statement on Risk Management and Internal Control for inclusion in the Company’s Annual Report;

(vi) Reviewed all related party transactions entered into by the Company or group companies to ensure the terms of these transactions are reasonable, at arm’s length and not to the detriment of the minority shareholders. This included the review of the circular to shareholders for the proposed renewal of shareholders’ mandate for recurrent related party transactions, and the procedures for related party transactions; and

(vii) Reviewed the basis of allocation and granting of the ESOS during the year to ensure compliance with the ESOS By-Laws.

AUDIT COMMITTEE REPORTCONT’D


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4. INTERNAL AUDIT FUNCTION

The Internal Audit Department (“IAD”) is headed by the Internal Audit Manager, Mr. Chew Choon Meng, who reports functionally to the Audit Committee, and administratively to the MD to allow an appropriate degree of independence from operations of the Group. The activities of the IAD are guided by the Internal Audit Charter that defines the roles, responsibilities, accountability and scope of work of the IAD. This is to enable the Internal Audit function to remain relevant in the context of challenges faced by and opportunities presented to the Company against the backdrop of uncertain business and global economic environment.

The IAD will also conduct investigation and special reviews at the instruction of the Audit Committee and at the request by Management.

The total operations costs of the department for 2016 was RM160,000 (2015: RM110,000).

5. SUMMARY OF INTERNAL AUDIT ACTIVITIES

As at February 2016 Internal Audit Department has completed an audit on Procurement Processes (Head Office) with the following audit objectives and scope:

Audit Objectives: The objective of the audit was to review the internal controls over the company’s Procurement Processes at Head Office level including compliance with the applicable company’s Limit of Authority (“LOA”).

Audit Scope: The scope of the audit covers the procurement processes and its controls within Head Office. The information for the audit was based on the relevant documents that were available in Head Office. The sample selected for this review was procurement activities for the period from June 2014 to September 2015.

The Audit Committee Report is made in accordance with the resolution of the Board of Directors on 28 February 2017.

AUDIT COMMITTEE REPORTCONT’D

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STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL

The Company has compiled with Principle 6 of the Malaysian Code of Corporate Governance 2012 that requires the Board of Directors to set up a sound risk management framework and internal controls system.

Further, in accordance with Paragraph 15.26(b) of the MMLR, the Board hereby presents the Statement on Risk Management and Internal Control that was prepared in conformance to the “Statement on Risk Management and Internal Control - Guidelines for Directors of Listed Issuers” which outlines the processes to be adopted by the Board in reviewing the competence and effectiveness of risk management and internal control of the Company during the current financial year.

Board Responsibility

The Board of Directors acknowledges the importance of sound risk management practices and internal control to safeguard shareholders’ investments and the Group’s assets. The Board therefore affirms its overall responsibility for the Group’s system of risk management and internal control which includes the establishment of an appropriate control environment and framework, as well as reviewing its adequacy and integrity. In discharging its responsibilities, the Board is assisted by the following Board and management committees:

· Audit Committee The Audit Committee considers the adequacy of the risk management and internal control framework, receives and

reviews report on the risk management issues from the Enterprise Risk Management (ERM) Committee, considers the input of the QHSE Risk Committee, and reviews reports from internal and external audits on the adequacy and effectiveness of internal control and risk management system.

· QHSE Risk Committee The QHSE Risk Committee reviews report on HSE, geological and technical risks and assesses the adequacy of management

risk treatment plans related to those risks.

· ERM Committee The ERM Committee, led by the CEO/MD, identifies and assesses risks faced by the Group, and thereafter designs and

implements appropriate internal controls to mitigate the likelihood and impact of those risks.

The Board realizes that since there are inherent limitations in any system of internal controls, the internal control system of the Company and the Group is designed to manage and minimise the impact of key risks that may impede the achievement of the Group’s business objectives, rather than completely eliminate them. Accordingly, the internal control system can only provide reasonable but not absolute assurance against material misstatement, fraud or loss.

Risk Management

The Board recognises that risk is an integral and unavoidable component of its business and is characterised by threats and opportunities. Therefore during the year, the risk management organisation structure was affirmed and the ERM Committee was set up to develop the ERM Framework for the Group.


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Risk Management (Continued)

The components of the ERM Framework are as represented in the following diagram:

The Group risk culture and expected behavior are defined in the Group’s Code of Conduct. All employees have been

briefed of the Code of Conduct upon joining the Group.

The risk management organization structure for the Group is as below:

STATEMENT ON RISK MANAGEMENTAND INTERNAL CONTROL CONT’D

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The governance structure spells out the various committees, their respective roles and responsibilities and the Group policies, procedures and guidelines in risk management.

In developing the Group risk register, the ERM Committee goes through the 7-step risk assessment process starting with establishing the business objectives and reinforcing the Board risk appetite and risk tolerance. All risks that may have impact on the business objectives are then identified and analysed in terms of their likelihood of occurrence and if they do occur, the impact they have on the Group’s business objectives.

The ERM Committee uses the following risk evaluation matrix to assess each individual risk identified:

There are four different strategies the Group employs in treating the risks and developing the risk mitigation plans for the risks identified.

ANNUAL REPORT 2015 39

risk management cont’d The governance structure spells out the various committees, their respective roles and responsibilities and the Group policies, procedures and guidelines in risk management.

In developing the Group risk register, the ERM Committee goes through the 7-step risk assessment process starting with establishing the business objectives and reinforcing the Board risk appetite and risk tolerance. All risks that may have impact on the business objectives are then identified and analysed in terms of their likelihood of occurrence and if they do occur, the impact they have on the Group’s business objectives.

The ERM Committee uses the following risk evaluation matrix to assess each individual risk identified:

LIKELIHOOD

IMPACTRemote

Catastrophic 5

1 2 3 4 5

Moderate (5)

Low (4)

Low (3)

very low (2)

very low (1) very low (2) Low (3) Low (4)

low (4)

Moderate (8)

Moderate (6) Moderate (9)

Moderate (6) Moderate (8) Moderate (10)

Moderate (5)

High (12) High (16)

High (12) High (15)

Critical (20)

Moderate (10) High (15) Critical (20) Critical (25)

4

3

2

1

Major

Moderate

Minor

Insignificant

Unlikely PossibleHighly

Likely

Almost

Certain

There are four different strategies the Group employs in treating the risks and developing the risk mitigation plans for the risks identified.

LIKELIHOOD

Transfer/Share

High

TolerateReduce(preventivecontrols)

Reduce/Terminate/Avoid

Low

Low High

Statement on rISK manaGement anD InternaL ControLCONT’D


LIKELIHOOD

Remote Unlikely Possible Highly Likely Almost Certain

IMPACT 1 2 3 4 5

Catastrophic 5 Moderate (5) Moderate (10) High (15) Critical (20) Critical (25)

Major 4 Low (4) Moderate (8) High (12) High (16) Critical (20)

Moderate 3 Low (3) Moderate (6) Moderate (9) High (12) High (15)

Minor 2 Very Low (2) Low (4) Moderate (6) Moderate (8) Moderate (10)

Insignificant 1 Very Low (1) Very Low (2) Low (3) Low (4) Moderate (5)

LIKELIHOOD


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As illustrated in the risk treatment strategy diagram, where a particular risk has high impact and very likely to occur, the ERM Committee may choose to either avoid or terminate the activity giving rise to the risk, or put in place a risk mitigation plan. For risks where the likelihood is high but the impact is low, the ERM Committee may implement additional controls to reduce the likelihood of the risks occurring. In a situation where the risk has high impact on the business objectives but low likelihood of occurring, the ERM Committee may recommend for the risk to be transferred to or shared with third parties, such as insurance company, contractor or joint venture partner. The fourth possible treatment is to accept or tolerate risks which have low impact and low likelihood of occurring.

The results of the risk identification, assessment and mitigation plans are documented in the Group risk register. The risk register will be communicated and shared across the Company and the Group, allowing the relevant risk owners to track the progress of risk mitigation plans. It also allows the management to flag new risks and to make suggestions on the course of action to be taken to address new risks as they arise.

As part of the review and monitoring process, management will ensure adequate tools and processes are put in place to capture actual incidents and loss events to further enhance risk profiling and quantification analysis. To enhance the risk management process, management will take steps to identify leading indicators and predictor events for these risks which will allow management to detect and predict changes in the environment that could impact the achievement of business objectives and hence, take prompt action as appropriate.

Quality Health Safety and Environment Management System

The nature of the Group’s operations in the development and production of hydrocarbons, including handling of fuel and other inflammable materials, exposes our employees to a wide range of health, safety and environmental risks. The causes of these risks could be accidents, technical failure, malfunctioning, blow-outs and explosions, fires, oil and gas spills, pollutants emissions and toxic emissions.

In addition the Group is also exposed to geological risks including unexpected drilling conditions, pressure or irregularities in formations, equipment failures or other negative events that could potentially cause casualties, environmental damages and consequently could have an adverse material impact on the Group’s future growth prospects, results of operations and liquidity as well as reputation.

The environmental laws enforced by the Government of Kazakhstan impose various restrictions and prohibitions, including control and limits to the emissions of pollutant substances that can be released into air, water and soil; limiting gas flaring and venting; and prescribing the correct management of waste. Any breach of environmental, health and safety laws by the employees of the Group, exposes the Group to potential criminal and civil liabilities.

Consequent thereto, the Company has implemented the Quality Health Safety and Environment Management System (“QHSEMS”) that includes clear requirements on the following:

i) Provide and maintain safe and healthy environment, working condition, equipment and systems of works in the workplace;

ii) Provide adequate control of the QHSE risks arising from the operations; andiii) Continuously improve the Group’s business processes such that they fully comply with the regulatory requirements and

international standards.

The QHSEMS details out, among others, the procedures for site emergency response plan and site medical emergency evacuation plan to be activated during emergency situations. There are also clear procedures set out for reporting of incidents and accidents occurring at workplace. The management has communicated the QHSEMS not only to all employees of the Group, but also to the employees of its business partner, CaspiOilGas LLP and of the contractors working in the Rakushechnoye Oil and Gas Field.

The Group will continue to enhance its overall risk management system to ensure that all possible risks that impact the Group’s achievement of it business objectives are identified, assessed and dealt with timely and in the most appropriate manner.


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Code of Conduct

The Group’s Code of Conduct demands that all employees in the Group maintain the highest ethical standards in carrying out its business activities. This is important and necessary as the Company’s corporate image should be built on solid foundation of integrity and strong ethics. The Code of Conduct is designed to assist employees to conduct business transactions professionally, honestly and with integrity, and comply with the laws and regulations that apply to the Group’s businesses. All employees have been briefed on the Group’s Code of Conduct and any breach to the Code may result in disciplinary action taken on the employee, including termination of employment. Further, all employees have confirmed their receipt and understanding of the Group’s Code of Conduct.

System of Internal Control

(i) Financial Reporting and Controls

The Group has in place a series of policies, practices and controls in relation to the financial reporting and consolidation process, which are designed to address key financial reporting risks, including risks arising from changes in the business or accounting standards. The Chief Financial Officer is required to confirm that all information relevant to the Group audit has been provided to the Directors and that reasonable steps have been taken to ensure full disclosure in response to requests for information from the external auditor. The integrity of the Group’s financial reporting is further supported by a number of processes and steps to provide assurance over the completeness and accuracy of the content including, review and recommendation by the Audit Committee and review and approval by the Board.

(ii) Clear and Structured Reporting Lines

The Group has a well-defined organisation structure that is aligned to its business requirements and also to ensure check and balance through segregation of duties. Clear reporting lines and authority limits govern the approval process, driven by Limits of Authority approved by the Board. All key strategic, business and investment plans are approved and monitored by the Board. Papers to the Board for approval of both financial and non-financial matters including cash flow forecasts, business strategies, corporate exercise, and any other key matters are written in a succinct and clear manner and are submitted to the Board in sufficient time to allow Board of Directors to make informed decisions.

(iii) Policies and Procedures

Documented internal policies and procedures on human resource and financial management activities are in place to ensure compliance with internal controls and relevant laws and regulations. Key human resource policies and procedures include performance management, disciplinary matters, recruitment and selection, learning and development, leave and grievance matters. These policies and procedures are reviewed and updated regularly. Briefings or trainings are provided to employees, business associates and contractors, as and when necessary. The Group will continue to develop and document additional policies and procedures whenever necessary in order to enhance the effectiveness of the Group’s internal control system.

(iv) Business Performance Review and Reporting

The Management provides the Board with regular updates on the corporate activities as well as the progress of work activities within the Group. The Management together with the Board review issues covering, but not restricted to strategy, performance, resources and standards of business conduct at least once every quarter. A reporting system to monitor the Group’s performance has been put in place and will continue to be enhanced in the future.

(v) Information and Communication

The Board of Directors and the Principal Officers of the Company are informed in advance by the company secretary before the commencement of each closed period, in which they are not allowed to deal in the listed securities of the Company as long as they are in possession of material and price-sensitive information, in order to avoid any insider trading activity.



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System of Internal Control (Continued)

(vi) Tender Award System

Purchases of works goods and services by a sub-soil surface user for sub-soil operations in Kazakhstan are governed by Decrees of the Government of Republic of Kazakhstan No. 134 and 133 which specify the procedures for procurements under tender, request for quotation and single source situation. The Group monitors and ensures that purchases of goods, works and services for the sub-soil operations in the Rakushechnoye Oil and Gas Field comply with the procurement rules at all times. All procurements are carried out through the Government’s electronic procurement portal. Sub-soil users and their Contractors must comply with these Government procurement procedures. Tender specifications have been reviewed and endorsed by our technical team before uploading into the procurement portal. The technical evaluation, financial evaluation and negotiation of terms with approved suppliers have been carried out by our team. In this manner, we ensure that the award of contracts for sub-soil operations are carried out in a manner that is transparent to all parties and at the best terms to the Group.

Whistleblowing

The whistleblowing policy is described in the Statement on Corporate Governance on page 28 of the Annual Report.

Assurance from Management

Based on the information and assurance provided by the Managing Director, the Board is satisfied that the system of internal control for the financial year under review was generally satisfactory. Measures are in place and continually being taken to ensure the ongoing adequacy and effectiveness of internal controls to safeguard the Group’s assets and hence shareholders’ investment.

Conclusion

The Statement on Risk Management and Internal Control has been prepared in accordance with the Statement on Risk Management and Internal Controls: Guidelines for Directors of Listed Issuers issued under the MMLR.

For the financial year under review and up to the date of issuance of the financial statements, the Board is satisfied with the adequacy and effectiveness of the Group’s system of risk management and internal control. No material losses, contingencies or uncertainties have arisen from any inadequacy or failure of the Group’s system of internal control that would require separate disclosure in the Company’s Annual Report.

Going forward, the Board will continue to monitor all risks faced by the Group including taking appropriate mitigating actions in its efforts to enhance the system of internal control.

Review of This Statement

As required by Paragraph 15.23 of the MMLR, the External Auditors have reviewed this Statement on Risk Management and Internal Control. Their review was performed in accordance with Recommended Practice Guide 5 (Revised) issued by the Malaysian Institute of Accountants. Based on their review, the External Auditors have reported to the Board that nothing has come to their attention that causes them to believe that this Statement is inconsistent with their understanding of the process the Board has adopted in the review of the adequacy and integrity of internal control system of the Group. In the review exercise, the External Auditors did not consider whether the processes to deal with material internal control aspects could remedy the problems and did not form an opinion on the effectiveness of the Group’s risk and control procedures.

This Statement is made in accordance with the resolution of the Board of the Company dated 28 February 2017.


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OTHER ADDITIONALCOMPLIANCE INFORMATION

The following information is provided in conformance with the MMLR:

MATERIAL CONTRACTS INVOLVING DIRECTORS’ AND MAJOR SHAREHOLDERS’ INTERESTS

i. RECURRENT RELATED PARTY TRANSACTIONS

Joint Investment Agreement

Pursuant to the Sumatec Resources Berhad (“the Company”) Regularisation Plan which was completed on 21 November 2013, the Company entered into recurrent transactions listed below, which involves the Company’s initiative to restore its position to a stronger financial footing via the Joint Investment Agreement (“JIA”) dated 8 March 2012 entered into between Sumatec, Markmore Energy (Labuan) Limited (“MELL”) and CaspiOilGas LLP (“COG”) for the appointment of Sumatec to carry out the operations related to the production of oil and gas from the Rakushechnoye Oil and Gas Field, and subsequently the Joint Investment Agency Agreement (“JIAA”) dated 2 August 2013, which was entered into between Sumatec, COG and Sumatec Oil and Gas LLP (“SOG”), for the appointment of SOG as the agent to manage and provide the oversight on the oil production operations for Sumatec and COG.

a) Operator’s service fee from the oil production operation at Rakushechnoye Oil and Gas Field as stipulated under the JIA;

b) Royalty payable by Sumatec to COG for every barrel of oil sold from the Rakushechnoye Oil and Gas Field as stipulated under the JIA. Up to USD40.0 million worth of royalty payable will be deducted against the cash performance guarantee paid under the JIA; and

c) Agency fee charged by SOG to COG for managing and providing the oversight on the oil production activities and operations at Rakushechnoye Oil and Gas Field under the JIAA.

Due to the prolonged low oil prices in 2015, the Company jointly with COG decided to defer all major capital expenditure for the field, including the planned new well development projects so as to maximise the value of the oil reserves to be exploited in the future when the global oil prices improve. As such, in accordance with the provisions of the JIA and JIAA, the Company did not recognise any operator’s service fee and SOG did not charge any agency fee to COG from the second half of 2015. This practice has continued in 2016 due to the continued low oil price environment.

Gas Development & Production Agreement

On 10 December 2013, the Company entered into a Gas Development & Production Agreement (“GDPA”) with MELL for the development of gas resources at the Rakushechnoye Oil and Gas Field to develop and deliver to MELL the gas development, implementation and production plan that will meet the minimum supply requirement of 120 million standard cubic feet of gas per day to a commercial off-taker by 2017. The Company will charge MELL a fee of USD45 million over three years from January 2014 to December 2016 for works to be carried out under the gas development and gas implementation plan stage. Once supply of gas to the off taker commences, the Company will charge an operator fee of USD0.75 per thousand standard cubic feet of gas supplied at well heads. All capital expenditure and operational costs in the field are cost recoverable from MELL under the same terms as per the JIA.

As part of the Group operations streamlining and efficiency enhancement initiative, the Company later in November 2014, novated its rights, responsibilities and undertakings under the GDPA to its wholly-owned subsidiary, Sumatec Corporation Sdn Bhd (“SCSB”).

Subsequently, MELL and SCSB entered into Addendum No. 1 to the GDPA on 18 March 2016 in order to revise the work scope under Phase 2 of the GDPA and Addendum No. 2 on 1 September 2016 in order to revise the Phase 2 implementation period pending the completion of the Full Field Study of the Rakushechnoye Oil and Gas Field.

The existing directors of MELL are Tan Sri Halim Saad (“TSHS”) and Abu Talib Bin Abdul Rahman (“ATAR”). MELL is a wholly-owned subsidiary of Markmore Sdn Bhd (“Markmore”), a company principally involved in investment holding. The directors of Markmore are TSHS and ATAR. TSHS owns 99.99% equity stake in Markmore. ATAR was appointed a Director of the Company from 1 July 2016, and Managing Director from 1 January 2017. COG is effectively a wholly-owned subsidiary of MELL.

TSHS is a substantial shareholder, holding 17.87% equity interest in the Company as at 10 April 2017.


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OTHER ADDITIONALCOMPLIANCE INFORMATION CONT’D

MATERIAL CONTRACTS INVOLVING DIRECTORS’ AND MAJOR SHAREHOLDERS’ INTERESTS(CONTINUED)

ii. OTHER RELATED PARTY TRANSACTIONS

Proposed acquisition of Borneo Energy Oil & Gas Ltd

On 8 September 2014, the Company executed the share purchase agreement (“SPA”), which was subsequently amended via Supplemental SPA, Second Supplemental SPA and Third Supplemental SPA, with ATAR and Dr. Murat Safin (“Vendors”) for the proposed acquisition of 100% of the issued and paid up capital in Borneo Energy Oil & Gas Ltd. The purchase consideration of USD290.0 million is to be satisfied by a combination of cash payment and issuance of new ordinary shares of RM0.14 each in the Company.

In exchange for the USD30.0 million Deposit paid by the Company on 8 September 2014, MELL vide its letter dated 8 September 2014, issued a Guarantee to the Company as the principal debtor to guarantee the following:

(i) To pay and satisfy the full amount of the Deposit to the Company if the SPA is not completed in accordance with the provisions of the SPA as varied by the Supplemental SPA, the Second Supplemental SPA and the Third Supplemental SPA; and

(ii) To pay and satisfy all costs and expenses incurred by Sumatec in relation to or arising from the payment of the Deposit by the Company to the Vendors if the SPA is not completed in accordance with the provisions of the SPA and as varied by the Supplemental SPA, the Second Supplemental SPA and the Third Supplemental SPA.

Under the Guarantee, the Company shall be entitled to withhold any sum payable by the Company to MELL until the date of completion of the SPA. In the event the Proposed Acquisition is not completed or the SPA is terminated for any reason whatsoever, the Company shall be entitled to set-off the full sum of the Deposit and all other monies which may be owing by MELL to the Company under the Guarantee and any other costs or expenses incurred by the Company in connection with the Guarantee, the SPA and/or arising from the termination thereof against the total amount of the Company’s indebtedness, without waiver or limitation of any other rights or remedies the Company may have against the Vendors under the SPA, and/or against the Guarantor under the Guarantee.

Also pursuant to the SPA, one of the Vendors, namely ATAR will undertake an offer for sale of up to 684,782,609 Consideration Shares (“Offer Shares”) to be held by him upon the completion of the proposed acquisition, to TSHS (or his nominated parties) at an offer price of RM0.23 per Sumatec Share (“Proposed Offer for Sale”).

The proposed acquisition is deemed as a related party transaction as TSHS, being a major shareholder of the Company, will be acquiring the Offer Shares under the Proposed Offer for Sale. Additionally, ATAR, a director and shareholder of Markmore, was appointed a Director of the Company from 1 July 2016, and Managing Director from 1 January 2017. TSHS is also the director and 99.99% shareholder of Markmore. Separately as mentioned above, MELL has also issued the Guarantee to the Company for the purpose of the proposed acquisition.

The Company is currently reviewing its funding scheme for the proposal in view of the current share price condition where it is looking at reducing the cash composition of the purchase price and negotiating with the Vendors on this matter.

Framework Agreement

On 17 February 2017, the Company announced that it intends to undertake the following proposals:

(i) Proposed private placement of up to 1,000,000,000 new ordinary shares in Sumatec (“Sumatec Shares” or “Shares”) (“Placement Shares”) to independent third party investor(s) to be identified (“Proposed Private Placement”);

(ii) Proposed issuance of up to 800,000,000 Sumatec Shares (“Issue Shares”) as payment to contractors for development and production services to be provided at the Rakushechnoye Oil and Gas Field (as defined herein) (“Proposed Issuance of Shares”); and

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OTHER ADDITIONALCOMPLIANCE INFORMATION CONT’D

MATERIAL CONTRACTS INVOLVING DIRECTORS’ AND MAJOR SHAREHOLDERS’ INTERESTS(CONTINUED)

ii. OTHER RELATED PARTY TRANSACTIONS (CONTINUED)

Framework Agreement (Continued)

(iii) Proposed renounceable rights issue of up to 3,226,194,640 Sumatec (“Rights Shares”) together with up to 3,226,194,640 free detachable warrants (“Warrants”) at an indicative issue price of RM0.10 per Rights Share on the basis of one (1) Rights Share for every two (2) existing Sumatec Shares held together with one (1) Warrant for every one (1) Rights Share subscribed (“Proposed Rights Issue with Warrants”).

In addition, Sumatec had on 17 February 2017 entered into a framework agreement (“Framework Agreement”) with Kenmakmur and MELL for the production of liquefied petroleum gas (“LPG”) and condensate from the 100 million standard cubic feet per day of natural gas supplied from the Rakushechnoye Oil and Gas Field (“Proposed LPG Production”). For avoidance of doubt, the Proposed LPG Production shall be implemented upon completion of the proposals under (i) to (iii) above.

In consideration for the supply of the natural gas, Sumatec shall:

(a) Issue to Kenmakmur or its nominees:

(aa) Sumatec Shares equivalent to USD56.0 million; and

(ab) Redeemable convertible preferential shares (“RCPS”) for the sum of up to USD84,000,000;

(b) Issue Sumatec Shares equivalent to USD45.0 million to Kenmakmur. Kenmakmur will assign such number of shares to MELL at a total nominal consideration of RM1.00. MELL will transfer these shares back to Sumatec as repayment for the amount owing by MELL to Sumatec. It is the intention of the Board of Sumatec to redistribute these shares back to its shareholders in the form of dividends or capital repayment.

(c) Issue Sumatec Shares equivalent to USD20 million to Kenmakmur. In return, Kenmakmur shall pay for any potential liability the may be incurred by Sumatec relating to various litigations involving Semua International Sdn Bhd and its subsidiaries.

The major shareholder of Sumatec namely, TSHS is deemed interested in the Proposed Rights Issue with Warrants and Proposed LPG Production as he is the director and 99.9% shareholder of MELL. ATAR is the Managing Director of Sumatec. He is also a director and shareholder of Markmore. Additionally, Liew Boon Keat, the Group Financial Controller at Markmore, is a Non-Independent Non-Executive Director of the Company. Hence, ATAR and Liew Boon Keat are deemed interested in the Proposed Rights Issue with Warrants and Proposed LPG Production and have abstain, and will continue to abstain from deliberation and voting on and from making any opinion on the proposals at the relevant meetings of the Board.

Save as disclosed above, there was no other related party transaction entered by the Company during the financial year.

AUDIT AND NON-AUDIT FEES

(a) Amount of audit fees paid or payable to the Company’s auditors incurred by the Company and on a group basis are RM110,000 and RM150,000 respectively.

(b) Amount of non-audit fees paid or payable to the Company’s auditors incurred by the Company and on a group basis are RM6,000 and RM13,000 respectively.

UTILISATION OF PROCEEDS RAISED FROM CORPORATE PROPOSALS

A private placement exercise of the Company’s shares to independent third party investors was completed on 25 April 2016 with the listing of 348,269,000 new ordinary shares, at an issue price of RM0.14 per placement share. The proceeds raised have been used for working capital and corporate purposes.


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42

STATEMENT OFDIRECTORS’ RESPONSIBILITYFOR PREPARATION OF FINANCIAL STATEMENTS

The Companies Act, 1965 (“Act”) requires the Directors to prepare financial statements for each financial year in accordance with the Malaysian Financial Reporting Standards issued by the Malaysian Accounting Standards Board, the provisions of the Act and the Main Market Listing Requirements of Bursa Malaysia, and to lay these before the Company at its Annual General Meeting.

The Directors are responsible for ensuring that the financial statements provide a true and fair view of the financial position of the Group and the Company as at 31 December 2016 and of their financial performance and cash flows for the financial year ended 31 December 2016. The Act also requires the Directors to keep such accounting and other records in a manner that enables them to sufficiently explain the transactions and financial position of the Company and the Group and to prepare true and fair financial statements and any documents required to be attached, as well as to enable such accounting records to be audited conveniently and properly.

In undertaking the responsibility placed upon them by law, the Directors have relied upon the Group’s system of internal control to provide them with reasonable grounds to believe that the Group’s accounting records, as well as other relevant records, have been maintained by the Group in a manner that enables them to sufficiently explain the transactions and financial position of the Group. This also enables the Directors to ensure that true and fair financial statements and documents required by the Act to be attached, are prepared for the financial year to which these financial statements relate.

The Directors are also satisfied that the financial statements have been prepared on the basis that:

• Appropriate and relevant accounting policies have been consistently applied;• Judgments and estimates made are prudent and reasonable; and• The Group and the Company will continue to operate as a going concern.

Incorporated on pages 44 to 125 of this Annual Report are the financial statements of the Group and the Company for the financial year ended 31 December 2016.

4343

44 Directors’ Report

50 Statement by Directors

51 Statutory Declaration

52 Independent Auditors’ Report

58 Statements of Financial Position

60 Statements of Profit or Loss and Other Comprehensive Income

61 Statements of Changes in Equity

64 Statements of Cash Flows

66 Notes to the Financial Statements

FINANCIALSTATEMENTS


44


44

DIRECTORS’ REPORT

The Directors hereby submit their report together with the audited financial statements of the Group and of the Company for the financial year ended 31 December 2016.

PRINCIPAL ACTIVITIES

The principal activities of the Company are that of investment holding and engaged in the upstream oil and gas operation.

The principal activities of its subsidiary companies are disclosed in Note 5 to the Financial Statements.

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

FINANCIAL RESULTSGroup Company

RM RM

Operating (loss)/profit before provision 18,038,624 (54,291,850)

Less: Other cost – provision for liabilities* (71,415,257) (71,415,257)

Tax expenses (8,641,589) 866,468

Net loss for the financial year (62,018,222) (124,840,639)

Attributable to:

Owners of the Company (62,018,222) (124,840,639)

*The Financial Statements of the Company reflected this provision due to potential claims by Bank Pembangunan Malaysia Berhad and Malayan Banking Berhad under the corporate guarantees issued by the Company. These claims against the Company is due to the failure of a vendor to release and discharge the Company from the corporate guarantees under the settlement agreement signed in 28 May 2013. The Company expects to recover and has proceeded with legal action against the vendor.

RESERVES AND PROVISIONS

The material transfers to or from reserves or provisions during the financial are those disclosed in the financial statements.

DIVIDENDS

There were no dividends proposed, declared or paid by the Company since the end of the previous financial year.

DIRECTORS

The Directors in office since the date of the last report are:-

Michael Lim Hee Kiang Mohamad bin Ismail Wan Kamaruddin bin Dato’ Biji Sura @ Wan AbdullahAbu Talib bin Abdul Rahman (appointed with effect from 1 July 2016)Liew Boon Keat (appointed with effect from 1 July 2016)Mahusni bin Hasnan (appointed with effect from 20 October 2016)Tan Sri Abu Talib bin Othman (retired with effect from 2 June 2016)Datuk Mohd Nasir bin Ahmad (retired with effect from 2 June 2016)Chan Yok Peng (resigned with effect from 3 March 2017)Datuk Che Mokhtar bin Che Ali (resigned with effect from 19 April 2017)Dato’ Ahmad Johari bin Tun Abdul Razak (resigned with effect from 19 April 2017)

Annual Report 2016

45

Annual Report 2016

45

DIRECTORS’ REPORTCONT’D

DIRECTORS’ INTERESTS

According to the Register of Directors’ Shareholdings, the interests and deemed interests in the shares and options over shares of the Company and its related corporations of those who were Directors as at year end are as follows:

Number of ordinary shares of RM0.14 eachAt

1.1.2016 Bought SoldAt

31.12.2016

Direct interestDato’ Ahmad Johari bin Tun Abdul Razak 39,174,900 - (24,767,100) 14,407,800Abu Talib bin Abdul Rahman 3,844,000 - - 3,844,000Liew Boon Keat 930,500 - (500,000) 430,500

Deemed interestChan Yok Peng * 72,483,179 - (71,672,085) 811,094

Number of Warrants BAt

1.1.2016 Bought SoldAt

31.12.2016

Direct interestLiew Boon Keat 56,375 - - 56,375

Deemed interestChan Yok Peng * 16,000,000 - (7,500,000) 8,500,000

* deemed interest by virtue of his shareholdings in Tekad Mulia Sdn. Bhd.

Other than those disclosed above, none of the other Directors in office at the end of the financial year held any interest in the shares and options over shares of the Company or its related corporations during the financial year.

DIRECTORS’ BENEFITS

During and at the end of the financial year, no arrangements subsisted to which the Company is a party, with the object or objects 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.

Since the end of the previous financial year, no Director has received or become entitled to receive any benefits (except as disclosed in Notes 23 and 29 to the Financial Statements) 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 of which the Director has a substantial financial interest.

ISSUE OF SHARES AND DEBENTURES

During the financial year, the Company issued:

(a) 16,800,000 ordinary shares of RM0.14 each arising from the exercise of employee share options at exercise price of RM0.143 per share for a total consideration of RM2,402,400; and

(b) 348,269,000 ordinary shares of RM0.14 each arising from the private placement exercise at exercise price of RM0.14 per share for a total consideration of RM48,757,660.


46


46


ISSUE OF SHARES AND DEBENTURES (CONTINUED)

The new ordinary shares issued during the financial year rank pari passu in all respects with the existing ordinary shares of the Company.

There was no issuance of debentures during the financial year.

OPTIONS GRANTED OVER UNISSUED SHARES

No options were granted to any person to take up unissued share of the Company during the financial year apart from the issue of options pursuant to the Employee Share Options Scheme (“ESOS”), Warrants 2011/2021 (“Warrants A”) and Warrants 2013/2018 (“Warrants B”).

ESOS

The ESOS is governed by the by-laws which were approved by the shareholders at the Eighth Annual General Meeting held on 24 June 2005. On 18 April 2007, the Company implemented ESOS after approvals were obtained from the relevant authorities and was in force for a period of 5 years. The ESOS which originally expired on 17 April 2012, has been extended for another 5 years to 16 April 2017.

The salient features and other terms of the ESOS are as follows:

(a) The ESOS Committee appointed by the Board of Directors to administer the ESOS, may from time to time grant options to eligible employees of the Group to subscribe for new ordinary shares of RM0.14 each in the Company;

(b) The eligibility of a Director or employee of the Group to participate in the ESOS shall be at the discretion of the ESOS Committee, who shall take into consideration factors such as years of service and performance track record;

(c) The total number of shares to be issued under ESOS shall not exceed in aggregate 15% of the issued and fully paid-up share capital of the Company at any point of time during the tenure of the ESOS and out of which not more than 50% of the shares shall be allocated, in aggregate, to Directors and senior management. In addition, not more than 10% of the shares available under the ESOS shall be allocated to any individual Director or employee who, either singly or collectively through his/her associates, holds 20% or more in the issued and paid-up share capital of the Company;

(d) The option price shall not be at a discount of more than 10% from the 5-days weighted average market price of the shares of the Company preceding the date of offer and shall in no event be less than the par value of the share of the Company of RM0.14;

(e) The number of outstanding options to subscribe for shares or the option price or both may be adjusted following any issue of additional shares by way of rights issues, bonus issues or other capitalisation issue carried out by the Company while an option remains unexercised; and

(f) The new shares allotted upon any exercise of the option shall rank pari passu in all respects with the existing ordinary shares of the Company except that the new shares so issued will not rank for any rights, dividends, allotments and/or other distributions, the entitlement date of which is prior to the date of allotment of the new ordinary shares.

Annual Report 2016

47

Annual Report 2016

47

OPTIONS GRANTED OVER UNISSUED SHARES (CONTINUED)

ESOS (Continued)

As at 31 December 2016, the options offered to take up unissued ordinary shares of the Company of RM0.14 each and the option prices are as follows:

Number of option over ordinary shares of RM0.14 each

Grant dateExpiry

dateOption

priceAt

1.1.2016 Granted Exercised ForfeitedAt

31.12.2016

18.4.2007 16.4.2017 RM0.35 40,000 - - - 40,000

27.12.2013 16.4.2017 RM0.244 41,100,000 - - (39,200,000) 1,900,000

12.10.2015 16.4.2017 RM0.143 16,950,000 - (16,800,000) - 150,000

During the financial year, eligible employees of the Group and the Company who have been granted with share options are as follows:

Number of option over ordinary shares of RM0.14 each

At1.1.2016 Granted Exercised Forfeited

At31.12.2016

Albina Berisheva 600,000 - - (600,000) -

Anelya Baitleuova 200,000 - - (200,000) -

Aslan Tuleshev 800,000 - - (800,000) -

Azamat Chukenov 300,000 - - (300,000) -

Faridah Binti Azmat 690,000 - (250,000) - 440,000

Jaafar Bin Jonid 250,000 - (150,000) - 100,000

Kaisar Kossayev 800,000 - - (800,000) -

Kamala Kee Rudra 1,700,000 - (1,300,000) - 400,000

Lessya Kotovskaya 1,200,000 - - (1,200,000) -

Looi Yow Cheong 600,000 - - (600,000) -

Norrida Binti Suli 450,000 - (250,000) - 200,000

Olzhas Saipolla 1,200,000 - - (1,200,000) -

Peng Ng Leng 2,000,000 - (2,000,000) - -

Roshidah Binti Abdullah 20,000,000 - - (20,000,000) -

Sagadiyev Bekzhan 300,000 - - (300,000) -

Sam Elliot Harvey 16,600,000 - (4,600,000) (12,000,000) -

Shobana MohanaSundram 1,200,000 - - (1,200,000) -

Siti Salwa Binti Abd Hamid 650,000 - (250,000) - 400,000

Syahirah Akmal Binti Mahdom 650,000 - (250,000) - 400,000

Chew Choo Meng 2,650,000 - (2,500,000) - 150,000

Hooi Woi Loon 2,250,000 - (2,250,000) - -

Lozman Ahmad 3,000,000 - (3,000,000) - -

58,090,000 - (16,800,000) (39,200,000) 2,090,000



48


48


OPTIONS GRANTED OVER UNISSUED SHARES (CONTINUED)

Warrants A and Warrants B

The details and salient terms of Warrants A and Warrants B are disclosed in Note 17 to the Financial Statements.

Details of Warrants B issued to Directors are disclosed in the section of Directors’ Interests in this report.

OTHER STATUTORY INFORMATION

Before the financial statements of the Group and of the Company were made out, the Directors took reasonable steps:-

(a) to ascertain that action had been taken in relation to the writing off of bad debts and the making of allowance for doubtful debts and satisfied themselves that there were no bad debts to be written off and adequate allowance had been made for doubtful debts; and

(b) to ensure that any current assets which were unlikely to be realised in the ordinary course of business including their values as shown in the accounting records of the Group and of the Company have been written down to an amount which they might be expected so to realise.

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

(a) which would render it necessary to write off any bad debts or the amount of the allowance for doubtful debts in the financial statements of the Group and of the Company inadequate to any substantial extent; or

(b) which would render the values attributed to current assets in the financial statements of the Group and of the Company misleading; or

(c) which have arisen which would render adherence to the existing method of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate; or

(d) not otherwise dealt with in this report or the financial statements which would render any amount stated in the financial statements misleading.

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

(a) any charge on the assets of the Group and of the Company which has arisen since the end of the financial year which secures the liability of any other person; or

(b) any contingent liability of the Group and of the Company which has arisen since the end of the financial year.

In the opinion of the Directors:-

(a) no contingent liability or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the financial year which will or may affect the ability of the Group and of the Company to meet their obligations as and when they fall due;

(b) the results of operations of the Group and of the Company during the financial year were not substantially affected by any item, transaction or event of a material and unusual nature, other than as disclosed in Note 25 to the Financial Statements. The Board is fully aware of the going concern issue, and as such, has initiated the implementation of the corporate exercise that involves a private placement, rights issue and issuance of shares as announced on 17 February 2017. The Board is confident that the corporate exercise will be fairly successful; and

(c) there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely to affect substantially the results of the operations of the Group and of the Company for the financial year in which this report is made.

Annual Report 2016

49

Annual Report 2016

49


SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR AND AFTER THE REPORTING DATE

1. Significant events during the financial year and after the reporting date are disclosed in Note 36 to the Financial Statements.

2. The Board takes note of the qualified opinion on Markmore Energy (Labuan) Limited and has taken the item as gas development cost and expect to recover this from the future gas production.

AUDITORS

The Auditors, Messrs SJ Grant Thornton, have expressed their willingness to continue in office.

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

....................................................................... )ABU TALIB BIN ABDUL RAHMAN ) ) ) ) ) ) DIRECTORS ) ) ) ) )....................................................................... )MOHAMAD BIN ISMAIL )

Kuala Lumpur21 April 2017


50


50

STATEMENT BY DIRECTORS

STATEMENT BY DIRECTORS

In the opinion of the Directors, the financial statements set out on pages 58 to 124 are drawn up in accordance with Malaysian Financial Reporting Standards, International 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 at 31 December 2016 and of their financial performance and cash flows for the financial year then ended.

In the opinion of the Directors, the supplementary information set out on page 125 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,

.................................................................... ....................................................................ABU TALIB BIN ABDUL RAHMAN MOHAMAD BIN ISMAIL Kuala Lumpur21 April 2017

Annual Report 2016

51

Annual Report 2016

51

STATUTORYDECLARATION

I, Chan Yok Peng, being the Officer primarily responsible for the financial management of Sumatec Resources Berhad, do solemnly and sincerely declare that to the best of my knowledge and belief, the financial statements set out on pages 58 to 124 and the supplementary information set out on page 125 are correct and I make this solemn declaration conscientiously believing the same to be true and by virtue of the Statutory Declarations Act, 1960.

Subscribed and solemnly declared by )the abovenamed at Kuala Lumpur in )the Federal Territory this day of )21 April 2017 ) .................................................................... CHAN YOK PENG

Before me:

S. ARULSAMY(No. W490)Commissioner for OathsKuala Lumpur


52


52

INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF SUMATEC RESOURCES BERHAD

Report on the Financial Statements

Qualified Opinion

We have audited the financial statements of Sumatec Resources Berhad, which comprise 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 financial year then ended, and a summary of significant accounting policies and other explanatory information, as set out on pages 58 to 124.

In our opinion, except for the possible effects of the matter described in the Basis for Qualified Opinion section of our report, 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 their cash flows for the year then ended in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia.

Basis for Qualified Opinion

The current trade receivable of the Group amounting to RM185,047,500 as at 31 December 2016 as disclosed in Note 10 to the Financial Statements is due from Markmore Energy (Labuan) Limited (“MELL”), a company in which a controlling shareholder has control. Significant portion of this balance has been long overdue. In the absence of any documentary evidence and alternative procedures, we are unable to obtain sufficient appropriate audit evidence to ascertain the recoverability of amount due from MELL as at 31 December 2016.

Independence and Other Ethical Responsibilities

We are independent of the Group and of the Company in accordance with the By-Laws (on Professional Ethics, Conduct and Practice) of the Malaysian Institute of Accountants (“By-Laws”) and the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (“IESBA Code”), and we have fulfilled our other ethical responsibilities in accordance with the By-Laws and the IESBA Code.

Material Uncertainties Related to Going Concern

We draw attention to Note 2 to the Financial Statements which indicates that the Group and the Company are experiencing negative cash flows of RM50,152,506 and RM46,024,048 respectively on operating activities for the financial year ended 31 December 2016.

As stated in Note 2, the ability of the Group and of the Company to continue as going concerns are highly dependent on the timely and successful implementation of the Proposed Corporate Exercises (“Proposals”) for obtaining new source of funds to generate adequate cash flows for its development and production activities of oil and gas in Rakushechnoye oil and gas field and to achieve profit and positive cash flows from its operating activities. The successful implementation of the Proposals and viability of the oil and gas operations in the Rakushechnoye oil and gas field indicate that a material uncertainty exists that may cast significant doubt on the ability of the Group and of the Company to continue as going concern. The financial statements of the Group and of the Company do not include the adjustments that would result if the Group and the Company are unable to continue as going concerns.

Annual Report 2016

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Annual Report 2016

53

INDEPENDENT AUDITORS’ REPORTTO THE MEMBERS OF SUMATEC RESOURCES BERHAD

CONT’D

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the Group and of the Company for the current 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.

Impairment test for intangible asset, performance deposit and non-current receivables from a related party

The risk – The carrying value of the Group’s and the Company’s intangible asset and performance deposit amounting to RM299,428,408 and RM124,184,826 respectively as at 31 December 2016 are related to the development and oil extraction rights at Rakushechnoye oil and gas field in Kazakhstan. While the Group’s and the Company’s non-current trade receivables amounting to RM30,443,496 and RM23,592,787 respectively and the Group’s and Company’s non-current non-trade receivables amounting to RM91,693,164 are due from CaspiOilGas LLP (“COG”), a company in which a controlling shareholder has control. COG is the subsurface use rights owner of Rakushechnoye oil and gas field.

The recoverability of all these assets is highly depending on the performance of the oil operations to generate the future positive cash inflows. However, a sustained low oil price environment poses a heightened impairment risk for abovementioned assets. The impairment test of these non-current assets is dependent on the complex and subjective judgements made by management including estimates of future oil prices, production levels, capital expenditure requirements and the discount rate applied to future cash flow forecasts.

Our response – Our audit procedures included, among others, evaluating and challenging the significant assumptions and methodologies used by the Group. We challenged the significant inputs and key assumptions used in impairment testing which including future oil price, assumed oil productions capacity and capital expenditure which are highly depending on the availability of funding, operating cost and discount rate assumptions. We compared to the difference sources of analyst forecast oil price data and we rely on the Group’s expertise report to support the assessment on determining the oil production level and the capital expenditure required. We tested and reviewed assumptions of the operating costs for consistency within the same industry.

Whilst recognising that forecasting is inherently judgemental, we concluded that the assumptions and methodologies used by management were within an acceptable range of reasonable estimates.

From our work performed, it is clear there are material uncertainties, which if not realised, may affect the Group’s and the Company’s ability to continue as a going concern. We have therefore considered the adequacy of management’s disclosure of material uncertainties, included in Note 2 to the Financial Statements. We concluded these are sufficient to inform the users of the financial statements about the risks facing by the Group and the Company.

An Material Uncertainties Related to Going Concern paragraph is included in our opinion to highlight these uncertainties. Our conclusion on going concern of the Group and the Company are as per abovementioned.

Provision for guarantees provided and contingent liabilities

The risk - During the current financial year, the Company has made the provision of RM71,415,257 as liabilities and disclosed contingent liabilities amounting to RM122,974,830 which mainly arising from the guarantees provided to associate company and its subsidiary companies (“Semua group”) as detailed in Note 25 and 33 to the Financial Statements.

The Company has the present obligation to fulfil due to guarantees given as past events. We focused on this area as the eventual outcome of claims is uncertain and the positions taken by the Directors are based on the application of material judgements and estimations. Accordingly, unexpected adverse outcomes could significantly impact the Group’s and the Company’s reported loss and financial position.


54


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INDEPENDENT AUDITORS’ REPORTTO THE MEMBERS OF SUMATEC RESOURCES BERHADCONT’D

Key Audit Matters (Continued)

Provision for guarantees provided and contingent liabilities (Continued)

Our response - We discussed the status of significant known actual and potential litigations with the Management. We obtained and tested the evidences substantively to support the decisions and rationale for provisions held or decisions not to record provisions, including correspondences with legal counsels and other counter-parties related to guarantees provided and other contingent liabilities.

We developed an independent expectation of the provisions based on available evidence to challenge the valuation and completeness of the provisions recognised by the Company in accordance with MFRS 137 Provisions, Contingent Liabilities and Contingent Assets. We obtained confirmations from external legal counsels to confirm our understanding of settled and outstanding litigations and asserted claims. We evaluated significant adjustments to legal provisions recorded during the financial year to determine if they were indicative of management bias.

We conclude that in the context of the Group’s and the Company’s financial statements taken as a whole, the judgements made by management were reasonable and the disclosures made in respect of these provisions and contingent liabilities are appropriate.

Information Other than the Financial Statements and Auditors’ Report Thereon

The Directors of the Company are responsible for the other information. The other information comprise the information included in the annual report, but does not include the financial statements of the Group and of the Company and our auditors’ report thereon.

Our opinion on the financial statements of the Group and of the Company does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements of the Group and of the Company, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements of the Group and of the Company or our knowledge obtained in the audit or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Directors for the Financial Statements

The Directors of the Company are responsible for the preparation of financial statements of the Company that give a true and fair view in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 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 Company that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements of the Company, the Directors are responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

Annual Report 2016

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Annual Report 2016

55


CONT’D

Auditors’ Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements of the Group and of the Company as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with approved standards on auditing in Malaysia and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements of the Group and of the Company, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and the Company’s internal control.

• 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 Group’s or the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements of the Group and of the Company or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group or the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements of the Group and of the Company, including the disclosures, and whether the financial statements of the Group and of the Company represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial statements of the Group. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.


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56

INDEPENDENT AUDITORS’ REPORTTO THE MEMBERS OF SUMATEC RESOURCES BERHADCONT’D

Auditors’ Responsibilities for the Audit of the Financial Statements (Continued)

From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial statements of the Group and of the Company for the current year and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on Other Legal and Regulatory Requirements

In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report the following:-

(a) In our opinion, the accounting and other records and the registers required by the Act to be kept by the Company and its subsidiaries have been properly kept in accordance with the provisions of the Act.

(b) We have considered the accounts and the auditors’ report of the subsidiary company of which we have not acted as auditors, which are indicated in Note 5 to the Financial Statements.

(c) We are satisfied that the accounts of the subsidiary companies that have been consolidated with the Company’s financial statements are in form and content appropriate and proper for the purposes of the preparation of the financial statements of the Group and we have received satisfactory information and explanations required by us for those purposes except as disclosed in above.

(d) The auditors’ reports on the accounts of the subsidiary companies did not contain any qualification or any adverse comment under Section 174 (3) of the Act except one of the subsidiary company which with qualified opinion as mentioned in Note 5 to the Financial Statements.

Other Reporting Responsibilities

The supplementary information set out on page 125 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.

Annual Report 2016

57

Annual Report 2016

57


CONT’D

Other Matters

This report is made solely to the members of the Company, as a body, in accordance with Section 174 of the Companies Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report.

SJ GRANT THORNTON DATO’ N.K. JASANI(NO. AF: 0737) (NO: 708/03/18 (J/PH))CHARTERED ACCOUNTANTS CHARTERED ACCOUNTANT PARTNERKuala Lumpur 21 April 2017


58


58

STATEMENTS OFFINANCIAL POSITIONAS AT 31 DECEMBER 2016

Group Company

Note 2016Restated

2015 2016Restated

2015RM RM RM RM

ASSETS

Non-current assetsInvestment in subsidiary companies 5 - - - 1,880,396

Investment in associate companies 6 - - - -

Other investments 7 1 1 - -

Property, plant and equipment 8 1,998,566 4,352,299 1,177,163 3,502,313

Intangible asset 9 299,428,408 301,406,652 299,428,408 301,406,652

Trade receivables 10 30,443,496 30,887,806 23,592,787 24,856,364

Other receivables 11 215,877,990 183,265,825 215,877,990 183,265,825

Total non-current assets 547,748,461 519,912,583 540,076,348 514,911,550

Current assetsTrade receivables 10 185,047,500 128,898,000 - -

Other receivables 11 99,135,575 96,884,593 99,063,911 96,867,702

Amount due from subsidiary companies 12 - - 58,247,047 71,364,894

Amount due from associate companies 13 - 5,635,497 - 5,635,497

Fixed deposits with a licensed bank 14 230,000 230,000 - -

Cash and bank balances 140,823 895,013 89,984 888,061

Total current assets 284,553,898 232,543,103 157,400,942 174,756,154

Non-current assets classified as held for sale 15 - 17,000,000 - 17,000,000

Total assets 832,302,359 769,455,686 697,477,290 706,667,704

EQUITY AND LIABILITIES

EQUITY

Equity attributable to owners of the Company:Share capital 16 541,256,016 490,146,356 541,256,016 490,146,356

Other reserves 17 322,611,047 327,111,780 324,577,343 329,734,253

Accumulated losses (226,138,209) (166,377,750) (352,399,088) (229,816,212)

637,728,854 650,880,386 513,434,271 590,064,397

Non-controlling interests - - - -

Total equity 637,728,854 650,880,386 513,434,271 590,064,397

Annual Report 2016

59

Annual Report 2016

59

STATEMENTS OF FINANCIAL POSITIONAS AT 31 DECEMBER 2016

CONT’D

Group Company

Note 2016Restated

2015 2016Restated

2015RM RM RM RM

LIABILITIES

Non-current liabilitiesDeferred tax liabilities 18 7,394,000 1,023,000 154,000 1,023,000

Total non-current liabilities 7,394,000 1,023,000 154,000 1,023,000

Current liabilitiesTrade payables 19 176,489 210,237 - -

Other payables 20 162,205,427 94,519,000 161,359,430 92,757,244

Tax payable 2,268,000 293,474 - 293,474

Term loan 21 22,529,589 22,529,589 22,529,589 22,529,589

Total current liabilities 187,179,505 117,552,300 183,889,019 115,580,307

Total liabilities 194,573,505 118,575,300 184,043,019 116,603,307

Total equity and liabilities 832,302,359 769,455,686 697,477,290 706,667,704

The accompanying notes form an integral part of the financial statements.


60


60

STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOMEFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2016

Group Company

Note 2016 2015 2016Restated

2015RM RM RM RM

Revenue 22 46,406,738 62,582,614 - 989,977

Direct cost (3,331,731) (1,789,194) (3,118,612) (1,789,194)

Other income 14,038,016 19,145,294 5,614,096 53,340,443

Staff costs 23 (3,672,069) (11,616,863) (2,799,682) (5,295,698)

Depreciation (537,797) (727,528) (509,214) (676,923)

Administrative expenses (4,598,639) (4,822,396) (3,716,321) (4,184,749)

Other expenses (24,546,186) (8,900,077) (44,043,360) (8,501,149)

Finance costs 24 (5,719,708) (15,490,260) (5,718,757) (15,020,862)

Operating profit/(loss) before provision 18,038,624 38,381,590 (54,291,850) 18,861,845

Other cost - provision for liabilities 25 (71,415,257) - (71,415,257) -

(Loss)/profit before tax (53,376,633) 38,381,590 (125,707,107) 18,861,845

Tax expenses 26 (8,641,589) (522,944) 866,468 (485,474)

Net (loss)/profit for the financial year 27 (62,018,222) 37,858,646 (124,840,639) 18,376,371

Other comprehensive income/(loss):

Item that will be reclassified subsequently to profit or loss

Foreign currency translation differences for foreign operation 656,177 (2,717,684) - -

Total comprehensive income/(loss) for the financial year (61,362,045) 35,140,962 (124,840,639) 18,376,371

(Loss)/profit for the financial year attributable to:

Owners of the Company (62,018,222) 37,827,815

Non-controlling interests - 30,831

Net (loss)/profit for the financial year (62,018,222) 37,858,646

Total comprehensive (loss)/income for the financial year attributable to:

Owners of the Company (61,362,045) 35,110,131

Non-controlling interests - 30,831

Total comprehensive (loss)/income for the financial year (61,362,045) 35,140,962

(Loss)/earnings per share 28

Basic (loss)/earnings per share (sen) (1.65) 1.08

Diluted (loss)/earnings per share (sen) (1.65) 1.08


Annual Report 2016

61

Annual Report 2016

61


Att

ribu

tabl

e to

ow

ners

of t

he C

ompa

ny

Non

-dis

trib

utab

le

Shar

eca

pita

lR

M

Shar

e pr

emiu

mR

M

War

rant

sre

serv

eR

M

Empl

oyee

sh

are

opti

ons

rese

rve

RM

Cap

ital

rese

rve

RM

Fore

ign

curr

ency

tran

slat

ion

rese

rve

RM

Acc

umul

ated

loss

es RM

Tota

lR

M

Non

-co

ntro

lling

inte

rest

sR

M

Tota

leq

uity

RM

Gro

up

At

1 Ja

nuar

y 20

15 4

87,5

77,3

46

165

,137

,924

1

42,5

79,8

48

4,3

78,8

95

17,

186,

556

95,

211

(20

6,36

4,49

2) 6

10,5

91,2

88

(30

,770

) 6

10,5

60,5

18

Oth

er c

ompr

ehen

sive

loss

for

the

finan

cial

yea

r -

-

-

-

-

(

2,71

7,68

4) -

(

2,71

7,68

4) -

(

2,71

7,68

4)

Net

pro

fit fo

r th

e fin

anci

al y

ear

--

--

--

37,

827,

815

37,

827,

815

30,

831

37,

858,

646

Tota

l com

preh

ensi

ve in

com

e fo

r th

e fin

anci

al y

ear

-

-

-

-

-

(2,

717,

684)

37,

827,

815

35,

110,

131

30,

831

35,

140,

962

Tran

sact

ions

wit

h ow

ners

:

Exe

rcis

e of

ESO

S 2

,569

,000

5

5,05

0 -

-

-

-

-

2

,624

,050

-

2

,624

,050

Sha

re is

suan

ce e

xpen

ses

-

(1,

950)

-

-

-

-

-

(1,

950)

-

(1,

950)

Con

vers

ion

of w

arra

nts

10

3

(16

) -

-

-

1

6 1

3 -

1

3

Em

ploy

ee s

hare

opt

ions

forf

eite

d -

-

-

(

2,22

1,48

8) -

-

2

,158

,911

(

62,5

77)

-

(62

,577

)

Em

ploy

ee s

hare

opt

ions

gra

nted

-

-

-

2,6

19,4

31

-

-

-

2,6

19,4

31

-

2,6

19,4

31

Tot

al t

rans

actio

ns w

ith o

wne

rs 2

,569

,010

5

3,10

3 (

16)

397

,943

-

-

2

,158

,927

5

,178

,967

-

5

,178

,967

Ari

sing

from

dis

posa

l of s

ubsi

diar

y co

mpa

ny -

-

-

-

-

-

-

-

(

61)

(61

)

Tran

sfer

red

to s

hare

pre

miu

m fo

r ES

OS

exer

cise

d -

5

65,1

80

-

(56

5,18

0) -

-

-

-

-

-

At

31 D

ecem

ber

2015

490

,146

,356

1

65,7

56,2

07

142

,579

,832

4

,211

,658

1

7,18

6,55

6 (

2,62

2,47

3)(1

66,3

77,7

50)

650

,880

,386

-

6

50,8

80,3

86

STATEMENTS OFCHANGES IN EQUITY

FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2016


62


62

STATEMENTS OF CHANGES IN EQUITYFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2016 CONT’D

Att

ribu

tabl

e to

ow

ners

of t

he C

ompa

ny

Non

-dis

trib

utab

le

Shar

eca

pita

lR

M

Shar

e pr

emiu

mR

M

War

rant

sre

serv

eR

M

Empl

oyee

sh

are

opti

ons

rese

rve

RM

Cap

ital

rese

rve

RM

Fore

ign

curr

ency

tran

slat

ion

rese

rve

RM

Acc

umul

ated

loss

es RM

Tota

lR

M

Non

-co

ntro

lling

inte

rest

sR

M

Tota

leq

uity

RM

Gro

up (

Con

tinu

ed)

Oth

er c

ompr

ehen

sive

inco

me

for

the

finan

cial

yea

r -

-

-

-

-

6

56,1

77

-

656

,177

-

6

56,1

77

Net

loss

for

the

finan

cial

yea

r -

-

-

-

-

-

(

62,0

18,2

22)

(62

,018

,222

) -

(

62,0

18,2

22)

Tota

l com

preh

ensi

ve lo

ss fo

r th

e fin

anci

al y

ear

-

-

-

-

-

656

,177

(

62,0

18,2

22)

(61

,362

,045

) -

(

61,3

62,0

45)

Tran

sact

ions

wit

h ow

ners

:

Exer

cise

of E

SOS

2,3

52,0

00

50,

400

-

-

-

-

-

2,4

02,4

00

-

2,4

02,4

00

Priv

ate

plac

emen

t ex

erci

se 4

8,75

7,66

0 -

-

-

-

-

-

4

8,75

7,66

0 -

4

8,75

7,66

0

Shar

e is

suan

ce e

xpen

ses

-

(1,

761,

744)

-

-

-

-

-

(1,

761,

744)

-

(1,

761,

744)

Empl

oyee

sha

re o

ptio

ns fo

rfei

ted

-

-

-

(3,4

45,5

66)

-

-

2,2

57,7

63

(1,

187,

803)

-

(1,

187,

803)

Tota

l tra

nsac

tions

with

ow

ners

51,

109,

660

(1,

711,

344)

-

(3,4

45,5

66)

-

-

2,2

57,7

63

48,

210,

513

-

48,

210,

513

Tran

sfer

red

to s

hare

pre

miu

m fo

r ES

OS

exer

cise

d 5

17,4

40

(51

7,44

0)-

--

-

-

-

At

31 D

ecem

ber

2016

541

,256

,016

1

64,5

62,3

03

142

,579

,832

2

48,6

52

17,

186,

556

(1,

966,

296)

(22

6,13

8,20

9) 6

37,7

28,8

54

-

637

,728

,854

Annual Report 2016

63

Annual Report 2016

63

Attributable to owners of the Company

Non-distributable

Sharecapital

RM

Share premium

RM

Warrantsreserve

RM

Employee share

options reserve

RM

Capitalreserve

RM

Accumulatedlosses

RM

Totalequity

RM

Company

At 1 January 2015 487,577,346 165,137,924 142,579,848 4,378,895 17,186,556 (250,351,510) 566,509,059

Total comprehensive income for the financial year, as restated - - - - - 18,376,371 18,376,371

Transactions with owners:

Exercise of ESOS 2,569,000 55,050 - - - - 2,624,050

Share issuance expenses - (1,950) - - - - (1,950)

Conversion of warrants 10 3 (16) - - 16 13

Employee share forfeited - - - (2,221,488) - 2,158,911 (62,577)

Employee share options granted - - - 2,619,431 - - 2,619,431

Total transactions with owners 2,569,010 53,103 (16) 397,943 - 2,158,927 5,178,967

Transferred to share premium for ESOS exercised - 565,180 - (565,180) - - -

At 31 December 2015, as restated 490,146,356 165,756,207 142,579,832 4,211,658 17,186,556 (229,816,212) 590,064,397

Total comprehensive loss for the financial year - - - - - (124,840,639) (124,840,639)

Transactions with owners:

Exercise of ESOS 2,352,000 50,400 - - - - 2,402,400

Private placement exercise 48,757,660 - - - - - 48,757,660

Share issuance expenses - (1,761,744) - - - - (1,761,744)

Employee share forfeited - - - (3,445,566) - 2,257,763 (1,187,803)

Total transactions with owners 51,109,660 (1,711,344) - (3,445,566) - 2,257,763 48,210,513

Transferred to share premium for ESOS exercised - 517,440 - (517,440) - - -

At 31 December 2016 541,256,016 164,562,303 142,579,832 248,652 17,186,556 (352,399,088) 513,434,271


STATEMENTS OF CHANGES IN EQUITYFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2016

CONT’D


64


64

STATEMENTS OF CASH FLOWSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2016

Group Company

2016Restated

2015 2016Restated

2015

RM RM RM RM

OPERATING ACTIVITIES

(Loss)/profit before tax (53,376,633) 38,381,590

(125,707,107) 18,861,845

Adjustments for:

Amortisation of intangible assets 1,978,244 462,729 1,978,244 462,729

Amount due from subsidiary companies written off - - - 123,970

Depreciation 537,797 727,528 509,214 676,923

Loss/(gain) from disposal of a subsidiary company - 242 - (1)

Gain from disposal of property, plant and equipment - (374) - -

Impairment loss on investment in an associate company 17,000,000 - 17,000,000 -

Impairment loss on amount due from an associate company 5,635,497 - 5,635,497 -

Impairment loss on amount due from a subsidiary company - - 19,497,174 -

Impairment loss on amount due from subsidiary companies no longer required - - - (50,594,364)

Interest expenses 2,280,586 2,267,464 2,279,635 2,267,010

Unwinding discount on financial assets 3,439,122 13,222,796 3,439,122 12,753,852

Interest income (29,441) (10,355) (938,996) (852,160)

Provision for liabilities 71,415,257 - 71,415,257 -

Property, plant and equipment written off 1,815,936 5,586 1,815,936 5,585

Reversal of unwinding discount on financial liabilities - 7,954,934 - 7,954,934

Share options granted under ESOS, net of amount forfeited (1,187,803) 2,556,854 692,593 1,680,602

Unrealised gain on foreign exchange (13,005,255) (18,653,131) (4,675,100) (1,769,557)

Operating profit/(loss) before working capital changes 36,503,307 46,915,863 (7,058,531) (8,428,632)

Receivables (77,549,379) (11,933,684) (30,925,542) 6,689,472

Payables (8,814,455) (38,068,713) (7,749,628) (51,723,675)

Subsidiary company - - - (1,236,884)

Cash used in operations (49,860,527) (3,086,534) (45,733,701) (54,699,719)

Interest paid (24,733) (2,458) (23,782) (2,004)

Interest received 29,441 10,355 29,441 10,126

Tax paid (296,687) (11,555) (296,006) -

Net cash used in operating activities (50,152,506) (3,090,192) (46,024,048) (54,691,597)

Annual Report 2016

65

Annual Report 2016

65

Group Company

2016Restated

2015 2016Restated

2015

RM RM RM RM

INVESTING ACTIVITIES

Purchase of property, plant and equipment (Note A) - (21,040) - (21,040)

(Outflow)/proceeds from disposal of subsidiary company, net of cash disposed (Note 5) - (303) - 1

Proceeds from disposal of property, plant and and equipment - 378 - -

(Advances to)/Repayment from subsidiary companies - - (4,172,345) 52,043,699

Net cash (used in)/from investing activities - (20,965) (4,172,345) 52,022,660

FINANCING ACTIVITY

Net proceeds from issuance of shares 49,398,316 2,622,113 49,398,316 2,622,113

Net cash from financing activity 49,398,316 2,622,113 49,398,316 2,622,113

CASH AND CASH EQUIVALENTS

Net decrease (754,190) (489,044) (798,077) (46,824)

At beginning of financial year 895,013 1,384,057 888,061 934,885

At end of financial year 140,823 895,013 89,984 888,061

NOTE TO THE STATEMENTS OF CASH FLOWS:

A. PURCHASE OF PROPERTY, PLANT AND EQUIPMENT

In the previous financial year, the Group and the Company acquired property, plant and equipment with aggregate cost of RM297,231 respectively of which RM276,191 remained unpaid as at reporting date. Cash payments of RM21,040 for the Group and the Company respectively were made to purchase the property, plant and equipment.

STATEMENTS OF CASH FLOWSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2016

CONT’D



66


66

NOTES TO THEFINANCIAL STATEMENTS31 DECEMBER 2016

1. GENERAL INFORMATION

The Company is a public limited liability company, incorporated and domiciled in Malaysia and is listed on the Main Market of Bursa Malaysia Securities Berhad. The registered office of the Company is located at Level 15-2, Bangunan Faber Imperial Court, Jalan Sultan Ismail, 50250 Kuala Lumpur. The principal place of business of the Company is located at Suite 22.02, Level 22, The Gardens North Tower, Mid Valley City, Lingkaran Syed Putra, 59200 Kuala Lumpur.

The principal activities of the Company are that of investment holding and engaged in the upstream oil and gas operation. The principal activities of its subsidiary companies are disclosed in Note 5 to the Financial Statements. There have been no significant changes in the nature of these activities during the financial year.

The financial statements were authorised for issue by the Board of Directors in accordance with a resolution of the Directors passed on 21 April 2017.

2. GOING CONCERN NOTE

As at 31 December 2016, the Group and the Company generated negative cash flows of RM50,152,506 and RM46,024,048 respectively on the operating activities. These factors raised our concern on the Group and on the Company’s ability to operate on a going concern basis.

The validity of the continuation as a going concern is dependent on the ability to improve the Group and the Company’s financial position in terms of cash flows. The Company plans to increase production in the Rakushechnoye Oil and Gas Field by capitalising on the improving oil price. The Company also intends to ensure sufficient funding for the development and production activities is available to increase the oil production.

As detailed out in Note 36 to the Financial Statements, the Company will be undertaking a proposed private placement, rights issue and new share issuance, which upon completion will provide the Company with sufficient funding for the current work program and future liquefied petroleum gas production program. In addition, the controlling shareholder of the Company has provided an undertaking of financial support to fund the operational requirements.

In view of the abovementioned, the Directors consider that it is appropriate to prepare the Financial Statements of the Group and of the Company on a going concern basis, and accordingly, the Financial Statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or to amounts and classification of liabilities that may be necessary should the going concern basis for the preparation of the Financial Statements of the Group and of the Company be not appropriate.

3. BASIS OF PREPARATION

3.1 Statement of compliance

The financial statements of the Group and of the Company have been prepared in accordance with Malaysian Financial Reporting Standards (“MFRSs”), International Financial Reporting Standards (“IFRSs”) and the requirements of the Companies Act, 1965 in Malaysia.

3.2 Basis of measurement

The financial statements of the Group and of the Company are prepared under the historical cost convention, unless otherwise indicated in the summary of significant accounting policies.

Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

Annual Report 2016

67

Annual Report 2016

67

NOTES TO THE FINANCIAL STATEMENTS31 DECEMBER 2016

CONT’D

3. BASIS OF PREPARATION (CONTINUED)

3.2 Basis of measurement (Continued)

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Group and the Company.

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

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

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

3.3 Functional and presentation currency

The financial statements are presented in Ringgit Malaysia (“RM”) which is the Company’s functional currency and all values are rounded to the nearest RM except when otherwise stated.

3.4 Adoption of Amendments to MFRSs and IC Interpretations (“IC Int”)

Except for the changes below, the Group and the Company have consistently applied the accounting policies set out in Note 4 to all years presented in these financial statements.

At the beginning of the current financial year, the Group and the Company adopted amendments/improvements to MFRSs which are mandatory for the financial periods beginning on or after 1 January 2016.

Initial application of the Amendments to MFRSs and IC Int did not have material impact to the financial statements.

3.5 Standards issued but not yet effective

The Group and the Company have not applied the following new standards and amendments to standards that have been issued by the Malaysian Accounting Standards Board (“MASB”) but are not yet effective for the Group and the Company:

Amendments to MFRSs effective 1 January 2017:MFRS 12 Disclosure of Interests in Other Entities (under Annual Improvements to MFRS Standards

2014 – 2016 Cycle)

MFRS 107 Statement of Cash Flows: Disclosure Initiative

MFRS 112 Income taxes: Recognition of Deferred Tax Assets for Unrealised Losses

Amendments to MFRSs effective 1 January 2017:MFRS 9 Financial Instruments (International Financial Reporting Standards (“IFRS”) 9 issued by

International Accounting Standards Board (“IASB”) in July 2014)

MFRS 15 Revenue from Contracts with Customers


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NOTES TO THE FINANCIAL STATEMENTS31 DECEMBER 2016CONT’D

Amendments to MFRS 2*#

Share-based Payment: Classification and Measurement of Share-based Payment Transactions


Insurance Contracts: Applying MFRS 9 Financial Instruments with MFRS 4 Insurance Contracts


Investment Property: Transfer of Investment Property

IC Interpretation 22 Foreign Currency Transactions and Advance consideration

Annual Improvements to MFRS Standards 2014 – 2016 Cycle (except for Amendments to MFRS 12 Disclosures of Interests in Other Entities)

MFRS effective 1 January 2019:MFRS 16 Leases

Amendments to MFRSs - effective date deferred indefinitely:MFRS 10 and 128 Consolidated Financial Statements and Investments in Associates and Joint Ventures: Sale

or Contribution of Assets between an Investor and its Associate or Joint Venture

* Not applicable to the Company’s operations

# Not applicable to the Group’s operations

The initial application of the above standards, amendments and interpretation are not expected to have any financial impacts to the financial statements, except for:

MFRS 9 Financial Instruments

MFRS 9 replaces MFRS 139 Financial Instruments: Recognition and Measurement and all previous version of MFRS 9. The new standard introduces extensive requirements and guidance for classification and measurement of financial assets and financial liabilities which fall under the scope of MFRS 9, new “expected credit loss model” under the impairment of financial assets and greater flexibility has been allowed in hedge accounting transactions. Upon adoption of MFRS 9, financial assets will be measured at either fair value or amortised cost. It is also expected that the Group’s investment in unquoted shares will be measured at fair value through other comprehensive income.

The adoption of MFRS 9 will result in a change in accounting policy. The Group and the Company are currently examining the financial impact of adopting MFRS 9.

MFRS 15 Revenue from Contracts with Customers

MFRS 15 presents new requirements for the recognition of revenue, replacing the guidance of MFRS 11 Construction Contracts, MFRS 118 Revenue, IC Interpretation 13 Customer Loyalty Programmes, IC Interpretation 15 Agreements for Construction of Real Estates, IC Interpretation 18 Transfers of Assets from Customers, and IC Interpretation 131 Revenue – Barter Transaction Involving Advertising Activities. The principles in MFRS 15 provide a more structured approach to measuring and recognising revenue. It establishes a new five-step model that will apply to revenue arising from contracts with customers. Under MFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods of services to a customer.


3.5 Standards issued but not yet effective (Continued)

The Group and the Company have not applied the following new standards and amendments to standards that have been issued by the Malaysian Accounting Standards Board (“MASB”) but are not yet effective for the Group and the Company: (Continued)

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3.5 Standards issued but not yet effective (Continued)

The adoption of MFRS 9 will result in a change in accounting policy. The Group and the Company are currently examining the financial impact of adopting MFRS 9. (Continued)

MFRS 15 Revenue from Contracts with Customers (Continued)

The adoption of MFRS 15 will result in a change in accounting policy. The Group and the Company are currently assessing the impact of MFRS 15 and will adopt the new standard on the required effective date.

MFRS 16 Leases

MFRS 16 replaces MFRS 117 Leases. MFRS 16 eliminates the distinction between finance and operating leases for lessees. As off-balance sheet will no longer be allowed except for some limited practical exemptions, all leases will be brought onto the statement of financial position by recognising a “right-of-use” asset and a lease liability. In other words, for a lessee that has material operating leases, the assets and liabilities reported on its statement of financial position are expected to increase substantially.

MFRS 16 also:

- Changes the definition of a lease,

- Sets requirements on how to account for the asset and liability, including complexities such as non-lease elements, variable lease payments and option periods,

- Changes the accounting for sale and leaseback arrangements,

- Largely retains MFRS 117’s approach to lessor accounting, and

- Introduces new disclosure requirements.

The adoption of MFRS 16 will result in a change in accounting policy. The Group and the Company is currently assessing the financial impact of adopting MFRS 16.

Amendments to MFRS 107 Statement of Cash Flows: Disclosure Initiative

The amendments require entities to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including changes from cash flows and non-cash changes. The disclosure requirement could be satisfied in various ways, and one method is by providing reconciliation between the opening and closing balances in the statement of financial position for liabilities arising from financing activities.

On initial application of the amendments, entities are not required to provide comparative information for preceding periods. These amendments are effective for annual periods beginning on or after 1 January 2017, with early application permitted. Application of amendments will result in additional disclosure to be provided by the Group and the Company.

3.6 Significant accounting estimates and judgements

Estimates, assumptions concerning the future and judgements are made in the preparation of the financial statements. They affect the application of the Group’s and the Company’s accounting policies and reported amounts of assets, liabilities, income and expenses, and disclosures made. Estimates and underlying assumptions are assessed on an ongoing basis and are based on experience and relevant factors, including expectations of future events that are believed to be reasonable under the circumstances. The actual results may differ from the judgements, estimates and assumptions made by management, and will seldom equal the estimated results.


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3.6 Significant accounting estimates and judgements (Continued)

3.6.1 Estimation uncertainty

Information about significant estimates and assumptions that have the most significant effect on recognition and measurement of assets, liabilities, income and expenses are discussed below:

Useful lives of depreciable assets

Management estimates the useful lives of the property, plant and equipment to be within 5 to 55 years and reviews the useful lives of depreciable assets at the end of each of the reporting date. As at 31 December 2016, management assesses that the useful lives represent the expected utility of the assets to the Group and the Company. Actual results, however, may vary due to change in the expected level of usage and technological development, which may result in adjustment to the Group’s and the Company’s assets.

The carrying amount of the Group’s and of the Company’s property, plant and equipment at the end of the reporting period is disclosed in Note 8 to the Financial Statements.

A 27% difference in the expected useful lives of the property, plant and equipment from the management’s estimates would result in approximately 2% (2015: 3%) and 2% (2015: 2%) variance in the Group’s and the Company’s profit for the financial year respectively.

Amortisation of intangible asset

The intangible assets will be amortised based on the unit of production method using total proved and probable oil reserves estimated to be recoverable from the existing oil and gas field based on the current subsurface use contract. An impairment loss is recognised for the amount by which the carrying amount of the asset or cash-generating unit exceeds its recoverable amount. To determine the recoverable amount, management estimates expected future cash flows from each asset or cash-generating unit and determines a suitable interest rate in order to calculate the present value of those cash flows. In the process of measuring expected future cash flows, management makes assumptions about future operating results. Actual results, however, may vary due to change in the expected level of usage and technological development and the market demand, which may result in adjustment to the Group’s and the Company’s assets. Changes in expected pattern of consumption of future economic benefit embodied in the asset are considered to modify the amortisation period, and treated as changes in accounting estimates.

The carrying amount of the Group’s and of the Company’s intangible asset at the end of the reporting period is disclosed in Note 9 to the Financial Statements.

Impairment of non-financial assets

An impairment loss is recognised for the amount by which the carrying amount of the asset or cash-generating unit exceeds its recoverable amount. To determine the recoverable amount, management estimates expected future cash flows from each asset or cash-generating unit and determines a suitable interest rate in order to calculate the present value of those cash flows. In the process of measuring expected future cash flows, management makes assumptions about future operating results. The actual results may vary, and may cause significant adjustments to the Group’s and the Company’s assets within the next financial year.

In most cases, determining the applicable discount rate involves estimating the appropriate adjustments to market risk and to asset-specific risk factors.


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3.6 Significant accounting estimates and judgements (Continued)

3.6.1 Estimation uncertainty (Continued)

Information about significant estimates and assumptions that have the most significant effect on recognition and measurement of assets, liabilities, income and expenses are discussed below: (Continued)

Impairment of loans and receivables

The Group and the Company assess at end of each reporting year whether there is any objective evidence that a financial asset is impaired. To determine whether there is objective evidence of impairment, the Group and the Company consider factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments.

Where there is objective evidence of impairment, the amount and timing of future cash flows are estimated based on historical loss experience of assets with similar credit risk characteristics.

Income taxes/ deferred taxation

Significant judgement is involved in determining the Group’s and the Company’s provision for income taxes. There are certain transactions and computations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group and the Company recognise tax liabilities based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recognised, such difference will impact the income tax and deferred tax provisions in the period in which such determination is made.

Deferred tax assets are recognised for all unabsorbed business losses and unutilised capital allowances to the extent that it is probable that taxable profit will be available against which the business losses and capital allowances can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies.

Employee share options

The Group and the Company measure the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the share options, volatility and dividend yield and making assumptions about them.

The assumptions and model used for estimating fair value for share-based payment transactions and the carrying amounts are disclosed in Note 23 to the Financial Statements.


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4. SIGNIFICANT ACCOUNTING POLICIES

4.1 Consolidation

4.1.1 Subsidiary companies

Subsidiary companies are entities controlled by the Company. Control exists when the Group 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. Besides, the Group 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 subsidiary companies is stated at cost less any impairment losses in the Company’s statement of financial position, unless the investment is classified as held for sale or distribution.

Upon the disposal of investment in a subsidiary company, the difference between the net disposal proceeds and its carrying amount is included in profit or loss.

4.1.2 Basis of consolidation

The Group’s financial statements consolidate the audited financial statements of the Company and all of its subsidiary companies, which have been prepared in accordance with the Group’s accounting policies. Amounts reported in the financial statements of subsidiary companies have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. The financial statements of the Company and its subsidiary companies are all drawn up to the same reporting date.

All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between entities of the Group (profits or losses resulting from intragroup transactions that are recognised in asset, such as inventory and property, plant and equipment) are eliminated in full in preparing the consolidated financial statements. Intragroup losses may indicate an impairment that requires recognition in the consolidated financial statements.

Subsidiary companies are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases.

Changes in the equity ownership interest in a subsidiary company that do not result in a loss of control are accounted for as equity transactions. In such circumstances, the carrying amounts of the controlling and non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary company. Any difference between the amount by which the non-controlling interest is adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to the owners of the Company.

4.1.3 Business combinations and goodwill

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at the fair value on acquisition date and the amount of any non-controlling interest in the acquiree. For each business combination, the Group elects whether it measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed and included in administrative expenses.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date.


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4. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

4.1 Consolidation (Continued)

4.1.3 Business combinations and goodwill (Continued)

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary company acquired, the difference is recognised in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed off, the goodwill associated with the operation disposed off is included in the carrying amount of the operation when determining the gain or loss on disposal off the operation. Goodwill disposed off in this circumstance is measured based on the relative values of the operation disposed off and the portion of the cash-generating unit retained.

4.1.4 Loss of control

Upon the loss of control of a subsidiary company, the Group derecognises the assets and liabilities of the subsidiary company, any non-controlling interests and the other components of equity related to the subsidiary company. Any surplus or deficit arising on the loss of control is recognised in profit or loss.

If the Group retains any interest in the previous subsidiary company, 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.

4.1.5 Non-controlling interests

Non-controlling interests at the end of the reporting date, being the equity in a subsidiary company not attributable directly or indirectly to the equity holders of the Company, are presented in the consolidated statement of financial position and statement of changes in equity within equity, separately from equity attributable to the owners of the Company. Non-controlling interests in the results of the Group are presented in the consolidated statement of profit or loss and other comprehensive income as an allocation of the profit or loss and the comprehensive income for the financial year between non-controlling interests and the owners of the Company.

Losses applicable to the non-controlling interests in a subsidiary company are allocated to the non-controlling interests even if that results in a deficit balance.

4.1.6 Associate companies

Associate companies are entities in which the Group has significant influence, but no control, over their financial and operating policies.

The Group’s investment in its associate companies are accounted for using the equity method. Under the equity method, investment in an associate company is carried in the statements of financial position at cost plus post acquisition changes in the Group’s share of net assets of the associate company since the acquisition date.


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4.1 Consolidation (Continued)

4.1.6 Associate companies (Continued)

The share of the results of an associate company is reflected in profit or loss. In addition, any change in other comprehensive income of those investees is presented as part of the Group’s other comprehensive income. Where there has been a change recognised directly in the equity of an associate company, the Group recognises and discloses its share of this change, when applicable, in the statements of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the associate companies are eliminated to the extent of the interest in the associate company.

When the Group’s share of losses exceeds its interest in an associate company, the carrying amount of that interest including any long-term investment is reduced to zero, and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the associate company.

The financial statements of the associate company is prepared as of the same reporting period as the Company. Where necessary, adjustments are made to bring the accounting policies of the associate company in line with those of the Group.

After application of the equity method, the Group determines whether it is necessary to recognise an additional impairment loss on the Group’s investment in its associate companies. The Group determines at the end of the reporting date whether there is any objective evidence that the investment in the associate companies are impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the investment in associate companies and their carrying values and recognise the amount in the “share of profit of associate companies” in profit or loss.

Upon loss of significant influence over an associate company, the Group measures and recognises any retaining investment at its fair value. Any difference between the carrying amount of the associate company upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss.

In the Company’s separate financial statements, investment in associate company is stated at cost less impairment losses. On disposal of such investment, the difference between net disposal proceeds and their carrying amount is included in profit or loss.

4.2 Foreign currency translations

The Group’s consolidated financial statements are presented in RM, which is also the Company’s functional currency.

4.2.1 Foreign currency transactions and balances

Transactions in foreign currencies are initially recorded at the functional currency rates prevailing at the date of the transaction.

Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency spot rate of exchange ruling at the reporting date.

All differences are taken to the profit or loss with the exception of all monetary items that forms part of a net investment in a foreign operation. These are recognised in other comprehensive income until the disposal of the net investment, at which time they are reclassified to profit or loss. Tax charges and credits attributable to exchange differences on those monetary items are also recorded in other comprehensive income.


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4.2 Foreign currency translations (Continued)

4.2.2 Foreign operations

The assets and liabilities of operations denominated in functional currencies other than RM are translated to RM at exchange rates at the end of the reporting date. The income and expenses of foreign operations are translated to RM at exchange rates at the date of the transactions.

Foreign currency differences are recognised in other comprehensive income and accumulated in the foreign currency translation reserve in equity. However, if the operation is a non- wholly-owned subsidiary company, then the relevant proportionate share of the translation difference is allocated to the non-controlling interests. When a foreign operation is disposed of, the cumulative amount in the foreign currency translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal.

When the Group disposes of only part of its interest in a subsidiary company that includes a foreign operation, the relevant proportion of the cumulative amount in the foreign currency translation reserve is reattributed to non-controlling interests. When the Group disposes off only part of its investment in an associate company that includes a foreign operation while retaining significant influence, the relevant proportion of such cumulative amount is reclassified to profit or loss.

In the consolidated financial statements, when settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign exchange gains and losses arising from such a monetary item are considered to form part of a net investment in a foreign operation and are recognised in other comprehensive income, and are presented in foreign currency translation reserve in equity.

4.3 Property, plant and equipment

All property, plant and equipment are measured at cost less accumulated depreciation and less any impairment losses. The cost of an item of property, plant and equipment is recognised as an asset if, and only if, it is probable that future economic benefits associated with the item will flow to the Group and the Company and the cost of the item can be measured reliably.

Cost includes expenditures that are directly attributable to the acquisition of the assets and any other costs directly attributable to bring the asset to working condition for its intended use. All other repair and maintenance costs are recognised in profit or loss as incurred.

Depreciation is recognised on the straight line method in order to write off the cost of each asset to its residual value over the estimated useful life. The property, plant and equipment are depreciated based on the estimated useful lives of the assets at the following annual rates:

Leasehold land 55 yearsBuildings 2%Computer equipment and software 20%Motor vehicles 20%Office equipment, furniture and fittings 10% - 20%Renovation 10%

The residual values, useful lives and depreciation method are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable, or at least annually to ensure that the amount, method and period of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items of property, plant and equipment.


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4.3 Property, plant and equipment (Continued)

Property, plant and equipment are derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Gains or losses arising on the disposal of property, plant and equipment are determined as the difference between the disposal proceeds and the carrying amount of the assets and are recognised in profit or loss in the financial year in which the asset is derecognised.

4.4 Operating leases

Leases, where the Group or the Company does not assume substantially all the risks and rewards of ownership are classified as operating leases and the leased assets are not recognised on the statements of financial position.

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 year in which they incurred.

4.5 Intangible assets

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

The useful life of intangible assets is assessed to be finite. Intangible assets with finite life are amortised based on the unit of production method using total proved and probable reserves for capitalised acquisition costs and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite useful life is recognised in the profit or loss in the expense category consistent with the function of the intangible asset.

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

4.6 Financial instruments

4.6.1 Initial recognition and measurement

Financial assets and financial liabilities are recognised when the Group or the Company becomes a party to the contractual provisions of the financial instrument.

Financial assets and financial liabilities are measured initially at fair values plus transactions costs, except for financial assets and financial liabilities carried at fair values through profit or loss, which are measured initially at fair values. Financial assets and financial liabilities are measured subsequently as described below.

4.6.2 Financial assets - categorisation and subsequent measurement

For the purpose of subsequent measurement, financial assets other than those designated and effective as hedging instruments are classified into the following categories upon initial recognition:

(a) financial assets at fair value through profit or loss; (b) held-to-maturity investments; (c) loans and receivables; and(d) available-for-sale financial assets.


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4.6 Financial instruments (Continued)

4.6.2 Financial assets - categorisation and subsequent measurement (Continued)

The category determines subsequent measurement and whether any resulting income and expense is recognised in profit or loss or in other comprehensive income.

All financial assets except for those at fair values through profit or loss are subject to review for impairment at least at the end of the reporting date. Financial assets are impaired when there is any objective evidence that a financial asset or a group of financial assets is impaired. Different criteria to determine impairment are applied for each category of financial assets.

A financial asset or part of it is derecognised when, and only when the contractual rights to the cash flows from the financial asset expire or the financial asset is transferred to another party without retaining control or substantially all risks and rewards of the asset. 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 the profit or loss.

At the reporting date, the Group and the Company have not designated any financial assets at fair value through profit or loss and held-to-maturity investments. The Group and the Company carry only loans and receivables and available-for-sale financial assets on their statements of financial position.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognitions, these are measured at amortised cost using the effective interest method, less provision for impairment. Discounting is omitted where the effect of discounting is immaterial. Gains or losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, and through the amortisation process. The Group’s and the Company’s cash and cash equivalents, fixed deposits with a licensed bank, trade and other receivables and amounts due from subsidiary companies fall into this category of financial instruments.

Loans and receivables are classified as current assets, except for those having maturity dates later than 12 months after the end of the reporting date which are classified as non-current.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are either designated to this category or do not qualify for inclusion in any of the other categories of financial assets.

Available-for-sale financial assets are measured at fair value subsequent to the initial recognition. Gains and losses are recognised in other comprehensive income and reported within the available-for-sale reserve within equity, except for impairment losses and foreign exchange differences on monetary assets, which are recognised in profit or loss. When the asset is disposed off or is determined to be impaired the cumulative gain or loss recognised in other comprehensive income is reclassified from the equity reserve to profit or loss and presented as a reclassification adjustment within other comprehensive income.

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 less impairment loss.

Available-for-sale financial assets are classified as non-current assets unless they are expected to be realised within 12 months after the end of the reporting date.


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4.6 Financial instruments (Continued)

4.6.3 Financial liabilities - categorisation and subsequent measurement

After the initial recognition, financial liabilities are classified as:

(a) financial liabilities at fair value through profit or loss; (b) other liabilities measured at amortised cost using the effective interest method; and (c) financial guarantee contracts.

A financial liability or a part of it is derecognised when, and only when, the obligation specified in the contract is discharged or 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.

At the reporting date, the Group and the Company carry only other liabilities measured at amortised cost on their statements of financial position.

Other liabilities measured at amortised cost

The Group’s and the Company’s other liabilities include term loan, trade and other payables.

Other liabilities are subsequently measured at amortised cost using the effective interest method. Borrowings are classified as current liabilities unless the Group or the Company has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting date.

4.6.4 Offsetting of Financial Instruments

Financial assets and financial liabilities are offset and the net amount reported in the statements of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

4.7 Cash and cash equivalents

Cash and cash equivalents comprise cash in hand, bank balances and highly liquid investments which are readily convertible to known amount of cash and which are subject to an insignificant risk of changes in value.

Cash and cash equivalents restricted to be used to settle a liability of 12 months or more after the end of the reporting date are classified as non-current asset.

4.8 Non-current assets or disposal group held for sale and discontinued operations

Non-current assets or disposal group comprising assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use, are classified as held for sale.

A component of the Group is classified as discontinued operation when the criteria to be classified as held for sale have been met or it has been disposed of and such a component represents a separate major line of business or geographical area of operations, is part of a single co-ordinate major line of business or geographical area of operations or is a subsidiary company acquired exclusively with a view to resale.


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4.8 Non-current assets or disposal group held for sale and discontinued operations (Continued)

Classification of the asset (or disposal group) as held for sale occurs only when the asset is available for immediate sale in its present condition subject only to terms that are usual and customary and the sale must be highly probable. Management must be committed to a plan to sell the assets which are expected to qualify for recognition as a completed sale within one year from the date of classification. Action required to complete the plan should indicate that it is unlikely that significant changes to the plan will be made or the plan will be withdrawn.

Immediately before classification as held for sale (or disposal group), the assets, or components of a disposal group, are remeasured in accordance with the Group’s accounting policies. Thereafter generally the assets, or disposal group, are measured at the lower of their carrying amount and fair value less costs to sell.

Liabilities are classified as held for sale and presented as such in the statements of financial position if they are directly associated with the disposal group.

Any impairment loss on a disposal group is first allocated to goodwill, and then to remaining assets and liabilities on pro rata basis, except that no loss is allocated to inventories, financial assets, deferred tax assets, employee benefit assets and investment property, which continue to be measured in accordance with the Group’s accounting policies. Impairment losses on initial classification as held for sale and subsequent gains or losses on remeasurement are recognised in profit or loss. Gains are not recognised in excess of any cumulative impairment loss.

In the statements of profit or loss and other comprehensive income of the reporting year, and of the comparable period of the previous year, income and expenses from discontinued operations are reported separately from income and expenses from continuing operations, down to the level of profit after tax, even when the Group retains a non-controlling interest in the subsidiary after the sale. The resulting profit or loss (after tax) is reported separately in the statements of profit or loss and other comprehensive income.

Intangible assets and property, plant and equipment once classified as held for sale are not amortised or depreciated. In addition, equity accounting of equity accounted associates ceases once classified as held for sale.

4.9 Impairment of assets

4.9.1 Non-financial assets

The Group and the Company assess at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group and the Company estimate the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (“CGU”) fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

In determining fair value less costs to sell, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiary companies or other available fair value indicators.


CONT’D


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80


4.9.1 Non-financial assets (Continued)

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

Impairment losses of continuing operations are recognised in the profit or loss in those expense categories consistent with the function of the impaired asset.

For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group and the Company estimate the asset’s or cash-generating unit’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for asset in prior years. Such reversal is recognised in the profit or loss.

4.9.2 Financial assets

The Group and the Company assess at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the assets (an incurred “loss event”) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Financial assets carried at amortised cost

For financial assets carried at amortised cost, the Group and the Company first assess whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group and the Company determine that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continue to be, recognised are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets’ carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate.


Annual Report 2016

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Annual Report 2016

81


4.9 Impairment of assets (Continued)

4.9.2 Financial assets (Continued)

Financial assets carried at amortised cost (Continued)

The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the profit or loss. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income in the profit or loss. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Group and the Company. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to finance costs in the profit or loss.


For available-for-sale financial assets, the Group and the Company assess at each reporting date whether there is objective evidence that an investment or a group of investment is impaired.

In the case of equity investments classified as available-for-sale, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. “Significant” is evaluated against the original cost of the investment and “prolonged” against the period in which the fair value has been below its original cost. Where there is evidence of impairment, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the profit or loss - is removed from other comprehensive income and recognised in the profit or loss. Impairment losses on equity investments are not reversed through profit or loss; increases in their fair value after impairments are recognised directly in other comprehensive income.

4.10 Equity, reserves and distributions to owners

An equity instrument is any contract that evidences a residual interest in the assets of the Group and of the Company after deducting all of its liabilities. Ordinary shares are equity instruments.

Share capital represents the nominal value of shares that have been issued.

Share premium includes any premium received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from share premium, net of any related income tax benefits.

The warrants reserve is valued based on the closing price of the first trading day of the warrant. The issuance of the ordinary shares upon exercise of the warrants is treated as new subscription of ordinary shares for the consideration equivalent to the exercise price of the warrants.

Capital reserve arose from capital reduction.

Foreign currency translation differences arising on the translation of the Group’s foreign entity is included in foreign currency translation reserve.

Accumulated losses include all current and prior years’ accumulated losses.

All transactions with owners of the Company are recorded separately within equity.


CONT’D


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82


4.11 Provisions

Provisions are recognised when there is a present legal or constructive obligation that can be estimated reliably, as a result of a past event, when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are not recognised for future operating losses.

Any reimbursement that the Group or the Company can be virtually certain to collect from a third party with respect to the obligation is recognised as a separate asset. However, this asset may not exceed the amount of the related provision.

Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of economic resources will be required to settle the obligation, the provisions are reversed. Where the effect of the time of money is material, provisions are discounted using a current pre tax rate that reflects, where appropriate, the risks specific to the liability. When discounting is used, the increase in the provisions due to the passage of time is recognised as a finance cost.

4.12 Employee benefits

4.12.1 Short term employee benefits

Wages, salaries, bonuses and social security contributions are recognised as expenses in the financial year in which the associated services are rendered by the employees of the Group and of the Company. Short term accumulating compensated absences such as paid annual leave are recognised when services are rendered by employees that increase their entitlement to future compensated absences, and short term non-accumulating compensated absences such as sick leave are recognised when the absences occurred.

A provision is made for the estimated liability for unutilised leave as a result of services rendered by employees up to the end of the reporting date.

4.12.2 Defined contribution plans

Defined contribution plans are post-employment benefit plans under which the Group and the Company pay fixed contributions into independent entities of funds and will have no legal or constructive obligation to pay further contribution if any of the funds do not hold sufficient assets to pay all employee benefits relating to employee services in the current and preceding financial years.

Such contributions are recognised as expenses in the profit or loss as incurred. As required by law, companies in Malaysia make such contributions to the Employees Provident Fund (“EPF”). Some of the Group’s foreign subsidiary companies are also making contributions to their country’s statutory pension schemes.

4.12.3 Employee Share Options Scheme

The Employee Share Options Scheme (“the Scheme”) allows the Group’s and the Company’s employees to acquire shares of the Company. When the options are exercised, equity is increased by the amount of the proceeds received.

The fair value of the employee services received in exchange for the grant of the share option is recognised as an expense in the profit or loss over the vesting periods of the grant with a corresponding increase in equity. The fair value of share options is measured at grant date, taking into account, if any, the market vesting conditions upon which the options were granted but excluding impact of any non-market vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable on vesting date.


Annual Report 2016

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Annual Report 2016

83


4.12 Employee benefits (Continued)

4.12.3 Employee Share Options Scheme (Continued)

At each reporting date, the Group and the Company revise the estimates of the number of options that are expected to become exercisable on vesting date. It recognises the impact of the revision of original estimates, if any, in the profit or loss, and a corresponding adjustment to equity over the remaining vesting period. The equity amount is recognised in the share option reserve until the option is exercised, upon which it will be transferred to share premium, or until the option expires, upon which it will be transferred directly to accumulated losses.

4.13 Revenue

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the Company and the revenue can be reliably measured. Revenue is measured at the fair value of consideration received or receivable.

4.13.1 Oil and gas services

Revenue is recognised upon the performance or service rendered.

4.13.2 Interest income

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

4.14 Borrowing costs

Borrowings costs are expensed in the year in which they are incurred. Borrowings costs consist of interest and other costs that the Group incurred in connection with the borrowing of funds.

4.15 Tax expenses

Tax expenses comprise current and deferred taxes. Current tax and deferred tax are recognised in profit or loss except to the extent that they relate to items recognised directly in equity or other comprehensive income.

4.15.1 Current tax

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 year, and any adjustment to tax payable in respect of previous years.

4.15.2 Deferred tax

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 the initial recognition of goodwill, and the initial recognition of assets or liabilities in a transaction that is not a business combination and that does not affect the accounting or taxable profit. 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 year.

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.


CONT’D


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84


4.15 Tax expenses (Continued)

4.15.2 Deferred tax (Continued)

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 liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

A deferred tax asset 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 reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

4.15.3 Goods and Services Tax

Goods and Services Tax (“GST”) is a consumption tax based on value-added concept. GST is imposed on goods and services at every production and distribution stage in the supply chain including importation of goods and services, at the applicable tax rate of 6%. Input GST that the Company paid on purchases of business inputs can be deducted from output GST.

Expenses and assets are recognised net of the amount of GST except:

- Where the GST incurred in a purchase of assets or services is not recoverable from the authority, in which case the GST is recognised as part of the cost of acquisition of the assets or as part of the expense item as applicable; and

- Payables that are stated with the amount of GST included.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statements of financial position.

4.16 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 revenue and expenses that relate to transactions with any of the Group’s other components. All operating segments’ operating results are reviewed regularly by the chief operating decision maker to make decisions about resources to be allocated to the segment and to assess its performance, and for which discrete financial information is available.

4.17 Contingencies

Where it is not probable that an inflow or an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the asset or the obligation is not recognised in the statements of financial position and is disclosed as a contingent asset or contingent liability, unless the probability of inflow or 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 assets or contingent liabilities unless the probability of inflow or outflow of economic benefits is remote.


Annual Report 2016

85

Annual Report 2016

85


4.18 Related parties

A related party is a person or entity that is related to the Group. A related party transaction is a transfer of resources, services or obligations between the Group and its related party, regardless of whether a price is charged.

(a) A person or a close member of that person’s family is related to the Group if that person:(i) has control or joint control over the Group; or(ii) has significant influence over the Group; or(iii) is a member of the key management personnel of the Group.

(b) An entity is related to the Group if any of the following conditions applies:(i) the entity and the Group are members of the same group; or(ii) one entity is an associate or joint venture of the other entity; or(iii) both entities are joint ventures of the same third party; or(iv) one entity is a joint venture of a third entity and the other entity is an associate of the third entity; or(v) the entity is a post-employment benefit plan for the benefits of employees of either the Group or an entity

related to the Group; or(vi) the entity is controlled or jointly-controlled by a person identified in (a) above; or(vii) a person identified in (a)(i) above has significant influence over the entity or is a member of the key

management personnel of the entity; or(viii) the entity, or any member of a group of which it is a part, provides key management personnel services to

the Group or to the parent of the Group.

5. INVESTMENT IN SUBSIDIARY COMPANIES

Company2016

RM2015

RM

Investment costs:At cost:At 1 January 95,000,000 95,080,000Disposal of a subsidiary company - (80,000)

At 31 December 95,000,000 95,000,000Less: Impairment losses

At 1 January (95,000,000) (95,080,000)Written off - 80,000

At 31 December (95,000,000) (95,000,000)

- -Contributions to subsidiary company:

ESOS granted to employees of subsidiary company - 1,880,396

- 1,880,396


CONT’D


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86

5. INVESTMENT IN SUBSIDIARY COMPANIES (CONTINUED)

Details of the subsidiary companies are as follows:

Name of company Effective interest Principal activitiesCountry of incorporation

2016 2015% %

(a) Sumatec Corporation Sdn. Bhd. * 100 100 Oil and gas field development services

Malaysia

Held under Sumatec Corporation Sdn. Bhd.

(i) Sumatec Petroleum Development Sdn. Bhd. @ 100 100 Dormant Malaysia

(ii) Sumatec Development Sdn. Bhd. @ 100 100 Dormant Malaysia

(b) Sumatec Oil and Gas LLP @# 100 100 Dormant Kazakhstan

* The auditor’s report was issued with qualified opinion and emphasis of matter on going concern

@ The auditor’s report was issued with emphasis of matter on going concern

# Not audited by SJ Grant Thornton

Disposal of a Subsidiary Company

On 25 August 2015, the Company disposed of its 80% equity interest in Perlis Bio-Power Sdn. Bhd. (“PBP”) for a cash consideration of RM1.

The disposal of PBP give rise to a gain of RM1 to the Company.

The effect of the disposal of PBP on the financial position of the Group as at the date of disposal was as follows:

Group

2015RM

Net assets held for sale 304

Non-controlling interests (61)

Proceeds from disposal (1)

Loss on disposal of subsidiary 242

Net assets held for sale 304

Proceeds from disposal (1)

Net cash outflow from disposal of subsidiary 303


Annual Report 2016

87

Annual Report 2016

87

6. INVESTMENT IN ASSOCIATE COMPANIES

Group and Company

2016RM

2015RM

Unquoted shares, at cost

At 1 January 375,540 375,540

Written-off (49,000) -

Transferred from non-current assets classifiedas held for sale (Note 15) 17,000,000 -

At 31 December 17,326,540 375,540

Less: Impairment losses

At 1 January (375,540) (375,540)

Written-off 49,000 -

Impairment loss recognised (17,000,000) -

At 31 December (17,326,540) (375,540)

- -

Details of associate companies are as follows:

Name of companyEffective interest Principal activities

Country of incorporation

2016%

2015%

(a) Adinin Sumatec JV Sdn. Bhd. # 50 50 Dormant Brunei

(b) ESE (Cambodia) Pte. Ltd. # 50 50 Dormant Republic of Cambodia

(c) Sumatec (Middle East) LLC # 49 49 Dormant United Arab Emirates

(d) Thai Polymix Co. Ltd. # 49 49 Dormant Thailand

(e) UHP Engineering Sdn. Bhd. # * - 49 Dormant Malaysia

(f) Semua International Sdn. Bhd. # 49 49 Investment holding Malaysia


CONT’D


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88

6. INVESTMENT IN ASSOCIATE COMPANIES (CONTINUED)

Details of associate companies are as follows (continued):

Name of companyEffective interest Principal activities

Country of incorporation

2016%

2015%

Held under Semua International Sdn. Bhd.:

(a) Semua Shipping Sdn. Bhd. # 49 49 Engaged in the business of shipping and provision of related services

Malaysia

(b) Semua Ship Agency and Supplies Pte. Ltd.# 49 49 Providing port agency and related services

Singapore

(c) Semado Maritime Sdn. Bhd. # 49 49 Engaged in the business of shipping and provision of related services

Malaysia

(d) Semua Chemical Shipping Sdn. Bhd. # 49 49 Engaged in the business of shipping and provision of related services

Malaysia

(e) Mini Tanker Chartering Sdn Bhd. # 49 49 Dormant Malaysia

# Not audited by SJ Grant Thornton* Written-off during the financial year


Annual Report 2016

89

Annual Report 2016

89

7. OTHER INVESTMENTS

Group Company

2016 RM

2015 RM

2016 RM

2015 RM


At cost:

- Unquoted shares 1 1 - -

1 1 - -


At 1 January - (228,000) - -

Written off - 228,000 - -

At 31 December - - - -

1 1 - -


CONT’D


90


90

8. PROPERTY, PLANT AND EQUIPMENT

Leasehold land Buildings

Capital work-in- progress

Computer equipment

and software

Motor vehicles

Office equipment,

furniture and fittings Renovation Total

Group RM RM RM RM RM RM RM RM

CostAt 1 January 2015 735,684 230,000 1,081,954 3,282,525 5,078 117,155 20,930 5,473,326

Additions - - 276,191 21,040 - - - 297,231

Disposals - - - (23,393) - - - (23,393)

Written off - - - (11,117) - - - (11,117)

Transferred from non-current assets held for sale - - (476,883) - - 88,785 388,098 -

At 31 December 2015 735,684 230,000 881,262 3,269,055 5,078 205,940 409,028 5,736,047

Written off - - - (2,936,579) - - - (2,936,579)

Transfers - - (881,262) 881,262 - - - -

At 31 December 2016 735,684 230,000 - 1,213,738 5,078 205,940 409,028 2,799,468

Accumulated depreciation

At 1 January 2015 61,306 55,200 - 483,002 5,078 59,630 20,924 685,140

Change for the financial year 12,261 6,691 - 624,420 - 45,346 38,810 727,528

Disposals - - - (23,389) - - - (23,389)

Written off - - - (5,531) - - - (5,531)

At 31 December 2015 73,567 61,891 - 1,078,502 5,078 104,976 59,734 1,383,748

Charge for the financial year 12,261 5,094 - 456,611 - 25,021 38,810 537,797

Written off - - - (1,120,643) - - - (1,120,643)

At 31 December 2016 85,828 66,985 - 414,470 5,078 129,997 98,544 800,902

Net carrying amountAt 31 December 2016 649,856 163,015 - 799,268 - 75,943 310,484 1,998,566

At 31 December 2015 662,117 168,109 881,262 2,190,553 - 100,964 349,294 4,352,299


Annual Report 2016

91

Annual Report 2016

91

8. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

Capital work-in- progress

Computer equipment

and software

Office equipment,

furniture and fittings Renovation Total

Company RM RM RM RM RM

CostAt 1 January 2015 1,081,954 3,100,562 6,800 - 4,189,316

Additions 276,191 21,040 - - 297,231

Written off - (7,285) - - (7,285)

Transfers (476,883) - 88,785 388,098 -

At 31 December 2015 881,262 3,114,317 95,585 388,098 4,479,262

Written off - (2,936,579) - - (2,936,579)

Transfers (881,262) 881,262 - -

At 31 December 2016 - 1,059,000 95,585 388,098 1,542,683

Accumulated depreciationAt 1 January 2015 - 301,160 566 - 301,726

Charge for the financial year - 624,320 13,793 38,810 676,923

Written off - (1,700) - - (1,700)

At 31 December 2015 - 923,780 14,359 38,810 976,949

Charge for the financial year - 456,611 13,793 38,810 509,214

Written off - (1,120,643) - - (1,120,643)

At 31 December 2016 - 259,748 28,152 77,620 365,520

Net carrying amountAt 31 December 2016 - 799,252 67,433 310,478 1,177,163

At 31 December 2015 881,262 2,190,537 81,226 349,288 3,502,313

(i) The titles to two apartment units of the Group with net carrying amount of RM163,015 (2015: RM168,109) have yet to be issued by the relevant authorities.

(ii) The leasehold land of the Group with net carrying amount of RM649,856 (2015: RM662,117) is pledged to a bank as securities for bank guarantee granted to a subsidiary company.


CONT’D


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92

9. INTANGIBLE ASSET

Group and Company

2016RM

2015RM

Development and extraction rights

At cost:

At 1 January/ 31 December 302,100,000 302,100,000

Less: Accumulated amortisation

At 1 January (693,348) (230,619)

Amortisation for the financial year (1,978,244) (462,729)

At 31 December (2,671,592) (693,348)

At 31 December 299,428,408 301,406,652

On 8 March 2012, the Company entered into a Joint Investment Agreement (“JIA”) with Markmore Energy (Labuan) Limited (“MELL”) and CaspiOilGas LLP (“COG”), a wholly-owned subsidiary company of MELL, whereby the Company acquired the rights to develop, extract and produce oil from the Rakushechnoye Oil and Gas Field in Kazakhstan. The development and extraction rights will be amortised based on the unit of production method using total proved and probable oil reserves estimated to be recoverable from the existing oil and gas field based on the current subsurface use contract. Changes in expected pattern of consumption of future economic benefit embodied in the asset are considered to modify the amortisation period, and treated as changes in accounting estimates.

MELL and COG are companies in which a major shareholder of the Company has control.

10. TRADE RECEIVABLES

Group Company

Restated2016 2015 2016 2015

RM RM RM RM

Trade receivables 285,981,832 230,276,642 23,592,787 24,856,364


At 1 January/31 December (70,490,836) (70,490,836) - -

Net carrying amount 215,490,996 159,785,806 23,592,787 24,856,364

Non-current (30,443,496) (30,887,806) (23,592,787) (24,856,364)

Current 185,047,500 128,898,000 - -

Included in the abovementioned net carrying amount of the Group and of the Company are the amount owing from 2 (2015: 2) companies and 1 (2015: 1) company respectively in which a major shareholder of the Company has control. For one of the companies, the Group extended a 60 days (2015: 60 days) credit term whereas the other company’s repayment terms is bound by the JIA and the Joint Investment Agency Agreement for which payments are not due within the 12 months after the end of the current financial year.


Annual Report 2016

93

Annual Report 2016

93

11. OTHER RECEIVABLES

Group Company

2016 2015 2016 2015RM RM RM RM

Non-current

Performance deposit 124,184,826 125,325,194 124,184,826 125,325,194

Other receivables 91,693,164 57,940,631 91,693,164 57,940,631

215,877,990 183,265,825 215,877,990 183,265,825

Current

Deposits 96,659,943 96,658,153 96,657,393 96,655,603

Prepayments - 14,106 - -



At 1 January / 31 December (9,469,115) (9,469,115) (7,818,147) (7,818,147)

99,135,575 96,884,593 99,063,911 96,867,702

Total other receivables 315,013,565 280,150,418 314,941,901 280,133,527

The performance deposit paid under the JIA was to be set-off against oil and gas royalty. The Company is to recover the royalty payment solely from production cost.

Included in the non-current and current other receivables of the Group and the Company amounting to RM91,693,164 (2015: RM57,940,631) are advances provided to COG under the Investment Agreement signed on 2 August 2013 pursuant to the JIA, which is non-interest bearing and repayment will commence when COG’s production reaches cumulative 2 million barrels of crude oil.

Included in deposits is an amount of RM96,510,000 (2015: RM96,510,000) being refundable deposit paid for the proposed acquisition of 100% equity interest in Borneo Energy Oil and Gas Ltd (“Borneo Energy”) and guaranteed by MELL as disclosed in Note 36 to the Financial Statements. Borneo Energy is a company in which a Director has interest.


CONT’D


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94

12. AMOUNT DUE FROM SUBSIDIARY COMPANIES

Company

Restated2016 2015

RM RM

Amount due from subsidiary companies 97,063,746 90,684,419


At 1 January (19,319,525) (70,037,859)

Impairment loss recognised (19,497,174) -

Impairment loss no longer required due to repayment - 50,594,364

Written off - 123,970

At 31 December (38,816,699) (19,319,525)

58,247,047 71,364,894

Included in the abovementioned balances is an amount of RM2,375,149 (2015: RM2,214,571) which is trade in nature, unsecured, interest free and carries a credit period of 30 days (2015: 30 days). The amount has been fully impaired during the financial year.

Included in the abovementioned balances are advances to a subsidiary company amounting to RM17,122,025 (2015: RM12,650,061) which are unsecured, bear interest at 7% (2015: 7%) per annum and is repayable on demand. The amount has been fully impaired during the financial year.

The remaining amount due from subsidiary companies is non-trade in nature, unsecured, interest free and repayable on demand.

13. AMOUNT DUE FROM ASSOCIATE COMPANIES

Group Company

2016 2015 2016 2015RM RM RM RM

Amount due from associate companies

At 1 January 7,469,630 7,469,630 - 5,635,497

Written off (4,427) - - -

At 31 December 7,465,203 7,469,630 - 5,635,497


At 1 January (1,834,133) (1,834,133) - -

Impairment loss recognised (5,635,497) - - -

Written off 4,427 - - -

At 31 December (7,465,203) (1,834,133) - -

- 5,635,497 - 5,635,497

The amount due from associate companies is non-trade in nature, unsecured, interest free and repayable on demand.


Annual Report 2016

95

Annual Report 2016

95

14. FIXED DEPOSITS WITH A LICENSED BANK

Group

The fixed deposits are pledged to a licensed bank for bank guarantee facility granted to a subsidiary company.

15. NON-CURRENT ASSETS CLASSIFIED AS HELD FOR SALE

Group and Company

2016 2015RM RM

Assets:

Investment in an associate company - 17,000,000

On 21 December 2012, the Company entered into a sale and purchase agreement with Ebony Ritz Sdn. Bhd., Setinggi Holdings Ltd., and Hoe Leong Corporation Ltd., (“Ebony Ritz and its associates”) (“2012 SPA”) to dispose its 51% equity interest, representing 64,496,272 ordinary shares of Semua International Sdn. Bhd. (“SISB”) for a total sales consideration of RM18,800,000, comprising its entire shipping division. The disposal is part of the debt settlement scheme with the CLO bondholders.

Consequently, the assets and liabilities of SISB Group have been presented on the statements of financial position as disposal group classified as held for sale.

On 19 July 2013, the Company received RM1.8 million (“1st Tranche Consideration”), representing the disposal value of 2% equity interest in SISB from the purchaser.

The 2nd Tranche Consideration of RM17 million, representing the disposal value of the remaining 49% equity interest in SISB, together with interest thereon at the rate of 6% per annum (interest shall be payable half yearly) shall be paid within 24 months, or earlier, from 31 January 2013, i.e. the date the last approval was obtained from the CLO bondholders. The 49% equity interest in SISB is pledged to CLO bondholders as security for banking facility granted to the Company.

Ebony Ritz and its associates were unable to fulfill the settlement obligation to the CLO bondholders and in 2015, the Company entered into negotiation with a new third party for the disposal of 49% equity interest in SISB. As at 31 December 2015, the third party had paid RM3,965,093 towards the settlement obligation to CLO bondholders. The payment, disclosed as deposits received in Note 20 to the Financial Statements, has resulted in reduction of the term loans and interest accrued as at the end of the previous financial year.

During the financial year, the Company received a notification that the new third party has terminated the agreement. Accordingly, the Company has reclassified the non-current assets classified as held for sale to investment in associate companies and provided for impairment loss.

As at 31 December 2016, the Company has refunded RM1,750,000 to the new third party.


CONT’D


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96

16. SHARE CAPITAL

Group and Company

Number of shares Amount

Unit RM

Authorised:-Ordinary shares of RM0.14 each

At 1 January 2015/At 31 December 2015/ 31 December 2016 7,142,857,143 1,000,000,000

Issued and fully paid:-Ordinary shares of RM0.14 each

At 1 January 2015 3,482,695,325 487,577,346

Exercise of ESOS 18,350,000 2,569,000

Conversion of warrants 75 10

At 31 December 2015 3,501,045,400 490,146,356

Exercise of ESOS 16,800,000 2,352,000

Private placement 348,269,000 48,757,660

At 31 December 2016 3,866,114,400 541,256,016

The holders of the ordinary shares are entitled to receive dividends as and when declared by the Company. All ordinary shares carry one vote per share without restrictions and rank equally with regard to the Company’s residual assets.

17. OTHER RESERVES

Group Company

2016 2015 2016 2015RM RM RM RM

Non-distributable:-Share premium

At 1 January 165,756,207 165,137,924 165,756,207 165,137,924

Arising from issuance of ordinary shares 50,400 55,053 50,400 55,053

Transfer from employee share options reserve 517,440 565,180 517,440 565,180

Less: Share issuance expenses (1,761,744) (1,950) (1,761,744) (1,950)

At 31 December 164,562,303 165,756,207 164,562,303 165,756,207

Warrants reserve

At 1 January 142,579,832 142,579,848 142,579,832 142,579,848

Conversion of warrants - (16) - (16)

At 31 December 142,579,832 142,579,832 142,579,832 142,579,832


Annual Report 2016

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Annual Report 2016

97

Group Company

2016 2015 2016 2015RM RM RM RM

Employee share options reserve

At 1 January 4,211,658 4,378,895 4,211,658 4,378,895

Employee share options granted - 2,619,431 - 2,619,431

Exercise of ESOS (517,440) (565,180) (517,440) (565,180)

Employee share options forfeited (3,445,566) (2,221,488) (3,445,566) (2,221,488)

At 31 December 248,652 4,211,658 248,652 4,211,658

Capital reserve

At 1 January/ 31 December 17,186,556 17,186,556 17,186,556 17,186,556

Foreign currency translation reserve

At 1 January (2,622,473) 95,211 - -

Foreign currency translation 656,177 (2,717,684) - -

At 31 December (1,966,296) (2,622,473) - -

Total other reserves 322,611,047 327,111,780 324,577,343 329,734,253

Share premium

Share premium represents the excess of the consideration received over the nominal value of shares issued by the Company. Any transaction costs associated with the issuing of shares are deducted from share premium. It is not to be distributed by way of cash dividends and its utilisation shall be in a manner as set out in Section 60 (3) of the Companies Act, 1965.

Warrants reserve

On 4 March 2011, the Company issued 107,182,110 Warrants A pursuant to the rights issue. Each Warrant A entitles the holder to subscribe for 1 new ordinary share at the exercise price of RM0.35 per share.

Warrants A were constituted under the Deed Poll dated 8 October 2010 and the Supplemental Deed Poll dated 23 February 2011 (“Deed Poll A”).

On 14 November 2013, the Company issued new shares and warrants pursuant to its rights issue with warrants exercise. Pursuant thereto, subject to adjustments in accordance with the Deed Poll A, the exercise price of the outstanding Warrants A was revised from RM0.35 to RM0.32 while an additional 11,574,887 Warrants A were listed and quoted on 21 November 2013.

None of the Warrants A were exercised during the financial year and Warrants A that remain unexercised as at 31 December 2016 are 118,753,197.

On 14 November 2013, the Company issued 567,653,083 Warrants B pursuant to the rights issue. Each Warrant B entitles the holder to subscribe for 1 new ordinary share at the exercise price of RM0.175 per share.

Warrants B were constituted under the Deed Poll dated 28 August 2013.


CONT’D

17. OTHER RESERVES (CONTINUED)


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98

17. OTHER RESERVES (CONTINUED)

Warrants reserve (Continued)

None of the Warrants B were exercised during the financial year and Warrants B that remain unexercised as at 31 December 2016 are 567,521,683.

The warrants reserve arose from the allocation of fair value of Warrants A and Warrants B issued have been charged to accumulated losses.

The main features of the warrants are as follows:

(i) Each warrant entitles the registered holder at any time during the exercise period to subscribe for one new ordinary share of RM0.14 each in the Company at an exercise price of RM0.32 for Warrant A and RM0.175 for Warrant B.

(ii) The exercise price and the number of warrants are subject to adjustment in the event of alteration to the share capital of the Company in accordance with the provisions set out in the Deed Poll.

(iii) The warrants shall be exercisable at any time within the period commencing on and including the date of issue of the warrants until the last market day prior to the tenth anniversary for Warrant A and fifth anniversary for Warrant B of the respective dates of issue of the warrants.

(iv) All new ordinary shares to be issued arising from the exercise of the warrants shall rank pari passu in all respects with the then existing ordinary shares of the Company except that such new ordinary shares shall not be entitled to any dividends, rights, allotments and other distributions on or prior to the date of allotment of the new ordinary shares arising from the exercise of the warrants.

Employee share options reserve

Employee share options reserve represents the equity-settled share options granted to employees as detailed in Note 23 to the Financial Statements. The reserve is made up of the cumulative value of services received from employees recorded over the vesting period commencing from the grant date of equity-settled share options, and is reduced by the expiry or exercise of the share options.

Capital reserve

The capital reserve arose from the capital reduction in previous financial years which was used to offset RM104,502,558 of the Company’s accumulated losses at the date when the reduction of share capital became effective.

The remaining credit after off-setting amounting to RM17,186,556 was credited to the capital reserve of the Group and of the Company.

Foreign currency translation reserve

The translation reserve represents exchange difference arising from the translation of the financial statements of foreign operations whose functional currency is different from that of the Group’s presentation currency.

These reserves are not available for distribution as dividends.


Annual Report 2016

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Annual Report 2016

99

18. DEFERRED TAX LIABILITIES

Group Company

2016 2015 2016 2015RM RM RM RM

At 1 January 1,023,000 331,000 1,023,000 331,000

Transferred to/(from) profit or loss (Note 26) 6,371,000 692,000 (869,000) 692,000

At 31 December 7,394,000 1,023,000 154,000 1,023,000

The deferred tax liabilities as at the end of the reporting date are made up of temporary differences arising from:

Group Company

2016 2015 2016 2015RM RM RM RM

Property, plant and equipment 168,000 447,000 168,000 447,000

Others 7,240,000 1,228,000 - 1,228,000

Unabsorbed tax losses - (642,000) - (642,000)

Unutilised capital allowances (14,000) (10,000) (14,000) (10,000)

7,394,000 1,023,000 154,000 1,023,000

As at reporting date, the deferred tax assets not recognised in the Group’s financial statements are made up of the temporary differences arising from:

Group2016 2015

RM RM

Unabsorbed tax losses - 14,665,000

The potential deferred tax assets of the Group have not been recognised in respect of these items as it is anticipated that the tax effects of such benefits will not be reversed in the near foreseeable future.

19. TRADE PAYABLES

Group

The normal trade credit terms granted by the trade payables range from 30 to 90 days (2015: 30 to 90 days).


CONT’D


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100

20. OTHER PAYABLES

Group Company

Restated Restated2016 2015 2016 2015

RM RM RM RM

Current

Other payables and accruals 88,575,077 90,553,907 87,729,080 88,792,151

Provision for guarantees provided (Note 25) 71,415,257 - 71,415,257 -

Deposits received 2,215,093 3,965,093 2,215,093 3,965,093

162,205,427 94,519,000 161,359,430 92,757,244

Included in other payables of the Group and of the Company is non-interest bearing advances of RM78,159,246 (2015: RM74,000,024) which is unsecured, payable on demand, provided from a company in which a controlling shareholder of the Company has control.

The deposits received of RM2,215,093 (2015: RM3,965,093) in relation to the disposal of SISB which has been terminated in 2016 are detailed in Note 15 to the Financial Statements.

21. TERM LOAN

Group and Company

2016 2015RM RM

Secured:-

CLO loans

- repayable within 12 months 22,529,589 22,529,589

The CLO loan is secured by way of 49% equity interest in SISB. The CLO loan carries interest at the rate of 10% (2015: 10%) per annum.

22. REVENUE

Group Company

2016 2015 2016 2015RM RM RM RM

Oil and gas income 46,406,738 62,582,614 - -

Management service fee - - - 989,977

46,406,738 62,582,614 - 989,977


Annual Report 2016

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Annual Report 2016

101

23. STAFF COSTS

Group Company

2016 2015 2016 2015RM RM RM RM

Salaries, wages and other emoluments 2,618,273 8,162,101 586,545 2,846,028

Directors’ emoluments 1,394,000 146,000 758,000 146,000

Directors’ fees 426,084 499,200 426,084 499,200

Defined contribution plans and social security contributions 191,469 222,782 109,538 117,087

Share options granted under ESOS (973,753) 2,556,854 906,643 1,680,602

Other benefits 15,996 29,926 12,872 6,781

3,672,069 11,616,863 2,799,682 5,295,698

Employee Share Options Scheme

On 18 April 2007, the Company granted share options to qualified key management personnel and employees to purchase shares in the Company under the ESOS approved by the shareholders of the Company on 24 June 2005 (“1st Tranche”). On 27 December 2013, the Company further granted share options to qualified senior management and employees (“2nd Tranche”). Under the 2nd Tranche, holders of vested options are entitled to purchase the Company’s shares at RM0.244 per share. Included in 2nd Tranche are share options granted to the previous Chief Executive Officer of the Company (“CEO”) which were approved by shareholders on 26 March 2014.

On 12 October 2015, the Company granted share options to qualified employees (“3rd Tranche”). Under the 3rd Tranche, holders of vested options are entitled to purchase the Company’s shares at RM0.143 per share.

The vesting conditions related to the grants of the 2nd Tranche ESOS options are as follows:

Employees entitled Vesting conditionsOutstanding number

of options

2016 2015

Option granted to senior management and employees (“Grant II”)

Achievement of the following:- 3 consecutive months of production at 2,000 barrels

per day; and- Uplift from PN17

760,000 16,440,000

Option granted to senior management and employees (“Grant III”)

Achievement of the following:- Cumulative 2 million barrels sold; and- Profit on oil of USD35 per barrel

1,140,000 24,660,000

1,900,000 41,100,000

The outstanding number of 3rd Tranche ESOS options (“Grant IV”) is 150,000 (2015: 16,950,000) and there was no vesting condition attached.

The expiry date of Grant II, Grant III and Grant IV is on 16 April 2017.


CONT’D


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102

23. STAFF COSTS (CONTINUED)

Employee Share Options Scheme (Continued)

A summary of the movements in the number of ESOS and the weighted average exercise prices (“WAEP”) is as follows:

Group2016 2015

Number of share option WAEP

Number of share option WAEP

RM RM

Outstanding at 1 January 58,090,000 0.215 84,640,000 0.244

Granted during the financial year - - 35,300,000 0.143

Forfeited during the financial year (39,200,000) 0.244 (43,500,000) 0.244

Exercised during the financial year (16,800,000) 0.143 (18,350,000) 0.143

Outstanding at 31 December 2,090,000 0.237 58,090,000 0.215

Exercisable at 31 December 190,000 16,990,000

The options outstanding at 31 December 2016 have exercise prices in the range of RM0.143 to RM0.35 (2015: RM0.143 to RM0.35) and a weighted average contractual life of 3.5 months (2015: 1.3 years).

The fair value of services received in return for the share options granted is based on the fair value of share options granted, measured using Binomial option-pricing models, with the following inputs:

Grant II & III to CEO

Grant II & III to senior

management and

employees

Grant IV to senior

management and

employees

RM RM RM

Fair value at grant date 0.1294 0.1294 0.0308

Weighted average share price 0.30 0.271 0.161

Share price at grant date 0.30 0.280 0.165

Weighted average volatility 55% 55% 59%

Expected weighted average option life 3 years 3.3 years 1.5 years

Sub-optimal exercise factor N/A N/A N/A

Expected dividends 0% 0% 0%

Risk-free interest rate (based on Malaysian government bonds) 3.5% 3.5% 3.5%


Annual Report 2016

103

Annual Report 2016

103

24. FINANCE COSTS

Group Company

2016 2015 2016 2015RM RM RM RM

Unwinding discount on financial assets 3,439,122 13,222,796 3,439,122 12,753,852

Term loans interest 2,255,853 2,255,135 2,255,853 2,255,135

Other charges 24,733 12,329 23,782 11,875

5,719,708 15,490,260 5,718,757 15,020,862

25. OTHER COST – PROVISION FOR LIABILITIES

The Company has allocated a provision for liabilities arising from the corporate guarantees issued to Bank Pembangunan Malaysia Berhad (“BPMB”) and Malayan Banking Berhad (“MBB”) for banking facilities granted to SISB Group. The corporate guarantees should have been discharged under the 2012 SPA entered into between the Company and Ebony Ritz and its associates.

However, the intended purchaser failed to complete the terms of the 2012 SPA and thus, the Company is not released and discharged from its obligation under the guarantee. During the financial year, the non-performance of SISB Group has resulted in the Company becoming involved in litigation cases with BPMB and MBB, as further disclosed in Note 32 to the Financial Statements.

Group and Company

2016 2015RM RM

Outstanding amount with BPMB 73,800,000 -

Claimed by MBB 121,428,857 -

195,228,857 -

Less: estimated realisable value of SISB Group vessels (USD27,600,000) (123,813,600) -

Provision for the year 71,415,257 -


CONT’D


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104

26. TAX EXPENSES

Group Company

2016 2015 2016 2015RM RM RM RM

Current tax:

- current year 2,268,000 - - -- under/(over)provision in prior years 2,589 (169,056) 2,532 (206,526)Deferred tax liabilities (Note 18):

- transferred to deferred tax liabilities 6,959,000 261,000 (281,000) 261,000

- (over)/underprovision in prior year (588,000) 431,000 (588,000) 431,000

8,641,589 522,944 (866,468) 485,474

Malaysian income tax is calculated at the statutory tax rate of 24% (2015: 25%) of the estimated assessable profits for the financial year. A reconciliation of income tax expense applicable to profit before tax at the statutory tax rate to income tax expense at the effective tax rate of the Group and of the Company are as follows:

Group Company

2016 2015 2016 2015RM RM RM RM

(Loss)/profit before taxation (53,376,633) 38,381,590 (125,707,107) 18,861,845

Tax at statutory rate of 24% (2015: 25%) (12,810,392) 9,595,398 (30,169,706) 4,715,461

Expenses not deductible for tax purposes 25,786,224 18,844,052 30,058,256 11,906,123

Income not subject to tax (229,331) (16,360,678) (169,550) (16,360,584)

Changes in tax rate in prior years - 115,341 - -

Utilisation of deferred tax assets not recognised in prior years (3,519,501) (11,933,113) - -

(Over)/underprovision in prior year (585,411) 261,944 (585,468) 224,474

Tax at effective tax rate 8,641,589 522,944 (866,468) 485,474

The unabsorbed tax losses and unutlised capital allowances of the Group and the Company amounting to RMNil and RM58,000 (2015: RM17,012,000 and RM42,000) and RMNil and RM58,000 (2015: RM2,675,000 and RM42,000) respectively can be carried forward to offset against future taxable profits of the respective company.


Annual Report 2016

105

Annual Report 2016

105

27. (LOSS)/PROFIT FOR THE FINANCIAL YEAR

(Loss)/profit for the financial year has been determined after charging/(crediting), amongst others, the following items:

Group Company

2016 2015 2016Restated

2015RM RM RM RM

Charging/(crediting):-Auditors’ remuneration

- statutory auditors 150,000 73,000 110,000 50,000

- other external auditors 44,860 75,300 - -

- other services 13,000 61,000 6,000 61,000

Amortisation of intangible assets 1,978,244 462,729 1,978,244 462,729

Amount due from subsidiary companies written off - - - 123,970

Depreciation 537,797 727,528 509,214 676,923

Gain from disposal of property, plant and equipment - (374) - -

Loss/(gain) from disposal of a subsidiary company - 242 - (1)

(Gain)/loss on foreign exchange:

- realised 94,753 (378) 94,753 (378)

- unrealised (13,005,255) (18,653,131) (4,675,100) (1,769,557)

Impairment loss on amount due from an associate company 5,635,497 - 5,635,497 -

Impairment loss on investment in an associate company 17,000,000 - 17,000,000 -

Impairment loss on amount due from a subsidiary company - - 19,497,174 -

Impairment loss on amount due from subsidiary companies no longer required - - - (50,594,364)

Interest income

- deposit interest income (29,441) (10,355) (29,343) (10,126)

- subsidiary company - - (909,653) (842,034)

- reversal of unwinding discount on financial liabilities - 7,954,934 - 7,954,934

Property, plant and equipment written off 1,815,936 5,586 1,815,936 5,585

Rental of office equipment 2,178 2,376 2,178 2,376

Rental of premises 473,138 597,344 236,569 242,367


CONT’D


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106

28. (LOSS)/EARNINGS PER SHARE

Basic (loss)/earnings per share

Basic earnings per ordinary share is calculated by dividing net (loss)/profit for the financial year attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares in issue during the financial year.

Group2016 2015

RM RM

(Loss)/profit attributable to ordinary equity holders of the Company (62,018,222) 37,827,815

Weighted average number of ordinary shares in issue (unit) 3,755,181,928 3,485,682,719

Basic (loss)/earnings per share (sen) (1.65) 1.08

Diluted earnings per share

For the purpose of calculating diluted earnings per share, the (loss)/profit for the year attributable to ordinary equity holders of the Company and the weighted average number of ordinary shares in issue during the financial year have been adjusted for the dilutive effects of all potential ordinary shares, i.e., share options granted to employees and warrants.

Group

2016 2015

Weighted average number of ordinary shares in issue (unit) 3,755,181,928 3,485,682,719

Effect of warrants and ESOS (unit) - 4,734,594

Weighted average number of ordinary shares (diluted) (unit) 3,755,181,928 3,490,417,313

Diluted (loss)/earnings per share (sen) (1.65) 1.08

29. RELATED PARTY DISCLOSURES

(a) Related party transactions

Group Company

2016 2015 2016 2015RM RM RM RM

Management service fee charged to a subsidiary company - - - 989,977

Interest charged to a subsidiary company - - 909,653 842,034


Annual Report 2016

107

Annual Report 2016

107

Group Company

2016 2015 2016 2015RM RM RM RM

Oil and gas income charged to companies in which a controlling shareholder of the Company has control 46,406,738 62,582,614 - -

Royalty expense charged by a company in which a controlling shareholder of the Company has control 1,140,368 1,326,466 1,140,368 1,326,466

Related party transactions have been entered into in the normal course of business under normal trade terms.

(b) Key management personnel compensation

The key management personnel compensation is as follows:

Group Company

2016 2015 2016 2015RM RM RM RM

Other key management personnel:

Short term employees benefits 1,244,374 3,748,225 204,109 1,960,030

Post-employment benefits 45,336 54,214 22,668 27,107

1,289,710 3,802,439 226,777 1,987,137

Other key management personnel comprise staff of the Group and of the Company having authority and responsibility for planning, directing and controlling the activities of the Group and of the Company, either directly or indirectly.

The details of the terms and conditions of amount due from/to related parties are disclosed in Notes 10, 11, 12, 13 and 20 to the Financial Statements respectively.


CONT’D

29. RELATED PARTY DISCLOSURES (CONTINUED)

(a) Related party transactions (Continued)


108


108

30. CAPITAL COMMITMENTS

Group and Company

2016 2015RM RM

Capital expenditure

Authorised and contracted for:

- Property, plant and equipment 237,467 395,778

31. OPERATING SEGMENT

Business segment

The Group operates in a single reportable segment. It is essentially engaged in the management and oversight of the oil production operations at the Rakushechnoye Oil and Gas Field in Kazakhstan, and the provision of a study, design and planning of an integrated natural gas monetization programme in preparation of the exploitation of the gas / condensate in accordance to a detailed full field geological and geophysical study of the entire oil / gas concession area. Due to the interrelated nature of oil and gas production, and similar operational characteristics of managing the same field, management believes that it is overseeing a single reportable segment.

Management monitors the operating results of its business units separately for the purpose of decision making on resource allocation and performance assessment. Segment performance is measured by aggregating the operating results of these business units. Transfer prices between business units are on an arm’s length basis in a manner similar to transactions with third parties.

Geographical information

The Group’s revenue and non-current assets information based on geographical location are as follows:

Revenue Non-current assets

2016 2015 2016 2015

RM RM RM RM

Malaysia 46,406,738 58,798,500 1,990,849 4,334,374

Kazakhstan - 3,784,114 545,757,612 515,578,209

46,406,738 62,582,614 547,748,461 519,912,583


Annual Report 2016

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Annual Report 2016

109

31. OPERATING SEGMENT (CONTINUED)

Information about major customers

The following are major customers with revenue more than 10% of the Group’s revenue:

GroupRevenue

2016 2015RM RM

COG - 3,784,114

MELL 46,406,738 58,798,500

46,406,738 62,582,614

32. MATERIAL LITIGATIONS

Save as disclosed below, the Group and the Company are not engaged in any litigations, claims or arbitration, either as plaintiff or defendant, which has or will have material effect on the financial position of the Group and the Company, and the Directors are not aware of any proceedings, pending or threatened, against the Company and/or any of the Company’s subsidiary companies or of any facts likely to give rise to any proceedings which might materially affect the position or business of the Group:

Sumatec Corporation Sdn. Bhd. (“SCSB”) vs Greentech Chemical Sdn. Bhd. (formerly known as Himpunan Sari Sdn. Bhd.) (“GCSB”)

SCSB had on 18 March 2014 presented a petition to wind-up GCSB for its failure to pay RM10,299,285.90 to SCSB as at 20 June 2012 pursuant to a turnkey engineering, procurement, construction and commissioning contract to build a biodiesel plant at the Telok Kalong Industrial Estate in Terengganu. The petition was heard on 17 June 2014 where the Court ordered GCSB to be wound up. On 28 July 2016, SCSB’s solicitors filed proof of debt for RM10,979,325, being total amount claimed from GCSB as at 17 June 2014. As at the date of this Financial Statement, the matter is pending the calling of a creditors meeting by the liquidator.

High Court of the Republic of Singapore – suit no. HC/S 534/2016Ebony Ritz Sdn Bhd (“Ebony Ritz”) vs Sumatec Resources Berhad (“the Company”)

On 5 May 2010, the Company entered into a Sale and Purchase Agreement with Ebony Ritz for Ebony Ritz’s proposed acquisition of the 49% equity interest in Semua International Sdn Bhd. The Company also entered into an Option and Financial Representation Agreement (“OFRA”) with Ebony Ritz and Auspicious Journey Sdn Bhd to guarantee profits of Semua, and provided a guarantee to Ebony Ritz (“Guarantee”) on the same day. By its Writ of Summons dated 24 May 2016, Ebony Ritz claimed that the Company owes RM27,017,163, being the financial shortfall calculated under the OFRA and RM10,000,000 for the loan provided under the Guarantee.

The Company, through its solicitors Messrs Morgan Lewis Stamford LLC, entered its Defence on 15 June 2016. The Company is disputing Ebony Ritz’s claims as the relevant parties signed a Sale and Purchase Agreement dated 21 December 2012 and the Settlement Agreement dated 28 May 2013. Subsequently, on 21 July 2016, Ebony Ritz filed two applications, to strike out the Company’s Defence (“Striking Out Application”), and for a Summary Judgment (“Summary Judgment Application”) (collectively “the Applications”). The Company has filed its objections to the Applications and filed its reply affidavit on 5 August 2016.


CONT’D


110


110

32. MATERIAL LITIGATIONS (CONTINUED)

High Court of the Republic of Singapore – suit no. HC/S 534/2016Ebony Ritz vs the Company (Continued)

In a hearing dated 8 February 2017, the Court dismissed the Summary Judgment Application, subject to orders made in the Striking Out Application, where the deadline for the Company to apply for conditional leave to defend against the Striking Out Application was on 8 March 2017. The Company filed Notices of Appeal against some part of the Court’s decision. The Company has also filed its amended Defence and Counterclaim. During a hearing on 20 April 2017, the Court decided for a stay in judgement until further notice.

Kuala Lumpur High Court – suit no. WA-27NCC-61-10/2016 and WA-27NCC-62-10/2016 Bank Pembangunan Malaysia Berhad (“BPMB”) vs Semado Maritime Sdn Bhd (“Semado”)

On 11 October and 12 October 2016, Semado was served a Writ of Summons Admiralty Writ In Rem and warrant of arrest on vessels Semua Mutiara and Semua Muhibbah (collectively “the Vessels”), respectively, by Messrs Joseph & Partners, the solicitors acting for BPMB (“Writ of Summons”). The Statement of Claims were submitted on 21 December 2016.

Semado, through its solicitors Shearn Delamore & Co has submitted its defences and during a case management in the Kuala Lumpur High Court in February 2017, BPMB submitted its application for Summary Judgment. The amount claimed totalled RM143,267,378, which is inclusive of compensation on late payment and charge as at 4 October 2016.

Pursuant to the corporate guarantee issued by Sumatec Resources Berhad (“Sumatec”) in year 2008 to BPMB for Semado, Sumatec is liable only if the value realised from the sale of the vessels is less than the total amount outstanding. On 16 March 2017, BPMB’s solicitors informed the court that their client is prepared to consider the Company’s Memorandum of Agreement (“MOA”) for sale and purchase of ships. In the event BPMB is not agreeable to the MOA, BPMB will proceed to the hearing for appraisement and judicial sale and application for summary judgment against the Company which is fixed on 27 April 2017. The outstanding sum agreed by BPMB before the disposal of the vessels in RM73.8 million. For the avoidance of doubt, the Company is not a named party in the litigation. BPMB’s suit is against Semado. However, the provision of RM44,192,400 has been provided in the Financial Statements.

Notice of Termination and Demand to Sumatec Resources Berhad (“the Company”) in relation to the Primary Collateralised Loan Obligations (“CLO”)

Between year 2004 and year 2007, the Company obtained three facilities from Kerisma, CapOne and Prima Uno bondholders (“CLO bondholders”). On 5 January 2017, the Company received a Notice of Termination and Demand from Adnan Sundra & Low Advocates & Solicitors (“ASL”), which notified that the Settlement Agreement dated 6 March 2015 between the Company, CLO bondholders and Malaysian Trustee Berhad (“MTB”) for the CLO has been terminated. MTB demanded RM72,333,945, being the principal and interest outstanding under the three facilities.

The Company is of the view that when the 2015 Settlement Agreement was terminated, the parties should rely on the rights and remedies available in the 2013 Settlement Agreement. The Company’s obligation under the 2013 Settlement Agreement has been fulfilled and any recourse or recovery sought by MTB should be claimed from Hoe Leong Corporation Limited (“HLCL”), Setingi Holdings Berhad and / or HLCL’s nominees, for breach of HLCL’s obligations under the 2013 Settlement Agreement.

The Company, through its solicitor Shearn Delamore & Co, has replied on 9 January 2017 stating the Company’s position on the matter. On 23 February 2017, the Company was served with a Writ and Statement of Claim both dated 21 February 2017 by ASL pursuant to the termination by the Plaintiffs of the 2015 Settlement Agreement. The Plaintiffs are claiming for the full sum outstanding (principal plus interest) of RM72,333,945. The matter is fixed for case management on 25 April 2017. The solicitor is of the opinion that the Company stands a fair chance of defending the suit provided that the 2013 CLO Settlement Agreement is enforced. The sum in dispute may only be determined after completion of the court case.


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Notice of Demands to Sumatec Resources Berhad (“the Company”) in relation to the Corporate Guarantee issued to Malayan Banking Berhad (“Maybank”)

The Company has received Notice of Demands on 2 March 2017 from Shook Lin & Bok, acting as solicitor for Maybank. The Notice of Demands were issued arising from Maybank’s claim that Semua Shipping Sdn Bhd (“SSSB”) (“associate company of the Company”) had defaulted on the term loan granted by Maybank, with the Company having issued a guarantee in favour of Maybank for the amount due and owing by SSSB.

The amount demanded by Maybank as at 31 January 2017 are as follows:

1. Term Loan 1 - RM15,251,4682. Term Loan 2 – RM15,698,4113. Term Loan 3 – RM18,259,3104. Term Loan 4 – RM22,537,2325. Term Loan 6 – RM23,783,6216. Term Loan 7 – RM21,766,0107. Overdraft Facility – RM4,132,804

In total, the amount demanded by Maybank is RM121,428,857 arising from six (6) term loans and one (1) overdraft facility. There are in total six (6) vessels attached as security to the term loans.

Maybank is demanding for the aforesaid sum as at 31 January 2017 with interest thereon at the rate of 2.5% per annum above Maybank’s base lending rate (6.65%) per annum, compounded monthly, to date of full settlement. The Company, through its solicitors Munhoe & Mar, confirms that SRB’s liability to MBB can only be deemed conclusive after MBB obtains a judgement against the Company. As of the date of the Financial Statements MBB has not initiated any court proceedings. However, the provision of RM27,222,857 has been provided in the Financial Statements.

Kuala Lumpur High Court – suit number WA-28NCC-594-07/2016NFC Labuan Shipleasing I Ltd (“the Petitioner”) vs Sumatec Resources Berhad (“the Company”)

The Company had on 25 February 2008 issued a Deed of Guarantee and Indemnity to the Petitioner for its former subsidiary, Semua Chemical Shipping Sdn Bhd, for the leasing of two chemical vessels (Semua Perdana and Semua Perkasa) from the Petitioner on the same date (Bareboat Charters). The lease was terminated on 19 May 2014 by the Petitioner. The Petitioner has now claimed for various payments under the Perdana Bareboat Charter Agreement and Perkasa Bareboat Charter Agreement in the aggregate sum of USD6,377,034 (approximately RM28,607,375) and USD6,687,238 (approximately RM29,998,950) respectively.

On 5 April 2016, the Petitioner through its solicitors, Messrs Sativale Mathew Arun, issued a letter of demand for the Company to settle the debt of Semua Chemical Shipping Sdn Bhd totalling USD13,064,272 or approximately RM58,606,324 within 21 days. On 20 April 2016, Arbain & Co. responded on behalf of the Company to deny owing the Petitioner the sums claimed in its notice of 5 April 2016. On 25 May 2016, a winding-up petition was served on the Company by the Petitioner. The Petitioner applied to withdraw the first petition on 8 June 2016 and subsequently re-filed the winding up petition which was served on the Company on 25 July 2016. On 15 March 2017, the Court has dismissed NFC’s winding up petition with costs of RM20,000 to be paid by NFC to the Company.

High Court of Malaya – suit no. WA-28NCC-1062-12/2016 Zulkifly Bin Mohamad (“the Petitioner”) vs Sumatec Resources Berhad (“the Company”)

The Petitioner had filed a winding up petition against the Company on 16 December 2016 for a dispute on his alleged outstanding salary in the sum of USD171,401.18. The Company, through its solicitors Abu Talib Shahrom has filed an application to strike out the petition on 19 January 2017.

The court has adjourned the hearing of the winding up petition and striking out application to 31 March 2017. On that date, the Petitioner has withdrawn the winding-up petition against the Company and the Company considers the above case resolved. The above amount has been accounted as provision in the Financial Statements.


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Continental Industrial Supplies and Services Ltd LLP vs Sumatec Resources Berhad (“the Company”) LCIA Arbitration No. UN163528

In 2013, Continental Industrial Supplies and Services Ltd LLP (“CISS”) entered into a contract for the provision of integrated project management of the Rakushechnoye Oil and Gas Field with COG. However, in 2015, with market price for oil plummeting, CISS was advised to slow down on the contracted works. CISS then entered into a Parent Guarantee Agreement (“PGA”) dated 2 May 2016 with the Company of which the Company has agreed to guarantee the payment to CISS of USD6,097,044.05 or approximately RM27,351,340 plus interest. Pursuant to the PGA, the Company has fulfilled partial payment of USD1,175,746.00 or approximately RM5,274,397.

Both parties intends to commerce arbitration proceedings at the London Court of International Arbitration on the claim of the balance in the PGA.

33. FINANCIAL INSTRUMENTS

33.1 Financial risk management

The Group and the Company are exposed to financial risks arising from their operations and the use of financial instruments. Financial risk management policies are established to ensure that adequate resources are available for the development of the Group’s business whilst managing its financial risks. The Group operates within clearly defined policies and procedures that are approved by the Board of Directors to ensure the effectiveness of the risk management process.

The main areas of financial risks faced by the Group and the Company and the policies in respect of the major areas of treasury activity are set out as follows:

Credit risk

Credit risk is the risk of a financial loss to the Group and the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. It is the Group’s and the Company’s policy to enter into financial instruments with a diverse number of creditworthy counterparties. The Group and the Company do not expect to incur material credit losses on its financial assets or other financial instruments.

The Group’s and the Company’s objective is to seek continual revenue growth while minimising losses incurred due to increased credit risk exposure. The Group and the Company provide services only to recognised and creditworthy third parties. It is the Group’s and the Company’s policy that all customers are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis to ensure that the Group’s and the Company’s exposure to bad debts is not significant.

i. Receivables

As at the end of the reporting date, the maximum exposure to credit risk arising from receivables is limited to the carrying amounts in the statements of financial position.

With a credit policy in place to ensure that credit risk is monitored on an ongoing basis, management has taken reasonable steps to ensure that receivables that are past due but not impaired are stated at their realisable values. The Group uses aging analysis to monitor the credit quality of the receivables. Any receivables having significant balances past due more than credit terms granted are deemed to have higher credit risk, and are monitored individually.


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33. FINANCIAL INSTRUMENTS (CONTINUED)

33.1 Financial risk management (Continued)

The main areas of financial risks faced by the Group and the Company and the policies in respect of the major areas of treasury activity are set out as follows (continued):

Credit risk (continued)

i. Receivables (Continued)Group

Restated2016 2015

RM % RM % Trade receivables by country:Malaysia 185,047,500 86 128,898,000 81Kazakhstan 30,443,496 14 30,887,806 19

215,490,996 100 159,785,806 100

Company 2016 2015

RM % RM % Trade receivables by country:Kazakhstan 23,592,787 100 24,856,364 100

The Group’s and the Company’s trade receivables have significant credit risk exposure to 2 (2015: 2) and 1 (2015: 1) major customers respectively.

The ageing analysis of trade receivables is as follows:

IndividuallyGross impaired Net

RM RM RM

Group2016Not past due 32,004,037 - 32,004,037Past due 1 – 60 days 8,411,250 - 8,411,250Past due 61 – 120 days - - -Past due 121 – 365 days 84,112,500 - 84,112,500Past due more than 1 year 161,454,045 (70,490,836) 90,963,209

285,981,832 (70,490,836) 215,490,9962015 (Restated)Not past due 48,336,750 - 48,336,750Past due 121 – 365 days 32,224,500 - 32,224,500Past due more than 1 year 149,715,392 (70,490,836) 79,224,556

230,276,642 (70,490,836) 159,785,806Company


CONT’D


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114

IndividuallyGross impaired Net

RM RM RM

2016Past due more than 1 year 23,592,787 - 23,592,7872015Past due more than 1 year 24,856,364 - 24,856,364

None of the Group’s and the Company’s trade and other receivables that are neither past due nor impaired have been renegotiated during the financial year except for COG, where the outstanding amount will be settled when the oil production at the Rakushechnoye Oil and Gas Field has been increased and sufficient funds are available.

The Group’s trade receivables of RM183,486,959 (2015: RM111,449,056) were past due but not impaired. The Directors expect they are recoverable, pursuant to the Framework Agreement dated 17 February 2017, as further disclosed in Note 36 to the Financial Statements.

ii. Intercompany balances

The maximum exposure to credit risk is presented by their carrying amounts in the statements of financial position. The Company provides unsecured advances to associate companies and subsidiary companies and monitors the results of the associate companies and subsidiary companies regularly.

As at the end of the reporting year, there was no indication that the net carrying amounts of the amounts due from associate companies and subsidiary companies have been fully impaired if they are not recoverable, except for those impaired as disclosed in Note 12 and 13 to the Financial Statements.

iii. Cash and cash equivalents

The credit risk for cash and cash equivalents is considered negligible, since the counterparties are reputable banks with high quality external credit ratings.






i. Receivables (Continued)

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iv. Financial guaranteesGroup and Company

Note 2016 2015RM RM

Corporate guarantee granted to SISB Group:

Unsecured:Others - 266,197,000NFC Labuan Shipleasing I Ltd (a) 58,606,324 -Ebony Ritz and its associates (b) 37,017,163 -

95,623,490 266,197,000Parental guarantee:Continental Industrial Supplies and

Services Ltd LLP (c) 27,351,340 -122,974,830 266,197,000

The Company is involved in separate litigations and arbitration with the abovementioned parties, as disclosed in Note 32 to the Financial Statements.

Note:

(a) The winding up petition has been struck off on 15 March 2017, with the Company is disputing the amount claimed.

(b) The Company has submitted a Statement of Claim on 19 April 2017 to Ebony Ritz and its associates on the premise that they breached the relevant agreements entered with the Company in 2010, 2012 and 2013. The proposed suit is based on specific performance stated in the agreements and a court order for full indemnity against Ebony Ritz and its associates.

(c) The Board is of the opinion that the enforceability of the parental guarantee is in question and the allegation of a parental obligation cannot be reliably estimated.

As at the date of this Financial Statements, the Board of Directors are of the opinion that the above obligations may not require any outflow of resources and thus no provision is recognised.

Liquidity and cash flow risks

Liquidity and cash flow risks are the risks that the Group and the Company will not be able to meet its financial obligations as they fall due, due to shortage of funds.

In managing its exposures to liquidity and cash flow risks arising principally from its various payables, loans and borrowings, the Group and the Company maintain a level of cash and cash equivalents and bank facilities deemed adequate by the management to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities as and when they fall due.


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Liquidity and cash flow risks (continued)

The Group and the Company aim to maintain a balance of sufficient cash and deposits and flexibility in funding by keeping diverse sources of committed and uncommitted credit facilities from various banks.

The Group’s and the Company’s non-derivative financial liabilities which have contractual maturities are summarised below:

Carrying amount

Maturity Contractual

cash flowsLess than

1 year

RM RM RM

Group

2016

Secured:Term loan 22,529,589 23,825,464 23,825,464

Unsecured:

Trade payables 176,489 176,489 176,489Other payables 162,205,427 162,205,427 162,205,427

162,381,916 162,381,916 162,381,916

Total 184,911,505 186,207,380 186,207,380

Financial guarantee:Corporate and parental guarantee 122,974,830 122,974,830 122,974,830

2015 (Restated)


Unsecured:Trade payables 210,237 210,237 210,237

Other payables 94,519,000 94,519,000 94,519,000

94,729,237 94,729,237 94,729,237

117,258,826 118,048,849 118,048,849

Financial guarantee:Corporate guarantee 266,197,000 266,197,000 266,197,000


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Carrying amount

Maturity Contractual

cash flowsLess than

1 year

RM RM RM

Company

2016


Unsecured:Other payables 161,359,430 161,359,430 161,359,430

Total 183,889,019 185,184,894 185,184,894

Financial guarantee:Corporate and parental guarantee 122,974,830 122,974,830 122,974,830

2015 (Restated)

Secured:

Term loan 22,529,589 23,319,612 23,319,612

Unsecured:Other payables 92,757,244 92,757,244 92,757,244

115,286,833 116,076,856 116,076,856

Financial guarantee:Corporate guarantee 266,197,000 266,197,000 266,197,000

Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.

The Group and the Company are exposed to foreign currency risk on contract revenue and costs that are denominated in a currency other than the functional currency of the Group and of the Company.

The currencies giving rise to this risk are primarily US Dollar (“USD”) and Kazakhstan Tenge (“KZT”).


CONT’D




Liquidity and cash flow risks (continued)


118


118

Group Company

2016Restated

2015 2016Restated

2015 RM RM RM RM

Denominated in USD

Trade receivables 208,640,287 153,754,364 23,592,787 24,856,364


Amount due from a subsidiary company - - - 12,650,061

Other payables (79,293,296) (78,867,775) (79,293,296) (78,867,775)

221,040,155 132,827,220 35,992,655 16,579,281

Denominated in KZT

Trade receivables 6,850,709 6,031,442 - -

Amount due from a subsidiary company - - - 2,214,571

6,850,709 6,031,442 - 2,214,571

Foreign currency sensitivity analysis:

The following table demonstrates the sensitivity of the Group’s and the Company’s profit for the financial year to a reasonably possible change in the USD against the functional currency of the Group, with all other variables held constant:

(Loss)/profit for the year Group Company

2016 2015 2016 2015RM RM RM RM

USD/RM

- Strengthened 1% 22,104,016 13,282,722 3,599,266 1,657,928

- Weakened 1% (22,104,016) (13,282,722) (3,599,266) (1,657,928)

KZT/RM

- Strengthened 1% 685,071 603,144 - 221,457

- Weakened 1% (685,071) (603,144) - (221,457)





Foreign currency risk (continued)

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Foreign currency risk (continued)

Exposure to foreign exchange rates varied during the financial year depending on the volume of overseas transactions. Nonetheless, the analysis above is considered to be representative of the Group’s and the Company’s exposure to foreign currency risk.

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of the Group’s and the Company’s financial instruments will fluctuate because of changes in market interest rates.

The Group’s and Company’s fixed rate borrowings are exposed to a risk of change in their fair value due to changes in interest rates.

The interest rate profile of the Group’s and the Company’s significant interest-bearing financial instruments, based on carrying amounts as at the reporting date were as follows:

Group Company

2016 2015 2016 2015 RM RM RM RM

Fixed rate instruments

Financial asset Amount due from a subsidiary company - - - 12,650,061

Financial liabilities Term loan 22,529,589 22,529,589 22,529,589 22,529,589

The Group and the Company do not account for any fixed rate financial assets and liabilities at fair value through profit or loss. Therefore, a change in interest rates at the end of the reporting date would not affect profit or loss.

33.2 Fair Values of Financial Instruments

The carrying amounts of financial assets of the Group and the Company at the reporting date approximate their fair values except as set out below:

Group

Carrying amount Fair value

RM RM

2016

Financial assetOther investments

- Unquoted shares 1 *

2015

Financial assetOther investments

- Unquoted shares 1 *


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33.2 Fair Values of Financial Instruments (Continued)

The carrying amounts of financial assets of the Group and the Company at the reporting date approximate their fair values due to their short term nature or immaterial impact on discounting.

* It was not practicable to estimate the fair value of the Group’s investment in unquoted shares due to the lack of comparable quoted prices in active market. In addition, it is impracticable to use valuation technique to estimate the fair value reliably due to significant variability in the inputs of the valuation technique. The Group has no plans to dispose of its investment in unquoted shares in the near future.

33.3 Fair value hierarchy

No fair value hierarchy has been disclosed as the Group and the Company do not have financial instruments measured at fair value.

34. CAPITAL MANAGEMENT

The Group’s and the Company’s objective when managing capital is to maintain a strong capital base and safeguard the Group’s and the Company’s ability to continue as going concerns, so as to maintain investors, creditors and market confidence and to sustain future development of the business.

The Group and the Company set the amount of capital in proportion to its overall financing structure, i.e. equity and financial liabilities. The Group and the Company manage the capital structure and make adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group and the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debts.

Total capital managed by the Group and the Company is the shareholders’ funds shown in the statements of financial position.

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


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CONT’D

35. COMPARATION FIGURES

Prior year adjustments

The adjustments are due to the reversal of certain financial liability which was offset against certain financial asset in the prior year. In accordance with MFRS 108: Accounting Policies, Changes in Accounting Estimates and Errors, the changes are to be applied retrospectively. The effect of changes in the consolidated financial statements is as follows:

31 Dec 2015 As previously

reported

Effect of prior year

adjustment31 Dec 2015As restated

RM RM RM

Group

Statement of Financial Position (extract):

Trade receivables – current 54,897,976 74,000,024 128,898,000

Other payables - current (20,518,976) (74,000,024) (94,519,000)

Company

Statement of Financial Position (extract):

Accumulated losses (212,315,608) (17,500,604) (229,816,212)

Amount due from subsidiary companies 14,865,474 56,499,420 71,364,894

Other payables – current (18,757,220) (74,000,024) (92,757,244)

Statement of Comprehensive Income (extract):

Other income 70,841,047 (17,500,604) 53,340,443

36. SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR AND AFTER THE REPORTING DATE

36.1 Proposed Corporate Exercises

36.1.1 On 17 February 2017, the Company announced that it intends to undertake the following proposals:

(a) Proposed private placement of up to 1,000,000,000 new ordinary shares in Sumatec (“Sumatec Shares” or “Shares”) (“Placement Shares”) to independent third party investor(s) to be identified (“Proposed Private Placement”);

(b) Proposed issuance of up to 800,000,000 Sumatec Shares (“Issue Shares”) as payment to contractors for development and production services to be provided at the Rakushechnoye Oil and Gas Field (as defined herein) (“Proposed Issuance of Shares”); and

(c) Proposed renounceable rights issue of up to 3,226,194,640 Sumatec (“Rights Shares”) together with up to 3,226,194,640 free detachable warrants (“Warrants”) at an indicative issue price of RM0.10 per Rights Share on the basis of one (1) Rights Share for every two (2) existing Sumatec Shares held together with one (1) Warrant for every one (1) Rights Share subscribed (“Proposed Rights Issue with Warrants”).

(Collectively known as Phase I)


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36. SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR AND AFTER THE REPORTING DATE (CONTINUED)

36.1 Proposed Corporate Exercises (Continued)

In addition, Sumatec had on 17 February 2017 entered into a Framework Agreement with Kenmakmur and MELL for the production of liquefied petroleum gas (“LPG”) and condensate from the 100 million standard cubic feet (“mmscf”) per day of natural gas supplied from the Rakushechnoye Oil and Gas Field (“Proposed LPG Production”) (“Phase II”). For avoidance of doubt, the Proposed LPG Production shall be implemented upon completion of the Proposals under Phase I.

Collectively, the Proposals under Phase I and Proposals under Phase II is to be referred to as the “Proposals”.

In consideration for the supply of gas, Sumatec shall:

(a) Issue to Kenmakmur or its nominees:

(aa) Sumatec Shares equivalent to USD56.0 million; and

(bb) Redeemable convertible preferential shares (“RCPS”) for the sum of up to USD84.0 million;

(b) Issue Sumatec Shares equivalent to USD45.0 million to Kenmakmur. Kenmakmur will assign such number of shares to MELL at a total nominal consideration of RM1.00. MELL will transfer these shares back to Sumatec as repayment for the amount owing by MELL to Sumatec. It is the intention of the Board of Sumatec to redistribute these shares back to its shareholders in the form of dividends or capital repayment.

(c) Issue Sumatec Shares equivalent to USD20.0 million to Kenmakmur. In return, Kenmakmur shall pay for any potential liability the may be incurred by Sumatec relating to various litigations involving Semua International Sdn Bhd and its subsidiary companies, as disclosed in Note 32 to the Financial Statements.

(d) The Parties agree to fix the issue price at RM0.10 per Sumatec Share and the RCPS conversion price will be RM0.10 per share. The RCPS shall include the following features:

(aa) Redeemable at the option of the holder; and

(bb) Convertible into Sumatec Shares if not redeemed.

The Company has deliberated to proceed with the completion of the Proposals prior to the completion of the Borneo Energy Corporate Exercises and MELL Corporate Exercises, details of which are explained below.

A reputable financial institution has agreed to underwrite a certain amount of the Right Shares subject to the Company obtaining the necessary approvals.

36.1.2 Borneo Energy Corporate Exercises

On 11 July 2014, the Company had announced a proposed acquisition of 100% equity interest in Borneo Energy Oil and Gas Limited (“Borneo Energy”), comprising 100 ordinary shares in Borneo Energy from Abu Talib Abdul Rahman and Dr Murat Safin (“Vendors”). On 8 September 2014, the Company executed the share purchase agreement (“SPA”) with the Vendors for a purchase price of USD350.0 million to be satisfied by a combination of cash and ordinary shares of the Company. The parties subsequently entered into three supplemental SPAs to vary certain terms relating to the mechanism of the purchase price and the purchase price of the acquisition. The salient terms of the proposed acquisition is as follows:

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36.1.2 Borneo Energy Corporate Exercises (Continued)

(a) The purchase price of USD290.0 million (equivalent to RM1,015,000,000) is to be satisfied by a combination of cash payment and issuance of new ordinary shares of RM0.14 each in Sumatec;

(b) Proposed renounceable rights issue of up to 5,517,521,495 new ordinary shares of RM0.14 each in Sumatec together with up to 2,758,760,747 free detachable warrants at an indicative issue price of RM0.20 per rights shares on the basis of six (6) rights shares for every five (5) ordinary shares held together with one (1) rights warrant for every two (2) rights shares subscribed;

(c) Proposed increase in the authorised share capital of Sumatec from RM1,000,000,000 comprising 7,142,857,143 ordinary shares of RM0.14 each in Sumatec to RM5,000,000,000 comprising 35,714,285,714 ordinary shares of RM0.14 each in Sumatec;

(d) Proposed amendments to the Memorandum and Articles of Association of Sumatec to facilitate the proposed increase in authorised share capital of the Company; and

(e) The Vendors have agreed to re-allocate the purchase price between themselves as follows:

Name

Allocation (USD

million)

Balance Purchase Price (Cash Portion USD million) Share

Portion (USD

million)

Number of Consideration

Share (USD1.00:

RM3.50)Deposit

Balance Cash

Payment

Final Balance Payment

Abu Talib bin Abdul Rahman 140 30 - 75 35 532,608,696

Dr. Murat Safin 150 - 105 - 45 684,782,609

Total 290 210 80 1,217,391,305

On the 5 August 2016, the Company has submitted an application for a further extension of up to nine (9) months to complete the implementation of Borneo Energy Corporate Exercises. The extension of time shall be extended to 21 May 2017. However, on the 30 March 2017, the Company has withdrawn the application for the extension of time under the advice of the Principal Advisor due to the following reasons:

(a) The Company shall review its funding scheme in view of the current market sentiment and its share price; and

(b) The Company shall consider reducing its cash composition of the purchase price and negotiate with the Vendors to increase their share component under the payment mechanism of the purchase price.


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36.1.3 MELL Corporate Exercises

On 25 August 2016, the Company had also announced that it is proposing to undertake the following proposals:

(a) Proposed acquisition of 100% equity interest in MELL, comprising 26,400,000 ordinary shares of USD1.00 each in MELL for a total purchase consideration of USD250,000,000 (equivalent to RM1,000,000,000) (“Proposed Acquisition of MELL”);

(b) Proposed reduction of the issued and paid-up share capital of Sumatec via the cancellation of RM0.04 from the par value of each existing ordinary share of RM0.14 each in Sumatec;

(c) Proposed renounceable rights issue of up to 7,509,052,989 new Sumatec Shares together with up to 3,754,526,494 free detachable warrants at an indicative issue price of RM0.10 per rights share on the basis of thirty eight (38) rights shares for every twenty five (25) Sumatec Shares held together with one (1) rights warrant for every two (2) Rights Shares subscribed;

(d) Proposed increase in the authorised share capital of the Company from RM1,000,000,000 comprising 7,142,857,143 Sumatec Shares to RM6,037,600,000 comprising 60,000,000,000 Sumatec Shares and 3,760,000,000 RCPS of RM0.01 par value each; and

(e) Proposed amendments to the Memorandum and/or Articles of Association of the Company to facilitate the Proposed Par Value Reduction and Proposed IASC.

A Share Sale Agreement between Markmore and the Company for the proposed acquisition was signed on 26 August 2016. Subsequently, on 13 March 2017, the Board of the Company agreed to enter into a Deed of Mutual Termination in relation to the Proposed Acquisition of MELL.

36.2 Private Placement Exercise

A private placement exercise of the Company’s shares to independent third party investors was completed on 25 April 2016 with the listing of 348,269,000 new ordinary shares, at an issue price of RM0.14 per placement share. The gross proceeds raised from the private placement exercise was RM48,757,660.

36.3 New Financing Facility

On 31 March 2016, the Company accepted an overseas project financing facility totalling USD125.0 million granted by Export-Import Bank of Malaysia Berhad (“Facility”). The Facility is to finance the Company’s working capital, capital expenditure for the Rakushechnoye Oil and Gas Field, and acquisition of oil and gas assets. Subsequently, the financing facility has been mutually terminated as the Company has embarked on the Proposed Corporate Exercises, as detailed out in Note 36.1 of the Financial Statements.

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CONT’D

DISCLOSURE OF REALISED AND UNREALISED ACCUMULATED LOSSES

With the purpose of improving transparency, Bursa Malaysia Securities Berhad had on 25 March 2010, and subsequently on 20 December 2010, issued directive which require all listed corporations to disclose the breakdown of unappropriated profits or accumulated losses into realised and unrealised on Group and Company basis in the annual audited financial statements.

The breakdown of accumulated losses as at the reporting date has been prepared by the Directors in accordance with the directive from Bursa Malaysia Securities Berhad stated above and 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 as required by the Malaysian Institute of Accountants are as follows:

GroupRestated

2016 2015

RM RM

Total accumulated losses of the Group

- Realised loss (235,086,191) (220,359,059)

- Unrealised (loss)/gain (47,245,624) 17,630,130

(282,331,815) (202,728,929)

Consolidation adjustments 56,193,606 36,351,179

(226,138,209) (166,377,750)

CompanyRestated

2016 2015

RM RM

Total accumulated losses of the Company

- Realised loss (287,179,735) (230,562,769)

- Unrealised (loss)/gain (65,219,353) 746,557

(352,399,088) (229,816,212)

The disclosure of realised and unrealised above is solely for complying with the disclosure requirements stipulated in the directive of Bursa Malaysia Securities Berhad and should not be applied for any other purposes.


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126

ANALYSIS OF SHAREHOLDINGSAS AT 21 MARCH 2017

Shareholdings Analysis by Size of Shareholdings as at 21 March 2017

Authorised capital : RM5,000,000,000.00

Issued and fully paid-up capital : RM541,256,016.00

Class of shares : Ordinary shares of RM0.14 each

Voting rights : One vote per ordinary share

Size of shareholdingsNo. of

shareholders% of

shareholdersNo. of shares

% of shareholdings

<100 180 0.70 5,122 0.00

100 - 1,000 2,138 8.28 1,120,839 0.03

1,001 - 10,000 6,357 24.61 41,932,873 1.09

10,001 - 100,000 12,498 48.38 560,753,910 14.50

100,001 - < 5% issued shares 4,657 18.03 2,526,471,656 65.35

5% and above of issued shares 2 0.00 735,830,000 19.03

25,832 100.00 3,866,114,400 100.00

Substantial ShareholdersNo. of shares held

NameDirect

Interest %Deemed Interest %

Tan Sri Halim Bin Saad 758,025,000 19.61 - -

Directors’ ShareholdingsNo. of shares held

NameDirect


Abu Talib Bin Abdul Rahman 3,844,000 0.10 - -Michael Lim Hee Kiang - - - -Wan Kamaruddin Bin Dato’ Biji Sura @ Wan Abdullah - - - -Dato’ Ahmad Johari Bin Tun Abdul Razak 14,407,800 0.37 - -Datuk Che Mokhtar Bin Che Ali - - - -Mohamad Bin Ismail - - - -Mahusni Bin Hasnan - - - -Liew Boon Keat 430,500 0.01 - -

Annual Report 2016

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Annual Report 2016

127

ANALYSIS OF SHAREHOLDINGSAS AT 21 MARCH 2017

CONT’D

Directors’ Options Under Employee Share Option Scheme

Name

Number of options

offered

Number of options exercised

Option price

Abu Talib Bin Abdul Rahman - - -Michael Lim Hee Kiang - - -Wan Kamaruddin Bin Dato’ Biji Sura @ Wan Abdullah - - -Dato’ Ahmad Johari Bin Tun Abdul Razak - - -Datuk Che Mokhtar Bin Che Ali - - -Mohamad Bin Ismail - - -Mahusni Bin Hasnan - - -Liew Boon Keat - - -

30 Largest Shareholders as at 21 March 2017

No. Shareholders Shareholdings %

1. MIDF AMANAH INVESTMENT NOMINEES (TEMPATAN) SDN BHD - AMANAH INTERNATIONAL FINANCE SDN BHD FOR TAN SRI HALIM BIN SAAD

463,440,000 11.99

2. MAYBANK NOMINEES (TEMPATAN) SDN BHD - PLEDGED SECURITIES ACCOUNT FOR TAN SRI HALIM BIN SAAD

272,390,000 7.05

3. SITI HANIFAH BINTI S. ABDULLAH 37,100,000 0.96

4. LEE KIM SOON 28,454,000 0.74

5. MAYBANK NOMINEES (TEMPATAN) SDN BHD - PLEDGED SECURITIES ACCOUNT FOR INTER MERGER SDN. BHD

21,000,000 0.54

6. MEOR OTHMAN BIN MEOR LOPE 20,000,000 0.52

7. M&A NOMINEE (TEMAPATAN) SDN BHD - INSAS CREDIT & LEASING SDN BHD FOR TAN SRI HALIM BIN SAAD

19,000,000 0.49

8. MOHD NOOR BIN ABD KADIR 17,789,300 0.46

9. ABD RAHMAN BIN SOLTAN 16,449,900 0.43

10. BLUE OCEAN INTERGRATED SDN BHD 16,056,000 0.42

11. CIMSEC NOMINEES (TEMPATAN) SDN BHD- CIMB BANK FOR DATO’ AHMAD JOHARI BIN TUN ABDUL RAZAK

14,407,800 0.37

12. TAN SOH GEK 13,365,000 0.35


128


128

ANALYSIS OF SHAREHOLDINGSAS AT 21 MARCH 2017CONT’D

No. Shareholders Shareholdings %

13. CIMSEC NOMINEES (TEMPATAN) SDN BHD- CIMB FOR VERTICAL SOURCE SDN BHD

13,000,000 0.34

14. PELABUHAN MARA BERHAD 13,000,000 0.34

15. ALLIANCEGROUP NOMINEES (TEMPATAN) SDN BHD- PLEDGED SECURITIES ACCOUNT FOR TEOW CHOO ANN

12,082,700 0.31

16. ONG YEW BENG 10,360,000 0.27

17. KENANGA NOMINEES (TEMPATAN) SDN BHD- PLEDGED SECURITIES ACCOUNT FOR LOH KIM KIONG

10,190,900 0.26

18. MAYBANK SECURITIES NOMINEES (TEMPATAN) SDN BHD - PLEDGED SECURITIES ACCOUNT FOR KRIZIK (MALAYSIA) SDN BHD

10,000,000 0.26

19. TENGKU AB MALEK BIN TENGKU MOHAMED 9,800,000 0.25

20. CIMSEC NOMINEES (TEMPATAN) SDN BHD - PLEDGED SECURITIES ACCOUNT FOR CHAN FOONG CHENG

9,322,000 0.24

21. PUBLIC NOMINEES (TEMPATAN) SDN BHD- PLEDGED SECURITIES ACCOUNT FOR HOW BEE HUA

9,057,500 0.23

22. CITIGROUP NOMINEES (ASING) SDN BHD- CBNY FOR DFA EMERGING MARKETS SMALL CAP SERIES

8,591,773 0.22

23. UOB KAY HIAN NOMINEES (ASING) SDN BHD- EXEMPT AN FOR UOB KAY HIAN PTE LTD

8,150,400 0.21

24. S. A SHIPPING SDN. BHD. 8,000,000 0.21

25. MAYBANK SECURITIES NOMINEES (TEMPATAN) SDN BHD- PLEDGED SECURITIES ACCOUNT FOR ZULKIFLI BIN ISMAIL

7,990,900 0.21

26. TAN BOON HAR 7,925,000 0.21

27. DB (MALAYSIA) NOMINEE (ASING) SDN BHD- EXPEMT AN FOR BANK OR SINGAPORE LIMITED

7,912,400 0.20

28. MOHD JAMEL BIN ABDUL MUNIN 7,700,000 0.20

29. AMSEC NOMINEES (TEMPATAN) SDN BHD- PLEDGED SECURITIES ACCOUNT FOR GOH TIAN CHUAN

7,500,000 0.19

30. CH’NG CHEN MONG 7,500,000 0.19

TOTAL 1,107,535,573 28.65

30 Largest Shareholders as at 21 March 2017 (Continued)

Annual Report 2016

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Annual Report 2016

129

Shareholdings Analysis by Size of Warrant 2011/2021 (“Warrants A”) Holdings as at 21 March 2017

No. Warrants in Issue : 118,753,197

Exercise Price of Warrants : RM0.32

Expiry Date of Warrants : 03/03/2021

No. of Warrant Holders : 2,659

Size of Holdings

No. of Warrant Holders

% of Warrant Holders

No. of Warrant Holding

% of Warrant Holding

<100 Warrant 462 17.37 22,542 0.02

100 - 1,000 Warrant 258 9.70 131,220 0.11

1,001 – 10,000 Warrant 771 29.00 3,685,118 3.10

10,001 – 100,000 Warrant 951 35.77 39,913,988 33.61

100,001 - < 5% issued Warrant 217 8.16 75,000,329 63.16

2,659 100.00 118,753,197 100.00

Directors’ Warrant 2011/2021 HoldingsNo. of shares held

NameDirect


Abu Talib Bin Abdul Rahman - - - -Michael Lim Hee Kiang - - - -Wan Kamaruddin Bin Dato’ Biji Sura @ Wan Abdullah - - - -Datuk Che Mokhtar Bin Che Ali - - - -

Mohamad Bin Ismail - - - -Dato’ Ahmad Johari Bin Tun Abdul Razak - - - -Mahusni Bin Hasnan - - - -Liew Boon Keat - - - -

ANALYSIS OFWARRANT HOLDINGS

AS AT 21 MARCH 2017


130


130

30 Largest Warrant 2011/2021 (“Warrants A”) Holders as at 21 March 2017

No. Warrant Holders Warrant holdings %

1. AFFIN HWANG NOMINEES (ASING) SDN. BHD. - PLEDGED SECURITIES ACCOUNT FOR MOHAMED YAZID MERZOUK

3,544,700 2.98

2. YEO CHIN KIANG 2,570,200 2.16

3. TAN BOON HAR 2,219,131 1.87

4. TAN SOH GEK 1,730,440 1.46

5. CHOO BEE POH 1,555,000 1.31

6. AHMAD SUHAIMEE BIN MOHAMMED YASSIN 1,537,300 1.29

7. WONG MEI LAN 1,500,000 1.26

8. LEE CHEE SENG 1,500,000 1.26

9. HO LI HUA 1,261,800 1.06

10. MAYBANK NOMINEES (TEMPATAN) SDN BHD – SHAN KAMAHL BIN MOHAMMAD

1,100,000 0.93

11. SIEW YAU WAI @ SIEW AH WHY 1,023,857 0.86

12. SIAH BOON PAH 1,001,200 0.84

13. MAYBANK NOMINEES (TEMPATAN) SDN BHD- LIM LEONG CHEE

1,000,000 0.84

14. RAMLEE BIN MD TAMIN 1,000,000 0.84

15. MOHAMED YAZID MERZOUK 937,600 0.79

16. MAYBANK NOMINEES (TEMPATAN) SDN BHD- PLEDGED SECURITIES ACCOUNT FOR TAN KEE ENG

836,700 0.70

17. SOO YOKE MUN 800,000 0.67

18. HLIB NOMINEES (TEMPATAN) SDN BHD- HONG LEONG BANK BHD FOR GOH CHEE PING

800,000 0.67

19. CH’NG BOON SIN 800,000 0.67

20. HISHAM BIN HUSSEIN 796,500 0.67

21. TEH KAI SING 692,500 0.58

ANALYSIS OF WARRANT HOLDINGSAS AT 21 MARCH 2017CONT’D

Annual Report 2016

131

Annual Report 2016

131

ANALYSIS OF WARRANT HOLDINGSAS AT 21 MARCH 2017

CONT’D


22. GURMIT SINGH A/L SHAMIR SINGH 681,800 0.57

23. YAP WAI MUN 675,000 0.57

24. GOH LEE PING 672,800 0.57

25. LEE TIANG HENG 650,000 0.55

26. TAN CHAI HONG 650,000 0.55

27. CITIGROUP NOMINEES (TEMPATAN) SDN BHD- PLEDGED SECURITIES ACCOUNT FOR KHOR THING THIAM

640,000 0.54

28. MOHD SA’ID BIN DIKON 600,000 0.51

29. TEE KAI SHIANG 600,000 0.51

30. YAP MUN HUAT 600,000 0.51

TOTAL 33,976,528 28.61

30 Largest Warrant 2011/2021 (“Warrants A”) Holders as at 21 March 2017 (Continued)


132


132

ANALYSIS OF WARRANT HOLDINGSAS AT 21 MARCH 2017CONT’D

Shareholdings Analysis by Size of Warrant 2013/2018 (“Warrants B”) Holdings as at 21 March 2017

No. Warrants in Issue : 567,521,683

Exercise Price of Warrants : RM0.175

Expiry Date of Warrants : 13/11/2018

No. of Warrant Holders : 4,669

Size of Holdings

No. of Warrant Holders

% of Warrant Holders

No. of Warrant Holding

% of Warrant Holding

<100 Warrants 308 6.60 13,994 0.00

100 - 1,000 Warrants 315 6.74 139,286 0.02

1,001 – 10,000 Warrants 1,087 23.28 6,076,804 1.08

10,001 – 100,000 Warrants 2,044 43.78 92,812,467 16.35

100,001 - < 5% issued Warrant 915 19.60 468,479,132 82.55

4,669 100.00 567,521,683 100

Directors’ Warrant 2013/2018 HoldingsNo. of shares held

NameDirect


Abu Talib Bin Abdul Rahman - - - -

Michael Lim Hee Kiang - - - -

Wan Kamaruddin Bin Dato’ Biji Sura @ Wan Abdullah - - - -

Datuk Che Mokhtar Bin Che Ali - - - -

Mohamad Bin Ismail - - - -

Dato’ Ahmad Johari Bin Tun Abdul Razak - - - -

Mahusni Bin Hasnan - - - -

Liew Boon Keat 56,375 0.01 - -

Annual Report 2016

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133

ANALYSIS OF WARRANT HOLDINGSAS AT 21 MARCH 2017

(CONT’D)

30 Largest Warrant 2013/2018 (“Warrants B”) Holders as at 21 March 2017


1. BLUE OCEAN INTERGRATED SDN BHD 15,514,000 2.73

2. PAUZIAH BINTI MOHAMAD 10,040,300 1.77

3. HENG LIANG KEA 8,569,200 1.51

4. LOONG DING TONG 7,100,000 1.25

5. RAMLEE BIN MD TAMIN 6,900,000 1.22

6. PUA FUN SEANG 6,275,500 1.11

7. AFFIN HWANG NOMINEES (ASING) SDN. BHD. - PLEDGED SECURITIES ACCOUNT FOR MOHAMED YAZID MERZUOK

5,630,000 0.99

8. MAYBANK NOMINEES SDN BHD- PLEDGED SECURITIES ACCOUNT FOR TAN KEE ENG

5,585,800 0.98

9. ONG CHIN HONG 5,330,300 0.94

10. MAYBANK NOMINEES (TEMPATAN) SDN BHD- TOO LOON KONG

5,000,000 0.88

11. LEE KIM SOON 4,158,500 0.73

12. KHOO ENG YEOW 4,000,000 0.70

13. LONG HENG BOCK 4,000,000 0.70

14. TAM SU LEE 3,835,500 0.68

15. LAW CHUAN SZE 3,657,500 0.64

16. TAN KEE ENG 3,500,000 0.62

17. POR KIM ENG 3,400,000 0.60

18. ANNE LOKE 3,245,100 0.57

19. TAN SRI HALIM BIN SAAD 3,033,900 0.53

20. ALLIANCEGROUP NOMINEES (TEMPATAN) SDN BHD- CHUA KENG LIANG

3,000,000 0.53

21. BEH SIEW KHENG 2,900,000 0.51


134


134

ANALYSIS OF WARRANT HOLDINGSAS AT 21 MARCH 2017(CONT’D)


22. MAYBANK NOMINEES (TEMPATAN) SDN BHD- PLEDGED SECURITIES ACCOUNT FOR TAI CHEE MENG

2,886,500 0.51

23. SHUHAIMY BIN OTHMAN 2,711,000 0.48

24. LINK CHEONG WAH 2,700,000 0.48

25. CHANG MUI LIN @ CHANG MUI LING 2,648,300 0.47

26. SEE TIAN SENG 2,550,000 0.45

27. HANAFI BIN HAMDAN 2,500,000 0.44

28. SJ SEC NOMINEES (TEMPATAN) SDN BHD- PLEDGED SECURITIES ACCOUNT FOR LEAN CHENG LIUNG

2,400,000 0.42

29. BLUE OCEAN PREMIER SDN BHD 2,301,050 0.41

30. CHOO KIAN LOO 2,250,000 0.40

TOTAL 137,622,450 24.25

30 Largest Warrant 2013/2018 (“Warrants B”) Holders as at 21 March 2017 (Continued)

Annual Report 2016

135

Annual Report 2016

135

LIST OF PROPERTIES

AS AT 31 DECEMBER 2016

LOCATIONDESCRIPTION

(EXISTING USE) TENURELAND AREA

APPROXIMATE AGE OF

BUILDING

NET BOOK VALUE @ 31 DECEMBER

2016RM’000

DATE OF LAST

VALUATION

1 Parcel No. A4/2-47 & A4/2-48 C2nd Floor, Block A4Lot No. PT 9332Title No. HS (D) 41817Mukim and District of Klang, Selangor

2 units of apartment

(unoccupied)

Leasehold99 years

(strata titlenot issued)

Parcel No. A4/2-47

(82.43 sq meters)

Parcel No. A4/2-48 C(86.17 sq meters)

17 years 163 28.12.2002

2 Lot 10751Kawasan Perindustrian Bukit TengahMukim KertihKemaman, Terengganu

Industrial land Leasehold60 years

expiring on19.08.2069

10,840 sq meters

N/A 400 3.10.2013

3 Lot 10752Kawasan Perindustrian Bukit TengahMukim KertihKemaman, Terengganu

Industrial land Leasehold60 years

expiring on19.08.2069

6,810 sq meters

N/A 250 3.10.2013


136


136

NOTICE OFANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN THAT the Twentieth Annual General Meeting (“20th AGM”) of the Company will be held at Shah Alam 2 (Ground Floor), Shah Alam Convention Centre, No 4, Jalan Perbadanan 14/9, 40000 Shah Alam, Selangor on Thursday, 15 June 2017 at 11.00 a.m. for the following purposes: -

AGENDA AS ORDINARY BUSINESS

1. To receive the Audited Financial Statements of the Company for the financial year ended 31 December 2016 together with the Reports of the Directors and Auditors thereon.

Please refer to Note A

2. To re-elect the following Directors retiring in accordance with the Company’s Articles of Association, and being eligible, offered themselves for re-election: -

(i) Encik Abu Talib bin Abdul Rahman (Article 94)

(ii) Mr Liew Boon Keat (Article 94)

(iii) Encik Mahusni bin Hasnan (Article 94)

(iv) Encik Wan Kamaruddin bin Dato’ Biji Sura @ Wan Abdullah (Article 87.1)

(v) Encik Mohamad bin Ismail (Article 87.1)

Ordinary Resolution 1




Ordinary Resolution 53. To approve the payment of Directors’ Fees and Meeting Allowance totaling to

RM550,000 for the year ended 31 December 2016.Ordinary Resolution 6

4. To re-appoint Messrs SJ Grant Thornton as Auditors of the Company and to authorise the Board of Directors to fix their remuneration.


AS SPECIAL BUSINESS

To consider and, if thought fit, pass the following resolutions, with or without modifications:-

5. Authority to Issue Shares by the Company pursuant to Section 75(1)(a) of the Companies Act, 2016


“THAT pursuant to Section 75(1)(a) of the Companies Act, 2016 and subject to the approvals from the relevant governmental and/or regulatory authorities, the Directors be and are hereby empowered to allot shares in the Company from time to time and upon such terms and conditions and for such purposes as the Directors may in their absolute discretion deem fit, provided that the aggregate number of shares issued pursuant to this resolution does not exceed ten (10) per cent of the issued share capital of the Company thereat AND THAT the Directors be and are hereby empowered to obtain the approval from Bursa Malaysia Securities Berhad for the listing and quotation of the additional shares so allotted AND THAT such authority shall continue in force until the conclusion of the next Annual General Meeting of the Company.”

Annual Report 2016

137

Annual Report 2016

137

Annual Report 2016Annual Report 2016

NOTICE OF ANNUAL GENERAL MEETINGCONT’D

6. Proposed Renewal of Existing Shareholders’ Mandate for Recurrent Related Party Transaction(s) of a Revenue or Trading Nature (“Proposed Renewal of Shareholders’ Mandate”)

“THAT, subject to the provisions of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad, approval be given to the Company and/or its subsidiary companies to enter into recurrent related party transactions of a revenue or trading nature (“Recurrent Related Party Transactions”) as set out in Section 2.3 the Circular to Shareholders dated 28 April 2017, subject to the following: -

a) The Recurrent Related Party Transactions are undertaken in the ordinary course of business which are necessary for the day-to-day operations on arm’s length basis, on normal commercial terms which are not more favourable to the related party than those generally available to the public and are not detrimental to the minority shareholders of the Company; and

b) Disclosure is made in the annual report of the breakdown of the aggregate value of transactions conducted during the financial year.

That such approval shall continue in force until: -

a) The conclusion of the next Annual General Meeting (“AGM”) of the Company in 2018 following this AGM at which the Proposed Shareholders’ Mandate is passed, at which time it will lapse unless the authority is renewed by a resolution passed at the next AGM of the Company in 2018;

b) The expiration of the period within which the next AGM of the Company in 2018 is required to be held pursuant to Section340(1) of the Companies Act 2016 (“Act”) (but shall not extend to such extension as may be allowed pursuant to Section340(4) of the Act; or

c) It is revoked or varied by resolution passed by shareholders of the Company in a general meeting.

whichever is the earliest;

AND THAT the Directors of the Company be authorised to complete and do all such acts and things (including executing all such documents as may be required) as they may consider expedient or necessary to give effect to the Proposed Renewal of Shareholders’ Mandate”.


7. To transact any other business of which due notice shall have been given in accordance with the Companies Act, 2016.

By Order of the BoardLIM SECK WAH (MAICSA NO. 0799845)M. CHANDRANSEGARAN A/L S. MURUGASU (MAICSA NO. 0781031)Company Secretaries

Dated: 28 April 2017Kuala Lumpur


138


138

NOTICE OF ANNUAL GENERAL MEETINGCONT’D

Notes: -

A. This Agenda item is meant for discussion only as the provision of Section 251(1)(a) of the Companies Act 2016 do not require a formal approval of the shareholders and hence, is not put forward for voting.

1. For the purpose of determining a member who shall be entitled to attend and vote at the Annual General Meeting, the Company shall be requesting the Record of Depositors as at 8 June 2017. Only a depositor whose name appears on the Record of Depositors as at 8 June 2017 shall be entitled to attend the said meeting or appoint proxies to attend, speak and vote on his/her stead.

2. A member entitled to attend and vote at the meeting is entitled to appoint up to two proxies. A proxy may but need not be a member of the Company. Where a member appoints two (2) proxies to attend and vote at the meeting, the appointment shall be invalid unless he specifies the proportion of his shareholdings to be represented by each proxy.

3. Where a member of the Company is an authorised nominee as defined under the Securities Industry (Central Depositories) Act, 1991 (“SICDA”), it may appoint at least one (1) proxy but not more than two (2) proxies in respect of each securities account it holds which is credited with ordinary shares of the Company. The appointment of two (2) proxies in respect of any particular securities account shall be invalid unless the authorised nominee specifies the proportion of its shareholding to be represented by each proxy.

4. Where a member of the Company is an exempt authorised nominee (“EAN”) as defined under the SICDA 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 EAN may appoint in respect of each omnibus account it holds. EAN is advised to list down the names of proxies and the particulars of their NRIC (both new and old) and attach it to the Form of Proxy.

5. The instrument appointing a proxy shall be in writing under the hand of the appointer or his attorney duly authorised in writing or if the appointer is a corporation, either under its common seal or under the hand of an attorney duly authorised.

6. The instrument appointing a proxy and the power of attorney or other attorney (if any), under which it is signed or notarially certified copy thereof, shall be deposited at the Registered Office of the Company at Level 15-2, Bangunan Faber Imperial Court, Jalan Sultan Ismail, 50250 Kuala Lumpur not less than forty-eight (48) hours before the time set for holding the Meeting or any adjournment thereof.

7. Explanatory Notes To Special Business

7.1 Ordinary Resolution 8 (Agenda 5)

The proposed Resolution 8 is to seek a renewal of mandate given by the shareholders. The resolution if duly passed, is primarily to give authority to the Board of Directors to issue and allot shares at any time in their absolute discretion and for such purposes as they consider would be in the interest of the Company without convening a general meeting. This authority, unless revoked or varied at a general meeting, will expire at the conclusion of the next AGM of the Company.

The Company continues to consider opportunities to broaden its earnings potential. If any of the expansion/ diversification proposals involves the allotment of new shares, the Directors, under certain circumstance when the opportunity arises, would have to convene a general meeting to approve the allotment of new shares even though the number involved may be less than 10% of the issued capital.

In order to avoid any delay and costs involved in convening a general meeting to approve such issue of shares, it is thus considered appropriate that the Directors be empowered to allot shares in the Company, up to any amount not exceeding in total 10% of the issued share capital of the Company for the time being, for such purposes. The new authority for allotment of shares will provide flexibility to the Company for the allotment of shares for the purpose of funding future investment, working capital and/or acquisitions.

As at the date of this Notice, 348,269,000 new ordinary shares in the Company were issued by way of Private Placement to identified investors pursuant to Section75(1) of the Companies Act 2016 which is equivalent to 9.9% of the Company’s issued share capital threat. Total proceeds raised from the Private Placement exercise was RM48,757,660.

The details of utilization of the proceeds from the Private Placement exercise are disclosed on page 41 of this Annual Report.

7.2 Ordinary Resolution 9 (Agenda 6)

Details of the Recurrent Related Party Transactions under the Proposed Renewal of Shareholders’ Mandate are set out in the Circular to Shareholders dated 28 April 2017.

(Before completing this form please refer to the notes below)

I/We I/C No./Co. No./CDS A/C No. (Full name in block letters)

of (Full address)

being a member/members of SUMATEC RESOURCES BERHAD hereby appoint the following person(s): -

Name of proxy, NRIC No. & Address No. of shares or % of shares to be represented by proxy

1.

2.

or failing him/her, the Chairman of the Meeting as my/our proxy to vote for me/us on my/our behalf at the Twentieth Annual General Meeting of the Company to be held at Shah Alam 2 (Ground Floor), Shah Alam Convention Centre, No 4, Jalan Perbadanan 14/9, 40000 Shah Alam, Selangor on Thursday, 15 June 2017 at 11.00 a.m. My/our proxy/proxies is to vote as indicated below: -

FIRST PROXY SECOND PROXY

FOR AGAINST FOR AGAINST

ORDINARY BUSINESS

ORDINARY RESOLUTION

1. To re-elect Encik Abu Talib bin Abdul Rahman

2. To re-elect Mr Liew Boon Keat

3. To re-elect Encik Mahusni bin Hasnan

4. To re-elect Encik Wan Kamaruddin bin Dato’ Biji Sura @ Wan Abdullah

5. To re-elect Encik Mohamad bin Ismail

6. To approve Directors’ Fees and Allowances

7. To re-appoint the retiring auditors, SJ Grant Thornton

SPECIAL BUSINESS

ORDINARY RESOLUTION

8. Authority to Issue Shares

9. Proposed Renewal of Existing Shareholders’ Mandate for Recurrent Related Party Transaction(s) of a Revenue or Trading Nature

(Please indicate with a “√” or “X” in the space provided how you wish your vote to be cast. If no instruction as to voting is given, the proxy will vote or abstain from voting at his/her discretion).

Dated this day of 2017 Signature/Common Seal

No. of ordinary shares held(Company No: 428355 D)(Incorporated in Malaysia)

PROXY FORM

Notes: -

1. For the purpose of determining a member who shall be entitled to attend and vote at the Annual General Meeting, the Company shall be requesting the Record of Depositors as at 8 June 2017. Only a depositor whose name appears on the Record of Depositors as at 8 June 2017 shall be entitled to attend the said meeting or appoint proxies to attend, speak and vote on his/her stead.

2. A member entitled to attend and vote at the meeting is entitled to appoint up to two proxies. A proxy may but need not a member of the Company. Where a member appoints two (2) proxies to attend and vote at the meeting, the appointment shall be invalid unless he specifies the proportion of his shareholdings to be represented by each proxy.

3. Where a member of the Company is an authorised nominee as defined under the Securities Industry (Central Depositories) Act, 1991(“SICDA”), it may appoint at least one (1) proxy but not more than two (2) proxies in respect of each securities account it holds which is credited with ordinary shares of the Company. The appointment of two (2) proxies in respect of any particular securities account shall be invalid unless the authorised nominee specifies the proportion of its shareholding to be represented by each proxy.

4. Where a member of the Company is an exempt authorised nominee (“EAN”) as defined under the SICDA 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 EAN may appoint in respect of each omnibus account it holds. EAN is advised to list down the names of proxies and the particulars of their NRIC (both new and old) and attach it to this Form of Proxy.

5. The instrument appointing a proxy shall be in writing under the hand of the appointer or his attorney duly authorised in writing or if the appointer is a corporation, either under its common seal or under the hand of an attorney duly authorised.

6. The instrument appointing the proxy and the power of attorney or other authority (if any) under which it is signed or notarially certified copy thereof, shall be deposited at the Registered Office of the Company at Level 15-2, Bangunan Faber Imperial Court, Jalan Sultan Ismail, 50250 Kuala Lumpur not less than forty-eight (48) hours before the time set for holding the meeting or any adjournment thereof.

The Company SecretarySUMATEC RESOURCES BERHAD (428355-D)Level 15-2, Bangunan Faber Imperial Court Jalan Sultan Ismail 50250 Kuala Lumpur Kuala Lumpur

AFFIXSTAMPHERE

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SUM

ATEC R

ESOU

RC

ES BERH

AD (428355-D

) | ANN

UAL REPO

RT 2016


ANNUAL REPORT 2016

www.sumatec.com


Level 15-2Bangunan Faber Imperial CourtJalan Sultan Ismail50250 Kuala Lumpur, MalaysiaTel : 603-2692 4271Fax : 603-2732 5388

Documents

SUMATEC RESOURCES BERHAD - Fundamental Analysis - AR 2016 (b).pdf · SUMATEC RESOURCES BERHAD (428355-D) A L REPORT 2016 SUMATEC RESOURCES BERHAD (428355-D) Level 15-2 Bangunan Faber