CORPORATE GOVERNANCE STATEMENT

30
INTRODUCTION
The Board of Directors appreciates the importance of adopting high standards of corporate
governance wi thi n the Group. Good corporate governance i s a fundamental part of the
Groups responsi bi l i ty to protect, real i ze and enhance l ong-term sharehol ders val ue
and the fi nanci al performance of the Group, whi l st taki ng i nto account the i nterests of
other stakehol ders.
The Statement bel ow sets out how the Group has appl i ed the Key Pri nci pl es contai ned
i n Part 1 of the Mal aysi an Code on Corporate Governance (the Code) and the extent of
i ts compl i ance wi th the Best Practi ces as set out i n Part 2 of the Code. These pri nci pl es
and best practi ces have been appl i ed and compl i ed wi th throughout the year ended 31
December, 2004.
A) Board of Directors
The composition equips the Board with the necessary skills, experiences and knowledge
for the Board to direct and supervise the Groups business activities as well as to provide
cl ear and effecti ve l eadershi p to the Group.
The Board currentl y consi sts of seven (7) memb ers; compri si ng one (1) Chai rman/
Independent Non-Executi ve Di rector, one (1) Managi ng Di rector, four (4) Executi ve
Di rectors and one (1) Independent Non-Executi ve Di rector. The Company compl i ed wi th
Bursa Mal aysi a Li sti ng Requi rements for Mesdaq Market whi ch states that a l i sted
company must have at l east two (2) i ndependent di rectors i n the Board.
There i s a cl ear di vi si on of responsi bi l i ti es between the Chai rman/Independent Non-
Executive Director and the Managing Director to ensure balance of power and authority.
The Independent Non-Executi ve Di rectors are i ndependent of management and free
from any business or other relationships that could materially interfere with the exercise
of their independent judgement.
A bri ef profi l e of each Di rector i s presented on pages 6 to 8 of thi s Annual Report.
CORPORATE GOVERNANCE STATEMENT
31
i ) Board Meeti ngs
The Board meets at l east four (4) ti mes a year, wi th addi ti onal meeti ngs convened as
necessary. Duri ng the fi nanci al year ended 31 December, 2004, seven (7) meeti ngs
were held. Details of the attendance of the Directors at the Board of Directors meetings
are as fol l ows:-
Di rectors No. of meeti ngs attended
Ooi Teng Chew 7/7
Datuk Chuah Ki m Seah 7/7
Mazl an Bi n Ismai l 7/7
Chuah Ki m Chi ew 7/7
Steven Li m Tow Boon 7/7
Wong Chee Fai 7/7
Chng Hee Kok 7/7
In the intervals between Board meetings, for exceptional matters requiring urgent Board
deci si ons, Board approval s are sought vi a ci rcul ar resol uti ons, whi ch are attached wi th
sufficient and relevant information required for an informed decision to be made. Where
a potenti al confl i ct ari ses i n any transacti ons i nvol vi ng Di rectors i nterest, such Di rector
i s requi red to decl are hi s i nterest and abstai n from further di scussi on and the deci si on-
maki ng process.
i i ) Suppl y of Informati on
The Di rectors have ful l and ti mel y access to i nformati on concerni ng the Company and
the Group. Agenda and di scussi on papers are ci rcul ated pri or to the Board meeti ngs to
al l ow the Di rectors to study and eval uate the matters to be di scussed.
The Di rectors have unrestri cted access to the advi ce and ser vi ces of Company
Secretari es and seni or management staff i n the Group and may obtai n i ndependent
professi onal advi ce at the Companys expense i n the furtherance of thei r duti es.
i i i ) The Board and Board Commi ttee
To assi st the Board i n the di scharge of i ts duti es effecti vel y, the Board has del egated
cer tai n functi ons to cer tai n Commi ttees, namel y the Nomi nati on Commi ttee,
Remuneration Committee and Audit Committee, each operating within its clearly defined
terms of reference. The Chai rman of the vari ous Commi ttees wi l l report to the Board on
the outcome of the Commi ttee meeti ngs. The Commi ttees are as fol l ows.
CORPORATE GOVERNANCE STATEMENT
32
a) Nomi nati on Commi ttee
Chai rman : Ooi Teng Chew (Chai rman/Independent Non-Executi ve Di rector)
Members : Chng Hee Kok (Independent Non-Executi ve Di rector)
Chuah Kim Chiew (Executi ve Di rector)
The primary function of the Nomination Committee is to identify and recommend to the
Board technically competent persons of integrity with a strong sense of professionalism
to be appointed to the Board.
The Nomination Committee will assess the suitability of an individual to be appointed to
the Board by taki ng i nto account the i ndi vi dual s other commi tments, resources and
ti me avai l abl e for i nput to the Board before recommendati on i s made for the Boards
approval. The actual decision as to whom shall be nominated remains the responsibility
of the Board after taki ng i nto consi derati on the recommendati ons of the Nomi nati on
Committee. The Committee shall review annually the required mix of skill and experience
and other qual i ti es and competenci es of i ts Di rectors and shal l revi ew the composi ti on,
structure and si ze of the Board.
During the financial year, two (2) meetings were held and were attended by all members
of the Nomi nati on Commi ttee.
b) Remunerati on Commi ttee
Chai rman : Chng Hee Kok (Independent Non-Executi ve Di rector)
Members : Ooi Teng Chew (Chai rman/Independent Non-Executi ve Di rector)
Datuk Chuah Kim Seah (Managi ng Di rector)
The Commi ttee i s responsi bl e for recommendi ng to the Board from ti me to ti me, the
remunerati on framework and package of the Executi ve Di rectors of the Group i n al l
forms to commensurate wi th the respecti ve contri buti ons of the Executi ve Di rectors.
The Commi ttee seeks to establ i sh a remunerati on pol i cy whi ch shoul d be suffi ci ent to
attract, retai n and moti vate Di rectors of cal i ber needed to run the Group successful l y.
Executive Directors are to abstain from deliberations and voting on the decision in respect
of thei r own remunerati on package.
The Board as a whol e deci des the remunerati on of Non-Executi ve Di rectors, i ncl udi ng
Non-Executi ve Chai rman. The i ndi vi dual s concerned shoul d abstai n from di scussi on of
thei r own remunerati on package and the sharehol ders at the Annual General Meeti ng
(AGM) must approve the di rectors fees.
During the financial year, two (2) meetings were held and were attended by all members
of the Remunerati on Commi ttee.
CORPORATE GOVERNANCE STATEMENT
33
c) Audi t Commi ttee
The composi ti on and the terms of reference of the Audi t Commi ttee are set out i n the
Audi t Commi ttee Report on pages 36 to 39 of thi s Annual Report.
i v) Detai l s of the Di rectors Remunerati on
The Di rectors are sati sfi ed that the current l evel of remunerati on are i n l i ne wi th the
responsi bi l i ti es expected i n the Group.
The aggregate Di rectors Remunerati on pai d or payabl e to al l Di rectors of the Company
by the Group and categorized into appropriate components for the financial year ended
31 December, 2004 are as fol l ows:
Director Salaries / Other Emoluments Fe e s Total
RM RM RM
Executive Directors 1,031,311 - 1,031,311
Non-Executive Directors 28,000 93,000 121,000
The number of Di rectors of the Company whose remunerati on fal l wi thi n the fol l owi ng
bands are:
Number of Di rectors
Executi ve Non-Executi ve
Up to RM50,000 - -
RM50,001 RM100,000 1 2
RM100,001 RM200,000 2 -
RM200,001 RM300,000 1 -
RM300,001 above 1 -
v) Di rectors Trai ni ng
Al l Di rectors have attended the Mandatory Accredi tati on Programme (MAP) conducted
by the Research Insti tute of Investment Anal ysts Mal aysi a (Now known as Bursatra Sdn.
Bhd.), an affi l i ate of Bursa Mal aysi a Securi ti es Berhad (Bursa Securi ti es). The Di rectors
will attend continuing education programmes to update themselves on developments in
the gaming and amusement industry and in areas of corporate governance and regulatory
changes to enhance thei r knowl edge i n di schargi ng thei r duti es and keep abreast wi th
devel opments i n the market pl ace.
CORPORATE GOVERNANCE STATEMENT
34
vi ) Re-el ecti on of Di rectors
In accordance wi th the Company s Ar ti cl es of Associ ati on, al l Di rectors who were
appointed to the Board with the exception of the Managing Director shall retire and be
re-el ected by the sharehol ders at the Companys fi rst AGM.
In every subsequent year, one-third (1/3) of the Directors or if their number is not three
(3) or a mul ti pl e of three (3), then the number nearest to one-thi rd (1/3), shal l reti re by
rotation from office and seek re-election at each AGM and that each Director except the
Managing Director shall retire from office at least once in every three (3) years and shall
be el i gi bl e for re-el ecti on.
B) Shareholders
i ) Rel ati ons Wi th Sharehol ders and Investors
The Company recogni zes the i mportance of bei ng accountabl e to i ts sharehol ders and
i nvestors and as such has mai ntai ned an acti ve communi cati on and feedback pol i cy
wi th i nsti tuti onal i nvestors, sharehol ders and publ i c general l y. Al l sharehol ders have an
opportuni ty to par ti ci pate i n di scussi on wi th the Board on matters rel ati ng to the
Companys operati on and performance at the Companys AGM. Al ternati vel y, they may
obtai n the Companys l atest announcements such as quarterl y fi nanci al resul ts vi a the
Bursa Securi ti es websi te at www.bursamal aysi a.com.
i i ) Annual General Meeti ng (AGM)
The AGM i s the pri nci pal forum for di al ogue wi th sharehol ders. The sharehol ders are
encouraged to participate in the open question and answer sessions in the AGM pertaining
to the resol uti ons bei ng proposed at the meeti ng and the fi nanci al performance and
busi ness operati on i n general .
CORPORATE GOVERNANCE STATEMENT
35
C) Accountability and Audit
i ) Fi nanci al Reporti ng
The Di rectors have taken reasonabl e steps to provi de a bal anced and understandabl e
assessment of the Groups fi nanci al performance and prospects. In thi s respect, the
Audit Committee assists the Board with the overseeing of the Groups financial reporting
process and the qual i ty of the fi nanci al reporti ng.
i i ) Statement of Di rectors Responsi bi l i ti es i n Rel ati on to the Fi nanci al Statements
The Di rectors are responsi bl e for the preparati on of the Annual Audi ted Fi nanci al
Statements of the Group and of the Company which give a true and fair view of the state
of affai rs of the Group and of the Company and wi l l ensure that they are presented i n
accordance with the provisions of the Companies Act, 1965 and the applicable approved
accounti ng standards i n Mal aysi a.
In the preparati on of the fi nanci al statements for the year ended 31 December, 2004,
the Directors are satisfied that the Group had used appropriate accounting policies that
are consi stentl y appl i ed and supported by reasonabl e and prudent j udgement and
esti mates.
i i i ) Internal Control
The Board recogni zes the i mportance of i nternal control systems whereby sharehol ders
i nvestment and the Companys assets can be safeguarded. As for the appl i cati on of
Internal Control s, pl ease refer to Audi t Commi ttee Report on pages 36 to 39, and as
for the statement of i nternal control s, pl ease refer to Internal Control Statement on
pages 40 to 41.
i v) Rel ati onshi p Wi th The Audi tors
The Board has establ i shed a transparent rel ati onshi p wi th the external audi tors through
the Audit Committee, which has been accorded with the power to communicate directly
wi th the external audi tors towards ensuri ng compl i ance wi th the accounti ng standards
and other rel ated regul atory requi rements.
The role of the Audit Committee in relation to the external auditors is stated on pages 36
to 39 of thi s Annual Report.
AUDIT COMMITTEE REPORT
36
Chai rman : Ooi Teng Chew (Chai rman/Independent Non-Executi ve Di rector)
Members : Chng Hee Kok (Independent Non-Executi ve Di rector)
Mazlan Bin Ismail (Executi ve Di rector)
The Commi ttee i s governed by the fol l owi ng terms of reference :
i ) Membershi p
The Commi ttee shal l be appoi nted by the Board from amongst the Di rectors excl udi ng
Al ternate Di rectors, and shal l consi st of not l ess than three (3) members, a majori ty of
whom are Independent Non-Executi ve Di rectors. The Chai rman of the Commi ttee shal l
be an Independent Non-Executi ve Di rector appoi nted by the Board. In the event of any
vacancy i n the Commi ttee, the Board must fi l l the vacancy wi thi n three (3) months,
appoi nt such number of new members as may be requi red to make up the mi ni mum of
three (3) members. The term of offi ce and performance of the Commi ttee and each of
i ts members shal l be revi ewed by the Board at l east once every three (3) years to
determi ne whether the Commi ttee and i ts members have carri ed out thei r duti es i n
accordance wi th thei r terms of reference.
ii) Authority
The Committee is granted the authority to investigate any activity of the Group and the
Company wi thi n i ts terms of reference, to obtai n the resources whi ch i t needs, and to
have ful l and unrestri cted access to i nformati on and al l empl oyees are di rected to co-
operate wi th any request made by the Commi ttee. The Commi ttee i s empowered to
obtai n i ndependent professi onal or other advi ce and retai n persons havi ng speci al
competence as necessary to assi st the Commi ttee i n ful fi l l i ng i ts responsi bi l i ty. The
Commi ttee shal l have di rect communi cati on channel s wi th the external and i nternal
audi tors. If the Commi ttee i s of the vi ew that a matter reported to the Board has not
been sati sfactori l y resol ved resul ti ng i n a breach of the Bursa Securi ti es Li sti ng
Requi rements for the Mesdaq Market, the Commi ttee shal l promptl y report such matter
to Bursa Securi ti es.
i i i ) Responsi bi l i ty
The Commi ttee i s to serve as a focal poi nt for communi cati on between non-Commi ttee
di rectors, the external audi tors, i nternal audi tors and the management on matters i n
connecti on wi th fi nanci al accounti ng, reporti ng and control s. The Commi ttee i s to assi st
the Board in fulfilling its fiduciary responsibilities as to accounting policies and reporting
practices of the Group and the Company and the sufficiency of auditing relating thereto.
It i s to be the Boards pri nci pal agent i n assuri ng the i ndependence of the Companys
external audi tors, the i ntegri ty of the management and the adequacy of di scl osures to
sharehol ders.
AUDIT COMMITTEE REPORT
37
i v) Duti es
The duti es of the Commi ttee are :
(i ) to revi ew wi th the external and i nternal audi tors whether the empl oyees of the
Group and the Company have given them the appropriate assistance in discharging
thei r duti es;
(i i ) to review the adequacy of the scope, functions and resources of the internal audit
functions and that it has the necessary authority to carry out its work;
(i i i ) to review the internal audit programme, processes, the results of the internal audit
programme, processes or investigation undertaken and whether or not appropriate
acti on i s taken by management on the recommendati ons of the i nternal audi tors;
(i v) to appraise the performance of the head of internal audit and review the appraisals
of seni or staff members of the i nternal audi t;
(v ) to approve any appointment or termination of the head of internal audit and senior
staff members of the internal audit function and to review any resignations of internal
audit staff members and provide resigning staff members an opportunity to submit
reasons for resi gni ng, where necessary;
(vi ) to review the quarterly results and year end financial statements of the Group and
the Company, pri or to the approval by the Board, whi l st ensuri ng that they are
prepared i n a ti mel y and accurate manner, focusi ng parti cul arl y on :
changes i n or i mpl ementati on of major accounti ng pol i cy changes;
si gni fi cant and unusual events; and
compl i ance wi th accounti ng standards and other l egal requi rements;
(vi i ) to revi ew any rel ated party transacti on and confl i ct of i nterest si tuati on that may
ari se wi thi n the Group or the Company i ncl udi ng any transacti on; procedure or
course of conduct that rai ses questi ons of management i ntegri ty;
(vi i i ) to review with the external auditors, the nature and scope of their audit plan, their
eval uati on of the system of i nternal accounti ng control s;
(i x) to recommend to the Board on the appointment and the annual re-appointment of
external audi tors, thei r audi t fees and any questi ons on resi gnati on and di smi ssal ;
AUDIT COMMITTEE REPORT
38
(x ) to review the co-ordination of the audit approach where more than one audit firm
of external audi tors i s i nvol ved and the co-ordi nati on between the external and
i nternal audi tors;
(xi ) to revi ew and veri fy the al l ocati on of shares to empl oyees under the Empl oyee
Share Opti on Scheme (i f any); and
(xi i ) to perform any other functi ons as authori zed by the Board.
v) Meeti ngs & Mi nutes
The Commi ttee i s to meet at l east four (4) ti mes a year and as many ti mes as the
Commi ttee deems necessary. In order to form a mi ni mum quorum of two (2) members
for any meeting of the Committee, the majority of members present must be Independent
Non-Executi ve Di rectors. The meeti ngs and proceedi ngs of the Commi ttee are governed
by the provisions of the Articles of Association of the Company regulating the meetings
and proceedi ngs of the Board so far as the same are appl i cabl e.
The Di rector of Fi nance of the Company and the Head of Internal Audi t shal l be i n
attendance at meeti ngs of the Commi ttee. The Commi ttee may i nvi te the external
audi tors, the Fi nance Manager, any other di rectors or members of the management and
employees of the Group to be in attendance during meetings to assist in its deliberations.
Upon request by the external audi tors, the Chai rman of the Commi ttee shal l convene a
meeting of the Committee to consider any matters, the external auditors believe should
be brought to the attenti on of the di rectors or sharehol ders of the Company. At l east
once a year, the Commi ttee shal l meet wi th the external audi tors wi thout the presence
of any Executi ve Di rector. The Secretar y of the Commi ttee shal l be the Company
Secretary. Mi nutes of each meeti ng are to b e prepared and sent to the Commi ttee
members, and the Companys Di rectors who are not members of the Commi ttee.
vi ) Attendance of Meeti ngs
For the fi nanci al year ended 31 December, 2004, a total of fi ve (5) Audi t Commi ttee
Meetings were held. Details of the attendance of the committee members are as follows:
Name Number of meeti ngs attended
Ooi Teng Chew 5/5
Mazlan Bin Ismail (appointed on 25.02.2004) 4/5
Chng Hee Kok 5/5
Datuk Chuah Kim Seah (resigned on 25.02.2004) 1/5
AUDIT COMMITTEE REPORT
39
vi i ) Summary of Acti vi ti es
The mai n acti vi ti es under taken by the Commi ttee for the fi nanci al year ended 31
December 2004 were as fol l ows:-
(i ) Revi ewed the research reports and quarterl y unaudi ted consol i dated fi nanci al
statements of the Group and recommended to the Board of Di rectors for approval
and for announcement to Bursa Securi ti es.
(i i ) Revi ewed the i nternal audi t rep or ts, whi ch hi ghl i ghted the audi t i ssues,
recommendati ons and managements response. Di scussed wi th management the
correcti ve acti ons taken to i mprove the system of i nternal control based on
improvement opportunities identified in the internal audit reports.
(i i i ) Reviewed the annual report and the audited financial statements of the Group prior
to the submi ssi on to the Board for thei r consi derati on and approval . The revi ew
was, i nter-al i a, to ensure compl i ance wi th the provi si ons of the Compani es Act,
1965, Li sti ng Requi rements of Bursa Securi ti es, appl i cabl e approved accounti ng
standards i n Mal aysi a and other l egal and regul atory requi rements.
(i v) Discussed with external auditors on their audit plan and scope of work for the year
as wel l as the audi t procedures to be uti l i zed.
(v ) Revi ewed the recurrent rel ated party transacti ons of a revenue or tradi ng nature
entered into by the Group.
(vi ) Consi dered the re-appoi ntment of external audi tors.
vi i i ) Internal Audi t Functi on
On 10 February, 2004, the Company outsourced i ts i nternal audi t to an i ndependent
professional accounting firm to carry out the internal audit function of the Group in order
to assi st the Commi ttee i n di schargi ng i ts duti es and responsi bi l i ti es. Further detai l s of
the activities of the internal audit function are set out in the Internal Control Statement.
INTERNAL CONTROL STATEMENT
40
The Mal aysi an Code on Corporate Governance sti pul ates that the board of di rectors of
l i sted compani es shoul d mai ntai n a sound system of i nternal control to safeguard
sharehol ders i nvestment and the groups assets. The Board of Di rectors of Dreamgate
Corporati on Bhd i s pl eased to provi de the fol l owi ng statement on the state of i nternal
control of the Group, whi ch has been prepared i n accordance wi th the Statement on
Internal Control : Gui dance for Di rectors of Publ i c Li sted Compani es ( Internal Control
Gui dance ) i ssued by the Insti tute of Internal Audi tors Mal aysi a and adopted by Bursa
Securi ti es.
Responsi bi l i ty
The Board recogni ses the i mpor tance of a sound system of i nternal control and a
structured risk management framework to good corporate governance. The Board affirms
its overall responsibility for the Groups systems of internal control and for reviewing the
adequacy and integrity of those systems. Because of the limitations that are inherent in
any system of i nternal control , those systems are desi gned to manage rather than
el i mi nate the ri sk of fai l ure to achi eve busi ness obj ecti ves, and can onl y provi de
reasonabl e and not absol ute assurance agai nst materi al mi sstatement or l oss.
Ri sk Management
The Board and management practi ce proacti ve si gni fi cant ri sks i denti fi cati on on a
quarterl y basi s or earl i er as appropri ate, parti cul arl y any major proposed transacti ons,
changes i n nature of acti vi ti es and/or operati ng envi ronment, or venturi ng i nto new
operating environment which may entail different risks, and put in place the appropriate
ri sk response strategi es and control s unti l those ri sks are managed to, and mai ntai ned
at, a l evel acceptabl e to the Board.
The Board has establ i shed an ongoi ng process for i denti fyi ng, eval uati ng and managi ng
the significant risks faced, or potentially exposed to, by the Group in pursuing its business
objecti ves. Thi s process has been i n pl ace throughout the fi nanci al year and up to the
date of approval of the annual report. The adequacy and effecti veness of thi s process
have been conti nual l y revi ewed by the Board and are i n accordance wi th the Internal
Control Gui dance.
Internal Audi t Functi on
The Board acknowledges the importance of internal audit function and has, on 10 February
2004, engaged the servi ces of an i ndependent professi onal accounti ng and consul ti ng
fi rm to provi de much of the assurance i t requi res regardi ng the effecti veness as wel l as
the adequacy and i ntegri ty of the Groups systems of i nternal control .
INTERNAL CONTROL STATEMENT
41
The i nternal audi t functi on adopts a ri sk-based approach i n devel opi ng i ts audi t pl an
whi ch addresses al l the core audi tabl e areas of the Group based on thei r ri sk profi l e.
Schedul ed i nternal audi ts are carri ed out by the i nternal audi tors based on the audi t
pl an presented to and approved by the Audi t Commi ttee. The audi t focuses on areas
with high risk and weak controls to ensure that an adequate action plan has in place to
i mprove the control s. For those areas wi th hi gh ri sk and strong control s, the audi t
ascertai ns that the ri sks are effecti vel y mi ti gated by the control s. On a quarterl y basi s
or earl i er as appropri ate, the i nternal audi tors report to the Audi t Commi ttee on areas
for i mprovement and wi l l subsequentl y fol l ow up to determi ne the extent of thei r
recommendati ons that have been i mpl emented.
Internal Control
Apart from risk management and internal audit, the Group has put in place the following
key el ements of i nternal control :-
An organi sati on structure wi th wel l -defi ned scopes of responsi bi l i ty, cl ear l i nes of
accountabi l i ty, and appropri ate l evel s of del egated authori ty;
A process of hi erarchi cal reporti ng whi ch provi des for a documented and audi tabl e
trai l of accountabi l i ty;
A set of documented i nternal pol i ci es and procedures for operati onal fi nanci al and
human resource management, whi ch i s subject to regul ar revi ew and i mprovement;
Regul ar and comprehensi ve i nformati on provi ded to management, coveri ng fi nanci al
and operati onal performance and key busi ness i ndi cators, for effecti ve moni tori ng
and deci si on maki ng;
A comprehensive business planning and detailed budgeting process where operating
units prepare budgets for the coming year which are approved both at operating unit
l evel and by the Board;
Monthly monitoring of results against budget, with major variances being followed up
and management acti on taken, where necessary; and
Regul ar vi si ts to operati ng uni ts by members of the Board and seni or management.
Based on the i nternal audi tors report for the fi nanci al year ended 31 December 2004,
there is a reasonable assurance that the Groups systems of internal control are generally
adequate and appear to be worki ng sati sfactori l y. A number of mi nor i nternal control
weaknesses were i denti fi ed duri ng the fi nanci al year, al l of whi ch have been, or are
bei ng, addressed. None of the weaknesses have resul ted i n any materi al l osses,
contingencies or uncertainties that would require disclosure in the Groups annual report.
The Board continues to review and implement measures to strengthen the internal control
envi ronment of the Group.