Vision Peti Surat 9150, Pejabat Pos Kelana Jaya 46785 Petaling Jaya Tel : 03-7849 0777 Fax : 03-03...

VisionTo be a world class corporation providing excellent engineering and construction services.

MissionWe will deliver excellent engineering and construction services which meet our customers’

requirements through good corporate governance practices and superior technologies. We

also strive to have an efficient, dedicated and trained workforce to serve our customers.

Menara Zecon

Performance Review

Financial Highlights ............................................ 04

Corporate ProfileCorporate Information ........................................ 06

Corporate Structure ............................................ 07

Chairman’s Statement ........................................ 08

Group Managing Director’s Review ....................... 10

Profile of Directors .............................................. 12

Corporate Governance ................................. 17

Corporate Governance Statement ....................... 18

Statement of Directors’ Responsibility ................ 21

Statement on Internal Control ............................ 23

Audit Committee Report ...................................... 24

Additional Compliance Information ..................... 27

Corporate Social Responsibility ......................... 28

Triang Water Transfer Project Package 5 - Construction of Dam

Directors’ Report & Audited

Financial Statements ................................... 29

Analysis of Shareholdings .................................. 105

Analysis of Warrant Holdings .............................. 108

List of Properties ................................................. 110

Notice of Annual General Meeting ...................... 112

Statement Accompanying Notice of

Annual General Meeting ...................................... 115

Proxy Form

Zecon Berhad Annual Report 2010

4

79

45

143

170

157

0

07 08 09 1006

5010

015

020

025

030

0

Rev

enue

RM

’mill

ion

07 08 09 1006

11.5

3.7

0.9 1.45

4.9

02

46

810

12

Earn

ing

Per

Shar

eSe

n

10.1

1.3

7.3

4.8

6.4

07 08 09 1006

810

120

24

6

Profi

t B

efor

e Ta

xR

M’m

illio

n

Financial Highlights 2010

Construction

Property Development Toll Concession


5

07 08 09 1006

200

172

173

179

155

158

Shar

ehol

ders

’ Equ

ity

RM

’mill

ion

150

100

500

07 08 09 1006

421

415

495

43347

8

Tota

l Ass

ets

RM

’mill

ion

020

010

030

040

050

0

07 08 09 1006

2.0

1.76

1.44 1.45 1.

50

1.32

Net

Ass

et P

er S

hare

RM

1.5

1.0

0.5

0.0

Water Infrastructure

Infrastructure


6

Corporate Information

Board of Directors Tan Sri Datuk Amar (Dr.) Tommy Bin Bugo @ Hamid Bin Bugo Independent Non-Executive Chairman

Datuk Dr. Haji Yusof @ Josree bin Haji YacobDeputy Independent Non-Executive Chairman

Datuk Haji Zainal Abidin bin Haji AhmadGroup Managing Director

Haji Zainurin bin Haji AhmadDeputy Managing Director

Poh Lik Gan @ Poh Li ThongIndependent and Non-Executive Director

Dato’ Haji Hamzah bin Haji GhazalliIndependent and Non-Executive Director

Dato’ Abdul Majit bin Ahmad KhanIndependent and Non-Executive Director

Richard Kiew Jiat Fong Independent and Non-Executive Director

Datuk Haji Bolhassan bin Haji Di @ Ahmad bin DiNon Independent and Non-Executive Director

Audit CommitteePoh Lik Gan @ Poh Li Thong (Chairman) Dato’ Haji Hamzah bin Haji GhazalliRichard Kiew Jiat Fong

Risk Management CommitteeTan Sri Datuk Amar (Dr.) Tommy Bin Bugo @ Hamid Bin Bugo (Chairman)Haji Zainurin bin Haji Ahmad Haji Abg Azahari bin Abg OsmanHaji Saini bin Haji AliJamil bin JamaludinRayan ak NarongBrandon Goh Mun Han

Remuneration & Nomination CommitteeDatuk Dr. Haji Yusof @ Josree bin Haji Yacob (Chairman)Poh Lik Gan @ Poh Li Thong Dato’ Haji Hamzah bin Haji Ghazalli

Company SecretariesKoh Fee Lee (MAICSA 7019845)Lim Poh Yen (MAICSA 7009745)

AuditorsMessrs Ernst & YoungRoom 300-303, 3rd FloorWisma Bukit Mata KuchingJalan Tunku Abdul Rahman93100 Kuching, Sarawak.

Tel : 082-243233 Fax : 082-421287

Share RegistrarSymphony Share Registrars Sdn Bhd (378993-D)Level 6, Symphony HousePusat Dagangan Dana 1, Jalan PJU 1A/4647301 Petaling Jaya, Selangor Darul EhsanPeti Surat 9150, Pejabat Pos Kelana Jaya46785 Petaling Jaya Tel : 03-7849 0777 Fax : 03-03 7841 8151/8152

Principal BankerMalaysia Building Society BerhadBank Muamalat Malaysia Berhad KAF Investment Bank BerhadAffin Investment Bank BerhadAmBank (M) BerhadEON Bank BerhadPublic Bank BerhadRHB Bank BerhadHSBC Malaysia BerhadMalayan Banking Berhad

SolicitorsReddi & Co. AdvocatesAzmi & AssociatesC.J. Eng AdvocatesHisham, Sobri & KadirMary Bolhassan, Noreda Ahmad & CoTang & Tang, Wahap & Ngumbang Advocates

Stock Exchange ListingBursa Malaysia Securities Berhad, Main MarketStock Code : 7028Stock Name : ZECON

Registered Office8th Floor, Menara Zecon No. 92, Lot 393, Section 5 KTLDJalan Satok93400 Kuching, Sarawak.Tel : 082-275555 Fax : 082-275500E-mail: [email protected]: www.zecon.com.my

Branch OfficeSuite 2A-11-2, Level 11,Block 2A, Plaza Sentral, Jalan Stesen Sentral 5,KL Sentral,50470 Kuala Lumpur.

Tel : 03-22723118 Fax : 03-22743656E-mail: [email protected]


7

Corporate Structure

ZECON BERHAD100% Zecon Toll Concessionaire Sdn Bhd

100% Zecon Geotechnical Services Sdn Bhd

100% Zecon Mutiara Sdn Bhd

100% Zecon Land Sdn Bhd

100% Zecon Australia Pty Ltd

100% Zecon Piling Sdn Bhd

100% Zecon International Limited

100% Zecon Water Corporation Sdn Bhd

100% Zecon Construction (Sarawak) Sdn Bhd

100% Matang Highway Sdn Bhd

100% Zecon Designtech Sdn Bhd

100% Zecon MidEast Limited

100% Zecon (Saudi Arabia) International Limited

100% Zecon Assets Sdn Bhd 100% Demak Concessionaires Sdn Bhd

96% Zecon Resources Sdn Bhd

70% Zecon Dredging Sdn Bhd

55% Teknik PS Sdn Bhd

51% Zecon Construction Sdn Bhd

51% Zecon Fab Sdn Bhd

51% Zecon Energy Sdn Bhd

35% L.C.S. Trading Co. Sdn Bhd

25.48% Halifax Capital Berhad

100% Agrowell Quarry Sdn Bhd

70% Zecon Demak Jaya Sdn Bhd51% Zecon Petra Jaya Sdn Bhd

100% IR Concept (M) Sdn Bhd100% ZPM Satu Sdn Bhd100% Zalpoint Tanah Putih Sdn Bhd

50.1% Sarmax Sdn Bhd

100% TPS Medicare Sdn Bhd

60% Zecon Well Services Sdn Bhd

Subsidiary Companies

Associate Companies

Chairman’s Statement

“The Group remains vigilant in its outlook for the financial year 2011, riding on the expected improved economic environment of Malaysia in general and Sarawak in particular.”

Tan Sri Datuk Amar (Dr.) Tommy Bin Bugo @ Hamid Bin Bugo

8

Dear Shareholders,

On Behalf of The Board of Directors of Zecon Berhad, I am pleased to report on the perfomance of the group for the year ended 31 December 2010

BUSINESS ENVIRONMENTMalaysia’s economy registered a total growth of 7.2% in 2010 and this economic recovery, starting from late 2009 is expected to continue until late 2011 amidst uncertainty across the different regions. The government’s introduction of various stimulus packages has been fruitful in boosting the domestic economy while the advent of the Government’s Transformation Plans will spearhead Malaysia into becoming a high income economy in the near future.

Sarawak’s economy grew at 5.4 % in 2010 and is expected to see commendable growth in the years to come. The Sarawak Corridor of Renewal Energy (SCORE) will act as a catalyst for growth in the Sarawak economy that would not only benefit the public at large but also instrumental for the future of the construction industry within the state. Zecon, however, will continue to tread cautiously in the next few years amidst this expected economic renewal within the Malaysian context.

GROUP’S PERFORMANCEFor the year under review, the Group achieved a revenue of RM172.98 million, an increase of 21% from the previous year’s revenue of RM142.57 million. Profit before tax increased by 45.0% to RM6.97 million from RM4.8 million a year ago, whilst the Group’s net profit for the financial year dropped from RM5.99 million in 2009 to RM1.72 million in 2010 mainly due to income tax expense of RM2.8 million associated to the sale of land transacted during the year.

The Group has adopted FRS 139 on 1st January 2010 in accordance with the transitional provisions. In adopting this, significant impairment losses of RM5.90 million have been recognized during the year.

The Construction Division accounted for RM139.19 million or 80% of the Group’s revenue for the year and the Property Division posted RM22.03 Million or 13% while the Toll Operations contributed 13% or RM11.06 million to the Group’s revenue.

The Construction Division recorded a slight increase in revenue from RM131.78 million in 2009 to RM139.19 million this year mainly due to the continuous progress and completion of various contract works during the year. The Group’s Property Division registered a vastly improved performance as it chalked revenue of RM22.03 million as compared to RM0.34 million in the previous year due to land and property sales in 2010.

The Toll operations posted an increase of about 8% or RM0.77 million in turnover from RM11.06 million in 2010 as compared to RM10.28 million in 2009. The increase was largely due to the increase in traffic volume, i.e. number of vehicles using the toll.

Our Group Managing Director’s Review of Operations, covered on pages 10 to 11, provides a more in-depth assessment of the performance for the Financial Year 2010.

BUSINESS OUTLOOK AND PROSPECTS FOR 2011The Malaysian economy in 2011 is expected to see stronger expansion of domestic demands from private consumption and investment due to the supportive government policy measures being introduced under the current leadership and is expected to grow by 5-6%. Barring unforeseen circumstances, the Construction Division’s performance is expected to improve as most of the current projects are starting to hit its high progress periods during its construction stages and order book replenishment prospects remain encouraging with our active participations in tenders and submission of project proposals to the relevant parties.

The Construction Division shall focus on completing the Matang Revised Route Project in 2011, the remaining package 5 of the Sungai Triang Water Transfer Project in Negeri Sembilan, the Faculty of Medical and Health Science at Universiti Malaysia Sarawak (UNIMAS), and the Kapit Water Treatment Plant in 2012. We also anticipate that the timely completion of the constructions of facilities in the oil & Gas sector such as the Bintulu Compressor Station in Bintulu and the Auto Blast and Priming Workshop at Pasir Gudang Johore, that are progressing now, would provide a good yardstick for our continued involvement in this new sector in future.

The Property Division’s turnover is expected to generate better results in the coming year due to the completion of the residential and commercial properties and the physical commencement of the new phases of development at Vista Tunku, Kuching.

The Toll Division is expected to continue to provide steady revenue streams from its Tun Salahuddin Bridge Toll based on the positive indicators in terms of the potential new development of several residential, commercial, government offices projects and new roads providing access from new areas that are expected to be completed within the year.

The Group, nonetheless, remains vigilant in its outlook for the financial year 2011 in view of current global uncertainties both politically and economically. Nonetheless, riding on the expected improved economic environment of Malaysia in general and Sarawak in particular and also, as part of its strategic plan, Zecon will continue to focus its resources and expertise in pursuing its growth domestically while continuously planning and reviewing its resources for new opportunities both locally and abroad. CORPORATE GOVERNANCEZecon’s recognizes the importance of good corporate governance as it is crucial to ensure business continuity and success of the group, thus able to sustain and enhance stakeholder value in the long run. The restructuring at the Board level in August 2010 resulting in only two Board members holding executive positions reflects our commitment to ensure that good corporate governance is observed and practiced within the Group. Our Corporate Governance Statement can be found on pages 18 to 22.

RELATED PARTY TRANSACTIONSThe related party transactions of the Group for 2010, although insignificant, are disclosed in Note 36 to the Financial Statements. This note also sets out the recurrent transactions conducted during the period in accordance with the general mandate obtained from shareholders at the Annual General Meeting held on 23 June 2010. Except for those disclosed in Note 36 to the Financial Statements, there were no material contracts of the Group involving Directors’ and major shareholders’ interest during the period.

CORPORATE SOCIAL RESPONSIBILITYZecon’s emphasis on its Corporate Social Responsibility (CSR) reflects its belief that economic success must be accompanied by equitable contribution to the society at large.

Zecon started to sponsor rewards for academic and sports excellence since 2003. Although the sponsorship amount is small, the objectives of such awards exemplify our desires to see good performance and excellence in sports and education being recognized and rewarded. On this note, Zecon will continue to provide sponsorship to reward outstanding students from the Faculties of Engineering from University Malaysia Sarawak and Curtin University of Technology, Miri in the years to come. Sponsoring of Malaysia’s top squash player, Mohd Azlan Iskandar would continue with our desire to see Azlan’s achieving his ultimate goal.

The Group is also committed in providing for a safer workplace through increased awareness of good safety and environmental practices and training of employees to ensure work are being discharged in an ethical, environmentally responsible, safe and healthy manner. The welfare of our staff is also of paramount importance to us in achieving our objectives as a listed entity.

ACKNOWLEDGEMENT The Board and I would like to record our sincere appreciation and gratitude to Datu Dr Hatta Solhi, who relinquished his position as the Chairman of the company since 2002 to take up the chairmanship of University Malaysia Sarawak in 2010 for his leadership, guidance and invaluable services to the Group. Our special appreciation also to our previous Executive Directors, namely, Mr Hui Kok Yuan, Tuan Hj Abg Azahari Osman, Tuan Hj Saini Hj Ali, Jamil Hj Jamaludin and Mr Ng Weng Fatt, who resigned from the Board but was redesignated as Vice Presidents of the company’s various operating divisions effective August 2010.

On behalf of the Board, I would like to welcome Datuk Hj Bolhassan bin Hj Di to the Board and look forward to his positive contribution to the Group. My sincere appreciation to fellow Directors, management and all employees of the Group for their dedication, resourcefulness, commitment and contribution to the Group over what has been a very challenging year for us. I would also like to take this opportunity to thank all those who have contributed one way or the other to the Group particularly, our shareholders, relevant authorities, associates, clients, bankers, subcontractors and suppliers for their support to the Group. Zecon values and looks forward to this continued relationship as we progress towards achieving our objectives in the years ahead.

Last but not least, I look forward to lead the group in facing the challenges ahead.

Tan Sri Datuk Amar (Dr.) Tommy Bin Bugo @ Hamid Bin BugoDate: 24.5.2011

9

Group Managing Director’s Review

Zecon Group’s projects in hand of above RM370 millions

provide significant momentum and when this is coupled

with a solid transformation plan to improve cash flow and

to strengthen human capital, the prospects of the years to

come looks bright. The reformation of Board of Directors

during the year under review saw among other changes, the

appointment of Tan Sri Datuk Amar (Dr) Hamid Bin Bugo

as the new Chairman, we believe with his vast experience

in various corporate sectors and industries will enhance

the Board’s independence and propel the Group to better

profitability and greater shareholders’ returns in years to

come.

Operational review

Focus for the past couple of years had been on gaining

healthy progress and delivery of projects in hand, this pattern

continued in 2010 with resources being channelled to these

projects. We saw Triang Water Transfer project Package 1

(construction of 12.5km TBM transfer tunnel) & Package

2 (Construction of Petasek Intake Pumping Station) both

approaching 100% completion as scheduled during the year.

A historical “punch-through” for this TBM tunnel – longest in

Malaysia was successfully completed in 3 June 2010, marking

another important page in Zecon’s illustrative records and

demonstrates the Group’s trustworthiness and capability as a

multi-disciplined contractor.

As at the end of 2010, the physical completion for the RM132

million Dam project under Triang Water Transfer project

Package 5 was 42% and the RM182 million UNIMAS’ Faculty

of Medicine and Health Science & Institute of Community

Medicine reached 15%.

In 2010, Zecon Group was awarded two new projects

with a total contract sum of RM60 millions; RM32 million

Compressor Station in Bintulu and RM28 million water

treatment plant in Kapit, both in the State of Sarawak.

Toll operations continue to contribute significantly to the

Group’s revenue. In 2010, total Zecon Toll operations

collected an impressive RM11.06 million which represents

8% increase as compared to 2009. Average daily collection

is RM30,380 with volume of approximately 24,439 both the

highest since toll collection commenced in October 2003.

All these were achieved without increasing the toll rates

which has remained unchanged since 2003. In fact, with

costs of living now more expensive than before, Zecon Toll’s

prepaid toll cards offer free add-on values for all reload which

is effectively 13.3% cheaper than the concessional rates.

Looking back and looking forward

I have begun my 10th year as Group Managing Director for

Zecon, I have experienced humbling periods over challenging

times but I have also tasted many proud moments in the past

decade. I am more resilient. My short term aim has always

been to make Zecon Group more competitive and to sustain

this advantage. Long term, I want to see Zecon Group as a

top contractor, developer and concessionaire in Malaysia and

I am always ambitious to bring Zecon to international level.

I am proud to see that our team rolled up their sleeves to

ensure that we came out from volatile times recently to a

stronger company. Looking forward, my desire has never been

greater, despite concerns over the recessionary developments

in the global environment, I believe the strength of our core

businesses have continued to sustain and the Group’s long

term thinking will continue to focus on growth and to deliver

high quality products and services to our clients.

I take this opportunity to thank all our stakeholders. I strongly

believe that Zecon is the company to be invested in as Zecon’s

best days are ahead.

Datuk Haji Zainal Abidin Bin Haji AhmadDate: 24.5.2011

10

“Focus for the past couple of years had been on gaining healthy progress and delivery of projects in hand, this pattern continued in 2010 with resources being channelled to these projects.”

Datuk Haji Zainal Abidin Bin Haji Ahmad

11


12

Tan Sri Datuk Amar (Dr.) Tommy Bin Bugo @ Hamid Bin BugoAge : 66Nationality : MalaysianQualification : • B.A. (Economics) M.A. (Economics) University of Canterbury, New Zealand • Diploma in Teaching, Christchurch Teacher’s College, New Zealand • Business Studies, Harvard Institute of Development Studies, Boston, U.S.A.Position held : Independent Non-Executive ChairmanWorking experience & occupation : Tan Sri Hamid was appointed to the Board of Directors of the Company on 02

August 2010. He has served in the public sector, holding various distinguished positions until his appointment as State Secretary of Sarawak in 1991. Tan Sri Datuk Amar retired in year 2000, and since then has been appointed as Chairman and Director of several esteemed organisations. He is the Chairman of Yayasan Kemajuan Insan (YAKIN), a board member of Lembaga Amanah Kebajikan Masjid Sarawak and Chairman of State Library Sarawak. Besides, he is a council member of the Institute of Integrity Malaysia and also a member of the Malaysian Anti Corruption Commission Advisory Committee.

Details of any board committee to : Chairman of Risk Management Committeewhich he belongs Other directorships in public companies : • Sarawak Consolidated Industries Berhad • Permodalan Sarawak Berhad • SapuraCrest Petroleum Berhad • Sapura Resources Berhad • Superlon Holdings Berhad • Sime Darby BerhadSecurities holdings in the Company and :its subsidiaries

Relationship with directors : NoneRelationship with substantial shareholders : NoneConflict of interest : NoneList of convictions for offences within the : Nonepast 10 years other than traffic offencesNo. of board meetings attended in the : 2/2financial year

Datuk Dr. Haji Yusof @ Josree bin Haji Yacob Age : 55Nationality : MalaysianQualification : • Degree in Doctorate (MD), UKM-1981 • Master of Science in Public Health (MSc PH), NUS (Singapore) -1985Position held : Deputy Independent Non-Executive ChairmanWorking experience & occupation : Datuk Yusof was appointed to the Board of Directors of the Company on 09

June 2008. He started his career in 1981 by joining Kuala Lumpur General Hospital as Medical Officer. He was in medical field for nine (9) years until he joined political sector in 1990. During his political arena, he held various positions within the UMNO Division Sabah. He was the Member of Parliament of Sipitang, Sabah and Dewan Rakyat Deputy Speaker till February 2008. He was the Chairman of Saham Sabah Berhad and Sedcovest Holdings Sdn Bhd till 2004. Besides, he was also appointed to the Board of other private limited companies and charitable organizations. He is currently sitting in the Board of Sutera Harbour Golf and Country Club Berhad.

Details of any board committee to : Chairman of Remuneration & Nomination Committeewhich he belongsOther directorships in public companies : NoneSecurities holdings in the Company : None and its subsidiariesRelationship with directors : None Relationship with substantial shareholders : NoneConflict of interest : NoneList of convictions for offences within the : Nonepast 10 years other than traffic offencesNo. of board meetings attended in the : 3/4financial year

Name Direct

No. ofshares

2,400,000Zecon Berhad

No. ofshares

-

%

2.00

%

-

Indirect

Profile of Directors


13

Datuk Haji Zainal Abidin bin Haji AhmadAge : 53Nationality : MalaysianQualification : • Master of Arts degree in Management from the University of Kent at

Canterbury, England. • University Diploma in Accounting from the University of Kent at

Canterbury, England. • Bachelor of Arts from University Kebangsaan Malaysia.Position held : Group Managing DirectorWorking experience & occupation : Datuk Zainal was appointed to the Board of Zecon on 28 July 1994 as

Director and subsequently as Executive Chairman on 30 November 1996. On 24 April 2001, he was appointed the Group Managing Director/Chief Executive Officer. He started his career by joining the Sarawak Civil Service in 1981 until he move to private sector in 1987. Under his leadership, ZECON Group has undertaken dynamic diversification recent years and has even positioned itself for international ventures.

Details of any board committee to : Nonewhich he belongsOther directorships in public companies : Sarawak Consolidated Industries Berhad Securities holdings in the Company : and its subsidiaries

Relationship with directors : Brother to Haji Zainurin bin Haji Ahmad Relationship with substantial shareholders : Director and major shareholder of Dawla Capital Sdn Bhd Conflict of interest : No conflict of interest apart for the related party transactions, which have

been disclosed in the Notes to the Accounts.List of convictions for offences within the : Nonepast 10 years other than traffic offencesNo. of board meetings attended in : 4/4the financial year

Haji Zainurin bin Haji AhmadAge : 50Nationality : MalaysianQualification : • Master of Commerce Degree in Business Administration from

University of Canterbury, Christchurch, New Zealand. : • B Sc. in Business Administration from Indiana Institute of Technology,

Indiana, USA. • Diploma in Business Studies from Universiti Teknologi MARA.Position held : Deputy Managing DirectorWorking experience & occupation : Haji Zainurin was appointed to the Board on 12 June 1998. He

enjoyed 13-year tenure in finance and commercial sectors. He was the General Manager of Advance Finance Berhad (now known as Advance Establishment Berhad), Kuching prior to joining Zecon in 16 April 1999 as Executive Director. He was re-designated as Deputy Managing Director of Zecon on 01 June 2008.

Details of any board committee to : • Member of Risk Management Committeewhich he belongs Other directorships in public companies : Halifax Capital BerhadSecurities holdings in the Company :and its subsidiaries

Name Direct Indirect

No. ofshares

3,655,20030,00034,000

49

Zecon BerhadSarmax Sdn BhdTeknik PS Sdn BhdZecon Construction

Sdn Bhd

No. ofshares

65,689,475---

%

3.0730.014.249.0

%

55.15---

Name Direct

No. ofshares

525,000Zecon Berhad

No. ofshares

-

%

0.44

%

-

Indirect



14

Relationship with directors : Brother to Datuk Haji Zainal Abidin bin Haji Ahmad Relationship with substantial shareholders : NoneConflict of interest : No conflict of interest apart for the related party transactions, which have

been disclosed in the Notes to the Accounts.List of convictions for offences within : Nonethe past 10 years other than traffic offences No. of board meetings attended in : 4/4the financial year

Poh Lik Gan @ Poh Li ThongAge : 66Nationality : MalaysianQualification : • B.Sc in Quantity Surveying from Reading University, London in 1969. • Diploma in Quantity Surveying from College Of Estate Management,

London in 1968. • Fellow of the Royal Institution of Chartered Surveyors. • Fellow of The Institution of Surveyors Malaysia. Position held : Independent Non-Executive DirectorWorking experience & occupation : Appointed to the Board of Directors of the Company on 25 October

2004. He began his career as an Assistant Quantity Surveyor with Philip Pank & Partners (“PP&P”), London in 1968. From 1969 to 1973, he was with Jabatan Kerja Raya, Sarawak in Kuching Division. Subsequently, he started Contract Services Consultants and retired in 1988 as a Senior Partner. He is currently the Project Director of Jurudaya Construction Sdn Bhd, a post which he held since 1989.

Details of any board committee to : • Chairman of Audit Committeewhich he belongs • Member of Remuneration & Nomination CommitteeOther directorships in public companies : NoneSecurities holdings in the Company :and its subsidiaries

Relationship with directors : None Relationship with substantial shareholders : NoneConflict of interest : NoneList of convictions for offences within the : Nonepast 10 years other than traffic offencesNo. of board meetings attended in : 3/4the financial year

Dato’ Haji Hamzah bin Haji GhazalliAge : 62Nationality : MalaysianQualification : • Master Degree of Arts in International Affair (Management) from

University of Ohio, United States. • B.A. Hons from Universiti of Malaya.Position held : Independent Non-Executive DirectorWorking experience & occupation : Appointed to the Board of Directors of the Company on 26 February

2007. He was an Administrative and Diplomatic Services Officer and had served the Government of Malaysia for more than 32 years. He started his career with the Government of Malaysia in April 1973 and retired in April 2005. Prior to his retirement, he was the State Secretary of Negeri Sembilan.

Details of any board committee to : • Member of Audit Committeewhich he belongs • Member of Remuneration & Nomination CommitteeOther directorships in public companies : NoneSecurities holdings in the Company : Noneand its subsidiaries Relationship with directors : None

Name Direct

No. ofshares

40,000Zecon Berhad

No. ofshares

-

%

0.04

%

-

Indirect



15

Relationship with substantial shareholders : NoneConflict of interest : NoneList of convictions for offences within the : Nonepast 10 years other than traffic offencesNo. of board meetings attended in : 3/4the financial year

Dato’ Abdul Majit Bin Ahmad Khan Age : 65Nationality : MalaysianQualification : • Bachelor of Economics (Hons) from University of MalayaPosition held : Independent Non-Executive DirectorWorking experience & occupation : Appointed to the Board of Directors of the Company on 16 May 2007.

He had served in the Prime Minister’s Department and the Ministry of Foreign Affairs as well as in several mission abroad and senior position in the Ministry of Foreign Affairs for thirty-four years. He also act as the Under Secretary of West Asia and the OIC and has participated in several Ministerial and Prime Ministerial visits to West Asian Countries and OIC Meetings. He was also a Director General of ASEAN and he actively participated in the organization of the 30th ASEAN Ministerial Meeting held in Kuala Lumpur as well as the ASEAN Head of Summit and the 10+3 Summit Meetings in Malaysia. In 1998, he was appointed as the Ambassador of Malaysia to the People’s Republic of China and concurrently accredited to the Democratic People’s Republic of Korea until his retirement on 2 January 2005. He is currently the President of the Malaysia-China Friendship Association (PPMC), Exco Member of the Malaysia-China Business Council.

Details of any board committee to : Nonewhich he belongsOther directorships in public companies : • Hong Leong Islamic Bank • HL Asset Management Berhad (formerly known as HLG Unit

Trust Berhad) • OSK Investment Bank Berhad • OSK Holdings BerhadSecurities holdings in the Company and : Noneits subsidiaries Relationship with directors : None Relationship with substantial shareholders : NoneConflict of interest : NoneList of convictions for offences within the : Nonepast 10 years other than traffic offencesNo. of board meetings attended in : 4/4the financial year

Richard Kiew Jiat Fong Age : 57Nationality : MalaysianQualification : Richard is a fellow member of: • The Institute of Chartered Accountants in England and Wales; • The Association of Chartered Certified Accountants, United Kingdom;

and • The Institute of Certified Public Accountants of Singapore. • He is also a member of Malaysian Institute Accountants.Position held : Independent Non-Executive DirectorWorking experience & occupation : Richard Kiew was appointed to the Board of Directors of the Company

on 01 June 2008. He has seven years working experience in England with firms of Chartered Accountants. When he came back to Malaysia, he worked as an audit manager for four years before started his own audit firm in 1986 as a sole practitioner.

Details of any board committee to : • Member of the Audit Committeewhich he belongsOther directorships in public companies : Sarawak Consolidated Industries Berhad



16

Securities holdings in the Company :and its subsidiaries

Relationship with directors : None Relationship with substantial shareholders : NoneConflict of interest : NoneList of convictions for offences within : Nonethe past 10 years other than traffic offencesNo. of board meetings attended in : 4/4the financial year

Datuk Haji Bolhassan bin Haji Di @ Ahmad bin Di Age : 58Nationality : MalaysianQualification : • B. Eng, University of Sheffield, The United Kingdom.Position held : Non Independent & Non ExecutiveWorking experience & occupation : Datuk Bolhassan was appointed to the Board of Directors of the Company

on 02 August 2010. He began his career as an Engineer with Sarawak Shell Berhad in 1979. In 1978, he was appointed Chairman to Miri Port Authority & Kuching Port Authority, a post which he held until 1997. In 1998, he was appointed the Assistant Minister in the Chief Ministers Department. He was appointed Assistant Minister, Ministry of Infrastructure Development and Communication in 2006 until 2009.

Details of any board committee : Noneto which he belongs Other directorships in public companies : NoneSecurities holdings in the Company : and its subsidiaries

Relationship with directors : None Relationship with substantial shareholders : NoneConflict of interest : NoneList of convictions for offences within : Nonethe past 10 years other than traffic offencesNo. of board meetings attended : 1/2in the financial year

Name Direct

No. ofshares

63,000Zecon Berhad

No. ofshares

-

%

0.05

%

-

Indirect

Name Direct

No. ofshares

8,500,000Zecon Berhad

No. ofshares

3,000,000

%

7.14

%

2.52

Indirect


CoRPoRAte GoveRNANCe

Corporate Governance Statement 18

Statement of Directors’ Responsibility 21

Statement on Internal Control 23

Audit Committee Report 24

Additional Compliance Information 27

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The Board of Directors of Zecon Berhad (“Board”) recognises the importance of good corporate governance as crucial to maintain the continued growth and success of Zecon’s Group of Companies (“the Group”). As such the Board is committed in ensuring that Corporate Governance is observed and practised by the Group with the ultimate objective of maximising shareholder and stakeholder value. The Board is pleased to demonstrate as shown below on how the Company has applied the principles as set out in the Malaysian Code on Corporate Governance (“Code”).

1. THE BOARD OF DIRECTORS

a) BoardCompositionandBalance The Board comprises of Nine (9) members, of which two (2) are Executive Directors, six (6) Non-Executive Directors

who are also the Independent Non-Executive Directors (“INED”) and one (1) Non Independent Non-Executive Director (“NINED”). The composition of the Board is in compliance with the independent directors criteria pursuant to paragraph 15.02 of the Main Board Listing Requirements of Bursa Malaysia Securities Berhad (“MLR”). The profiles of the Directors are set out on pages 12 to 16 of the Annual Report.

The wide mix of professional skills, management experience, financial and public service background of the Board members have resulted in an effective Board accordingly. The INED and NINED are not involved in the day-to-day management of the Company and there are free of any relationship which could materially interfere with the exercise of their independent judgement. No individual or group of individuals dominates the Board’s decision making. The Chairman, Tan Sri Datuk Amar (Dr.) Hamid bin Bugo has been identified as the one to whom concerns may be conveyed.

b) DutiesandResponsibilitiesoftheBoard

The Board is responsible for governing the management of the Company, exercise their judgement to act in the manner they reasonably believe to be in the best interest of the Company. In general, the Board is responsible for amongst others, the following:-

• reviewing, adopting and monitoring the implementation of the Group’s strategic plans and policies; • providing entrepreneurial leadership to the Group; • ensuring that the internal control systems is adequate and is capable of identifying and managing principal risks

to facilitate efficiency in operations and a stable financial environment; • identifying principal risks and ensuring that appropriate risk management system is in place to manage the risks; • formulating succession plans for the Group to ensure business continuity; and • ensuring compliance with corporate governance practices;

The INED play an important role in providing independent advice, judgement, ensuring an impartial Board decision making process as well as safeguarding the interests of other parties such as the minority shareholders, stakeholders etc.

There is a clear separation of duties between the Chairman and the Group Managing Director.

The responsibilities of the Chairman amongst others, include the following:-

• presides over Board and General Meetings of the Company; • responsible for the orderly conduct and running of the Board; • responsible for ensuring the integrity and effectiveness of the governance process of the Board as set out in the

Code and for the full discharge of the Board’s responsibilities; • responsible for maintaining regular dialogue with the Group Managing Director over all operational matters and

consult with the Board promptly over any matter that gives him cause for major concern; • liaise with the Group Managing Director and the Company Secretary on agenda for Board meetings; • responsible for initiating the establishment of Board Committees, ensuring proper committee structure and

ensuring that the Committees achieve their objectives; • ensure proper flow of information to the Board, reviewing adequacy and timing of documentary materials in

support of Management’s proposals; • ensure effective relationships are maintained with all major stakeholders in the business.

The roles of the Group Managing Director are amongst others, include the following:- • overseeing the day-to-day operations of the Group; • implementing of Board’s policies and decisions; • ensuring that the business and affairs of the Group are carried out in an ethical manner and in full compliance

with the laws and regulations; • ensuring succession planning is in place; • maintaining effective communication programmes and dialogue with the stakeholders

Corporate Governance Statement


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c) AppointmentandRe-election

The identification and appointment of new Directors undergo a process led by the Remuneration & Nomination Committee (“RNC”). Thereafter upon approval by the Board, the Company provides an induction programme for the new Directors to allow them to understand the business and ultimately to enable them to contribute effectively at Board meetings. The Board will ensure that all newly appointed Directors undergo the Mandatory Accreditation Programme as required under the MLR within four (4) months after their appointments.

In accordance the Articles of Association of the Company, at least one-third of the Board is subject to retirement by rotation at each Annual General Meeting (“AGM”). The retiring Directors can offer themselves for re-election. Directors who are appointed during the financial year shall hold office only until the next AGM and shall be eligible for re-election.

d) BoardMeetings

The Board Meetings are held at quarterly interval with additional meetings held as and when necessary. For the current financial year ended 31 December 2010 (“FY under review”), the Board had met four (4) times. All Directors had complied with the minimum 50% of attendance requirement in respect of Board Meeting as stipulated in the MLR.

The attendance record of each Director for the FY under review is as follows:-

Name of Director Attendance % of Attendance

1. Tan Sri Datuk Amar (Dr.) Hamid bin Bugo 2/2 100 (Appointed on 02 August 2010) 2. Datuk Haji Yusof @ Josree bin Haji Yacob 3/4 75 3. Datuk Haji Zainal Abidin bin Haji Ahmad 4/4 100 4. Haji Zainurin bin Haji Ahmad 4/4 100 5. Poh Lik Gan @ Poh Li Thong 3/4 75 6. Dato’ Haji Hamzah bin Haji Ghazalli 3/4 75 7. Dato’ Abdul Majit bin Ahmad Khan 4/4 100 8. Richard Kiew Jiat Fong 4/4 100 9. Datuk Haji Bolhassan bin Haji Di @ Ahmad bin Di 1/2 50 (Appointed on 02 August 2010) e) Directors’Training

All the Directors have attended the Mandatory Accreditation Program in accordance with the MLR. The Board recognises the importance of Directors being kept abreast with the latest development of the industry and trends. The Company has on an ongoing basis identified seminars and courses which are of relevance to the Directors in carrying out their duties.

The Directors will continue to undergo other relevant training programmes in order to equip themselves in the corporate regulatory developments as well as current developments of the industry

The training programmes attended by the Directors during the financial year ended 31 December 2010 are set out on page 22 of the Annual Report.

f) Supplyofinformation

The Secretary will ensure that notices, agendas and board papers of each meeting are distributed to the Directors in a timely manner prior to Board Meetings and on an ongoing basis to enable the Directors to peruse, consider, obtain additional information and seek further clarification when necessary. There is a list of matters, which are reserved specifically for Board’s consideration and these include strategic plans and budgets for the Group, and business development issues. Material acquisitions and disposals of assets, and potential investments by the Group are also considered extensively at Board level.

Senior Management Officers were invited to attend Board Meetings or Committee Meetings when necessary to furnish the Board with explanations and clarifications on the matters tabled at the meetings.

All Directors have full access to the advice and services of the Company Secretary and Senior Management. The Directors may obtain independent professional advice in the furtherance of their duties at the Company’s expense, if necessary.

The Directors will be updated by the Company Secretary on new statutory requirements relating to their duties and responsibilities. The Board will ensure that the Company Secretary attend all Board Meetings.



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g) Directors’Remuneration

The remuneration of Directors is set at levels which enable the Group to effectively attract and retain Directors with the relevant experience and expertise required for stewardship of the Group. The remuneration of the Executive Directors is reviewed at least once in every two years by the RNC and recommended for Board’s approval. The Executive Directors play no part in determining their own remuneration package.

In the case of INEDs and NINED, their remuneration package is decided by the Board, individual Director do not participate in the discussion and decision of their own remuneration. The Company has provided an appropriate remuneration which reflects the experience and level of responsibilities undertaken by each Non-Executive Director. The remuneration package of the INEDs and NINED comprises of Directors’ fees, monthly allowance, meeting allowances for attending Board/Board Committees meetings and hand phone allowance.

In line with the MLR, the aggregate remuneration of the Directors are disclosed in Note 9 to the Financial Statements on pages 67 to 68.

2. BOARD COMMITTEES

The Board delegates specific duties and responsibilities to the respective Committees of the Board namely, Audit Committee, Remuneration & Nomination Committee and Risk Management Committee in order to augment the business and corporate efficiency.

The Chairman of the relevant Board Committee will report to the Board on the key issues deliberated by the Board Committee at its Board Meeting and the minutes of the Audit Committee will also be presented to the Board for information and decision.

i) Audit Committee

The primary aims on the establishment of the Audit Committee (“AC”) are to assist the Board in fulfilling its responsibilities relating to accounting and reporting practices of the Group and to monitor the work of the Internal Audit Function. Further details on the AC are set out in the AC Report on pages 24 to 26 of this Annual Report.

ii) Remuneration & Nomination Committee (“RNC”)

The RNC which was set up on 24 May 2001 comprising of three (3) members, all of the members are Independent Non-Executive Directors. The RNC has been delegated with the following duties and responsibilities:-

• Recommend candidates for appointment to the Board and Board Committees and recommend to the Board for decision and approval;

• Determine the remuneration packages of the Executive Directors and to ensure that their remuneration commensurate with their experience and performance;

• Review the composition of the Board and experiences and mix of skills of the directors and also to ensure that there is balance between executive, non-executive, and independent directors;

• Assess annually the effectiveness of the Board as a whole; and

• Evaluate the terms and conditions of the employment of the Executive Directors and the Vice Presidents, and recommend to the Board for approval on the extension of service contract of the Executive Directors, if necessary.

For the FY under review, the RNC had met two (2) times with all members attended. The RNC will meets as and when need arises.

iii) Risk Management Committee (“RMC” or “the Committee”)

The RMC was set up on 24 May 2003. The members comprising of the Chairman of the Company as the Chairman of RMC, one (1) Executive Director and one (1) Independent Director. The RMC reports its activities and findings to the AC who in turn submit its comments on the findings to the Board. The Committee is delegated with the following specific tasks:-

i) Establish and maintain the risk management framework within the Group; ii) Assess and evaluate the risk management process on a periodic basis; iii) Set the risk appetite of the Group; and iv) Monitor and implement action plans to mitigate high risk areas within the Group

The RMC also design the Project Management’s Risks checklists which are used by subsidiary companies for the implementation of major projects. The General Manager of Internal Audit is the Secretary of the Committee and also the Administrator of the risk management software, RMSolution which are used to capture all the risk component, risk details, risk assessment, gross risk, net risk, management action plans, etc.



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3. SHAREHOLDER AND INVESTOR RELATIONS

The Company maintains a regular policy of disseminating information that is material for shareholders attention. In line with the regulatory requirements, various announcements, including quarterly financial results were made during the year via the Bursa link, thus provide the shareholders and the investing public with an overview of the Group’s performance and operations.

The Company has established a website (www.zecon.com.my) which shareholders and members of the public can access the corporate information and updates relating to the Company and for channelling their queries.

At the AGM, the Directors welcome the opportunity to gather the views of shareholders. Notices of each general meeting are issued in a timely manner to all shareholders, and in the case of special businesses, a statement explaining the effect of the proposed resolutions is provided. All Directors are available to respond to questions from shareholders during the meeting. The external auditor is also present to provide professional and independent clarifications on issues and concerns raised by the shareholders.

Our Corporate Division Personnel will provide ongoing updates on the significant developments or activities of the Group with research/financial analysts, investors and institutional shareholders. The same presentation will also be made available to the media to capture a wider readership. However, discretion was exercised during these sessions to ensure sensitive information is not disclosed before the required announcement was released to Bursa Securities.

4. ACCOUNTABILITY AND AUDIT

In an attempt to produce a fair and reasonable assessment of the Company’s position and prospects, particularly in the financial reports, the Directors have implemented a quality control procedure to ensure that all financial reports have been prepared based on acceptable accounting standards and policies. These financial reports also undergo a review process by the AC prior to approval by the Board.

The Board understands that in order to strengthen the accountability aspect of financial reporting, the Company needs to maintain a sound system of internal control to safeguard shareholders’ investment and the Group’s assets. Hence the Company has developed a comprehensive system of internal control comprising of clear structures and accountabilities, well-understood policies and procedures and budgeting and review process.

The effectiveness of the system of internal control is then scrutinised by an Internal Auditor, who operates independently from the activities of the Company, under the purview of the AC. Details of the internal audit activities carried out during the year are outlined on page 24 of the AC report.

The Board also maintains an appropriate relationship with the Company’s external auditor, through formal and transparent arrangement with the Audit Committee. These arrangements are stated on page 24 of the Audit Committee report.

5. COMPLIANCE STATEMENT

The Board is satisfied that for the FY under review, the Group has complied with the best practices of as set out in the code.

This Corporate Governance Statement is made in accordance with the resolution of the Board of Directors’ Meeting held on 28 April 2011.

Statement of Director’s Responsibilityin Respect of the Financial Statements

The Companies Act, 1965 requires the Directors to prepare financial statements for each financial year, which give a true and fair view of the state of the affairs of the Group and the Company at the end of the financial year, and of the profit and cash flows of the Group and the Company for the financial year.

In preparing the financial statements, the Directors are also responsible for the adoption of suitable accounting policies and their consistent use in the financial statements, supported where necessary by reasonable and prudent judgements.

The Directors hereby confirm that suitable accounting policies have been consistently applied in respect of preparation of the financial statements. The Directors also confirm that the Company maintains adequate accounting records and sufficient internal controls to safeguard the assets of the Group and the Company, and to prevent and detect fraud and other irregularities. These are described more fully on item 4 of this page.

This Directors’ Responsibility Statement is made in accordance with resolution of the Board of Directors dated 28 April 2011.



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Training/Seminars Attended by Directors of Zecon Berhad During The Financial Year Ended 31 December 2010

No. Name of Director Type Course/Training Organiser Date

1. Tan Sri Datuk Amar (Dr.) Sapura Group Directors Training ColumbusCircle 9-10 November 2010 Tommy Bin Bugo @ Programme Hamid Bin Bugo 2. Datuk Hj Yusof bin The Regulatory Framework Malaysian Institute of 24 November 2010 Hj Yacob And Directors Duties 2010 Corporate Governance “What Directors Need to Know”

3. Datuk Hj Zainal Abidin Mastering FRS on Financial Instruments: Malaysian Institute of 01 December 2010 bin Hj Ahmad Accounting for Financial Instruments Accountants -Debt Securities (FRS139,FRS7 & IFRS9)

4. Hj Zainurin bin Hj Ahmad The Regulatory Framework Malaysian Institute of 24 November 2010 And Directors Duties 2010 Corporate Governance “What Directors Need to Know”

5. Poh Lik Gan @ Poh Li Thong The Regulatory Framework Malaysian Institute of 24 November 2010 And Directors Duties 2010 Corporate Governance “What Directors Need to Know”

6. Dato’ Hj Hamzah bin The Regulatory Framework Malaysian Institute of 24 November 2010 Hj Ghazalli And Directors Duties 2010 Corporate Governance “What Directors Need to Know”

7. Dato’ Abdul Majit bin Financial Institution Directors Bank Negara of Ahmad Khan Education Program (FIDE), Malaysia • Module I 21-22 January 2010 • Module II 15 February 2010 & 24 February 2010 • Module III 18-19 March 2010 • Module IV 15-16 April 2010

Competency As The Hong Leong Islamic 21 May 2010 Backbone of Transformation

Risk & Reform - Implications ACI Malaysia 13 July 2010 for Audit Committee Oversight

8. Richard Kiew Jiat Fong Real Property Gains Tax - Malaysian Institute 18 March 2010 Implications and Exemptions of Accountants

Workshop on Essential Tax Chartered Tax Institute 3 September 2010 Planning For Companies in 2010 of Malaysia

2011 Budget Seminar - Chartered Tax 21 October 2010 Highlights & Implications Institute of Malaysia

9. Datuk Hj Bolhassan Bin Hj Mandatory Accreditation Bursatra Sdn Bhd 01-02 December 2010 Di @ Ahmad bin Di Programme for Directors of Public List Companies


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Statement on Internal Control

INTRODUCTION

This statement on internal control is made pursuant to Listing Requirements of Bursa Malaysia Securities Berhad with regard to the Group’s compliance with the principles and best practices for internal controls as provided in the Malaysian Code on Corporate Governance.

RESPONSIBILITY

The Board of Directors acknowledged its responsibility for maintaining a sound system of internal controls to safeguard shareholders’ investment and the Group’s assets and for reviewing the adequacy and integrity of the system. However, it should be noted that the system of internal controls is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable but not absolute assurance against material misstatement or loss.

RISK MANAGEMENT

The Risk Management Framework established in May 2003, provides a structure approach in identifying, assessing and managing the key risks faced by the Group. During the year, the Group has reviewed and updated the risk assessment, which covered the full spectrum of the Group’s operations. This involved reviewing and identifying the key risk exposures of the Group and providing an assessment on the risk identified, the strength of internal controls and/or action plans that mitigate and manage the risks and the residual tasks. The risk assessment is subjected to periodic review and updates.

KEY PROCESS OF INTERNAL CONTROLS

The key processes of internal controls of the Group can be summarized as follow:

Internal Review and Audit: The system of internal controls is continually reviewed and updated. Apart from internal review on the Group’s policies and procedures, the Audit Division conducts periodic internal audits and evaluate the effectiveness of the system of internal controls within the Group. The Internal Auditor provides the Audit Committee (“AC”) with independent and objective reports on the state of internal controls and risk management, the extent of compliance with policies and procedures, recommendations and the management response thereof. The AC considers the report from internal audit and response from management and thereafter presents their conclusion to the Board.

Financial Policies and Procedures Manual: The Group has a clear structure whereby the responsibilities and scopes of authorities are defined. This is clearly documented in the internal policies and operation procedure as set out in the Financial Policies and Procedures Manual. This manual is reviewed and updated by the management regularly. The Group has also put in place policies and procedures on tenders and contracts which has been approved by the Board.

Financial Reporting: Quarterly reports and annual financial statements are reviewed and approved by the AC before being recommended for the approval of the Board. Performance evaluation including the comparison of actual results against estimates is carried out by the management and presented to the AC.

Operational Risk: The risks inherent in the construction activities are mainly related to market condition, procurement and tendering, execution of construction works and completion of project within the contract period. The Group Risk Management framework and risk management sub-committee monitor project and subsidiary operations with a common objective to identify, evaluate, control, mitigate and minimize risks. Construction schedules, cost of projects and quality are controlled through monthly project meeting and progress reports to the management.

ISO 9001:2008: Regular audit by External ISO Auditor is to ensure compliance with all requirements of ISO 9001:2008. The ISO certification serves as a quality assurance approach where customers are assured of continuous delivery of the highest quality of products and services provided by the Group.

Related Party Transaction: The Group has in place adequate procedures and processes to monitor, trace and identify related party transactions in a timely and orderly manner and such procedures and processes are reviewed on a yearly basis or whenever the need arises.

BOARD’S CONCLUSION

The Board of Directors is pleased to disclose that the system of internal controls and risk management process are appropriate to the Group’s operations and there are no material losses incurred during the financial year as a result of any weaknesses in internal control. Nevertheless, the process in identifying, evaluating and managing the significant risks faced by the Group will be ongoing to meet any changing needs.


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Report of Audit Committee

The Audit Committee of Zecon Berhad is pleased to present its Audit Committee (“AC” or “Committee”) Report (“Report”) for the year ended 31 December 2010. The Board has approved this Report via circular resolution dated 28 April 2011.

1. Composition and Meeting Attendance

In line with the Corporate Governance Code, all members of the AC are independent and Non-Executive Directors. Mr. Richard Kiew Jiat Fong (AC member) besides being a Member of the Malaysian Institute of Accountant is also a Fellow Member of:-

i. The Institute of Chartered Accountants in England and Wales; ii. The Association of Chartered Certified Accountants, United kingdom; and iii. The Institute of Certified Public Accountants of Singapore.

In this respect, Zecon Berhad is in compliance with paragraph 15.09(1) of the Main Board Listing Requirement of Bursa Malaysia Securities Berhad.

On 30 June 2010, Datu Dr. Hatta Bin Solhi resigned as member of the Audit Committee. In place thereof, Dato’ Haji Hamzah Bin Haji Ghazalli was appointed as the new member of the AC.

During the year, the AC held five (5) meetings. Committee members’ attendances at the meetings are as follows:-

2. Activities during the year

In line with the terms of reference of the Committee, the following activities were carried out:- (i) External Audit ‹ Review the scope of work and audit plan for the year. ‹ Review the results of the audit, the audited financial statements and the management letter. ‹ Attending to concerns raised by the auditor without the presence of the Executive Director ‹ Recommend for the Board’s consideration the appointment of external auditors and the audit fees (ii) Internal Audit ‹ Review and approve the scope of work and audit plans for the year ‹ Review the internal audit reports and discuss on the management’s action taken to improve

the system of internal control and any outstanding matters. (iii) Financial Statements ‹ Review the quarterly unaudited financial results, year end audited financial statements and

recommend to the Board for consideration and approval. (iv) Related party transaction ‹ Review the related party transactions entered into by Zecon Group of Companies.

(v) Risk Management ‹ Monitor the progress of risk management framework of Zecon Group of Companies.

3. Activities of the Internal Audit Division

The Internal Audit Division was established on 1 April 2002 and it reports directly to the Audit Committee.

For the year 2010, the activities of the internal audit are as follows:-

(i) Preparation of Audit Planning Memorandum and the Internal Audit Plan for the year. (ii) Secretary to Risk Management Committee of Zecon Berhad. (iii) Secretary to AC. (iv) Conduct internal audit assignments as per Internal Audit Plan and special audit assignments on an ad-hoc basis based on

the requests of the Senior Management. (v) The General Manager for Internal Audit is also the Quality Management Representative (QMR) responsible in managing the

Quality Management System (ISO). (vi) Preparation of AC Report and Statement of Internal Controls for the Company’s Annual Report 2010.

Committee Members Designation Meetings Attendance Year 2010 Total

Feb. 22 Apr. 26 May 25 Aug. 20 Nov. 25

Poh Lik Gan @ Poh Li Thong

Datu Dr. Hatta Bin Solhi(Resigned on 30 June 2010)

Dato’ Haji Hamzah Bin Haji Ghazalli(Appointed on 30 June 2010)

Richard Kiew Jiat Fong

ChairmanIndependent Director

Independent Director



Absent

√

-

√

√

√

-

√

√

-

√

√

√

-

√

√

4/5

3/3

2/2

5/5

√

√

-

√


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Report of Audit Committee4. Terms of Reference

(i) Composition

a. The Committee shall be appointed by the Board and shall consist of not less than three (3) members;

b. All the AC members must be non-executive directors and with a majority of them being independent directors;

c. An alternate Director shall not be appointed as a member of the Committee;

d. At least one member of the AC must be a member of the Malaysian Institute of Accountant; or if he is not a member of the Malaysian Institute of Accountants, he must have at least three (3) years’ working experience and:-

i. he must have passed the examinations specified in Part 1 of the 1st Schedule of the Accountants Act 1967; or

ii. he must be a member of one (1) of the Associations of Accountants specified in Part II of the 1st Schedule of the Accountants Act 1967.

e. The members of the Committee shall elect a Chairman from amongst their number who shall be an independent Director.

f. If the number of members of the Committee is reduced below three (3), the Board shall within three (3) months appoint such number of new members as may be required to make up the minimum of three (3) members.

(ii) Authority

The Committee shall, in accordance with a procedure to be determined by the Board and at the cost of the Company:-

a. have the authority to investigate any matter within its terms of reference;

b. have the resources which are required to perform its duties;

c. have full and unrestricted access to any information pertaining to the Company;

d. have direct communication channels with both the external and internal auditors;

e. be able to obtain independent professional opinion or other advice; and

f. be able to convene meetings with the external auditors, excluding the attendance of the executive members of the Board, whenever deemed necessary.

(iii) Duties

The duties and scopes of the Committee shall be to review the following and report the same to the Board;-

a. with the external auditors: (i) the scope of their audit plan; (ii) their evaluation of the system of internal control; (iii) the audit reports on the financial statements; (iv) the assistance given by the Company’s employees to the external auditor; (v) any letter of resignation from the external auditors; and (vi) nomination of the external auditors and the determination of audit fees.

b. the effectiveness of the internal control systems including the internal audit programmes, process, results of internal audit programmes, processes or investigation undertaken and whether or not appropriate actions have been taken on recommendations of internal audit functions.

c. the quarterly results and year end financial statements of the Company and the Group, prior to submission to the Board for approval, focusing particularly on:-

(i) changes in or implementation of accounting policy; (ii) significant and unusual event; and (iii) compliance with accounting standards and other legal requirements.

d. any related party transactions and conflict of interest situation that may arise within the Company or Group.

e. verify the allocation of options to employees under the relevant criteria decided by the Option Committee.

f. any other functions as may be agreed by the Committee and the Board or as may be required or empowered by statutory legislation or guidelines issued by the relevant governing authorities.


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Report of Audit Committee

Where the Committee is of the view that any matter reported to the Board has not been satisfactorily resolved resulting in breach of the Main Market, Listing Requirements of Bursa Malaysia Securities Berhad (“Bursa Securities”) Listing Requirements, the Committee must promptly report such matter to Bursa Securities.

The Committee members’ term of office and performance are subject to review by the Board every three (3) years to determine whether the Committee has carried out their duties in accordance with the Terms of Reference.

(iv) Frequency and Attendance

The Committee shall hold at least four (4) regular meetings a year and such additional meetings as the Chairman shall decide in order to fulfill its duties. The Committee at its discretion, may invite any person to its AC meeting.

A quorum for the Committee shall be two (2) members and majority of members present must be independent directors.

The General Manager for Internal Audit shall be the Secretary to the AC.

The Chairman shall table any material issues raised in the AC meeting at the subsequent Board Meeting of the Company.


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Additional Compliance Information

1. Share Buy-backs The Company did not enter into any share buy-back transaction during the financial year ended 31 December 2010.

2. Options, Warrants or Convertible Securities The Company did not issue any options, warrants or convertible securities for the financial year ended 31 December 2010.

3. American Depository Receipt (“ADR”) or Global Depository Receipt (“GDR”) Programme The Company did not sponsor any ADR or GDR programme during the financial year ended 31 December 2010.

4. Imposition of Sanctions or Penalties There were no sanctions or penalties imposed by the relevant regulatory bodies on the Company or its subsidiaries, directors or

management during the financial year ended 31 December 2010.

5. Non-Audit Fees A non-audit fees amounting to RM50,000 was paid by the Company to the External Auditors, Messrs. Ernst & Young for the

financial year ended 31 December 2010.

6. Variation in results There was no variance of 10% or more between the unaudited results announced and the audited results for the financial year

ended 31 December 2010.

7. Profit Guarantee There were no transactions that require profit guarantee during the financial year ended 31 December 2010.

8. Material Contracts There were no material contracts of the Company and its subsidiaries involving directors and substantial shareholders either still

subsisting at the end of the financial year ended 31 December 2010 or entered into since the end of previous financial year.

9. Revaluation Policy on Landed Properties There was no revaluation carried out on the landed properties of the Company and its subsidiaries during the financial year

ended 31 December 2010.

10. Recurrent Related Party Transactions of a Revenue or Trading Nature The Company had on 23rd June 2010 obtained Shareholders’ Mandate for the Group to carry out the Recurrent Related Party

Transactions of revenue or trading nature (“RRPT”).

In accordance with Paragraph 3.15 of Practice Note 12 of the Bursa Malaysia Securities Berhad, the details of RRPTtransacted during the financial year ended 31 December 2010 are as follows:-

Related Party Interested Director/ Nature of Transaction Amount Connected person (RM)

SCIB Concrete Datuk Haji Zainal Abidin Bin Purchase of 6,975,171.14Manufacturing Sdn Bhd Haji Ahmad construction materials

Mary Bolhassan, Datuk Haji Zainal Abidin Bin Haji Provision of legal 35,364.00Noreda Ahmad & Co Ahmad & Haji Zainurin and professional bin Haji Ahmad services TKY Consultant Haji Abg Azahari Provision of 384,402.99Sdn Bhd bin Abg Osman engineering consultancy and project management


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Directors’ report & auDiteDfinancial statements

Directors’ Report 30

Statement by Directors and Statutory Declaration 34

Report of the Auditors 35

Statements of Comprehensive Income 37

Consolidated Statements of Financial Position 38

Company Statements of Financial Position 39

Consolidated Statement of Changes in Equity 40

Company Statement of Changes in Equity 42

Consolidated Statements of Cash Flows 43

Company Statements of Cash Flows 45

Notes to the Financial Statements 47

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Directors’ ReportThe directors have pleasure in presenting their report together with the audited financial statements of the Group and of the Company for the financial year ended 31 December 2010.

Principal activities

The principal activities of the Company are foundation engineering, civil engineering and building contracting works and their related activities.

The principal activities of the subsidiaries are set out in Note 16 to the financial statements.

There have been no significant changes in the nature of the principal activities of the Group and of the Company during the financial year.

Results Group Company RM RM

Profit/(loss) for the year 1,678,017 (9,253,511) ========== ==========Attributable to:Equity holders of the Company 1,728,880 (9,253,511)Minority interests (50,863) - –––––––––––– –––––––––––– 1,678,017 (9,253,511) ========== ==========

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

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

Directors

The names of the directors of the Company in office since the date of the last report and at the date of this report are:

Datu Dr. Hatta Bin Solhi (Resigned on 30 June 2010)Datuk Haji Yusof @ Josree Bin Haji YacobDatuk Haji Zainal Abidin Bin Haji Ahmad Poh Lik Gan @ Poh Li Thong Dato’ Haji Hamzah Bin Haji Ghazalli Dato’ Abdul Majit Bin Ahmad Khan Haji Zainurin Bin Haji Ahmad Hui Kok Yuan (Resigned on 2 August 2010)Haji Abg. Azahari Bin Abg. Osman (Resigned on 2 August 2010) Jamil Bin Jamaludin (Resigned on 2 August 2010)Richard Kiew Jiat Fong Haji Saini Bin Haji Ali (Resigned on 2 August 2010) Ng Weng Fatt (Resigned on 2 August 2010)Tan Sri Datuk Amar (Dr.) Tommy Bin Bugo @ Hamid Bin Bugo (Appointed on 2 August 2010)Datuk Haji Bolhassan Bin Haji Di @ Ahmad Bin Di (Appointed on 2 August 2010)

Directors’ benefits

Neither at the end of the financial year, nor at any time during that year, did there subsist any arrangement to which the Company was a party, whereby the directors might acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate, other than those arising from the share options granted under the Employees’ Share Option Scheme.

Since the end of the previous financial year, no director has received or become entitled to receive any benefit (other than benefits included in the aggregate amount of emoluments received or due and receivable by the directors as shown in Note 9 to the financial statements or the fixed salary of a full-time employee of the Company) by reason of a contract made by the Company or a related corporation with any director or with a firm of which he is a member, or with a company in which he has a substantial financial interest, except as disclosed in Note 36 to the financial statements.

Vision Peti Surat 9150, Pejabat Pos Kelana Jaya 46785 Petaling Jaya Tel : 03-7849 0777 Fax : 03-03...

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