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RTMIECO CHIPBOARD BERHAD

ANNUAL REPORT 2010

MIECO CHIPBOARDBERHAD

The MIECO Story 04Group Corporate Structure 06

Corporate Information 07Board of Directors 08

Board of Directors’ Profile 10Letter to Our Shareholders 14

Surat kepada Pemegang Saham 20Review of Operations 26

Engaging with Our Communities in 2010 30Group Corporate Calendar 32

InSIDE COnTEnTS

34 Financial Highlights

36 Share Performance

38 Corporate Governance Statement

42 Audit Committee Report

45 Statement on Internal Control

47 Financial Statements

110 Analysis of Shareholdings

114 List of Properties

115 notice of Annual General Meeting

118 Statement Accompanying notice of Annual General Meeting

Form of Proxy

MIECO’S GROWTH HAS COME FROM ITS COMMITMEnT TO THREE OPERATInG FUnDAMEnTALS – A HIGH QUALITY PRODUCT, An EXCELLEnT DELIVERY PROCESS, AnD A STROnG FOCUS On CUSTOMER SERVICE

04 | THE MIECO STORY MIECO AnnUAL REPORT 2010

Thirty eight years after its inception,

MIECO has cemented its position as

a world leader in the manufacture of

particleboards with a special emphasis

on the production of high quality,

value-added wood based products.

MIECO’s growth has come from

its commitment to three operating

fundamentals- a high quality product,

an excellent delivery process, and a

strong focus on customer service.

MIECO attained the ISO 9002 Quality

Management System in 1998 and

subsequently upgraded to the ISO

9001:2000 in 2002. In 2004, MIECO

became the first company in the

Malaysian wood-panel industry to receive

the prestigious BS En ISO 14001:1996

Environmental Management System.

In line with this, MIECO attained the

certification for the OSHAS 18001:1999

in 2005. The BS En ISO 9001:2000 was

upgraded to ISO 9001:2008 in early 2010.

The integration of EMS ISO 14001:2004

and OHSAS 18001:2007 in the same year

proved MIECO’s commitment to being a

responsible manufacturer and employer

in the areas of environment, health and

safety.

MIECO has three factories located in

Semambu, Gebeng and Kechau Tui,

Pahang with a combined capacity of more

than 900,000 cubic meters per annum.

MIECO also has one of the single largest

particleboard lines in the Asia-Pacific

region, located at its latest plant in

Kechau Tui, which started production in

March 2005. The plant attained the BS

En ISO 9001:2000 Quality Management

Systems in June 2005. MIECO products

are marketed in more than 20 countries

around the world, and its global reach

now covers northern Asia, Southern Asia,

the Indian Subcontinents, the Middle

East as well as some parts of Africa and

Australasia.

Having started out as a dedicated

particleboard producer in 1976, MIECO

has now developed and expanded

into value-added products such as

MIECO Decorative MFC, Electron Beam

Foil Chipboard (EBFC), Polymer Faced

Chipboard (PFC), MIECO Worktops, MIECO

Direct Post Formed (DPF) Boards as well

as value added services and DIY Furniture

THEMIECO STORY

| 05THE MIECO STORYMIECO AnnUAL REPORT 2010

under the MIECO Livin’ Style brand name.

All MIECO products conform to

international standards such as European

Community BS En 312 Standard

applicable for both moisture-resistant

and non-moisture resistant boards with

Super E0 E0, E1 and E2 formaldehyde

emission levels. MIECO E1 products have

been further refined to meet the United

States’ CARB Phase 1 & 2 requirements

for conformance to low formaldehyde

emissions.

In light of its commitment to the

environment and to meet the needs and

expectations of customers, MIECO has

been certified the Japanese Industrial

Standards, JIS 5908 since April 2009,

evidence of MIECO’s product reliability

for the Japanese market. In addition,

MIECO has started to sell products

certified with California Air Resource

Board (“CARB”) Phase II since January

2011, demonstrating compliance of

MIECO’s composite wood products with

California Code of Regulations for the

US market. Since April 2009, MIECO

has offered customers and consumers

the option to choose products from

environmentally and socially responsible

and economically viable forestry through

our products certified for Programme for

the Endorsement of Forest Certification

(PEFC). MIECO’s melamine laminated

products have attained Singapore

Green Label Certification endorsed by

the Singapore Environment Council

certifying our products’ minimal impact

to overall environment, right from raw

materials to the manufacturing process,

composition, health impact and finally

the disposal of the product.

MIECO is also committed to the

development of its more than 800

employees, and to building long-lasting

mutually rewarding partnerships with

its customers and stakeholders around

the world. It is this commitment that

has made MIECO a true global Malaysian

champion.

MIECO IS ALSO COMMITTED TO THE DEVELOPMEnT OF ITS MORE THAn 800 EMPLOYEES, AnD TO BUILDInG LOnG-LASTInG MUTUALLY REWARDInG PARTnERSHIPS WITH ITS CUSTOMERS AnD STAKEHOLDER COMMUnITIES AROUnD THE WORLD. IT IS THIS COMMITMEnT THAT HAS MADE MIECO A TRUE GLOBAL MALAYSIAn CHAMPIOn.

GROUPCORPORATE STRUCTUREAS AT 25 APRIL 2011

Listed on Bursa Malaysia Securities Berhad

MIECOMANUFACTURING SDN BHD100%

MIECOMARKETINGSDN BHD100%

MIECO CHEMICALSSDN BHD100%

MIECO CHIPBOARDBERHAD

MIECO WOOD PRODUCTSSDN BHD100%

MIECOREFORESTATIONSDN BHD100%

TUDORCAPITALSDN BHD100%

MIECO WOODRESOURCESSDN BHD100%

CORPORATEInFORMATIOn

MIECO MARKETING (S) PTE LTD100%

ASPIREBENCHMARKSDN BHD100%

MIECO INTERNATIONAL(H.K.) LIMITED 100%

Board Of Directors

Dato’ Mohamed Moiz Bin J M Ali Moiznon-Independent non-Executive Chairman

Dato’ Yong Seng YeowManaging Director

Dato’ Jaganath Derek Steven Sabapathynon-Independent non-Executive Director

Lt. Gen. (R) Dato’ Seri Mohamed Daud Bin Abu BakarIndependent non-Executive Director

Dato’ Dr Amarjit Singh A/L Santokh Singh Independent non-Executive Director

Mr Vijeyaratnam A/L V. Thamotharam Pillay Independent non-Executive Director

Mr Low Kim Sengnon-Independent non-Executive Director

Registered Office

Level 10 Menara BRDB285 Jalan Maarof, Bukit Bandaraya59000 Kuala Lumpur, MalaysiaTel : 603 - 2688 2888Fax : 603 - 2284 3988

Bursa Malaysia Stock Number

MIECO 5001

International SecuritiesIdentification Number (ISIN)

MIECO MYL5001OO002

Reuters Code

MIEC. KL

Secretary

Ho Swee Ling MAICSA no. 7009936

Registrars

Metra Management Sdn Bhd30.02, 30th Floor, Menara Multi-PurposeCapital Squareno. 8 Jalan Munshi Abdullah50100 Kuala Lumpur, MalaysiaTel : 603 - 2698 3232Fax : 603 - 2698 0313

Auditors

Messrs PricewaterhouseCoopers

Bankers

Alliance Bank Malaysia BerhadAmBank (M) BerhadOCBC Bank (Malaysia) BerhadMalayan Banking BerhadHSBC Bank Malaysia Berhad

BOARD OFDIRECTORS

DATO’ JAGANSABAPATHYnOn - InDEPEnDEnTnOn - EXECUTIVEDIRECTOR

DATO’ MOHAMED MOIZnOn - InDEPEnDEnTnOn - EXECUTIVECHAIRMAn

DATO’ S Y YONGMAnAGInGDIRECTOR

MR T VIJEYARATNAMInDEPEnDEnTnOn - EXECUTIVEDIRECTOR

DATO’ SERI MOHAMED DAUDInDEPEnDEnTnOn - EXECUTIVEDIRECTOR

DATO’ DR AMARJITInDEPEnDEnTnOn - EXECUTIVEDIRECTOR

MR KS LOWnOn - InDEPEnDEnTnOn - EXECUTIVEDIRECTOR

10 | BOARD OF DIRECTORS’ PROFILE MIECO AnnUAL REPORT 2010

BOARD OFDIRECTORS’ PROFILE

Dato’ Mohamed Moiz Bin J M Ali Moiz,non-Independent

non-Executive Chairman

Dato’ Mohamed Moiz Bin J M Ali Moiz,

a Malaysian, aged 50, was appointed to

the Board on 14 november 2000 and

as Chairman on 15 August 2002. He

graduated with a Bachelor of Science

Degree in Business Administration and

International Finance in 1985. He joined

Timbco Sdn Bhd, a company involved in

timber trading, processing and forestry

management, as Project Manager from

1985 to 1986. In 1987, he was appointed

as Chief Executive Officer of the Tradium

group of companies, which has interests

in property development, fashion

retailing, manufacturing, F & B and equity

investments. In 1999, he was appointed as

Chief Executive Officer of Effective Capital

Sdn Bhd, a company which successfully

undertook the migration of the CLOB

securities from the Central Depository

(Pte) Limited in June 2000.

Currently, Dato’ Mohamed Moiz also

sits on the boards of Bandar Raya

Developments Berhad (Chairman) and

several other private limited companies.

He is a member of the Executive

Committee of the Company.

Dato’ Mohamed Moiz is a deemed major

shareholder of the Company by virtue of

his interest in Ambang Sehati Sdn Bhd.

DATO’ YONG SENG YEOW,Managing Director

Dato’ Yong Seng Yeow, a Malaysian,

aged 58, was appointed as Executive

Director on 1 January 1994. He was

subsequently redesignated as Managing

Director on 1 January 2007. Dato’ Yong

has over 25 years of experience in sales

and marketing in building materials and

furniture industries.

Currently, Dato’ Yong also sits on the

boards of Century Logistics Holdings

Berhad and several subsidiaries in the

Mieco Chipboard Berhad Group. He is a

member of the Executive Committee of

the Company.

Dato’ JaganathDerek Steven Sabapathy,non-Independent

non-Executive Director

Dato’ Jagan Sabapathy, a Malaysian,

aged 54, was appointed to the Board

on 15 September 1999. He attended

Edinburgh University in the United

Kingdom and holds a Master of Arts

majoring in Corporate Finance and

International Trade. Upon graduation in

1981, he joined a leading London firm of

Chartered Accountants, Price Waterhouse,

where he articled and qualified as a

Chartered Accountant.

Dato’ Jagan returned to Malaysia in 1984

and joined KPMG Peat Marwick. He was

admitted a Partner of KPMG Malaysia and

a Director of Peat Marwick Consultants in

1990.

Whilst at KPMG Peat Marwick, he was

involved in a wide range of assignments

covering audit, investigations,

management consultancy and corporate

finance, in Malaysia, the ASEAn

countries, north America and Europe.

He sat on a variety of KPMG International

Committees including committees for

Mergers and Acquisitions, Privatisation

and Management Consultancy. He was

also an examiner for the professional

examinations of the Malaysian Association

of Certified Public Accountants.

He left the partnership in late 1994

and took up a senior appointment with

a Malaysian public listed plantation

company. At the end of 1995, he left

and led a group of Australian and British

investors to successfully privatise the

overseas operations of Tasmania’s Hydro

Electric Commission. He joined the boards

of Prime Utilities Berhad and Indah Water

Konsortium Sdn Bhd, Malaysia’s privatised

national wastewater utility in September

1997 as Managing Director, a position he

held to August 1999.

Currently, Dato’ Jagan also sits on the

boards of Bandar Raya Developments

Berhad (Chief Executive Officer) and

several subsidiaries in the Bandar Raya

Developments Berhad Group. He is a

member of the Executive Committee,

Remuneration Committee and nomination

Committee of the Company.

| 11BOARD OF DIRECTORS’ PROFILEMIECO AnnUAL REPORT 2010

Mr VijeyaratnamA/L V. Thamotharam Pillay,Independent non-Executive Director

Mr Vijeyaratnam A/L V. Thamotharam

Pillay, a Malaysian, aged 59, was appointed

to the Board as non-Independent non-

Executive Director on 1 October 2007.

He was subsequently redesignated as

Independent non-Executive Director on

23 February 2010. He is a member of the

Audit Committee of the Company.

He is a Fellow of the Institute of Chartered

Accountants in England and Wales and

a member of the Malaysian Institute

of Accountants. Mr Vijeyaratnam has

considerable experience covering areas

of auditing, financial planning, general

management and corporate advisory in

various business environments. He is

currently the Managing Director of his

own corporate advisory and consultancy

company.

Presently, Mr Vijeyaratnam also sits on

the boards of Bandar Raya Developments

Berhad, Multi-Purpose Holdings Berhad,

Eastern & Oriental Berhad and several other

private limited companies in Malaysia.

Lt. Gen. (R) Dato’ SeriMohamed Daud Bin Abu Bakar,Independent non-Executive Director

Lt. Gen. (R) Dato’ Seri Mohamed Daud

Bin Abu Bakar, a Malaysian, aged 75, was

appointed to the Board on 24 March 1997.

He graduated from the world-renowned

Royal Military Academy, Sandhurst,

United Kingdom in December 1956, the

Army Staff College, Camberley, United

Kingdom and the Royal College of Defence

Studies, United Kingdom and has served

the Malaysian Army with distinction for

36 years. During his military career, he

was appointed to various key command

and staff appointments both in the field

headquarters and in the Ministry of

Defence and has also served in various

military committees at national and

international levels.

Currently, Dato’ Seri Mohamed Daud also

sits on the boards of other private limited

companies. He is the Chairman of the Audit

Committee, a member of the Remuneration

Committee and nomination Committee of

the Company.

Dato’ Dr Amarjit SinghA/L Santokh Singh,Independent non-Executive Director

Dato’ Dr Amarjit Singh A/L Santokh Singh,

a Malaysian, aged 61, was appointed to

the Board on 3 April 1997. He graduated

as a Doctor with a degree in Bachelor of

Medicine and Bachelor of Surgery, from

Bombay University, India in 1973. He

also obtained post-graduate certificates

in Sports Medicine and Genito-Urinary

Medicine from the College of General

Practitioners of Malaysia in 1988 and 1989,

respectively. In addition, he is a Fellow

of the Royal Society of Health, United

Kingdom. In 1990 he established his own

practice in Kuala Lumpur.

He is a former national Cricket

Captain and Deputy President of the

Malaysian Cricket Association. He is

also the immediate past President of

the Malaysian Association of Sports

Medicine and has been the Chairman

of the Society of Sports Medicine of the

Malaysian Medical Association.

Dato’ Dr Amarjit is currently a member

of the Audit Committee, Remuneration

Committee and nomination Committee

of the Company.

Mr Low Kim Seng, non-Independent

non-Executive Director

Mr Low Kim Seng, a Malaysian,

aged 56, was appointed to the Board

on 25 April 1991. He is a member of

the Malaysian Institute of Accountants.

Mr Low qualified as a Management

Accountant in 1978 and has working

experience in accounting, corporate

finance and general management. He

worked with two Malaysian public listed

companies prior to joining Bandar Raya

Developments Berhad in 1989 and is

currently the Chief Financial Officer

of Bandar Raya Developments Berhad.

He is also a member of the Executive

Committee of the Company.

notes:

1) Save as disclosed above, none of the Directors has any family relationship with any director and/or major shareholder of the Company.

2) none of the Directors has: • any conflict of interest with the Company. • any conviction for offences within the past ten years.

PRODUCT DEVELOPMEnT HAS ALWAYS BEEn A CORE STRATEGY FOR MIECO, AnD IT WAS nO DIFFEREnT In 2010. WE ROLLED OUT 6 nEW WOOD GRAIn DESIGnS UnDER THE 2010 MIECO DECORATIVE MFC. THESE HAVE BEEn WELL-RECEIVED In THE MARKET, AnD WE AnTICIPATE THEY WILL BE SIGnIFICAnT COnTRIBUTORS TO OUR BOTTOM LInE In 2011.

14 | LETTER TO OUR SHAREHOLDERS MIECO AnnUAL REPORT 2010

LETTER TO OURSHAREHOLDERS

Dear friends and shareholders of MIECO,

In 2010, our wood-based manufacturing business, for the first time in several years, saw some real recovery in demand. This was

indeed a heartening turn of events, coming on the back of several very challenging years. Market conditions in Asia started to

improve, although the United States and Europe, which form our biggest furniture markets, are still facing difficulties.

We made most of the opportunities that came our way in 2010, resulting in our second consecutive year of improved performance.

The tough times are by no means over but I do believe we have turned a corner.

It is therefore with a sense of hope and optimism that I present to you, on behalf of the Board of Directors, the Annual Report and

Audited Financial Statements for the MIECO Chipboard Group (“MIECO” or “The Group”) for the financial year ending 31 December

2010.

2010 : Managing costs and efficiencies

In 2010, MIECO recorded RM174.2 million in revenue, 6% down against RM185.7 million in 2009. This was attributable to lower

export sales volume as a result of a lower allocation for plain board, but mitigated by increased domestic demand with more sales

of value-added products.

MIECO’s profit before tax was RM1.65 million after accounting for finance cost, depreciation and maintenance of its plant in Kechau

Tui, Kuala Lipis which was not operational in 2010, compared to its previous year’s loss of RM16.5 million.

To manage costs, we continued in 2010 to operate only two plants, having temporarily stopped production in our Kuala Lipis plant

at the end of 2008 in the wake of the global financial crisis. We focused our efforts on improving efficiencies in our Gebeng and

Semambu plants and negotiating best rates for materials. However, the prices of raw materials, especially glue and wax, started to

increase in the 4th quarter of 2010 due to an increase in the price of crude oil, and we expect this upward trend to continue.

16 | LETTER TO OUR SHAREHOLDERS MIECO AnnUAL REPORT 2010

GLOBAL CHALLEnGESHIT HOME

At the same time, we continued our

efforts in R&D, with a focus on developing

environmentally-sensitive products which

are rapidly becoming the global market

preference. This is a key differentiator

for the MIECO brand, and one that we

will continue to focus on. We stepped up

efforts to meet international standards,

and achieved the E1 California Air

Resource Board (CARB) Phase 2 in 2010.

The improvement in our financial

performance has resulted in earnings per

share rising from a loss of 6.99 sen in

2009 to a gain of 0.77 sen in 2010.

Dividend

Although the company made a small

profit in the current financial year, due

to the financial covenants of our existing

borrowings and our intention to preserve

cash to finance the recommencement

of Plant 3, the Directors are not in a

position to recommend the payment of

dividends for the financial year ended

31 December 2010. no dividend was

declared for the financial year ending

31 December 2009. It is the Board’s

intention to resume payment of dividends

as soon as circumstances permit.

2011 : Emerging stronger, better

Following a steady recovery in demand

for particleboard and related products,

the Group recommenced operations at its

Plant 3 in Kechau Tui, Pahang in January

this year, after temporarily suspending

operations during the global economic

turmoil in late 2008.

We expect to sort out all technical and

other issues at our Plant 3 in Kechau Tui

during the 1st quarter of 2011. We are

aggressively moving to reconsolidate our

WE STAYED FOCUSED On OUR STRATEGY OF InTRODUCInG VALUE-ADDED PRODUCTS THAT CEMEnT OUR DIFFEREnTIATIOn In THE MARKETPLACE, AnD ROLLED OUT 6 nEW WOOD GRAIn DESIGnS FOR OUR MILLEnnIUM COLLECTIOn, WITH EnCOURAGInG RESPOnSE.

| 17LETTER TO OUR SHAREHOLDERSMIECO AnnUAL REPORT 2010

raw material supply chain around the

Kuala Lipis area and we are hopeful to

achieve this during the 1st half of 2011.

The recommencement of Plant 3 will

enable Mieco to start getting back the

market share that we had lost during

the closure of the plant. 2011 will be a

challenging year for Plant 3 operations

but we are confident that we will be

showing more positive results from

2012 onwards.

In addition to the reopening of our

Plant 3 in Kecau Tui, for 2011 to meet

the more demanding expectations of

our global customers, we are focusing

on improving our overall product

standards and technical specifications.

We are currently working on at least 6

new colours and 2 surface designs, to

expand our capacity and meet increasing

demand.

We plan to increase our offering of new

colours, especially in the solid colour and

wood grain colour range, to meet current

demand. And we plan to capitalize on the

growing demand for innovative, stylish

furniture designs especially apparent

amongst younger customers and first-

time homeowners.

We will also continue to pioneer new

products, as we have in the past –

innovations like the DIY concept which

we introduced to the Malaysian market in

1979, the Electron Beam Foil Chipboard

(EBFC), the Direct Post-Formed board

(DPF) and the R3 Worktop.

With all the efforts that are being spent

on our business, we have to be cognizant

of the fact that in 2011, business

conditions remain challenging for the

Group, especially in the face of rising

raw material and energy costs. There has

been a sharp rise in the price of glue and

wax in recent months, and we expect this

to continue.

Wood prices, which were well below

budget in 2010, have started to rise,

due to the extended monsoon which is

making it difficult for wood to be sourced.

However, we expect prices to stabilize

when the weather improves in Q2.

Despite this, we are cautiously optimistic;

the slight improvement we saw in the

second half of 2010 is heartening.

We are working hard at ensuring that

we keep a tight rein on the cost of raw

materials, which we are getting much

better at doing, and upping the ante

on product development, especially

value-added and environmentally-

sensitive products, which has always

been our forte.

With the high prices of latex, making

it more difficult to source traditional

rubber wood supply, we continue to

explore the use of alternative raw

material sources and sustainable timber

waste as key raw material components,

which will reduce our dependency on

current sources. We will also continue

to implement process optimizations in

order to improve productivity as well

as implement new ways to control and

manage our reject rates.

As always, we will continue to nurture

and grow our relationships with our

Malaysian customers, who have been

loyal customers to MIECO and who

contribute more than half of our global

business.

Market outlook : Positive & promising

The outlook for the Malaysian economy

is positive. The national Property

Centre’s 2010 property report records

a new high for the Malaysian property

market in 2010, with volume and value

of transactions recording double-digit

growth of 11.4% and 32.6% respectively.

18 | LETTER TO OUR SHAREHOLDERS MIECO AnnUAL REPORT 2010

The residential property sector dominated

the local property market last year,

capturing 60.2% of total transactions

and 47.1% of value, and we expect this

trend to continue in 2011. This bodes

well for our domestic market, which

is increasingly important to us given

the dismal performance of the global

marketplace. An expected rise in domestic

consumption will give our business a

much-needed boost.

We believe that the fundamentals of

the country remain solid, supported

by various measures under the Tenth

Malaysia Plan and Prime Minister Dato

Seri najib’s Economic Transformation

Programme. Projects such as the Kuala

Lumpur International Financial District,

the Mass Rapid Transit for Greater KL and

the redevelopment of areas like Kampung

Baru and the Rubber Research Institute

in Sg Buloh are all expected to have

positive spillover effects.

We foresee the next 3 years to be a

period of strong growth, on the back of

increased public spending and a more

dynamic public sector. The five strategic

thrusts identified by the government;

Government Transformation, Conducive

Business Environment, Inclusive Socio-

Economic Development, First World

Talent Base and Enhanced Quality of

Life Environment will augur well for the

economy and is set to transform the

country into a high income nation.

We expect the emphasis on

environmentally-sensitive products to keep

growing, and in this, we are well-positioned

to take advantage of opportunities.

Globally, we expect Asia to drive growth,

as has been the case these past few years.

Additionally, we expect to see higher

demand from Japan, as the country moves

into a phase of rebuilding following the

devastation of the March 2011 earthquake

and tsunami. This will mitigate the

challenges being faced by the United

States and across Europe, especially

Greece, Iceland, Portugal and Spain.

We have been through some trying years

for Mieco, but through it all we have

kept faith in the belief that we have a

viable and sustainable business. now

we are seeing signs that the industry is

finding its feet again and we are confident

that MIECO is ready to take full advantage

of this.

| 19LETTER TO OUR SHAREHOLDERSMIECO AnnUAL REPORT 2010

The MIECO Team

Through all these challenges, the MIECO

team has been steadfast in their loyalty

and commitment to the business.

They have worked hard to contain

costs and look for more efficiencies.

As with our shareholders, our team

have had to endure difficult times but

have performed above and beyond

expectations throughout.

To our loyal customers, all around the

world and especially here in Malaysia –

Thank You. You have seen us through

tough times, and we thank you for that.

We will continue to work hard to produce

high quality, value-added products that

bring strong returns to your business

and brand.

To the MIECO Board of Directors, thank

you for your belief in the MIECO brand,

and your vision in steering it through

some turbulent times. I could not have

asked for a better, more committed team

to help us stay the course. And on behalf

of all of us, our deepest appreciation to

Datin Sri Bettina Khan, who retired from

the Board last year.

To you our shareholders, thank you for

your patience and continued belief in

MIECO. All of us in Mieco will continue

to strive to serve as best as we can

and hopefully are able to fulfill your

expectations.

Thank You

Dato’ Mohamed Moiz bin J M Ali Moiz

Chairman

MIECO Chipboard Berhad

27 April 2011

On BEHALF OF THE BOARD OF DIRECTORS OF MIECO, I WOULD LIKE TO EXTEnD OUR HEARTFELT THAnKS TO EACH AnD EVERY MEMBER OF THE MIECO FAMILY. YOU HAVE WORKED HARD, STAYED LOYAL AnD COMMITTED In THE FACE OF TOUGH TIMES AnD HAVE EMERGED A STROnGER, MORE CLOSELY-KnIT, MORE UnITED TEAM THAT I AM SURE WILL TAKE US FURTHER AnD HIGHER. WE LOOK FORWARD TO MUCH BETTER TIMES AHEAD, TOGETHER.

20 | SURAT KEPADA PEMEGAnG SAHAM MIECO AnnUAL REPORT 2010

SURAT KEPADA PEMEGAnG SAHAM

Para pemegang saham dan pemegang taruh masyarakat global MIECO yang dihormati,

Pada tahun 2010, syarikat kami yang berasaskan kayu, buat kali pertamanya sepanjang beberapa tahun ini, telah memperlihatkan

beberapa pemulihan permintaan yang nyata. Ini merupakan peristiwa yang menggembirakan kami setelah mengharungi beberapa

tahun yang mencabar. Keadaan pasaran di Asia mulai pulih, meskipun Amerika Syarikat dan Eropah, yang merupakan pasaran perabot

terbesar masih lagi menghadapi kesulitan.

Kami telah merebut sebahagian besar daripada peluang yang wujud dalam tahun 2010, di mana peningkatan prestasi syarikat telah

berlangsung sepanjang 2 tahun berturut-turut. Masa yang mencabar itu belum berlalu, akan tetapi kami percaya bahawa kami telah

melepasi laluan yang sukar.

Oleh itu, saya, dengan penuh harapan dan optimis, selaku wakil Lembaga Pengarah ingin membentangkan Laporan Tahunan dan

Penyata Kewangan Berodit bagi Kumpulan MIECO Chipboard (“MIECO” atau “Kumpulan”) untuk tahun kewangan yang berakhir pada

31 Disember 2010.

2010: Pengurusan kos dan kecekapan

Pada tahun 2010, MIECO telah mencatat RM174.2 juta hasil pendapatan, iaitu 6% menurun berbanding dengan RM185.7 juta pada

tahun 2009. Hal ini disebabkan oleh penurunan jualan eksport tetapi diatasi dengan peningkatan permintaan domestik serta

peningkatan penjualan produk-produk nilai tambah.

MIECO telah mencatat keuntungan sebelum cukai sebanyak RM1.65 juta setelah mengambil kira kos kewangan, susut nilai dan

penyelenggaraan bagi kilang di Kechau Tui, Kuala Lipis yang tidak beroperasi pada tahun 2010, berbanding dengan kerugian

sebanyak RM16.5 juta pada tahun sebelumnya.

| 21SURAT KEPADA PEMEGAnG SAHAMMIECO AnnUAL REPORT 2010

Untuk mengawal kos, pada tahun 2010

kami meneruskan operasi dua buah

kilang, selepas penutupan sementara

kilang kami di Kechau Tui pada tahun

2008. Kami menumpukan usaha kami

untuk meningkatkan kecekapan kilang

kami di Gebeng dan Semambu dan

membuat rundingan harga terbaik untuk

kesemua bahan mentah. namun, harga

bahan mentah khususnya pelekat, cecair

lilin mula meningkat pada suku ke-4

tahun 2010 akibat kenaikan harga minyak

mentah, di mana kami menjangkakan

trend ini akan berterusan.

Kami memberi tumpuan kepada

strategi kami iaitu memperkenalkan

produk-produk tambah nilai yang dapat

mengukuhkan keistimewaan kami

di dalam pasaran, dan melancarkan

sebanyak enam rekabentuk corak

kayu terbaru kami untuk siri Millenium

Collection yang mana terus mendapat

sambutan yang memberangsangkan.

Pada masa yang sama, kami masih

meneruskan usaha penyelidikan dan

pembangunan (R&D), dengan memberi

fokus kepada produk-produk mesra

alam yang makin menjadi pilihan

utama pasaran global. Ini adalah kunci

keistimewaan jenama MIECO yang tetap

kami fokuskan. Kami telah meningkatkan

usaha untuk memenuhi piawaian

antarabangsa dan mencapai California

Air Resources Board (CARB) Fasa 2 pada

tahun 2010.

PEnInGKATAn DALAM PRESTASI KEWAnGAn KAMI TELAH MEnGUBAH KEDUDUKAn PEROLEHAn SESAHAM DARI KERUGIAn 6.99 SEn SESAHAM BAGI TAHUn 2009 KE KEUnTUnGAn 0.77 SEn SESAHAM BAGI TAHUn 2010.

GELORA EKOnOMIYAnG MELAnDA

22 | SURAT KEPADA PEMEGAnG SAHAM MIECO AnnUAL REPORT 2010

Dividen

Walaupun syarikat memperolehi

keuntungan yang kecil dalam tahun

kewangan, disebabkan oleh perjanjian

dan kontrak kewangan dan hasrat untuk

mengekalkan tunai bagi membiayai

pembukaan semula kilang ke-3, pihak

Pengarah tidak dapat menyarankan

bayaran dividen bagi tahun kewangan

yang berakhir pada 31 Disember 2010.

Bagi tahun 2009, tiada dividen juga

diisytiharkan. Ini ialah disebabkan

harapan pengarah untuk menyambungkan

semula pembayaran dividen

secepat mungkin sekiranya keadaan

membenarkan.

2011 : Kemunculan lebih bertenaga,

lebih baik

Kami memulakan operasi kilang ke-3 kami

di Kechau Tui, Pahang pada bulan Januari

tahun ini berikutan dengan peningkatan

permintaan pasaran untuk papan serpai

serta produk-produk berkaitan, setelah

penutupan sementara operasi akibat

kemelesetan ekonomi global pada akhir

tahun 2008.

Pada suku tahun pertama tahun 2011,

kami berharap dapat menyelesaikan

kesemua masalah teknikal dan isu-isu lain

di kilang ke-3 kami di Kechau Tui. Kami

dengan agresifnya akan mengukuhkan

rangkaian pembekalan bahan mentah

di sekitar kawasan Kuala Lipis dan

berharap akan mencapai kejayaan dalam

pertengahan tahun 2011. Pembukaan

semula kilang ke-3 kami di Kechau Tui

akan membolehkan MIECO mendapat

semula pasaran yang pernah terlepas

semasa penutupan kilang tersebut. 2011

akan menjadi tahun yang mencabar bagi

operasi kilang ke-3 kami tetapi kami yakin

bahawa kami mampu untuk menunjukkan

keputusan positif pada tahun 2012 dan

seterusnya.

Selain pembukaan semula kilang ke-3

kami di Kechau Tui, untuk memenuhi

kehendak lebih ramai pelanggan

global kami bagi tahun 2011, kami

memberi tumpuan kepada peningkatan

keseluruhan piawaian produk dan

spesifikasi teknikal. Kami sedang dalam

proses menghasilkan 6 warna baru

dan 2 rekabentuk permukaan untuk

memperluaskan kapasiti kami bagi

memenuhi peningkatan permintaan.

Kami merancang untuk menawarkan

pelbagai warna baru, terutamanya

warna solid dan juga pelbagai pilihan

corak kayu demi memenuhi permintaan

pelanggan. Kami juga merancang untuk

memanfaatkan peningkatan permintaan

rekabentuk perabot yang berinovasi dan

bergaya di kalangan pelanggan berusia

muda dan pemilik rumah baru pertama.

Kami juga akan terus menjadi perintis

bagi produk baru - inovasi seperti konsep

DIY yang kami perkenalkan ke pasaran

Malaysia pada tahun 1979, Electron Beam

Foil Chipboard (EBFC), Direct Post-Formed

Board (DPF) dan R3 Worktop.

| 23SURAT KEPADA PEMEGAnG SAHAMMIECO AnnUAL REPORT 2010

Dengan segala usaha yang sedang

kami gunakan pada perniagaan kami,

kami harus mengambil ikhtibar bahawa

dalam tahun 2011, keadaan perniagaan

masih lagi mencabar untuk Kumpulan,

terutamanya apabila menghadapi

kenaikan kos bahan mentah dan tenaga.

Terdapat peningkatan runcing dalam

harga pelekat dan cecair lilin beberapa

bulan terakhir ini yang mana kami

jangkakan akan berterusan.

Harga kayu, yang di bawah anggaran

bajet dalam tahun 2010, sudah mula

meningkat kerana musim tengkujuh

yang berpanjangan telah menyulitkan

pencarian sumber kayu. namun, kami

berharap harga beransur stabil apabila

cuaca bertambah baik pada suku ke-2.

Walaupun demikian, kami optimis

secara berjaga-jaga; pemulihan di suku

ke-2 2010 adalah menggalakkan. Kami

bekerja keras untuk memperketatkan

pergerakan kos bahan mentah di mana

kami telah mempunyai pengalaman

yang luas. Kami juga mempergiatkan

pembangunan produk terutamanya

produk tambah-nilai dan mesra alam

iaitu merupakan kekuatan kami.

Oleh kerana harga susu getah yang

tinggi telah menyukarkan pemperolehan

sumber kayu getah, kami terpaksa

mencari sumber bahan mentah alternatif

dan sisa kayu secara berterusan

sebagai komponen utama supaya

dapat mengurangkan pergantungan

kami kepada sumber sediada. Kami

juga akan terus melaksanakan proses

pengoptimuman untuk meningkatkan

produktiviti serta menerapkan cara-cara

baru untuk mengawal dan menguruskan

kadar penolakan.

Seperti biasa kami akan terus memupuk

dan memperluaskan hubungan kami

dengan pelanggan kami di Malaysia,

yang kuat dan setia kepada MIECO,

yang telah menyumbangkan separuh

daripada perniagaan global kami.

24 | SURAT KEPADA PEMEGAnG SAHAM MIECO AnnUAL REPORT 2010

Prospek Pasaran : Yang Menjanjikan &

Positif

Sektor hartanah telah mendominasi

pasaran tempatan tahun lalu, merangkul

sebanyak 60.2% dari jumlah keseluruhan

transaksi dan 47.1% secara nilai, dan

kami berharap tren ini akan berterusan

pada tahun 2011. Hal ini menjadi petanda

baik untuk pasaran domestik, lebih-lebih

lagi di masa prestasi pasaran global

yang suram. Seperti yang dijangkakan,

kenaikan penggunaan domestik akan

memberikan dorongan yang amat

diperlukan kepada perniagaan kami.

Kami percaya bahawa dasar negara

tetap kukuh dengan sokongan daripada

pelbagai tindakan di bawah Rancangan

Malaysia Ke-10 dan program Transformasi

Ekonomi Perdana Menteri Datuk Seri

najib. Projek seperti Daerah Kewangan

Antarabangsa Kuala Lumpur, Mass

Rapid Transit untuk Greater KL dan

pembangunan semula kawasan-kawasan

seperti Kampung Baru, Penjara Pudu dan

Institut Penyelidikan Getah di Sungai

Buloh diharap akan mempunyai kesan

kelebihan yang positif.

Kami menganggarkan pertumbuhan yang

kukuh pada 3 tahun yang akan datang

ditambah oleh perbelanjaan orang ramai

dan sektor awam yang lebih dinamik.

Kami berharap penekanan kepada produk

mesra alam akan terus berkembang di

mana kami berada dalam kedudukan

yang baik untuk mengambil kesempatan

terhadap peluang yang ada.

Secara global, kami berharap Asia dapat

memberi dorongan kepada pertumbuhan,

seperti yang telah terjadi kebelakangan

ini. Selain itu, kami menjangkakan

permintaan yang lebih tinggi dari negara

Jepun, di mana negara Jepun sedang

bergerak ke fasa pembangunan semula

selepas kemusnahan akibat gempa

bumi pada bulan Mac 2011. Ini selaku

langkah berjaga-jaga terhadap cabaran

yang dihadapi oleh Amerika Syarikat

dan seluruh Eropah, terutamanya

Greek, Iceland, Portugal, Sepanyol dan

sebagainya.

Kami telah mengharungi beberapa tahun

percubaan untuk MIECO, tetapi melalui

jangka masa tersebut, kami percaya

bahawa kami memiliki perniagaan yang

berbaloi serta kekal usia. Sekarang, kami

melihat tanda-tanda bahawa industri kami

sudah kembali bertapak dan kami yakin

bahawa MIECO bersedia untuk merebut

peluang dengan sepenuhnya.

Warga MIECO

Setelah mengharungi segala cabaran

ini, warga MIECO masih menunjukkan

kesetiaan dan komitmen terhadap

PROSPEK EKOnOMI MALAYSIA ADALAH POSITIF. LAPORAn HARTAnAH DARI nATIOnAL PROPERTY CEnTRE’S 2010 TELAH MEnCATAT TAHAP BARU PASARAn HARTAnAH DI MALAYSIA PADA TAHUn 2010, DEnGAn JUMLAH DAn nILAI TRAnSAKSI MASInG-MASInG MEnCATAT PERTUMBUHAn DUA DIGIT SEBAnYAK 11.4% DAn 32.6%.

| 25SURAT KEPADA PEMEGAnG SAHAMMIECO AnnUAL REPORT 2010

perniagaan ini. Mereka telah bekerja

keras untuk mengekalkan kos dan

mencari kecekapan. Seperti yang

dilakukan oleh para pemegang saham

kami, pasukan kami harus juga bertahan

menghadapi masa sukar, serta bertindak

di luar jangkaan.

Atas nama Lembaga Pengarah MIECO,

saya ingin menghulurkan ucapan terima

kasih dengan tulus ikhlas kepada setiap

ahli keluarga MIECO. Anda telah bekerja

keras, tetap setia dan komited dalam

menghadapi masa sukar dan telah

muncul lebih kuat, lebih erat dan lebih

bersatu. Saya yakin ianya akan membawa

kita lebih jauh. Saya berharap kita dapat

bersama-sama menuju ke hadapan.

Untuk pelanggan setia kami di seluruh

dunia dan khususnya di Malaysia -

Terima Kasih. Anda telah melihat kami

melalui masa yang sukar, dan kami

berterima kasih untuk itu. Kami akan

terus bekerja keras untuk menghasilkan

produk berkualiti tinggi, produk nilai

tambah yang akan memberi pulangan

hebat kepada perniagaan dan jenama

anda.

Untuk Lembaga Pengarah MIECO, terima

kasih atas kepercayaan anda pada

jenama MIECO, dan visi anda dalam

memandu syarikat ini melalui pahit

getir. Anda adalah pasukan yang terbaik,

lebih komited untuk membantu kami

tetap berada di landasan. Kami juga

ingin mengambil kesempatan ini untuk

mengucapkan terima kasih kepada

Datin Sri Maria Bettina Khan yang bersara

daripada Lembaga Pengarah.

Untuk anda pemegang saham kami,

terima kasih di atas kesabaran anda dan

keyakinan yang berterusan terhadap

MIECO. Kami semua dari MIECO akan

terus berusaha keras untuk memberikan

perkhidmatan sebaik mungkin dan

semoga kami mampu memenuhi harapan

anda semua.

Terima Kasih

Dato’ Mohamed Moiz bin Ali M J Moiz

MIECO Chipboard Berhad

27 April 2011

26 | REVIEW OF OPERATIOnSMIECO AnnUAL REPORT 2010

2010 was a year of recovery for MIECO,

after a challenging year in 2009.

2010 generated positive results, giving us

the confidence that we can finally expect

to see the business enjoy a turn for the

better.

Our financial results: The start of a

turnaround

For the year ending December 2010,

MIECO recorded revenue of RM174.2

million, down 6% against the RM185.7

million we achieved in 2009. This was

attributable to lower export sales volume

but mitigated by increased domestic

demand with more sales of value-added

products.

MIECO’s profit before tax increased

to RM1.65 million after accounting

for finance cost, depreciation and

maintenance of its plant in Kuala Lipis

which was not operational in 2010,

compared to its previous year’s loss of

RM16.5 million.

Business activities

As part of our cost containment strategy,

we continued to operate only two plants

in 2010, keeping Plant 3, in Kechau Tui,

Pahang, closed.

We focused on improving efficiencies

and production quality at the two plants.

Among the initiatives we implemented

there were; improving plain board

production volume, improving product

standards to meet international

requirements such as the E1 CARB

Phase 2, reducing machine downtime and

FOR 2010, WE FOCUSED On 3 CORE STRATEGIES FOR SUSTAInInG OUR BUSInESS – MAnAGInG COSTS AnD IMPROVInG EFFICIEnCIES, STEPPInG UP PRODUCT DEVELOPMEnT AnD PROTECTInG OUR DOMESTIC CUSTOMER BASE, WHICH COnTInUES TO BE OUR LIFELInE.

REVIEW OF OPERATIOnS

| 27REVIEW OF OPERATIOnSMIECO AnnUAL REPORT 2010

reducing production reject rate.

Based on the market turnaround in the

second half of 2010, we anticipated

having to reopen our plant at Kechau

Tui in Pahang, and spent time and effort

ensuring the plant was up and ready. We

reopened the plant in January 2011 and

are pleased to report that it is running

smoothly. With the resumption of Plant

3, MIECO will see an increase in its plain

board capacity and this will enable us to

produce more value-added products.

6 new wood grain designs under the

2010 MIECO Decorative MFC comprising

Montana Cherry, Olive Ash, Vermont Ash,

Linea, Tiziano Pine and Zena Pine. These

have been well-received in the market,

and we anticipate they will be significant

contributors to our bottom line in 2011.

We are currently working on at least 6

new additional designs which we will roll

out in 2011. Our target is to increase our

range of designs as we expect there to be

increasing demand for this value-added

product.

We stepped up efforts to meet

international standards, and achieved the

E1 California Air Resource Board (CARB)

Phase 2 in 2010. In January 2011, we

started to produce products with this

certification, demonstrating compliance

of MIECO’s composite wood products

with California Code of Regulations for

the US market.

We also attained, for MIECO’s melamine

laminated products, the Singapore Green

Label Certification endorsed by the

Singapore Environment Council certifying

our products’ minimal impact to overall

environment, right from our raw

materials to the manufacturing process,

composition, health impact and finally

the disposal of the product.

We focused our marketing efforts on

the domestic market, which has steadily

grown and now contributes more than

50% of our business. Our Malaysian

We also worked hard to negotiate the

best rates for raw materials, taking

advantage of a depressed market in the

first half of 2010, and managed to secure

good contracts for the supply of critical

raw materials that will see us through

2011.

Product development has always been

a core strategy for MIECO, and it was

no different in 2010. We rolled out

28 | REVIEW OF OPERATIOnSMIECO AnnUAL REPORT 2010

customers have proven to be loyal and

respond well to our new products; we

spent time nurturing and growing these

relationships.

And we continued to explore the use of

rubber wood as a sustainable raw material

alternative. Results are positive and we

are optimistic that we will have a suitable,

cost-efficient raw material alternative in

the not-too-distant future.

All these measures not only helped us

minimize losses, but gave us a strong

differentiation factor in the international

marketplace, helping position us

strongly amongst players in the global

particleboard industry.

People : A year of great teamwork

In 2010, we invested time and effort in

developing the skills and knowledge of

our team, taking advantage of a slower

operating environment to improve our

talent pool. Our employees spent a total

of 602 hours in training in 2010, against

the original plan of 427 hours.

In ADDITIOn TO THAT, WE HAD 137 EMPLOYEES ATTEnD MOTIVATIOnAL AnD TEAM DEVELOPMEnT PROGRAMMES, WHICH TOGETHER HELPED InCREASE EFFICIEnCY, TEAMWORK AnD PRODUCTIVITY.

| 29REVIEW OF OPERATIOnSMIECO AnnUAL REPORT 2010

We believe that working together is

an important part of MIECO’s success;

as was clearly demonstrated in our

performance in 2010. We are working

hard to ensure this is carried through

across the company, and especially at

Plant 3, as we recommence operations

there this year.

Community : Supporting the

communities we operate in

MIECO continued to have close ties

with the communities it operated

in, organizing events to build and

strengthen relationships, whilst being

supportive of their needs.

Part of our efforts in 2010 included

several familiarization sessions for the

communities, where we invited students

and lecturers from nearby institutions

of learning to visit our plants and

understand our production process.

Led by our well- trained staff, they were

exposed to the step by step production

of particleboards.

We also stayed in close touch with the

local community, inviting representatives

from the Department of Environment,

the Police department and Taman Balok

Makmur Residents Committee members

to attend our ‘Majlis Berbuka Puasa’

(breaking of fast) event.

We continue to engage with and aid our

communities despite market challenges;

they have been loyal supporters of

our business, and we enjoy a strong,

mutually-rewarding relationship with

them. We are committed to giving them

our best, acting responsibly and keeping

their interests at heart.

All in, 2010 was a lean year for the

business, but we used the time to

improve MIECO’s overall operational,

product development and purchasing

model, which will help us lay a strong

foundation for the turnaround we

anticipate to happen in 2011, and

help MIECO regain its position as one

of the world’s leading wood-based

manufacturing brands.

30 | EnGAGInG WITH OUR COMMUnITIES In 2010MIECO AnnUAL REPORT 2010

to develop the communities confidence in

approaching MIECO, testament to strong

relationships.

In its efforts to foster stronger ties with

the government-related bodies in its area

of operation, members of the Department

of Environment, Police and Taman Balok

Makmur Residents Committee were invited

to attend ‘Majlis Berbuka Puasa’. The well-

received event was attended by Dato’ Yong

Seng Yeow as well as the staff from the

Gebeng and Semambu plants.

Within the company, employee engagement

programmes to create interaction between

the plants were carried out successfully.

There was strong participation, an

indication of the effect of previous

programmes we have had, and this year

brought further encouragement.

In Pantai Balok, a fishing competition and

telematch was held for the members and

children of Kelab Sukan dan Sosial Mieco

(KSSM). A friendly football match was held

between MIECO KSSM and Beserah Selatan

Football Club which KSSM won. Sepak

takraw and badminton matches were held

between members and there was a KSSM

organised trip to Tioman Island.

MIECO has always placed strong emphasis

on education and 2010 saw several

initiatives in this vein. Groups of students

and lecturers from the International Islamic

University of Malaysia, Universiti Teknologi

Mara, Jengka and Universiti Putra Malaysia

were taken on tours of the plants and

educated on the machinery and processes

used in MIECO’s production.

The visits from universities were also

structured to give participants a greater

understanding of the possible hazards and

dangers involved in chipboard production,

and the respective safety systems MIECO

has in place.

Taking steps for greater involvement on the

educational front, 22 students from UTM,

USM, ADTEC, UPM, UUM, Polisas, UMP and

Politeknik Hulu Terengganu were received

to undertake their 6 months practical

training.

Donations were made to the community for

a variety of causes that included new ceiling

fans for Sekolah Agama Rendah and the

blister board needed for Rejimen Ke 1, Kor

Armor Di Raja, Kem Batu 10 to construct

the platform for their family day. These

donations represent MIECO’s aim to support

different groups within the community and

Corporate Social Activities for 2010.

Jan – Dec 2010

Received 22 students for Industrial Practical

training for a period of 2 – 6 months.

• Students were from UTM, USM, ADTEC,

UPM, UUM, Polisas, UMP and Politeknik

Hulu Terengganu.

21 Jan 2010

Plant Visit by 3 Lecturers and 20 students

from Int’l Islamic University of Malaysia.

• to expose them on machine used in

MIECO production, hazard while working

with machines and how to control and

avoid an accident from happening.

31 Jan 2010

Launching of general meeting

‘Jawatankuasa Majlis Muafakat – SAR / KAFA

Masjid Darul Husna, Taman Balok Makmur.

• Donation of 4 units ceiling fans for

Sekolah Agama Rendah / Kelas Agama

Fardhu Ain Darul Husna.

THROUGHOUT 2010, MIECO COnTInUED EnGAGInG WITH AnD SUPPORTInG ITS COMMUnITIES In PAHAnG. EFFORTS WERE FOCUSED HERE TO STREnGTHEn RELATIOnSHIPS WITH THE IMMEDIATE COMMUnITIES.

EnGAGInG WITH OUR COMMUnITIES In 2010

| 31EnGAGInG WITH OUR COMUnITIES In 2010MIECO AnnUAL REPORT 2010

11 Mar 2010

Plant Visit by 2 lecturers and 38 students

from Universiti Teknologi Mara, Jengka.

• to expose them on chipboard production

and processes.

16 Mar 2010

Plant Visit by 4 lecturers and 27 students

from Universiti Putra Malaysia.

• to expose them on chipboard production

and processes.

25 May 2010

Donation to Rejimen Ke 1

Kor Armor Di Raja, Kem Batu 10, Kuantan.

• 40 pieces of 18mm x 12’ x 18’ of blister

boards – to construct platform for family day.

25 Aug 2010

Invite representatives from Department

of Environment, Police and Tmn Balok

Makmur Residents Committee members

to attend ‘Majlis Berbuka Puasa’.

This event was attended by Dato’ Yong

Seng Yeow, managers and workers from

Gebeng and Semambu plant.

PARTS OF KSSM ACTIVITIES CONDUCTED

IN 2010

11 Apr 2010

Fishing competition and Telematch for

children at Pantai Balok open for KSSM

members.

17 Apr 2010

Football friendly match between MIECO

KSSM and Beserah Selatan Football Club.

KSSM won 2-1.

27 June 2010

Close Sepak Takraw and Badminton Match

between club members.

24 – 26 Sep 2010

Trip to Tioman Island.

32 | GROUP CORPORATE CALEnDARMIECO AnnUAL REPORT 2010

GROUP CORPORATE CALEnDAR

| 33GROUP CORPORATE CALEnDARMIECO AnnUAL REPORT 2010

24 June 2010

Thirty-Seventh Annual General Meeting of MIECO.

1 October 2010

Resignation of Datin Sri Maria Bettina Chua Binti Abdullah as Director of MIECO.

31 October 2010

MIECO launched 3 new designs for MIECO Decorative MFC 2010 Millenium collection.

5 January 2011

MIECO recommenced operations at its Plant 3 in Kechau Tui, Kuala Lipis, which had ceased temporarily in late 2008 due to the global financial crisis.

MIECO introduced to the market wood products endorsed with California Air Resource Board (“CARB”) Phase II certification which are in compliance with California Code of Regulations for the US market.

1 to 5 March 2011

MIECO participated in the 17th Malaysia International Furniture Fair (MIFF) held at Putra World Trade Centre, Kuala Lumpur and rolled out 3 new MIECO Decorative MFC color designs and 1 new surface texture for its 2011 collection.

‘MIECO Partners’ nite’ held at Seri Pacific Hotel Kuala Lumpur on 1 March 2011 in appreciation of the continuous support from customers and distributors.

34 | FInAnCIAL HIGHLIGHTSMIECO AnnUAL REPORT 2010

FInAnCIAL HIGHLIGHTSFInAnCIAL STATISTICS 2006-2010

2010 2009 2008 2007 2006 Restated* Restated* RM’000 RM’000 RM’000 RM’000 RM’000

ASSETS

Non current assets

Property, plant and equipment 489,406 503,188 524,388 513,145 514,438Prepaid lease rentals - - - 17,622 17,862 Investment properties - 7,417 8,396 6,878Deferred tax assets 491 446 455 490 412

489,897 503,634 532,260 539,653 539,590

Current assets 85,463 80,290 163,064 167,522 154,985 Non-current assets held for sale - - - 1,672 1,750

TOTAL ASSETS 575,360 583,924 695,324 708,847 696,325

EQUITY AND LIABILITIES

Equity attributable to equity holders of the Company Share capital 210,000 210,000 210,000 210,000 210,000 Reserves 108,519 106,288 120,592 148,224 148,422 Total equity 318,519 316,288 330,592 358,224 358,422 Non-current liabilities 181,236 196,245 177,199 190,584 77,631 Current liabilities 75,605 71,391 187,533 160,039 260,272 Total liabilities 256,841 267,636 364,732 350,623 337,903 TOTAL EQUITY AND LIABILITIES 575,360 583,924 695,324 708,847 696,325 GROUP RESULTS Revenue 174,208 185,739 370,216 351,372 330,424

Profit / (loss) before taxation 1,646 (16,516) (36,261) 561 10,030 Tax (expense) / credit (30) 1,837 8,308 1,750 (3,535)

Profit / (loss) after taxation 1,616 (14,679) (27,953) 2,311 6,495 Dividend paid - - - 2,100 -

Retained profit / (loss) 1,616 (14,679) (27,953) 211 6,495 SELECTED RATIOS Basic earnings / (loss) per share 0.77 (6.99) (13.31) 1.10 3.09Proposed dividend per share (sen) - - - - 1.00net tangible assets per share (RM) 1.52 1.51 1.57 1.71 1.71

* Restated in accordance with the adoption of FRS 117 (note 36)

| 35FInAnCIAL HIGHLIGHTSMIECO AnnUAL REPORT 2010

REVENUE(In RM’000)

330,424

2006

351,372

2007

370,216

2008

185,739

2009

174,208

2010

400,000

300,000

200,000

100,000

0

696,325

2006

708,847

2007

695,324

2008

583,924

2009

575,360

2010

750,000

600,000

450,000

300,000

150,000

0

TOTAL ASSETS(In RM’000)

SHAREHOLDERS’ FUNDS(In RM’000)

358,422

2006

358,224

2007

330,592

2008

316,288

2009

318,519

2010

360,000

340,000

320,000

300,000

PROFIT / (LOSS) AFTER TAxATION (In RM’000)

6,4952,311

(27,953)

(14,679)

1,616

40,000

30,000

20,000

10,000

02006 2007 2008 2009 2010

36 | SHARE PERFORMAnCEMIECO AnnUAL REPORT 2010

SHARE PERFORMAnCE

VOLUME

(MILLIOn)

200

175

150

100

50

25

0

PRICE(RM)

1.00

0.75

0.50

0.25

0

High

Low

Volume

nov 10

16.86

0.53

0.68

Dec 10

25.30

0.53

0.635

Feb 11

11.02

0.52

0.69

Jan 11

30.32

0.565

0.69

May 10

5.172

0.37

0.445

Jun 10

5.085

0.38

0.45

Jul 10

3.391

0.375

0.42

Aug 10

137.05

0.40

0.97

Sep 10

0.685

0.78

Oct 10

21.13

0.59

0.725

Apr 11

59.87

0.66

0.795

Mar 11

179.81

0.48

0.83

40.88

38 Corporate Governance Statement

42 Audit Committee Report

45 Statement on Internal Control

CORPORATESTATEMEnTS

38 | CORPORATE GOVERnAnCE STATEMEnTMIECO AnnUAL REPORT 2010

CORPORATE GOVERnAnCE STATEMEnTThe Board of MIECO (“the Board”) remains firmly committed to

ensuring an appropriate and sound system of good corporate

governance throughout the Group with the fundamental objective

of protecting and enhancing shareholder value and the financial

performance of the Group.

The Board is pleased to report on the application of the principles

of corporate governance contained in the Malaysian Code on

Corporate Governance (“the Code”) and the extent of compliance

with the best practices of the Code throughout the financial year

ended 31 December 2010.

BOARD OF DIRECTORS

Responsibilities Of The Board

The Board is overall responsible for the direction and control of

the Group as it formulates policies, sets strategic directions and

oversees the investments and operations of the Group.

The Board retains full and effective overall control over the

affairs of the Group and the Company. The principal duties and

responsibilities of the Board are:

• formulating the business direction and objectives of the Group;

• reviewing, adopting and approving the Group’s annual budgets,

strategic plans, key operational initiatives, major investments

and funding decisions;

• overseeing the conduct of business of the Group;

• reviewing the risk management process within the Group;

• assuming responsibility in succession planning within the

Group; and

• reviewing and ensuring the adequacy and effectiveness of

internal control systems and management information systems

to ensure compliance with applicable standards, laws and

regulations.

The Board has established dedicated Board committees which

operate with clear terms of reference to assist the Board in the

execution of its responsibilities. The Board committees include

Audit Committee, Executive Committee, nomination Committee

and Remuneration Committee. The respective committees have

the authority to examine particular issues and report back to the

Board with their recommendations. The ultimate responsibility

for the final decision on all matters, however, lies with the Board.

Board Composition And Balance

During the financial year under review, Dato’ Mohamed Moiz

Bin J M Ali Moiz relinquished his position as Executive Chairman

and was re-designated as non-Executive Chairman of MIECO.

Datin Sri Maria Bettina Chua Binti Abdullah who was appointed

to the Board on 23 February 2010 resigned from the Board on

1 October 2010. As at the date of this statement, the Board

has seven (7) members, comprising one (1) Executive Director

and six (6) non-Executive Directors, of whom three (3) are

independent. The Company is in compliance with the Listing

Requirements of Bursa Malaysia Securities Berhad (“Bursa

Securities”) which requires one third (1/3) of the board members

to comprise Independent Directors. The Directors collectively

bring a wide range of business experience and expertise which

are vital for the continued successful direction of the Group.

A brief profile of each Director is set out on pages 10 and 11

of this Annual Report. The roles of the non-Executive Chairman

and the Managing Director are distinct and separate to ensure

that there is a proper balance of power and authority. The

Chairman is entrusted with the task of running the Board while

the Managing Director is primarily responsible for managing the

Group’s day-to-day operations and implementing the policies and

strategies adopted by the Board.

The three (3) Independent Directors have the experience and

business acumen necessary to carry sufficient weight in the

Board’s decisions and their presence bring an additional element

of balance to the Board as they do not participate in the

day-to-day running of the Company. They fulfil the pivotal role

in corporate accountability in ensuring that not only the interests

of the shareholders, but also of employees, customers, suppliers

and the many communities in which the Group conducts

business are given due consideration in the decision-making

process.

The Board is of the opinion that it is not necessary to designate

a senior Independent non-Executive Director to whom concerns

may be conveyed. The Board operates in an open environment

in which opinions and information are freely exchanged and

in these circumstances any concerns need not be focused on

a single Director as all members of the Board fulfil this role

collectively.

Board Meetings And Supply Of Information

Board meetings are scheduled in advance at the beginning of

each new financial year to enable the Directors to plan ahead and

fit the year’s meetings into their own schedules. The Board meets

at least five (5) times a year. Additional meetings are held as and

when necessary.

| 39CORPORATE GOVERnAnCE STATEMEnTMIECO AnnUAL REPORT 2010

During the financial year ended 31 December 2010, five (5)

Board meetings were held. The details of attendance of each

Director are set out below:

In advance of each Board meeting, the agenda together with the

relevant board papers are forwarded to all Directors for them

to review matters to be deliberated and to facilitate informed

decision making by the Directors. The Board also has a formal

schedule of matters reserved specifically for the Board’s

decision, including the approval of corporate plans and budgets,

acquisitions and disposals of assets that are material to the

Group, major investments, changes to management and control

structure of the Group, including key policies, procedures and

authority limits. The Board also notes the decisions and salient

issues deliberated by the Audit Committee (“AC”) through the

minutes of the AC, which are tabled to the Board.

Senior management personnel are invited to attend the Board

meetings, where necessary, to provide additional information

and insights on the relevant agenda items tabled at Board

meetings.

The Directors have full access to senior management for

information and assistance and the advice and services of the

Company Secretary who is responsible for ensuring that the

Board meeting procedures are followed and that applicable rules

and regulations are complied. In addition, the Directors may also

seek independent professional advice in the furtherance of their

duties at the Company’s expense, if required.

Directors’ Training

The Directors are mindful that they shall receive appropriate

training to broaden their knowledge and to keep abreast with the

various changes in laws, regulations and business environment.

During the financial year under review, all members of the Board

have attended various training programmes and seminars. The

training programmes and seminars attended by the Directors

were on areas relating to corporate governance, corporate

development, forensic accounting and fraud.

The Company Secretary facilitates the organisation of Directors’

training programmes and their attendance, and keeps a complete

record of the training received or attended by the Directors.

Appointments To The Board

The appointment of new Directors is under the purview of

the nomination Committee (“nC”) which is responsible for

making the necessary recommendations to the Board on

suitable candidates for appointment. In addition, the nC is

also responsible for reviewing annually the mix of skills and

experience and the effectiveness of the Board as a whole

and the committees of the Board and contribution of each

individual Director. The nC currently comprises three (3) non-

Executive Directors: Dato’ Jaganath Derek Steven Sabapathy

(non-Independent non-Executive Director), Lt. Gen. (R) Dato’

Seri Mohamed Daud Bin Abu Bakar (Independent non-Executive

Director) and Dato’ Dr Amarjit Singh a/l Santokh Singh

(Independent non-Executive Director).

RE-ELECTION

The Company’s Articles of Association provides that at least one-

third (1/3) of the Directors for the time being shall retire from

office at every Annual General Meeting (“AGM”) and be eligible

for re-election provided always that all Directors shall retire from

office at least once every three (3) years but shall be eligible for

re-election. Directors who are appointed to the Board during the

financial year are subject to re-election by shareholders at the

next AGM held following their appointments.

Directors over seventy (70) years of age are required to

submit themselves for re-appointment annually at the AGM in

accordance with Section 129(6) of the Companies Act, 1965.

Name of DirectorTotal Number of

Meetings Attended

Dato’ Mohamed Moiz Bin J M Ali Moiz 5/5

Dato’ Yong Seng Yeow 5/5

Dato’ Jaganath Derek Steven Sabapathy 5/5

Datin Sri Maria Bettina Chua Binti Abdullah 3/3*

Lt. Gen. (R) Dato’ Seri Mohamed Daud Bin Abu Bakar

5/5

Dato’ Dr Amarjit Singh A/L Santokh Singh 5/5

Mr Vijeyaratnam A/L V. Thamotharam Pillay 5/5

Mr Low Kim Seng 5/5

* Datin Sri Maria Bettina Chua Binti Abdullah was appointed on 23 February 2010 and resigned on 1 October 2010

40 | CORPORATE GOVERnAnCE STATEMEnTMIECO AnnUAL REPORT 2010

DIRECTORS’ REMUNERATION

The remuneration of Directors is determined at levels that

enable the Group to attract and retain Directors with the relevant

experience and expertise needed to assist in managing the

Group effectively and successfully. The Remuneration Committee

(“RC”) reviews annually the performance of the Executive

Directors and furnishes recommendations to the Board on

specific adjustments and/or reward payments. The RC currently

comprises three (3) non-Executive Directors: Dato’ Jaganath

Derek Steven Sabapathy (non-Independent non-Executive

Director), Lt. Gen. (R) Dato’ Seri Mohamed Daud Bin Abu Bakar

(Independent non-Executive Director) and Dato’ Dr Amarjit Singh

a/l Santokh Singh (Independent non-Executive Director). The

remuneration of the non-Executive Directors reflects the level of

responsibilities undertaken by the particular Director concerned

in the Company and in the Group and after considering directors’

remuneration of comparable organisations. The determination

of the remuneration of the non-Executive Directors is a matter

for the Board as a whole. A sitting allowance is also paid to

non-Executive Directors for each Board or committee meeting

they attend. All fees payable to the Directors are subject to

shareholders’ approval at the AGM. The Board, after considering

the Company’s financial position for 2010, decided to only

recommend the payment of Directors’ fee to the 3 Independent

Directors. The proposed payment of Directors’ fees to the 3

Independent Directors will be submitted to shareholders for

approval at the forthcoming AGM.

The details of the Directors’ remuneration for the financial year

ended 31 December 2010 are set out on pages 98 and 99 of this

Annual Report. The number of Directors whose remuneration fall

within the following bands is as follows:

The Board is of the view that the transparency and accountability

aspects of corporate governance as applicable to the Directors’

remuneration are appropriately served by the band disclosure

made.

CORPORATE GOVERnAnCE STATEMEnT(COnTInUED)

INVESTOR RELATIONS

Dialogue Between The Company And Investors

The Board recognises the need for and the importance of

effective communication with shareholders as well as potential

investors and the public. The Group communicates with its

shareholders and stakeholders regularly through timely release

of financial results on a quarterly basis, press releases and

announcements which provide an overview of the Group’s

performance and operations and disclosure of material

information. In addition, the Group has established a website

(www.mieco.com.my) which shareholders and members of the

public can access for corporate information and news/events

relating to the Group and for channelling their queries.

AGM

The AGM represents the principal forum for dialogue and

interaction with all shareholders. Shareholders are welcome to

attend the Company’s AGMs and to actively participate in the

proceedings. Every opportunity is given to shareholders to ask

questions and seek clarification on the business and performance

of the Group and the Company.

ACCOUNTABILITY AND AUDIT

Financial Reporting

In presenting the annual financial statements and quarterly

announcements to shareholders, the Board takes responsibility

to present a balanced and understandable assessment of the

Group’s and the Company’s position and prospects.

Statement Of Directors’ Responsibility In Respect Of Audited

Financial Statements

The Directors are responsible for ensuring that the annual

audited financial statements of the Group and the Company are

drawn up in accordance with the requirements of the applicable

approved Financial Reporting Standards issued by the Malaysian

Accounting Standard Board, the provisions of the Companies

Act, 1965 and the Main Market Listing Requirements of Bursa

Securities.

Range of RemunerationExecutive Directors

Non-Executive Directors

Below RM50,000 - 6

RM50,001 - RM100,000 - 1

RM750,001 - RM800,000 1 -

| 41CORPORATE GOVERnAnCE STATEMEnTMIECO AnnUAL REPORT 2010

The Directors are also responsible for ensuring that the annual

audited financial statements of the Group and the Company are

prepared with reasonable accuracy from the accounting records

of the Group and the Company so as to give a true and fair view

of the state of affairs of the Group and the Company at the end

of the financial year, and of the results and cash flows of the

Group and the Company for the financial year.

In preparing the annual audited financial statements, the

Directors have:

• applied the appropriate and relevant accounting policies on a

consistent basis;

• made judgements and estimates that are reasonable and

prudent; and

• prepared the annual audited financial statements on a going

concern basis as the Directors have a reasonable expectation,

having made enquiries, that the Group and the Company have

adequate resources to continue in operational existence for the

foreseeable future.

The Directors are also responsible for taking such steps as

are reasonably open to them to safeguard the assets of the

Group and the Company to prevent and detect fraud and other

irregularities.

Internal Control

The Group’s Internal Control Statement is set out on pages 45

and 46 of this Annual Report.

Relationship With Auditors

The external auditors, Messrs PricewaterhouseCoopers have

continued to report to the shareholders of the Group. Through

the Audit Committee (“AC”), the Company has established a

transparent relationship with the external auditors to meet their

professional requirements. From time to time, the external

auditors have highlighted to the AC and the Board matters that

require the AC’s and the Board’s attention.

The role of the AC in relation to the external auditors is set out

in the AC Report on pages 42 to 44 of this Annual Report.

ADDITIONAL COMPLIANCE INFORMATION

Share Buybacks

The Company did not buy back any of its shares during the

financial year ended 31 December 2010.

Exercise Of Options, Warrants Or Convertible Securities

The Company has not granted any options or issued any

warrants or convertible securities during the financial year ended

31 December 2010.

Depository Receipt Programme

The Company did not sponsor any depository receipt programme

during the financial year ended 31 December 2010.

Sanctions Or Penalties

There were no sanctions and/or penalties imposed on the

Company and its subsidiaries, Directors or management by the

relevant regulatory bodies during the financial year ended 31

December 2010.

Non-Audit Fees

non-audit fees paid/payable to the external auditors by the

Group for the financial year ended 31 December 2010 amounted

to RM27,000.

Variation In Results

There were no variances of 10% or more between the audited

results for the financial year ended 31 December 2010 and the

unaudited results previously announced.

Profit Guarantee

There were no profit guarantees given by the Company during

the financial year ended 31 December 2010.

Material Contracts Involving Directors’ And Major

Shareholders’ Interests

There were no material contracts entered into by the Company

and its subsidiaries involving Directors’ and major shareholders’

interests either subsisting as at 31 December 2010 or entered

into since the end of the previous financial year.

This statement was approved by the Board at its meeting

held on 27 April 2011.

42 | AUDIT COMMITTEE REPORT MIECO AnnUAL REPORT 2010

MEMBERSHIP AND ATTENDANCE OF MEETINGS

The Audit Committee (“AC”) members and details of attendance

of each member at the AC meetings held during the financial year

ended 31 December 2010 are as follows:

COMPOSITION AND TERMS OF REFERENCE

Objectives

The primary objectives of the AC are:

a) to assist the Board of MIECO (“the Board”) in the discharge of

its responsibilities by reviewing the adequacy and integrity

of the Group’s and the Company’s internal control systems

and management information systems for compliance with

applicable laws, regulations, rules, directives and guidelines;

b) to reinforce the independence of the external auditors and

thereby help ensure that they will have free reign in the audit

process and to provide by way of regular meetings, a line of

communication between the Board and the external auditors;

and

c) to provide emphasis on the internal audit function by

increasing the objectivity and independence of the internal

auditors and provide a forum for discussion that is

independent of management.

Membership

The AC shall be appointed by the Directors from amongst their

number which fulfils the following requirements:

(a) the AC shall be composed of not fewer than three (3)

members;

(b) all the AC members must be non-Executive Directors, with a

majority of them being Independent Directors;

(c) at least one (1) member of the AC:

(i) must be a member of the Malaysian Institute of

Accountants (“MIA”); or

(ii) if he is not a member of the MIA, he must have at least

three (3) years’ working experience and:

(aa) he must have passed the examinations specified

in Part I of the 1st Schedule of the Accountants Act

1967; or

(bb) he must be a member of one of the associations of

accountants specified in Part II of the 1st Schedule

of the Accountants Act 1967; or

(iii) fulfils such other requirements as prescribed or

approved by Bursa Malaysia Securities Berhad (“Bursa

Securities”).

(d) no alternate Director shall be appointed as a member of the

AC.

(e) If a member of the AC resigns or for any other reason ceases

to be a member with the result that the number of members

is reduced below three (3), the Board shall, within three (3)

months of that event, appoint such number of new members

as may be required to make up the minimum number of

three (3) members.

(f) The term of office and performance of the AC and each of its

members shall be reviewed by the Board no less than once

every three (3) years.

Chairman

The members of the AC shall elect a Chairman from amongst

their number who shall be an Independent Director.

Name of AC MemberNumber of AC Meetings

Held Attended

Lt. Gen. (R) Dato’ Seri Mohamed Daud Bin Abu Bakar– Chairman/Independent

non-Executive Director

6 6

Dato’ Dr Amarjit Singh A/L Santokh Singh – Member/ Independent

non-Executive Director

6 6

Mr Vijeyaratnam A/L V. Thamotharam Pillay – Member/ Independent

non-Executive Director

6 6

AUDIT COMMITTEE REPORT

| 43AUDIT COMMITTEE REPORT MIECO AnnUAL REPORT 2010

Secretary

The Company Secretary shall act as the Secretary of the AC.

FUNCTIONS OF THE AC

The functions of the AC are as follows:

(a) to review with the external auditors the audit plan, audit report

and their evaluation of the system of internal controls; and the

assistance given by the employees to the external auditors in

discharging their duties;

(b) to review the quarterly and year-end financial statements of the

Group and the Company, focusing particularly on:

• changes in or implementation of accounting policies and

practices;

• significant adjustments arising from the audit;

• the going concern assumption; and

• compliance with accounting standards and other legal

requirements.

(c) to discuss problems and reservations arising from the interim

and final audits, and any matter the external auditors may wish

to discuss (in the absence of management where necessary);

(d) to review the external auditors’ management letters and

management’s response;

(e) to review the adequacy of the scope, functions, competency

and resources of the internal audit function, and that it has the

necessary authority to carry out its works;

(f) to review the internal audit programme, processes, the results

of the internal audit programme, processes or investigation

undertaken and whether or not appropriate action is taken on

the recommendations of the internal audit function;

(g) to consider any related party transaction and conflict of interest

situation that may arise within the Group or the Company

including any transaction, procedure or course of conduct that

raises questions of management integrity;

(h) to consider the major findings of internal investigations and

management’s response;

(i) to consider the nomination and appointment of external auditors

and any questions of resignation or dismissal;

(j) to report promptly to Bursa Securities on any matter reported by

the AC to the Board which has not been satisfactorily resolved

resulting in a breach of the Main Market Listing Requirements of

Bursa Securities; and

(k) to consider and examine other topics as may be defined by the Board.

RIGHTS OF THE AC

Wherever necessary and reasonable for the performance of its duties,

the AC shall in accordance with a procedure to be determined by the

Board and at the cost of the Company:

(a) have 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 Group and the Company;

(d) have direct communication channels with the external auditors

and person(s) carrying out the internal audit function or activity;

(e) be able to obtain independent professional or other advice and to

secure the attendance of outsiders with relevant experience and

expertise it considers necessary; and

(f) be able to convene meetings with the external auditors, the

internal auditors or both, without the presence of other Directors

and employees of the Company, whenever deemed necessary.

MEETINGS AND REPORTING PROCEDURES

(a) The AC shall meet as often as the Chairman deems necessary but

not less than four (4) times a year.

(b) The quorum for an AC meeting shall be at least two (2) members;

the majority of the members present must be Independent

Directors.

(c) The internal auditors shall be in attendance at meetings to

present and discuss the audit reports and other relevant matters

and the recommendations relating thereto and to follow up on all

relevant decisions made.

(d) The AC may invite the external auditors, any non-member

Directors or employees of the Group to attend its meetings to

assist in its deliberations and resolutions of matters raised.

44 | AUDIT COMMITTEE REPORT MIECO AnnUAL REPORT 2010

(e) The AC shall, at least twice a year, meet with the external

auditors without any executive Board member present. At

the request of the external auditors or internal auditors, the

Chairman shall convene an AC meeting to consider any matter

that the external auditors or internal auditors believe should be

brought to the attention of the Board or shareholders.

(f) The Secretary is responsible for sending out notices of meetings

and preparing and keeping minutes of meetings.

(g) The AC meeting minutes are to be extended to all members of

the Board.

SUMMARY OF ACTIVITIES

During the financial year ended 31 December 2010, six (6) AC

meetings were held. The details of attendance of the AC members are

set out on page 42 of the Annual Report.

Internal auditors attended four (4) AC meetings to present their

internal audit reports. The external auditors were present at two (2)

of the AC meetings.

Minutes of AC meeting were tabled for confirmation at the next AC

meeting and subsequently distributed to the Board for notation. The

AC Chairman conveyed to the Board matters of significant concern as

and when raised by the external auditors or internal auditors.

The AC has carried out its duties in accordance with its terms of

reference during the financial year ended 31 December 2010. The

activities carried out by the AC included the following:

(i) reviewed the risk-based internal audit plan with the internal

auditors to ensure adequate scope and coverage on their

activities;

(ii) reviewed the annual audit plan with the external auditors, prior

to the commencement of the annual audit as to their scope of

work and audit strategy;

(iii) reviewed and approved the Audit Committee Report for inclusion

in the Company’s Annual Report;

(iv) reviewed the quarterly unaudited financial results and year-end

audited financial statements of the Group before recommending

them to the Board for approval;

(v) reviewed the audit memorandum, issues and management’s

response to the external auditors;

(vi) reviewed internal audit reports with the internal auditors,

especially with regard to the issues raised, audit

recommendations and management’s response. Where

necessary, the AC has directed action to be taken by

management to rectify and improve the system of internal

controls and procedures;

(vii) reviewed related party transactions of the Group; and

(viii) had private discussions with the external auditors without the

presence of the Executive Directors and management.

INTERNAL AUDIT FUNCTION

The AC is supported by an outsourced internal audit function in

discharging its duties and responsibilities. The outsourced internal

audit function conducts regular and systematic reviews of the

key controls and processes in the operating units and assesses

compliance with the established policies and procedures. This

provides reasonable assurance that such systems would continue

to operate satisfactorily and effectively in the Group. In addition,

the internal audit function also conducts investigations and special

reviews at the request of management.

During the financial year, the internal auditors carried out audit

assignments over a wide range of operational areas and support

services functions of the Group based on the approved audit plan.

These included Customer Service, Procurement and Finance. Follow

up audits were also carried out to ensure that management’s

corrective actions were implemented appropriately. At the request

of management, the internal auditors also performed reviews of

specific policies and procedures to further improve internal controls,

conducted a control and risk awareness workshop and attended

quarterly stock takes to ensure due processes had been observed

and complied with.

The resulting reports of the audits undertaken, incorporating audit

recommendations and management’s response were presented to

the AC. There were no material losses incurred during the financial

year as a result of weaknesses in the system of internal controls and

management continues to take measures to strengthen the control

environment.

AUDIT COMMITTEE REPORT

| 45STATEMEnT On InTERnAL COnTROLMIECO AnnUAL REPORT 2010

STATEMEnT On InTERnAL COnTROLINTRODUCTION

The Board of MIECO (“the Board”) is committed to maintaining a

sound system of internal controls within the Group and is pleased

to provide the following statement which outlines the nature and

scope of internal controls of the Group during the financial year

under review pursuant to the Main Market Listing Requirements

of Bursa Malaysia Securities Berhad.

BOARD RESPONSIBILITY

The Board affirms its overall responsibility for maintaining

a sound system of internal controls and for reviewing their

adequacy and integrity so as to safeguard shareholders’

investment and the Group’s assets. The system of internal

controls covers inter-alia, financial, operational and compliance

system controls and risk management. However, in view of

the limitations that are inherent in any system of internal

controls, the system of internal controls is designed to manage

rather than to eliminate the risk of failure to achieve business

objectives. Accordingly, the system of internal controls can only

provide reasonable and not absolute assurance against material

misstatement of losses and fraud.

The Board is pleased to disclose that there is an on-going process

for identifying, evaluating and managing the significant risks

faced by the Group throughout the financial year under review

and this process includes enhancing the system of internal

controls as and when there are changes to business environment

or regulatory guidelines. This process is regularly reviewed by

the Board. Management assists the Board in the implementation

of the Board’s policies and procedures on risks and controls by

identifying and evaluating the risks faced, and in the design,

operation and monitoring of suitable internal controls to mitigate

and control these risks.

RISK MANAGEMENT

The Board recognises that risk management is an integral part

of the Group’s business operations and that the identification

and management of such risks are important to ensure the

achievement of the Group’s corporate objectives.

Regular meetings of the Board, Board committees and

management represent the main platform by which the

Group’s performance and conduct are monitored. The Board is

responsible for setting the business directions and overseeing

the conduct of the Group’s operations. With the assistance of the

internal audit function, the Board, through the Audit Committee

(“AC”), continually reviews the adequacy and integrity of the risk

management processes in place within the various operating

businesses.

The daily running of the business is entrusted to the Managing

Director and senior management teams. The Board is informed

of all matters pertaining to risk and control through periodic

meetings and reports.

INTERNAL AUDIT FUNCTION

The Group’s internal audit function is outsourced to Lefis

Consulting Sdn Bhd whose principal duty and responsibility is to

examine the adequacy and effectiveness of the Group’s system

of internal controls, risk management process and compliance

framework on behalf of the Board. The outsourced internal audit

function carries out internal audits based on a risk-based audit

plan approved annually by the AC. Based on these audits, the

internal audit function provides the AC with periodic reports

highlighting observations, recommendations and management

action plans to improve the system of internal controls. In

addition, the AC also reviews and deliberates on any matters

relating to internal controls highlighted by the external auditors

in the course of their statutory financial audit of the Group.

Costs amounting to RM253,500 were incurred for the internal

audit function of the Group in respect of the financial year ended

31 December 2010.

CONTROL STRUCTURE AND ENVIRONMENT

The key processes that have been established in reviewing the

adequacy and integrity of the system of internal controls include

the following:

a. The Board has set up several Board committees to assist

the Board in performing its oversight functions. Specific

responsibilities have been delegated to these Board

committees, all of which have formalised terms of reference.

These committees have the authority to examine all matters

within their scope and report to the Board with their

recommendations.

b. There is an organisational structure with formally defined

responsibility lines and delegation of authority to ensure

proper identification of accountabilities and segregation of

duties.

46 | STATEMEnT On InTERnAL COnTROLMIECO AnnUAL REPORT 2010

c. The Group has defined an Authority Chart that provides the

limits authorised to the Executive Directors and management

within the Group in respect of day-to-day operations,

including banking and financing operations, investments,

acquisitions and disposal of assets.

d. There are documented internal policies and procedures

covering the critical and significant facets of the Group’s

business processes and they form an integral part of the

internal control framework to safeguard shareholders’

investment and the Group’s assets against material loss.

These policies and procedures are reviewed and updated

from time to time to meet the operational needs.

e. Human resource policies and guidelines are established

to provide support to the Group’s vision. These policies

provide guidance to employees on areas such as hiring and

termination of staff, code of conduct and discipline, employee

performance appraisals and other related matters. On-going

training is provided to improve employees’ competencies and

skills.

f. The Group adopts a strategic planning, annual budgeting

and target setting process that includes forecasts for each

area of business. The Board reviews and approves the

Annual Management Plan and Budget. The Board’s evaluation

includes assessment of risks and opportunities identified by

management in the course of the annual budgeting process.

Monthly reporting of actual results and review against budget

is prepared for monitoring by management.

g. Regular Board and AC meetings are held to assess and

monitor the business performance and operational controls.

Operational meetings and management meetings are held

on a weekly and monthly basis to consider the Group’s

operational, business development, financial performance

and risk related management matters.

h. The Group, whilst continuing to maintain MIECO Quality

Management System, Environmental Management System

and Occupational Health and Safety Management System

certifications, has gone on to achieve the following milestones

in furtherance of its commitment towards the environment

and to meet the needs and expectations of customers:

• Japanese Industrial Standards, JIS 5908, evidencing MIECO’s

product reliability for the Japanese market.

• Programme for the Endorsement of Forest Certification,

providing assurance that MIECO’s products come from

sustainable managed forests.

• California Air Resource Board (“CARB”) Phase II Certification,

demonstrating compliance of MIECO’s composite wood

products with California Code of Regulations for the US

market.

• Singapore Green Label Certification for its melamine

laminated products, a recognition and validation of MIECO’s

environmental friendly products.

REVIEW OF THE STATEMENT BY ExTERNAL AUDITORS

The external auditors have reviewed this Statement on Internal

Control for inclusion in the Annual Report of the Company for

the financial year ended 31 December 2010 and reported to

the Board that nothing has come to their attention that causes

them to believe that the statement is inconsistent with their

understanding of the process adopted by the Board in reviewing

the adequacy and integrity of the system of internal controls.

CONCLUSION

The Board is of the view that the existing system of internal

controls in place for the year under review and up to the date of

the issuance of the financial statements is sound and adequate

to safeguard the shareholders’ investment, the interest of

customers, regulators and employees, and the Group’s assets.

The Board recognises the need for the system of internal

controls to be subject to periodic review in line with the growth

and dynamics of the Group. To this end, the Board remains

committed towards striving for continuous improvement to put

in place appropriate action plans where necessary, to further

enhance the system of internal controls.

This statement was approved by the Board at its meeting

held on 27 April 2011.

STATEMEnT On InTERnAL COnTROL(COnTInUED)

48 Directors’ Report

52 Statements of Financial Position

54 Statements of Comprehensive Income

56 Consolidated Statement of Changes in Equity

57 Company Statement of Changes in Equity

58 Statements of Cash Flows

60 notes to the Financial Statements

105 Statement by Directors

106 Statutory Declaration

107 Independent Auditors’ Report

FInAnCIALSTATEMEnTS

48 | DIRECTORS’ REPORT MIECO AnnUAL REPORT 2010

DIRECTORS’ REPORTThe Directors have pleasure in submitting 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 investment holding and provision of management services.

The principal activities of the subsidiaries are shown in note 8 to the financial statements. During the financial year, a subsidiary of

the Company ceased its property investment activities.

There were no other significant changes in the nature of these activities during the financial year.

FINANCIAL RESULTS Group Company

RM’000 RM’000

net profit/(loss) for the financial year 1,616 (241)

DIVIDENDS

no dividends had been paid or declared by the Company since 31 December 2009.

The Directors do not recommend the payment of any dividend for the financial year ended 31 December 2010.

RESERVES AND PROVISIONS

All material transfers to or from reserves and provisions during the financial year are shown in the financial statements.

DIRECTORS

The Directors who have held office during the period since the date of the last report are as follows:

Dato’ Mohamed Moiz Bin J M Ali Moiz

Dato’ Yong Seng Yeow

Dato’ Jaganath Derek Steven Sabapathy

Datin Sri Maria Bettina Chua Binti Abdullah

(resigned on 1 October 2010)

In accordance with Article 81 of the Company’s Articles of Association, Low Kim Seng and Vijeyaratnam a/l V. Thamotharam Pillay

retire by rotation and being eligible, offer themselves for re-election at the forthcoming Annual General Meeting.

In accordance with Section 129(2) of the Companies Act, 1965, Lt. Gen. (R) Dato’ Seri Mohamed Daud Bin Abu Bakar retires, having

attained the age of seventy, and the Board of Directors recommends that he be re-appointed in accordance with Section 129(6) of the

Companies Act, 1965.

Lt. Gen. (R) Dato’ Seri Mohamed Daud Bin Abu Bakar

Dato’ Dr. Amarjit Singh a/l Santokh Singh

Vijeyaratnam a/l V. Thamotharam Pillay

Low Kim Seng

| 49DIRECTORS’ REPORT MIECO AnnUAL REPORT 2010

DIRECTORS’ BENEFITS

During and at the end of the financial year, no arrangements subsisted to which the Company is a party, being arrangements with the

object or objects of enabling Directors of the Company to acquire benefits by means of the acquisition of shares in, or debentures of,

the Company or any other body corporate.

Since the end of the previous financial year, no Director has received or become entitled to receive a benefit (other than Directors’

remuneration disclosed in note 29 to the financial statements) by reason of a contract made by the Company or a related corporation

with the Director or with a firm of which he or she is a member, or with a company in which he or she has a substantial financial

interest except as disclosed in note 32 to the financial statements.

DIRECTORS’ INTERESTS

According to the Register of Directors’ Shareholdings, the interests of Directors in office at the end of the financial year in shares and

warrants in the Company and its related corporations during the financial year were as follows:

number of ordinary shares of RM1.00 each

Shares Held in the Company At 1.1.2010 Bought Sold At 31.12.2010

Direct interest

Dato’ Yong Seng Yeow 130,000 0 0 130,000Low Kim Seng 10,000 0 0 10,000Lt. Gen. (R) Dato’ Seri Mohamed Daud Bin Abu Bakar 16,000 0 0 16,000Dato’ Dr. Amarjit Singh a/l Santokh Singh 100,000 0 0 100,000

Indirect interest

Dato’ Mohamed Moiz Bin J M Ali Moiz 119,193,971* 0 0 119,193,971*Dato’ Dr. Amarjit Singh a/l Santokh Singh 70,000** 0 0 70,000**

number of ordinary shares of RM1.00 each

At 1.1.2010 Bought Sold At 31.12.2010

Direct interest

Low Kim Seng 57,000 0 0 57,000

Indirect interest

Dato’ Mohamed Moiz Bin J M Ali Moiz 92,070,812* 0 0 92,070,812*

Shares Held in Holding Company- Bandar Raya Developments Berhad

50 | DIRECTORS’ REPORT MIECO AnnUAL REPORT 2010

DIRECTORS’ REPORT(COnTInUED)

Warrants Held in Holding Company - Bandar Raya Developments Berhad number of warrants 2007/2012

At 1.1.2010 Bought Exercised/Sold At 31.12.2010 Direct interest

Low Kim Seng 25,650 0 0 25,650

Indirect interest

Dato’ Mohamed Moiz Bin J M Ali Moiz 41,431,865* 0 0 41,431,865*Vijeyaratnam A/L V. Thamotharam Pillay 170,000** 0 0 170,000**

* Indirect interest held through Ambang Sehati Sdn. Bhd.

** Indirect interest held through spouse

Other than as disclosed above, none of the other Directors in office at the end of the financial year had any interest in shares and warrants in the Company and its related corporations during the financial year. SUBSEQUENT EVENT

In light of the steady recovery in demand for particleboard and related products and the improving economic conditions, a subsidiary of the Company had, in January 2011, recommenced operations of its Plant 3 located in Kechau Tui, Pahang.

STATUTORY INFORMATION ON THE FINANCIAL STATEMENTS

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

(a) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of allowance for doubtful debts and satisfied themselves that all known bad debts had been written off and that adequate allowance had been made for doubtful debts; and

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

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

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

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

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

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

| 51DIRECTORS’ REPORT MIECO AnnUAL REPORT 2010

STATUTORY INFORMATION ON THE FINANCIAL STATEMENTS (CONTINUED)

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

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

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

OTHER STATUTORY INFORMATION

At the date of this report, the Directors are not aware of any circumstances not otherwise dealt with in this report or the financial statements which would render any amount stated in the financial statements misleading.

In the opinion of the Directors:

(a) the results of the Group’s and of the Company’s operations during the financial year were not substantially affected by any item, transaction or event of a material and unusual nature; and

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

GENERAL INFORMATION

The Company is a public limited liability company, which is incorporated and domiciled in Malaysia, and is listed on the Main Market of Bursa Malaysia Securities Berhad.

The holding company is Bandar Raya Developments Berhad, a company incorporated in Malaysia.

The address of the registered office is Level 10 Menara BRDB, 285 Jalan Maarof, Bukit Bandaraya, 59000 Kuala Lumpur.

The addresses of the principal place of business are as follows:

(a) Level 9 Menara BRDB, 285 Jalan Maarof, Bukit Bandaraya, 59000 Kuala Lumpur;

(b) Lot 77-83, Semambu Industrial Estate, P.O. Box 169, 25720 Kuantan, Pahang Darul Makmur;

(c) Lot 74, Kawasan Perindustrian Gebeng, 26080 Kuantan, Pahang Darul Makmur; and

(d) Lot 3, Kawasan Perindustrian Kechau Tui, 27100 Padang Tengku, Pahang Darul Makmur.

AUDITORS

The auditors, PricewaterhouseCoopers, have expressed their willingness to continue in office.

In accordance with a resolution of the Board of Directors dated 27 April 2011.

DATO’ MOHAMED MOIZ BIN J M ALI MOIZ DATO’ YONG SENG YEOWDIRECTOR DIRECTOR

52 | STATEMEnTS OF FInAnCIAL POSITIOn MIECO AnnUAL REPORT 2010

Group Company

2010 2009* 2008* 2010 2009 Restated Restated note RM’000 RM’000 RM’000 RM’000 RM’000

ASSETS

NON CURRENT ASSETS

Property, plant and equipment 6 489,406 503,188 524,388 138 253Investment properties 7 0 0 7,417 0 0Investment in subsidiaries 8 0 0 0 51,220 51,220Amount due from a subsidiary 9 0 0 0 475,712 483,519Deferred tax assets 19 491 446 455 411 356

489,897 503,634 532,260 527,481 535,348

CURRENT ASSETS

Inventories 10 44,770 40,578 74,282 0 0 Receivables, deposits and prepayments 11 32,436 32,893 52,357 1,857 1,853 Marketable securities 12 0 49 36 0 0 Derivative financial instruments 13 76 0 0 0 0 Tax recoverable 1,808 1,633 1,047 0 0 Short term deposits 14 2,516 2,549 25,131 989 965 Cash and bank balances 14 3,857 2,588 10,211 153 119

85,463 80,290 163,064 2,999 2,937

TOTAL ASSETS 575,360 583,924 695,324 530,480 538,285

* Restated in accordance with the adoption of FRS 117 (note 36)

STATEMEnTS OF FInAnCIAL POSITIOnAS AT 31 DECEMBER 2010

| 53STATEMEnTS OF FInAnCIAL POSITIOn MIECO AnnUAL REPORT 2010

Group Company

2010 2009* 2008* 2010 2009 Restated Restated note RM’000 RM’000 RM’000 RM’000 RM’000

EQUITY AND LIABILITIES CAPITAL AND RESERVES ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY Share capital 15 210,000 210,000 210,000 210,000 210,000Reserves 16 108,519 106,288 120,592 131,933 131,523

TOTAL EQUITY 318,519 316,288 330,592 341,933 341,523

NON CURRENT LIABILITIES Provisions 17 9,241 8,288 8,618 147 111Borrowings 18 126,834 144,618 139,151 126,738 144,372Deferred tax liabilities 19 7,582 7,580 9,430 0 0Amount due to holding company 20 37,579 35,759 20,000 37,579 35,759

181,236 196,245 177,199 164,464 180,242

CURRENT LIABILITIES

Trade and other payables 21 37,435 35,483 79,583 8,079 8,233Borrowings 18 36,055 33,850 105,854 13,889 6,238Taxation 2,115 2,058 2,096 2,115 2,049

75,605 71,391 187,533 24,083 16,520

TOTAL LIABILITIES 256,841 267,636 364,732 188,547 196,762

TOTAL EQUITY AND LIABILITIES 575,360 583,924 695,324 530,480 538,285

* Restated in accordance with the adoption of FRS 117 (note 36)

54 | STATEMEnTS OF COMPREHEnSIVE InCOME MIECO AnnUAL REPORT 2010

Group Company

2010 2009* 2010 2009 Restated note RM’000 RM’000 RM’000 RM’000

Revenue 23 174,208 185,739 2,919 2,816Other operating income 6,957 4,471 52 62Changes in inventories of finished goods and work in progress (4,192) 33,704 0 0Raw materials and consumables used (95,059) (151,767) 0 0Hiring of vehicles and equipment (1,344) (2,074) 0 0Fair value gain on financial assets held for trading 25 0 0 0Staff costs 24 (23,917) (23,637) (1,899) (2,285)Depreciation of property, plant and equipment (19,154) (19,074) (149) (159)Fair value loss on investment properties 0 (348) 0 (198)Write back of impairment/(impairment loss): - property, plant and equipment 0 (1,658) 0 0 - subsidiaries 0 0 0 (788) - marketable securities 0 13 0 0Upkeep, repairs and maintenance of assets (4,199) (2,063) (72) (115)Utilities (11,904) (11,696) (2) (3)Research and development expenses (1) (12) 0 0Other operating expenses (9,149) (16,688) (1,083) (1,183)

Profit/(loss) from operations 25 12,271 (5,090) (234) (1,853)

Finance costs 26 (10,648) (11,452) (9,700) (9,723)Finance income 26 23 26 9,719 9,727

Profit/(loss) before taxation 1,646 (16,516) (215) (1,849)

Tax (expense)/credit 27 (30) 1,837 (26) 66

net profit/(loss) for the financial year 1,616 (14,679) (241) (1,783) Other comprehensive (expense)/income:

Exchange differences on translating foreign subsidiaries (12) 375 0 0

Total comprehensive income/(loss) for the financial year 1,604 (14,304) (241) (1,783)

* Restated in accordance with the adoption of FRS 117 (note 36)

STATEMEnTS OFCOMPREHEnSIVE InCOMEFOR THE FInAnCIAL YEAR EnDED 31 DECEMBER 2010

| 55STATEMEnTS OF COMPREHEnSIVE InCOMEMIECO AnnUAL REPORT 2010

Group Company

2010 2009* 2010 2009 Restated note RM’000 RM’000 RM’000 RM’000

net profit/(loss) attributable to owners of the Company 1,616 (14,679) (241) (1,783)

Total comprehensive income/(loss) attributable to owners of the Company 1,604 (14,304) (241) (1,783)

Basic earnings/(loss) per share (sen) 28 0.77 (6.99)

Diluted earnings/(loss) per share (sen) 28 0.77 (6.99)

* Restated in accordance with the adoption of FRS 117 (note 36)

56 | COnSOLIDATED STATEMEnT OF CHAnGES In EQUITYMIECO AnnUAL REPORT 2010

Attributable to equity holders of the Company

Issued and fully paid ordinary shares of RM1 each

Foreign number nominal Share currency Retained Warrant Total of shares value premium reserve earnings reserve equity ’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

At 1 January 2009 210,000 210,000 5,866 (401) 101,148 13,979 330,592

Comprehensive income/(loss):- net loss for the financial year 0 0 0 0 (14,679) 0 (14,679)

Other comprehensive income:- Exchange differences on translating foreign subsidiaries 0 0 0 375 0 0 375

Total comprehensive income/(loss) 0 0 0 375 (14,679) 0 (14,304)

Expiry of warrants 0 0 0 0 13,979 (13,979) 0

At 31 December 2009 210,000 210,000 5,866 (26) 100,448 0 316,288

At 1 January 2010, as previously stated 210,000 210,000 5,866 (26) 100,448 0 316,288

Effects arising from the adoption of FRS 139 0 0 0 0 627 0 627

At 1 January 2010, as restated 210,000 210,000 5,866 (26) 101,075 0 316,915

Comprehensive income/(loss):- net profit for the financial year 0 0 0 0 1,616 0 1,616

Other comprehensive loss:- Exchange differences on translating foreign subsidiaries 0 0 0 (12) 0 0 (12)

Total comprehensive income/(loss) 0 0 0 (12) 1,616 0 1,604

At 31 December 2010 210,000 210,000 5,866 (38) 102,691 0 318,519

COnSOLIDATED STATEMEnT OF CHAnGES In EQUITYFOR THE FInAnCIAL YEAR EnDED 31 DECEMBER 2010

| 57COMPAnY STATEMEnT OF CHAnGES In EQUITYMIECO AnnUAL REPORT 2010

Issued and fully paid ordinary shares of non- RM1 each distributable Distributable number nominal Share Retained Warrant Total of shares value premium earnings reserve equity ’000 RM’000 RM’000 RM’000 RM’000 RM’000 At 1 January 2009 210,000 210,000 5,866 113,461 13,979 343,306

Comprehensive loss:- net loss for the financial year 0 0 0 (1,783) 0 (1,783)

Expiry of warrants 0 0 0 13,979 (13,979) 0

At 31 December 2009 210,000 210,000 5,866 125,657 0 341,523

At 1 January 2010, as previously stated 210,000 210,000 5,866 125,657 0 341,523

Effects arising from the adoption of FRS 139 0 0 0 651 0 651

At 1 January 2010, as restated 210,000 210,000 5,866 126,308 0 342,174 Comprehensive loss:- net loss for the financial year 0 0 0 (241) 0 (241)

At 31 December 2010 210,000 210,000 5,866 126,067 0 341,933

COMPAnY STATEMEnT OF CHAnGES In EQUITYFOR THE FInAnCIAL YEAR EnDED 31 DECEMBER 2010

58 | STATEMEnTS OF CASH FLOWSMIECO AnnUAL REPORT 2010

STATEMEnTS OF CASH FLOWSFOR THE FInAnCIAL YEAR EnDED 31 DECEMBER 2010

Group Company

2010 2009* 2010 2009 Restated note RM’000 RM’000 RM’000 RM’000

CASH FLOWS FROM OPERATInG ACTIVITIES

Profit / (loss) after taxation 1,616 (14,679) (241) (1,783)Adjustments for:Fair value gain on financial assets held for trading (25) 0 0 0Fair value loss on investment properties 0 348 0 198Impairment loss on:- property, plant and equipment 0 1,658 0 0- subsidiaries 0 0 0 788Write back of impairment loss on marketable securities 0 (13) 0 0Depreciation of property, plant and equipment 6 19,154 19,074 149 159Loss on disposal of property, plant and equipment 12 635 2 0Allowance for/(write back of) bad and doubtful debts 52 (264) 0 0(Write back of)/allowance for inventories obsolescence (476) 1,329 0 0Inventories (written back)/written off (260) 1,998 0 0Finance costs 26 10,648 11,452 9,700 9,723Finance income 26 (23) (26) (9,719) (9,727)Provision for staff retirement benefits 1,489 817 133 134Tax expense/(credit) 30 (1,837) 26 (66)Dividend income (1) (2) 0 0Fair value gain on derivative financial instruments (112) 0 0 0Loss on wood concession 0 474 0 0Unrealised gain on foreign exchange (3,707) (963) (10) 0

28,397 20,001 40 (574)Changes in working capital:(Increase)/decrease in inventories (3,456) 30,377 0 0Decrease/(increase) in receivables 276 19,076 (4) 69Increase/(decrease) in payables 2,846 (43,364) 565 (731)Decrease/(increase) in inter- company balances (208) 477 3,929 (3,976)

27,855 26,567 4,530 (5,212)Payments of staff retirement benefits (536) (1,147) (97) (93)Payments on income tax (191) (628) (15) (38)

net cash flows from/(used in) operating activities 27,128 24,792 4,418 (5,343)

* Restated in accordance with the adoption of FRS 117 (note 36)

| 59STATEMEnTS OF CASH FLOWSMIECO AnnUAL REPORT 2010

Group Company

2010 2009* 2010 2009 Restated note RM’000 RM’000 RM’000 RM’000

CASH FLOWS FROM InVESTInG ACTIVITIES

Purchase of property, plant and equipment 6 (5,391) (578) (36) (42)Interest received 23 23 9,719 9,727Proceeds from sales of property, plant and equipment 7 411 0 0Proceeds from disposal of financial assets held for trading 70 0 0 0Proceeds from disposal of investment properties 0 7,069 0 4,669Dividend income received 1 2 0 0

net cash flows (used in)/from investing activities (5,290) 6,927 9,683 14,354

CASH FLOWS FROM FInAnCInG ACTIVITIES

Repayment of hire purchase liabilities (182) (164) 0 0Interest paid (8,710) (10,038) (7,880) (7,964)Repayment of term loan (6,163) (14,325) (6,163) (14,325)Repayment of bankers acceptance (2,041) (46,879) 0 0Loan from the holding company 0 14,000 0 14,000Repayment of revolving credit 0 (3,000) 0 0Repayment of promissory note 0 (8,341) 0 0

net cash flows (used in)/from financing activities (17,096) (68,747) (14,043) (8,289)

nET InCREASE / (DECREASE) In CASH AnD CASH EQUIVALEnTS 4,742 (37,028) 58 722

CASH AnD CASH EQUIVALEnTS AT BEGInnInG OF THE FInAnCIAL YEAR (1,694) 35,342 1,084 362

EFFECTS OF EXCHAnGE RATE CHAnGES (101) (8) 0 0

CASH AnD CASH EQUIVALEnTS AT EnD OF THE FInAnCIAL YEAR 14 2,947 (1,694) 1,142 1,084

* Restated in accordance with the adoption of FRS 117 (note 36)

60 | nOTES TO THE FInAnCIAL STATEMEnTS MIECO AnnUAL REPORT 2010

nOTES TO THE FInAnCIAL STATEMEnTSFOR THE FInAnCIAL YEAR EnDED 31 DECEMBER 2010

1 GENERAL INFORMATION

The principal activities of the Company are investment holding and provision of management services.

The principal activities of the subsidiaries consist of:

- manufacturing, selling and marketing of chipboards and related products

- reforestation, harvesting, extraction, supply and procurement of rubber wood

- investment holding - investment trading

During the financial year, a subsidiary of the Company ceased its property investment activities. There were no other changes in the activities of the Group during the financial year.

The financial statements have been approved for issue in accordance with a resolution of the Board of Directors on 27 April 2011.

2 BASIS OF PREPARATION

The financial statements of the Group and the Company have been prepared in accordance with the Companies Act, 1965 and Financial Reporting Standards, the MASB Approved Accounting Standards in Malaysia for Entities Other than Private Entities.

The financial statements have been prepared under the historical cost convention except as disclosed in the significant accounting policies in note 3 to the financial statements.

The preparation of financial statements in conformity with Financial Reporting Standards requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. It also requires Directors to exercise their judgement in the process of applying the accounting policies. Although these estimates and judgement are based on the Directors’ best knowledge of current events and actions, actual results may differ.

The areas involving a higher degree of judgement or complexity, or area where assumptions and estimates are significant to the financial statements, are disclosed in note 4 to the financial statements.

(a) Standards, amendments to published standards and interpretations that are applicable to the Group and the Company and are effective.

The new and revised accounting standards and amendment to published standards which are effective for the Group’s and the Company’s financial year ended 31 December 2010 and are applicable to the Group and the Company are as follows:

• FRS 7 Financial Instruments: Disclosures • FRS 8 Operating Segments • FRS 101 (Revised) Presentation of Financial Statements • FRS 123 Borrowings • FRS 139 Financial Instruments: Recognition and

Measurement • Amendments to FRS 1 First-Time Adoption of Financial

Reporting Standards and FRS 127 Consolidated and Separate Financial Statements: Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate

• Amendments to FRS 132 Financial Instruments: Presentation

• Amendments to FRS 139 Financial Instruments: Recognition and Measurement, FRS 7 Financial Instruments: Disclosure and IC Interpretation 9 Reassessment of Embedded Derivatives

• IC Interpretation 10 Interim Financial Reporting and Impairment

• IC Interpretation 14 FRS 119 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction

• Improvements to FRS issued in 2009

- IC Interpretation 9 Reassessment of Embedded Derivatives - FRS 5 non-Current Assets Held for Sale and

Discontinued Operations - FRS 7 Financial Instruments: Disclosures - FRS 8 Operating Segments - FRS 107 Statements of Cash Flows - FRS 108 Accounting Policies, Changes in Accounting

Estimates and Errors - FRS 110 Events after the Reporting Period - FRS 116 Property, Plant and Equipment - FRS 117 Leases - FRS 118 Revenue - FRS 119 Employee Benefits - FRS 120 Accounting for Government Grants and

Disclosures of Government Assistance - FRS 123 Borrowing Costs - FRS 127 Consolidated and Separate Financial Statements - FRS 128 Investment in Associates - FRS 131 Interest in Joint Ventures - FRS 134 Interim Financial Reporting - FRS 136 Impairment of Assets - FRS 138 Intangible Assets

All changes in accounting policies have been made in accordance with the transition provisions in the respective standards and amendment to published standard. All standards and amendment adopted by the Group and the Company require retrospective application except for FRS 7 and FRS 139.

The adoption of the above accounting standards and amendment to published standard has resulted in changes of certain accounting policies and classification adopted by the Group and the Company as well as presentation of financial statements as follows:

| 61nOTES TO THE FInAnCIAL STATEMEnTSMIECO AnnUAL REPORT 2010

2 BASIS OF PREPARATION (CONTINUED)

(a) Standards, amendments to published standards and interpretations that are applicable to the Group and the Company and are effective (continued)

(i) FRS 7 Financial Instruments: Disclosures

Prior to 1 January 2010, information about financial instruments was disclosed in accordance with the requirements of FRS 132 Financial Instruments: Disclosure and Presentation. FRS 7 introduces new disclosures to improve the information about financial instruments. It requires the disclosure of qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk, including sensitivity analysis to market risk.

The Group and the Company have applied FRS 7 prospectively in accordance with the transitional provisions. Hence, the new disclosures have not been applied to the comparatives. The new disclosures are included throughout the Group’s and the Company’s financial statements for the financial year ended 31 December 2010.

(ii) FRS 8 Operating Segments

FRS 8, which replaces FRS 114 Segment Reporting, requires a ‘management approach’ under which segment information is presented on the same basis as that used for internal reporting purposes. The Group concluded that the reportable operating segments determined in accordance with FRS 8 are the same as the business segments previously identified under FRS 114.

(iii) FRS 101 Presentation of Financial Statements (Revised)

The revised FRS 101 “Presentation of financial statements” (effective from 1 January 2010) prohibits the presentation of items of income and expenses (that is, ‘non-owner changes in equity’) in the statement of changes in equity. ‘non-owner changes in equity’ are to be presented separately from owner changes in equity. All non-owner changes in equity will be required to be shown in a performance statement, but entities can choose whether to present one performance statement (the statement of comprehensive income) or two statements (the statements of comprehensive income and statement of comprehensive income). The Group and the Company have elected to present this statement as one single statement.

In addition, where entities restate or reclassify comparative information, they will be required to present restated statements of financial position as at the beginning comparative period in addition to

the current requirement to present statements of financial position at the end of the current period and comparative period.

(iv) FRS 139 Financial Instruments: Recognition and Measurement

FRS 139 establishes principles for recognising and measuring financial assets, financial liabilities and some contracts to buy and sell non-financial items. The Group and the Company have adopted FRS 139 prospectively on 1 January 2010 in accordance with the transitional provisions. The effects arising from the adoption of this Standard have been accounted for by adjusting the opening balance of retained earnings as at 1 January 2010. Comparatives are not restated.

The adoption of FRS 139 has resulted in financial instruments of the Group and the Company to be categorised and measured using the accounting policies summarised below:

• Initial recognition and measurement

A financial instrument is recognised in the financial statements when, and only when, the Group and the Company become a party to the contractual provisions of the instruments.

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

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

• Financial assets

(i) Financial assets at fair value through profit or loss

Fair value through profit or loss category comprises financial assets that are held for trading or are designated as such upon initial recognition. Financial assets held for trading includes derivatives, unless they are designated as hedges. Financial assets at fair value through profit or loss are subsequently measured at fair value with gain or loss recognised in profit or loss. This category of financial assets is classified as current assets.

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2 BASIS OF PREPARATION (CONTINUED)

(a) Standards, amendments to published standards and interpretations that are applicable to the Group and the Company and are effective (continued)

(iv) FRS 139 Financial Instruments: Recognition and Measurement (continued)

• Financial assets (continued)

(ii) Loans and receivables

Loans and receivables category comprises trade and other receivables and cash and cash equivalents. Financial assets categorised as loans and receivables are subsequently measured at amortised cost using the effective interest method. This category of financial assets is classified as current assets unless the maturities are greater than twelve months in which case they are classified as non-current assets.

(iii) Available-for-sale financial assets

Available-for-sale financial assets comprise investment in equity and debt securities that are not held for trading. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost. Other available-for-sale financial assets are subsequently measured at fair value with gain or loss recognised in other comprehensive income.

• Financial liabilities

Financial liabilities of the Group and the Company comprise trade and other payables, borrowings and derivative financial liabilities. All financial liabilities are subsequently measured at amortised cost using effective interest method other than derivative financial liabilities which are categorised as fair value through profit or loss. Derivative financial liabilities are subsequently measured at their fair values with the gain or loss recognised in profit or loss.

The details of the changes in accounting policies and the effect arising from the adoption of FRS 139 are as follows:

(i) Investments

Prior to 1 January 2010, marketable securities were carried at the lower of cost and market value, determined on an individual portfolio basis.

With the adoption of FRS 139, marketable securities are now categorised as financial assets held for trading and measured at fair value through profit or loss.

(ii) Derivative financial instruments

Prior to 1 January 2010, outstanding financial derivatives as at reporting date were not recognised in the financial statements. They were only recognised on settlement dates.

Upon the adoption of FRS 139, derivative financial instruments are recognised in the financial statements when, and only when, the Group and the Company becomes a party to the contractual provisions of those instruments. A derivative financial instrument is categorised as fair value through profit or loss and measured at its fair value with gain or loss recognised in profit or loss.

(iii) Payables

Prior to 1 January, payables were recorded at cost in the Group’s and the Company’s financial statements. Upon the adoption of FRS 139, the payables are recognised initially at a fair value plus directly attributable transaction costs and subsequently measured at amortised cost using the effective interest method. As at 1 January 2010, the Group and the Company have remeasured the payables at amortised cost and the difference is recognised as adjustments to the opening balance of retained earnings as at that date.

Following the adoption of FRS 139, the effect of the changes to accounting policies relating to recognition and measurement of the Group’s financial instruments are as follows :-

nOTES TO THE FInAnCIAL STATEMEnTSFOR THE FInAnCIAL YEAR EnDED 31 DECEMBER 2010 (COnTInUED)

Balance as Effects Balance as at 1 January adoption of at 1 January 2010 before of FRS 139 2010 after the adoption Increase/ the adoption FRS 139 (decrease) of FRS 139 RM’000 RM’000 RM’000

Group

Retained earnings 100,448 627 101,075Amount due to holding company - current 2,577 (651) 1,926Derivative financial instruments 0 36 36Borrowings – hire purchase creditors 246 (12) 234 Company

Retained earnings 125,657 651 126,308Amount due to holdingcompany - current 2,577 (651) 1,926

| 63nOTES TO THE FInAnCIAL STATEMEnTSMIECO AnnUAL REPORT 2010

2 BASIS OF PREPARATION (CONTINUED)

(a) Standards, amendments to published standards and interpretations that are applicable to the Group and the Company and are effective (continued)

(v) FRS 117 Leases

Prior to the adoption of the Amendment to FRS 117, the Group’s leasehold land was treated as operating leases. The considerations paid were classified and presented as prepaid lease payments. With the adoption of the Amendment to FRS 117, the Group has reassessed and determined that all leasehold land of the Group, amounting to RM17.1 million as at 1 January 2010 meet the criteria of a finance lease and has reclassified the said amount to property, plant and equipment. The change in accounting policy has been made retrospectively in accordance with the transitional provisions of the amendment. The reclassification has no effect to the profit or loss of the current financial year ended 31 December 2010 or the comparative periods.

The impact of the reclassification on the Group’s statement of financial position and statement of comprehensive income is disclosed in note 36.

(b) Standards, amendments to published standards and interpretations to existing standards that are applicable to the Group and the Company but not yet effective

The new standards, amendments to published standards and IC Interpretations that are applicable to the Group and the Company, but which the Group and the Company have not early adopted, are as follows:

The Group and the Company will apply the above new standards, amendments to published standards and IC Interpretations from annual period beginning 1 January 2011.

The adoption of the above standards and interpretations are not expected to have any significant impact on the financial statements of the Group and the Company in the year of initial application except for the following:

(i) FRS 3 Business Combinations (Revised) and Amendments to FRS 127 Consolidated and Separate Financial Statements

The revised FRS 3 Business Combinations (Revised) is effective for annual periods beginning on or after 1 July 2010. The revised FRS 3 introduces a number of changes in the accounting for business combinations occurring after 1 July 2010. These changes will impact the amount of goodwill recognised, the reported results in the period that an acquisition occurs, and future reported results. The Amendments to FRS 127 require that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as an equity transaction. Therefore, such transactions will no longer give rise to goodwill, nor will they give rise to a gain or loss. Furthermore, the amended standard changes accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. Other consequential amendments have been made to FRS 107 Statement of Cash Flows, FRS 112 Income Taxes, FRS 121 The Effects of Changes in Foreign Exchange Rates, FRS 128 Investments in Associates and FRS 131 Interests in Joint Ventures. The changes from revised FRS 3 and Amendments to FRS 127 will affect future acquisitions or loss of control and transactions with minority interests.

(c) Standards, amendments to published standards and interpretations to existing standards that are not yet effective and are not relevant to the Group and the Company

- Effective for annual periods beginning on or after 1 July 2010:

• Amendments to FRS 2: Share-based Payment • Amendments to FRS 5: non-current Assets Held for Sale

and Discontinued Operations • Amendments to FRS 138: Intangible Assets • IC Interpretation 12: Service Concession Arrangements • FRS 1: First-time Adoption of Financial Reporting Standards

- Effective for annual periods beginning on or after 1 January 2011:

• Amendments to FRS 2: Group Cash-settled Share-based Payment Transactions

• IC Interpretation 18: Transfer of Assets from Customers

- Effective for annual periods beginning on or after 1 July 2011: • IC Interpretation 14: FRS 119 - The limit on a defined

benefit assets, minimum funding requirements and their interaction

• IC Interpretation 19: Extinguishing financial liabilities with equity instruments

Description

Effective for annual periods beginning

on or after

FRS 3: Business Combinations (Revised) 1 July 2010Amendments to FRS 127: Consolidated and Separate Financial Statements

1 July 2010

Amendments to IC Interpretation 9: Reassessment of Embedded Derivatives

1 July 2010

IC Interpretation 16: Hedges of a net Investment in a Foreign Operation

1 July 2010

IC Interpretation 17: Distribution of non-cash Assets to Owners

1 July 2010

Amendments to FRS 132: Classification of Right Issues

1 March 2010

Amendments to FRS 7: Improving Disclosures about Financial Instruments

1 January 2011

IC Interpretation 4: Determining Whether an Arrangement contains a Lease

1 January 2011

Amendments to FRS 7: Improving Disclosures about Financial Instruments

1 January 2011

IC Interpretation 4: Determining Whether an Arrangement contains a Lease

1 January 2011

Improvement to FRS 101: Presentation of financial statements

1 January 2011

FRS 124 (Revised): Related party disclosures

1 January 2012

64 | nOTES TO THE FInAnCIAL STATEMEnTS MIECO AnnUAL REPORT 2010

2 BASIS OF PREPARATION (CONTINUED)

(c) Standards, amendments to published standards and interpretations to existing standards that are not yet effective and are not relevant to the Group and the Company (continued)

- Effective for annual periods beginning on or after 1 January 2012:

• IC Interpretation 15: Agreements for construction of real estates

3 SIGNIFICANT ACCOUNTING POLICIES

Unless otherwise stated, the following accounting policies have been applied consistently in dealing with items that are considered material in relation to the financial statements. These policies have been consistently applied to all the years presented, unless otherwise stated.

3.1 Economic entities in the Group

(a) Subsidiaries

The consolidated financial statements include the financial statements of the Company and its subsidiaries made up to the end of the financial year. Subsidiaries are the companies in which the Group has the power to exercise control over the financial and operating policies so as to obtain benefits from their activities, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.

Subsidiaries are consolidated using the purchase method of accounting. Under the purchase method of accounting, subsidiaries are fully consolidated from the date on which control is transferred to the Group and are de-consolidated from the date that control ceases. The cost of an acquisition is measured as fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired at the date of acquisition is reflected as goodwill. See accounting policy note 3.2 on goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the statement of comprehensive income.

Where more than one exchange transaction is involved, any adjustment to the fair values of the subsidiary’s

identifiable assets, liabilities and contingent liabilities relating to previously held interests of the Group is accounted for as a revaluation.

Intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated but considered an impairment indicator of the asset transferred.

The gain or loss on disposal of a subsidiary, which is the difference between net disposal proceeds and the Group’s share of its net assets as of the date of disposal including the cumulative amount of any exchange differences that relate to the subsidiary is recognised in the consolidated statement of comprehensive income.

(b) Associates

Associates are those companies in which the Group exercises significant influence, but which it does not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Significant influence is the power to participate in the financial and operating policy decisions of the associates but not the power to exercise control over those policies.

Investments in associates are accounted for by using the equity method of accounting and are initially recognised at cost. The Group’s investment in associates includes goodwill identified on acquisition, net of any accumulated impairment loss. See accounting policy note 3.2 on goodwill.

The Group’s share of its associates’ post-acquisition profits or losses is recognised in the statement of comprehensive income, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group’s interest is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates; unrealised losses are also eliminated unless the transaction provides evidence on impairment of the asset transferred. Where necessary, in applying the equity method, adjustments are made to the financial statements of the associates to ensure consistency of accounting policies with those of the Group.

3.2 Goodwill

Goodwill represents the excess of the cost of acquisition of subsidiaries and associates over the fair value of the Group’s share of the identifiable net assets at the date of acquisition.

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| 65nOTES TO THE FInAnCIAL STATEMEnTSMIECO AnnUAL REPORT 2010

3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

3.2 Goodwill (continued)

Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the synergies of the business combination in which the goodwill arose.

Goodwill on acquisitions of associates is included in investments in associates. Such goodwill is tested for impairment as part of the overall balance. See accounting policy note 3.9 on impairment of non-financial assets.

3.3 Investments in subsidiaries, joint ventures and associates

Investments in subsidiaries and associates are shown at cost. Where an indication of impairment exists, the carrying amount of the investment is assessed and written down immediately to its recoverable amount. See accounting policy note 3.9 on impairment of non-financial assets.

On disposal of the investment, the difference between net disposal proceeds and its carrying amount is recognised in the statement of comprehensive income.

3.4 Property, plant and equipment

Property, plant and equipment are initially stated at cost. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset, and the net amount is restated to the revalued amount of the asset. All other property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the statement of comprehensive income during the financial year in which they are incurred.

When an asset’s carrying amount is increased as a result of a revaluation, the increase is recognised in other comprehensive income as a revaluation surplus reserve. When the asset’s carrying amount is decreased as a result of a revaluation, the decrease is recognised in profit or loss. However, the decrease is recognised in other comprehensive

income to the extent of any credit balance existing in the revaluation surplus reserve of that asset.

Freehold land is not depreciated as it has an infinite life. Leasehold land classified as finance lease (refer to accounting policy note 3.5 on finance leases) is amortised in equal instalments over the period of the respective leases that range from 66 to 99 years.

Property plant and equipment are depreciated on a straight-line basis to write off the cost of the assets, or their revalued amounts, if any, to their residual values over their estimated useful lives, summarised as follows:

Leasehold land 66 – 99 years Buildings 34 – 98 years Plant and machinery 3 – 30 years Furniture, fittings, office renovation

and equipment 5 – 10 years Motor vehicles 5 years

Capital work-in-progress is not depreciated. Depreciation commences when the assets are ready for their intended use.

The residual values and useful lives of the assets are reviewed, and adjusted if appropriate, at each reporting date.

At each statements of financial position date, the Group assesses whether there is any indication of impairment. If such indication exists, an analysis is performed to assess whether the carrying amount of the asset is fully recoverable. A write down is made if the carrying amount exceeds the recoverable amount. See accounting policy note 3.9 on impairment of non-financial assets.

Gains and losses on disposals of the assets are determined by comparing the proceeds with the carrying amounts and are recognised in the statement of comprehensive income.

Borrowing costs are capitalised in accordance with note 3.22.

3.5 Leases

Finance leases

Lease of property, plant and equipment where the Group assumes substantially all the benefits and risks of ownership are classified as finance leases.

Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a periodic constant rate of interest on the balances outstanding. The corresponding rental obligations, net of finance charges, are included in borrowings. The interest element of the finance charge is charged to the statement of comprehensive income over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

66 | nOTES TO THE FInAnCIAL STATEMEnTS MIECO AnnUAL REPORT 2010

3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

3.5 Leases (continued)

Finance leases (continued)

Property, plant and equipment acquired under finance leases are depreciated over the shorter of the estimated useful life of the asset and the lease term.

Operating leases

Leases of assets where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on the straight line basis over the lease period.

Prepaid lease rentals are amortised in equal instalments over the period of lease from 66 to 99 years. The up-front payments made for the leasehold land represents prepaid lease rentals and are amortised on a straight-line basis over the lease term.

Change in accounting policy

Following the adoption of the improvement to FRS 117 “Leases”, leasehold land in which the Group has substantially all the risks and rewards incidental to ownership has been reclassified retrospectively from operating lease to finance lease. Previously, leasehold land was classified as an operating lease unless title is expected to pass to the lessee at the end of the lease term. Refer to note 2 (a) (v) and note 36 for the impact of the change in accounting policy.

3.6 Investment properties

Investment properties, comprising principally buildings, are held for long-term rental yields or for capital appreciation or both and are not occupied by the Group.

Investment properties are stated at fair value, representing open-market value determined annually by external valuers. Fair value is based on active market prices, adjusted, if necessary, for any difference in the nature, location or condition of the specific asset. If this information is not available, the Group uses alternative valuation methods such as recent prices on less active markets or discounted cash flow projections. These valuations are reviewed annually by external valuers. Changes in fair values are recorded in the statement of comprehensive income.

On disposal of an investment property or when it is permanently withdrawn from use and no future economic benefits are expected from its disposal, it shall be derecognised (eliminated from the statement of financial position). The difference between the net disposal proceeds and the carrying amount is recognised in the statement of comprehensive income in the financial year of the retirement or disposal.

3.7 Financial assets

Financial assets are recognised in the statements of financial position when, and only when, the Group and the Company become a party to the contractual provisions of the financial instrument.

When financial assets are recognised initially, they are measured at fair value, plus, in the case of financial assets not at fair value through profit or loss, directly attributable transaction costs.

The Group and the Company classify their financial assets in the following categories: at fair value through profit or loss, loans and receivables, and available-for-sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification on its financial assets at initial recognition.

(a) Financial assets at fair value through profit or loss

Fair value through profit or loss category comprises financial assets that are held for trading including derivatives, unless they are designated as hedges. This category of financial assets is classified as current assets.

Subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value. Any gain/loss arising from changes in fair value are recognised in profit or loss. net gains or net losses on financial assets at fair value through profit or loss do not include exchange differences, interest and dividend income. Exchange differences, interest and dividend income on financial assets at fair value through profit or loss are recognised separately in profit or loss as part of other losses or other income.

(b) Loans and receivables

Loans and receivables category comprises receivables and cash and cash equivalents. These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. This category of financial assets is classified as current assets unless the maturities are greater than twelve months in which case they are classified as non-current assets.

Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when then loans and receivables are derecognised or impaired, and through the amortisation process.

(c) Available-for-sale financial assets

Available-for-sale financial assets comprise investment in equity and debt securities that are not held for trading. These assets are non-derivative that are either designated in this category or not classified in any of the other categories. They are classified as non-current assets unless they are expected to be realised within 12 months after the reporting date.

nOTES TO THE FInAnCIAL STATEMEnTSFOR THE FInAnCIAL YEAR EnDED 31 DECEMBER 2010 (COnTInUED)

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3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

3.7 Financial assets (continued)

(c) Available-for-sale financial assets (continued)

After initial recognition, available-for-sale financial assets are measured at fair value. Any gains or losses from changes in fair value of the financial asset are recognised in other comprehensive income, except that impairment losses, foreign exchange gains and losses on monetary instruments and interest calculated using the effective interest method are recognised in profit or loss. The cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment when the financial asset is derecognised. Interest income calculated using the effective interest method is recognised in profit or loss. Dividends on an available-for-sale equity instrument are recognised in profit or loss when the Group’s and the Company’s right to receive payment is established.

Investments in equity instruments whose fair value cannot be reliably measured are measured at cost less impairment loss.

Financial assets are derecognised if the Group’s and the Company’s contractual rights to the cash flows from the financial assets expire or if the Group and the Company transfer the financial asset to another party without retaining control or transfers substantially all the risks and rewards of the asset. Regular way purchases and sales of financial assets are accounted for at trade date, i.e. the date that the Group and the Company commit themselves to purchase or sell the asset.

3.8 Impairment of financial assets

The Group and the Company assess at each reporting date whether there is any objective evidence that a financial asset is impaired.

(a) Assets carried at amortised cost

A financial asset or a group of financial assets is impaired only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

The criteria that the Group and the Company use

to determine that there is objective evidence of an impairment loss include:

• Significant financial difficulty of the issuer or obligor; • A breach of contract, such as a default or delinquency in

interest or principal payments;

• The Group and the Company, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider;

• It becomes probable that the borrower will enter bankruptcy or other financial reorganisation;

• The disappearance of an active market for that financial asset because of financial difficulties; or

• Observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio, including:

(i) Adverse changes in the payment status of borrowers in the portfolio; and

(ii) national or local economic conditions that correlate with defaults on the assets in the portfolio.

If any such evidence exists, the amount of impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. The impairment loss is recognised in profit or loss.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amounts is reduced through the use of an allowance account. When a trade receivable becomes uncollectible, it is written off against the allowance account.

If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed to the extent that the carrying amount of the asset does not exceed its amortised cost at the reversal date. The amount of reversal is recognised in profit or loss.

(b) Assets classified as available for sale

Significant or prolonged decline in fair value below cost, significant financial difficulties of the issuer or obligor, and the disappearance of an active trading market are considerations to determine whether there is objective evidence that investment securities classified as available-for-sale financial assets are impaired.

If an available-for-sale financial asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in profit or loss, is transferred from equity to profit or loss.

Impairment losses on available-for-sale equity investments are

not reversed in profit or loss in the subsequent periods. Increase in fair value, if any, subsequent to impairment loss is recognised in other comprehensive income. For available-for-sale debt investments, impairment losses are subsequently reversed in profit or loss if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss in profit or loss.

68 | nOTES TO THE FInAnCIAL STATEMEnTS MIECO AnnUAL REPORT 2010

3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

3.9 Impairment of non-financial assets

Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there is separately identifiable cash flows (cash generating units). non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

The impairment loss on the asset is charged to the statement of comprehensive income and any subsequent increase in recoverable amount is recognised in the statement of comprehensive income to the extent of its original costs. Impairment loss on goodwill is not reversed.

3.10 Non-current assets (or disposal groups) classified as assets held for sale

non-current assets (or disposal groups) are classified as assets held for sale and stated at the lower of carrying amount and fair value less costs to sell if their carrying amount is recovered principally through a sale transaction rather than through continuing use.

3.11 Research and development

Research expenditure is recognised as an expense when incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when the following criteria are fulfilled:

(a) it is technically feasible to complete the intangible asset so that it will be available for use or sale;

(b) management intends to complete the intangible asset and use or sell it;

(c) there is an ability to use or sell the intangible asset; (d) it can be demonstrated how the intangible asset will

generate probable future economic benefits; (e) adequate technical, financial and other resources

to complete the development and to use or sell the intangible asset are available; and

(f) the expenditure attributable to the intangible asset during its development can be reliably measured.

Other development expenditure that do not meet these criteria are recognised as an expense when incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

3.12 Employee benefits

(a) Short term employee benefits

Wages, salaries, paid annual leave and sick leave, bonuses and non-monetary benefits are accrued in the financial year in which the associated services are rendered by the employees of the Group.

(b) Post-employment benefits

The Group has various post-employment benefit schemes in accordance with local conditions and practices in the countries in which it operates. These benefits plans are either defined contribution or defined benefit plans.

A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees benefits relating to employee service in the current and prior periods. A defined benefit plan is a pension plan that defines an amount of pension benefit to be provided, usually as a function of one or more factors such as age, years of service or compensation.

Defined contribution plan

The Group’s contributions to defined contribution plans are charged to the statement of comprehensive income in the financial year to which they relate. Once the contributions have been paid, the Group has no further payment obligations. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.

Defined benefit plan-unfunded

The liability in respect of a defined benefit plan is the present value of the defined benefit obligation at the reporting date together with adjustments for actuarial gains/losses and past service cost. The Group determines the present value of the defined benefit obligation with sufficient regularity such that the amounts recognised in the financial statements do not differ materially from the amounts that would be determined at the reporting date.

The defined benefit obligation, calculated using the projected unit credit method, is determined by independent actuaries, considering the estimated future cash outflows using market yields at the reporting date of government securities which have currency and terms to maturity approximating the terms of the related liability.

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3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

3.12 Employee benefits (continued)

(b) Post-employment benefits (continued)

Defined benefit plan-unfunded (continued)

Actuarial gains and losses arise from experience adjustments and changes in actuarial assumptions. The amount of net actuarial gains and losses recognised in the statement of comprehensive income is determined by the corridor method in accordance with FRS 1192004 “Employee Benefits” and is charged or credited to the statement of comprehensive income over the average remaining service lives of the related employees participating in the defined benefit plan.

Under this scheme, the benefits due to the eligible employees are determined based on the length of service at predetermined factors in accordance with the Group Employee’s Handbook.

3.13 Inventories

Inventories are stated at the lower of cost and net realisable value. The cost of raw materials and finished goods comprise standard costs whereas the cost of spares and consumables comprise cost of purchase. The cost of finished goods and work-in-progress includes raw materials, labour and related production overheads (based on normal operating capacity). It excludes borrowings costs. net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion and applicable variable selling expenses.

3.14 Receivables

Trade receivables are recognised at fair value and subsequently measured at amortised cost. An allowance for doubtful debts is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. Known bad debts are written off in the financial year in which they are identified.

3.15 Cash and cash equivalents

For the purpose of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks, other short term and highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are included within borrowings in current liabilities on the statement of financial position.

3.16 Income tax

Current tax expense is determined according to the tax laws of each jurisdiction in which the Group operates and include all taxes based upon the taxable profits, including withholding taxes and real property gains taxes payable upon disposal of properties, if any.

Deferred tax is recognised in full, using the liability method, on temporary differences arising between the amounts attributed to assets and liabilities for tax purposes and their carrying amounts in the financial statements. However, deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.

Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences or unused tax losses can be utilised.

Deferred tax is recognised on temporary differences arising on investments in subsidiaries and associates except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax is determined using tax rates (and tax laws) that have been enacted or substantively enacted by the reporting date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.

3.17 Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, when it is probable that an outflow of resources will be required to settle the obligation, and when a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed (for example, under an insurance contract), the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of the expenditure expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.

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3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

3.18 Share capital

(a) Classification

Ordinary shares are classified as equity. Distributions to the holders of a financial instrument classified as an equity instruments is charged directly to equity.

(b) Dividends

Dividends on ordinary shares are recognised as liabilities in the financial year in which they are declared. Dividends proposed after reporting date but before the financial statements are authorised for issue are not recognised as liability at the reporting date.

3.19 Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group’s activities. Revenue is shown net of returns, rebates and discounts and after eliminating sales within the Group.

The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the Group and specific criteria have been met for each of the Group’s activities as described below. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

(a) Sale of goods

Revenue relating to sale of goods is recognised upon delivery of products and customer acceptance, net of returns, rebates and discounts.

(b) Investment trading

Prior to the adoption of FRS 139, revenue relating to the disposal of marketable securities is recognised when the disposal becomes unconditional and on a receivable basis. Proceeds from disposal of marketable securities are net of stamp duties, brokerage and clearing fees. Following the adoption of FRS 139 with effect from 1 January 2010, marketable securities are designated as financial assets held for trading and are recorded at fair value. They are subsequently measured at fair value with gain or loss recognised in profit or loss.

(c) Interest income

Interest income is recognised on a time proportion basis, taking into account the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the Group.

(d) Dividend income

Dividend income is recognised when the Group’s right to receive payment is established.

(e) Management fee

Management fee from subsidiaries is recognised on the accrual basis.

3.20 Foreign currencies

(a) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The financial statements are presented in Ringgit Malaysia, which is the Company’s functional and presentation currency.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the dates of the transactions. Foreign currency gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income.

(c) Group companies

The results and financial position of all the group companies (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

• assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position;

• income and expenses for each statement of comprehensive income are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of transactions); and

• all resulting exchange differences are recognised as a separate component of equity.

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3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

3.20 Foreign currencies (continued)

(c) Group companies (continued)

On consolidation, exchange differences arising from the translation of the net investment in foreign operations are taken to shareholders’ equity. When a foreign operation is partially disposed of or sold, exchange differences that were recorded in equity are recognised in the statement of comprehensive income as part of the gain or loss on sale.

3.21 Hire purchase liabilities

Property, plant and equipment held under hire purchase agreements are capitalised in the statement of financial position and are depreciated in accordance with the policy set out in note 3.4. Outstanding obligations due under the hire purchase agreements after deducting finance charges are included as liabilities in the financial statements.

Hire purchase finance charges are allocated to the statement of comprehensive income over the hire purchase period so as to give a constant periodic rate of interest on the remaining liabilities.

3.22 Borrowings

(a) Classification

Borrowings are initially recognised based on the proceeds received, net of transaction costs incurred. In subsequent financial years, borrowings are stated at amortised cost using the effective yield method; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the statement of comprehensive income over the period of the borrowings.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.

(b) Capitalisation of borrowing costs

Borrowing costs are actual borrowing costs incurred on the borrowings during the financial year less any investment income on the temporary investment of those borrowings.

Borrowing costs incurred to finance the construction of property, plant and equipment are capitalised as part of the cost of the assets during the period of time that is required to complete and prepare the asset for its intended use. All other borrowing costs are expensed to the statement of comprehensive income.

3.23 Derivative financial instruments and hedging activities

The Group holds derivative financial instruments to hedge its foreign currency risk exposures. Embedded derivatives are separated from host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the combined instrument is not measured at fair value through profit or loss.

Derivatives are recognised initially at fair value; attributable transaction costs are recognised in profit or loss when incurred. Subsequent to initial recognition, derivative are measured at fair value, and changes therein are accounted for as described below:

(a) Cash flow hedge

When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognised in other comprehensive income and presented in the hedging reserve in equity. The amount recognised in other comprehensive income is removed and included in profit or loss in the same period as the hedged cash flows affects profit or loss under the same line item in profit or loss as the hedged item. Any ineffective portion of changes in fair value of the derivative is recognised immediately in profit or loss.

If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in other comprehensive income and presented in the hedging reserve in equity remains there until the forecast transaction affects profit or loss. When the hedged item is a non-financial asset, the amount recognised in other comprehensive income is transferred to the carrying amount of the asset when the asset is recognised. If the forecast transaction is no longer expected to occur, then the balance in other comprehensive income is recognised immediately in profit or loss. In other cases, the amount recognised in other comprehensive income is transferred to profit or loss in the same period that the hedged item affects profit or loss.

(b) Other non-trading derivatives

When a derivative financial instrument is not held for trading, and is not designated in a qualifying hedge relationship, all changes in its fair value are recognised immediately in profit or loss.

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3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

3.24 Trade payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities

3.25 Segment reporting

For management purposes, the Group is organised into operating segments based on their products and services which are independently managed by the respective segment managers responsible for the performance of the respective segments under their charge. The segment managers report directly to the Chief Operating Decision Maker of the Company who regularly review the segment results in order to allocate resources to the segments and to assess the segment performance. Additional disclosures on each of these segments are shown in note 33, including the factors used to identify the reportable segments and the measurement basis of segment information.

3.26 Contingent liabilities and contingent assets

The Group does not recognise a contingent liability but discloses its existence in the financial statements. A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Group or a present obligation that is not recognised because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in the extremely rare case where there is a liability that cannot be recognised because it cannot be measured reliably.

A contingent asset is a possible asset that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Group. The Group does not recognise contingent assets but discloses its existence where inflows of economic benefits are probable, but not virtually certain.

In the acquisition of subsidiaries by the Group under a business combinations, the contingent liabilities assumed are measured initially at their fair value at the acquisition date, irrespective of the extent of any minority interest.

The Group recognises separately the contingent liabilities of the acquirees as part of allocating the cost of a business combination where their fair values can be measured reliably. Where the fair values cannot be measured reliably, the resulting effect will be reflected in the goodwill arising from the acquisitions.

Subsequent to the initial recognition, the Group measures the contingent liabilities that are recognised separately at the date of acquisition at the higher of the amount that would be recognised in accordance with the provisions of FRS 137 “Provisions, Contingent Liabilities, and Contingent Assets” and the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with FRS 118 “Revenue”.

4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. To enhance the information content of the estimates, certain key variables that are anticipated to have material impact to the Group’s results and financial positions are tested for sensitivity to changes in the underlying parameters. The estimates and assumptions that have a significant risk of causing material adjustments to the carrying amounts of assets and liabilities within the next financial year are outlined below:

(a) Estimated impairment of property, plant and equipment

The Group assesses impairment of property, plant and equipment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, i.e. the carrying amount of the asset is higher than the recoverable amount. Recoverable amount is measured at the higher of the fair value less cost to sell for that asset and its value-in-use.

Projected future cash flows used in impairment testing of property, plant and equipment are based on the Group’s estimates calculated based on historical, sector and industry trends, general market and economic conditions and other available information.

The assumptions used, results and impact of possible change in the key assumptions of the impairment assessment of the property, plant and equipment are disclosed in note 6 to the financial statements.

(b) Recognition of deferred tax asset

Deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. This involves judgement regarding the future financial performance of the Group and the Company in which the deferred tax asset has been recognised.

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4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)

(b) Recognition of deferred tax asset (continued)

As at 31 December 2010, the Group and the Company recorded a deferred tax asset of RM491,000 (2009: RM446,000) and RM411,000 (2009: RM356,000) respectively. The Group and the Company also had investment tax allowances and unutilised tax losses in an aggregate amount of RM439.7 million (2009: RM437.3 million) and RM4.8 million (2009: RM4.8 million) respectively, for which no deferred tax asset has been recognised on the statements of financial position as at 31 December 2010. Based on management’s projections of the future results of the Group and the Company, it is not probable that taxable profits will be available to utilise against the investment tax allowances and unutilised tax losses in the foreseeable future.

5 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s financial risk management policy seeks to ensure that adequate financial resources are available for the development of the Group’s businesses whilst managing its foreign currency exchange risk, interest rate risk, credit risk, liquidity and cash flow risk. The Group operates within clearly defined authority limits that have been approved by the Board of Directors. Further financial risk management is carried out through risk reviews, internal control systems and insurance programme.

Foreign currency exchange risk

The Group incurs foreign currency risk on sales and purchases that are denominated in a currency other than Ringgit Malaysia.

The Group covers a portion of foreign trade receivables and payables denominated in foreign currency with foreign exchange forward contracts when the need arises. All foreign exchange contracts are for the purpose of hedging to protect the Group from foreign currency fluctuations and the Group is not allowed to trade, other than for the purpose of hedging.

The Group’s and the Company’s exposures to foreign currencies as at 31 December 2010 is as follows:

US Singapore Dollar Dollar Euro Others* RM’000 RM’000 RM’000 RM’000

As at 31 December 2010 Group

Trade and other receivables 2,106 1,077 0 4 Cash and cash equivalents 695 90 0 22 Borrowings (33,707) 0 0 0 Trade and other payables (2,002) (35) (3,045) (46)

Gross currency exposures (32,908) 1,132 (3,045) (20) Less: net financial assets denominated in respective entities’ functional currencies 0 (77) 0 0

Net currency exposures (32,908) 1,055 (3,045) (20)

Company

Trade and other receivables 4 0 0 4 Cash and cash equivalents 0 0 0 22 Borrowings (33,707) 0 0 0 Trade and other payables (253) 0 0 0

Net currency exposures (33,956) 0 0 26

* Other currencies comprise Swiss Franc, Japanese Yen and Chinese Renminbi.

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5 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)

Foreign currency exchange risk (continued)

If the relevant foreign currencies estimated at a 5% strengthening against the respective functional currencies of the Group entities, it would decrease the Group’s profit before tax (and retained profits) by approximately RM1.9 million. A 5% weakening in foreign currencies against respective Group entities’ functional currencies would have an equal but opposite effect.

If the relevant foreign currencies estimated at a 5% strengthening against the functional currency of the Company, it would decrease the Company’s profit before tax (and retained profits) by approximately RM1.7 million. A 5% weakening in foreign currencies against functional currency of the Company would have an equal but opposite effect.

Interest rate risk

The Group’s income and operating cash flows are substantially independent of changes in market interest rates. Interest rate exposure arises from the Group’s borrowing and deposits. Interest rates of the Group’s borrowings are managed through fixed and floating rates. Investments in financial assets are short term in nature and are mostly placed as short-term deposits with licensed financial institutions.

Credit risk

Credit risk is the risk of loss that may arise on outstanding financial instruments should a counterparty default on its obligations. The Group’s exposure to credit risks arises primarily from cash and bank balances, trade and other receivables. The Group seeks to control credit risk by having in place policies for credit control which cover, inter-alia, credit evaluation on all customer credit over a certain amount, imposition of collateral or security and strict adherence to credit approval limits. Regular reviews and monitoring of credit risk exposure and management of delinquent debtors form part of the operational controls implemented by the Group to reduce such risk.

Concentrations of credit risk with respect to receivables are limited due to the Group’s large number of customers. The Group’s historical experience in collection of accounts receivable falls within the recorded allowances. Due to these factors, management believes that no additional credit risk beyond amounts provided for collection losses is inherent in the Group’s receivables. Deposits with banks and other financial institutions that are neither past due nor impaired are placed with reputable financial institutions with high credit ratings and no history of default.

The maximum exposure to credit risk is represented by the carrying amount of each class of financial instruments presented on the statement of financial position, including derivatives with positive fair values.

(a) Financial assets that are neither past due nor impaired

Deposits with banks and other financial institutions that are neither past due nor impaired are placed with reputable financial institutions with high credit ratings and no history of default.

Trade receivables that are neither past due nor impaired is disclosed in note 11.

Other receivables are predominantly neither past due nor impaired and are substantially from companies with good payment record with the Group.

(b) Financial assets that are past due but not impaired

There is no other class of financial assets that is past due but not impaired except certain trade receivables as disclosed in note 11. The Company has not impaired the amounts due from subsidiaries as these amounts are expected to be recovered in the near future.

Liquidity and cash flow risk

The Group’s policy on liquidity risk management is to maintain sufficient cash and have available funding through adequate amounts of committed credit facilities, credit lines, and funding through continuing financial support from the holding company for working capital requirements.

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Capital management

The primary objective of the Group’s and the Company’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value.

The Group and the Company define capital as the share capital and the level of borrowings of the Group and the Company. The Group and the Company manage the capital structure and make adjustments to it, in light of changes in economic condition. To maintain or adjust capital structure, the Group and the Company may adjust the dividend payment to shareholders, return capital to shareholders, issue new shares or share buy-backs. The Group and the Company’s approach in managing capital are based on defined guidelines that are approved by the Board of Directors.

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

Contractual cash flows

Carrying Within Between After 5 amount Total 1 year 1-5 years years As at 31 December 2010 RM’000 RM’000 RM’000 RM’000 RM’000

Group Trade and other payables 37,435 37,435 37,435 0 0 Borrowings 162,889 181,547 44,001 137,546 0 Amount due to holding company 37,579 48,497 0 0 48,497

237,903 267,479 81,436 137,546 48,497

Company Trade and other payables 8,079 8,079 8,079 0 0 Borrowings 140,627 158,804 21,354 137,450 0 Amount due to holding company 37,579 48,497 0 0 48,497

186,285 215,380 29,433 137,450 48,497

5 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)

Liquidity and cash flow risk (continued)

The following are the maturity profile of the Group’s and the Company’s financial liabilities based on contractual undiscounted cash flow.

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Furniture fittings, Capital Leasehold Plant and office renovation Motor work-in- land Buildings machinery and equipment vehicles progress TotalGroup RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Net book valueAs at 1 January 2010 - as previously reported 0 119,081 365,073 782 1,103 0 486,039Effects of adoption of amendments to FRS 117 (note 36) 17,149 0 0 0 0 0 17,149

As at 1 January 2010 – as restated 17,149 119,081 365,073 782 1,103 0 503,188Additions 0 172 2,405 149 2,665 0 5,391Disposals / write offs 0 0 0 (19) 0 0 (19)Depreciation charge for the financial year (236) (1,496) (16,730) (389) (303) 0 (19,154)

At 31 December 2010 16,913 117,757 350,748 523 3,465 0 489,406

At 31 December 2010

Cost 19,704 133,662 570,884 12,560 8,652 0 745,462Accumulated depreciation (2,791) (15,905) (214,443) (12,037) (5,187) 0 (250,363)Accumulated impairment loss 0 0 (5,693) 0 0 0 (5,693)

net book value 16,913 117,757 350,748 523 3,465 0 489,406

Furniture fittings, Capital Leasehold Plant and office renovation Motor work-in- land Buildings machinery and equipment vehicles progress TotalGroup RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Net book value As at 1 January 2009 – as previously reported 0 120,448 383,058 1,458 1,850 189 507,003Effects of adoption of amendments to FRS 117 (note 36) 17,385 0 0 0 0 0 17,385

As at 1 January 2009 – as restated 17,385 120,448 383,058 1,458 1,850 189 524,388Additions 0 180 251 128 19 0 578Disposals / write offs 0 (66) (146) (221) (424) (189) (1,046)Impairment loss 0 0 (1,658) 0 0 0 (1,658)Depreciation charge for the financial year (236) (1,481) (16,432) (583) (342) 0 (19,074)

At 31 December 2009 17,149 119,081 365,073 782 1,103 0 503,188

At 31 December 2009

Cost 19,704 133,490 568,479 12,687 5,987 0 740,347Accumulated depreciation (2,555) (14,409) (197,713) (11,905) (4,884) 0 (231,466)Accumulated impairment loss 0 0 (5,693) 0 0 0 (5,693)

net book value 17,149 119,081 365,073 782 1,103 0 503,188

6 PROPERTY, PLANT AND EQUIPMENT

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Furniture and fittings, office renovation and equipment TotalCompany RM’000 RM’000 Net book value

At 1 January 2010 253 253Additions 36 36Disposals / write-offs (2) (2)Depreciation charge for the financial year (149) (149) At 31 December 2010 138 138 At 31 December 2010Cost 5,315 5,315Accumulated depreciation (5,177) (5,177) Net book value 138 138

Net book value

At 1 January 2009 370 370Additions 42 42Depreciation charge for the financial year (159) (159)

At 31 December 2009 253 253

At 31 December 2009Cost 5,371 5,371Accumulated depreciation (5,118) (5,118)

Net book value 253 253

Property, plant and equipment under hire purchase Group

2010 2009 RM’000 RM’000

Motor vehicles under hire purchase:- net book value at end of financial year 471 595

6 PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

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6 PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

Impairment test for property, plant and equipment

A plant of a subsidiary (‘Plant 3”) recommenced operation in January 2011. Management performed an impairment assessment of the Plant 3 in view of the temporary closure of Plant 3 in november 2008. Based on management’s assessment, the recoverable amount of Plant 3 as at 31 December 2010, based on value-in-use (“VIU”) is RM398 million, which is in excess of its carrying value of RM366 million by RM32 million.

On this basis, management is of the view that no impairment is necessary with respect to Plant 3.

(a) Key assumptions used in the VIU calculation

The VIU calculation applied a discounted cash flow model using cash flow projections based on an approved 5-year budget and projections covering the remaining useful life of Plant 3 of 24 years. These projections reflect management’s best estimate of the future results of Plant 3 based on past experience and future outlook.

The key estimates used in the cash flow projections are the selling prices of the products, certain components of the raw material prices and the weighted average cost of capital specific to the Group’s industry. The key assumptions of the projections are as follows:

• Selling prices beyond the sixth year are extrapolated to the end of the useful life based on a 2% year-on-year increase.

• Cost of major raw material prices beyond the sixth year are extrapolated to the end of the useful life based on a 1.5% year-on-year increase.

• Sales and production volumes beyond the sixth year are assumed to remain constant, extrapolated to the end of the useful life based on a 2% year-on-year increase.

• A discount rate of 9.37% has been applied to the cash flow projections.

(b) Impact of possible change in key assumptions

The Group’s impairment assessment includes an assessment of changes in key assumptions that would impact the financial statements, as set out below:

• If the discount rate used was 10%, the recoverable amount would be lower by RM24 million.

• If the selling price differs by 1% from management’s estimates, the recoverable amount would be higher or lower by RM26 million.

• If the prices of key raw materials differs by 2% from management’s estimates, the recoverable amount would be higher or lower by RM24 million.

• If the sales volume differs by 1% from management’s

estimates, the recoverable amount would be higher or lower by RM26 million.

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7 INVESTMENT PROPERTIES

Group Company

2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000 At 1 January 0 7,417 0 4,867 Disposals 0 (7,069) 0 (4,669) Fair value loss 0 (348) 0 (198)

At 31 December 0 0 0 0

All investment properties of the Group and the Company were sold in 2009 to the holding company, Bandaraya Developments Berhad, for a total cash consideration of RM7.1 million and RM4.7 million respectively.

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Company

2010 2009 RM’000 RM’000

Unquoted shares, at cost 52,495 52,495 Allowance for impairment loss (1,275) (1,275)

51,220 51,220

The shares in the subsidiaries are held directly by the Company. Details of the subsidiaries are as follows:

8 INVESTMENT IN SUBSIDIARIES

Effective interest

2010 2009 name of company % % Principal activities

# Mieco Manufacturing Sdn. Bhd. 100 100 Manufacturing and marketing of chipboards and related products# Mieco Marketing Sdn. Bhd. 100 100 Selling and marketing of chipboards and related products* Mieco Marketing (S) Pte. Ltd. 100 100 Dormant# Mieco Chemicals Sdn. Bhd. 100 100 Dormant# Mieco Wood Products Sdn. Bhd. 100 100 Reforestation# Mieco Reforestation Sdn. Bhd. 100 100 Reforestation, harvesting, extraction and supply of rubber wood# Mieco Wood Resources Sdn. Bhd. 100 100 Investment holding and procurement of rubber wood** Mieco International (HK) Limited 100 100 Dormant# Tudor Capital Sdn. Bhd. 100 100 Investment trading# Aspire Benchmark Sdn. Bhd. 100 100 Property investment

All the subsidiaries are incorporated in Malaysia, except for Mieco Marketing (S) Pte. Ltd. and Mieco International (HK) Limited, which are incorporated in Singapore and Hong Kong respectively.

note:

#Audited by PricewaterhouseCoopers, Malaysia

* Audited by a firm other than PricewaterhouseCoopers, Malaysia and member firms of PricewaterhouseCoopers International Limited

** Company is dormant. As such no statutory audit is required under Hong Kong Companies Ordinance.

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Company

2010 2009 RM’000 RM’000

Receivable within two to five years 140,627 157,875Receivable later than five years 37,579 28,495

178,206 186,370

The effective interest rates of the interest-bearing amount due from a subsidiary as at the reporting date range from 5.35% to 5.48% (2009: 5.20% to 5.35%) per annum.

The estimated fair value for the amount due from a subsidiary (which is interest bearing and not considered as part of net investment in a subsidiary) as at the reporting date approximates its carrying value.

10 INVENTORIES

Group

2010 2009 RM’000 RM’000

At cost: Raw materials 11,252 10,725Work-in-progress 1,417 1,030Finished goods 8,176 6,236Spares and consumables 23,925 22,587

44,770 40,578

9 AMOUNT DUE FROM A SUBSIDIARY

The amount due from a subsidiary of RM297.506 million (2009: 297.149 million) which is unsecured, denominated in Ringgit Malaysia and is interest free is considered as part of net investment in a subsidiary.

In addition to the above, the amount due from a subsidiary includes a balance amounting to RM178.206 million (2009: RM186.370 million) which is unsecured, denominated in Ringgit Malaysia and is interest bearing as these funds are sourced by the Company from (a) external parties to part finance the construction of a plant of the subsidiary, and (b) the holding company for loan repayment of the Company and working capital purposes of the subsidiary. The finance expenses charged to the Company for the current financial year on these borrowings amounting to RM9.700 million (2009: RM9.723 million) are re-charged to the subsidiary.

The repayment terms of the amount due from a subsidiary which is interest bearing are as follows:

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Group Company

2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000

Trade receivables 31,647 38,122 0 1,328Allowance for doubtful debts (54) (6,730) 0 (1,328)

31,593 31,392 0 0

Amounts due from subsidiaries 0 0 2,474 2,408Allowance for doubtful debts 0 0 (683) (683)

0 0 1,791 1,725

Other receivables 8,112 8,768 100 158Allowance for doubtful debts (7,622) (7,627) (54) (54)

490 1,141 46 104Deposits 240 225 14 14Prepayments 113 135 6 10

843 1,501 66 128

Total 32,436 32,893 1,857 1,853

The credit terms of the trade receivables range from 1 to 60 days (2009: 1 to 60 days).

The amounts due from subsidiaries are unsecured, interest free and have no fixed terms of repayment.

Concentrations of credit risk with respect to trade receivables are limited due to the Group’s large number of customers. The Group’s historical experience in collection of accounts receivable falls within the recorded allowances. Due to these factors, management believes that no additional credit risk beyond amounts provided for collection losses is inherent in the Group’s trade receivables.

The maximum exposure to credit risk for trade receivables at reporting date is the carrying amount of each class of receivable mentioned above. The Group holds as collaterals, bank guarantees deposited by certain debtors, as security.

The ageing analysis of the Group’s and the Company’s trade receivables is as follows: Group Company

Allowances Allowances Gross for doubtful Gross for doubtful amount receivables amount receivables

As at 31 December 2010 RM’000 RM’000 RM’000 RM’000

not past due 30,939 0 0 0Past due 1 – 30 days 289 0 0 0Past due 31 – 90 days 334 0 0 0More than 90 days 85 (54) 0 0

31,647 (54) 0 0

11 RECEIVABLES, DEPOSITS AND PREPAYMENTS

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Group Company

2010 2009 RM’000 RM’000

At 1 January 6,730 1,328Allowance made during the financial year 52 0Recovery of debts (56) 0Allowance written off (6,672) (1,328)

At 31 December 54 0

12 MARKETABLE SECURITIES Group

2010 2009 RM’000 RM’000Quoted in Malaysia

Share in corporations, at cost 0 66Less: Allowance for impairment losses 0 (17)

0 49

At market value

Shares in corporations, quoted in Malaysia 0 49

11 RECEIVABLES, DEPOSITS AND PREPAYMENTS (CONTINUED)

The Group and the Company believe that, generally no allowance for doubtful receivables is necessary in respect of trade receivables that are neither past due nor impaired as these receivables are mainly arising from trade debtors that have good records of payment in the past.

The change in allowance for doubtful receivables in respect of trade receivables during the financial year is as follows:

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13 DERIVATIVE FINANCIAL INSTRUMENTS

At 31 December 2010, the Group’s open forward contracts entered into as cover of anticipated future transactions were as follows:

At 31.12.2010 At 31.12.2009

Currency Average Currency AverageHedged to be RM’000 contractual to be RM’000 contractual items received/paid equivalent rate received/paid equivalent rate

Trade USD Dollar 2,168 3.1308 US Dollar receivables 0.692 million 1.427 million 4,819 3.378

Future sale USD Dollar 3,943 3.1349 US Dollar of goods 1.258 million 1.029 million 3,499 3.399

Trade nA nA nA Euro payables 0.452 million 2,276 5.032

Future purchase nA nA nA Euro of goods 0.088 million 441 5.032

6,111 11,035

The settlement dates of the above open forward contracts range between 1 and 6 months.

The derivative gain arising from the outstanding forward foreign currency exchange contracts as at 31 December 2010 is RM76,000, which has been recorded in the statement of financial position of the Group.

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14 CASH AND CASH EQUIVALENTS

Group Company

2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000

Deposits with licensed banks 2,516 2,516 989 965Deposits with licensed discount houses 0 33 0 0

2,516 2,549 989 965Cash and bank balances 3,857 2,588 153 119Bank overdraft (note 18) (3,426) (6,831) 0 0 2,947 (1,694) 1,142 1,084

Included in deposits, cash and bank balances are monies subject to usage restriction 2,516 2,516 989 965

The weighted average interest rates of deposits that were effective at the reporting date were as follows:

Group Company

2010 2009 2010 2009 % % % %

Deposits with licensed banks 2.96 2.39 2.85 2.19Deposits with licensed discount house 0 1.88 0 0

Deposits of the Group and the Company have an average tenure to maturity of 306 days (2009: 276 days) and 214 days (2009: 141 days) respectively.

Bank balances are held at call with licensed banks, which are non-interest bearing.

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13 DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)

Forward foreign currency exchange contracts are entered into with licensed banks to hedge the Group’s exposure to foreign exchange risk in respect of its export sales and imported purchases by establishing the rate at which foreign currency assets or liabilities will be settled.

These contracts are executed with credit-worthy/reputable financial institutions in Malaysia and as such, credit risk and liquidity risk in respect of non-performance by counterparties to these contracts is minimal.

The fair value of the forward foreign currency exchange contracts are subject to market risk. The fair value of the forward contracts may decline if the exchange rate of the underlying currency decreases.

Forward foreign currency exchange contracts are recognised on the contract dates and are measured at fair value with changes in fair value recognised in profit or loss.

The unrecognised losses of the previous year, prior to the adoption of FRS139, on open contracts which hedged anticipated future foreign currency sales and purchases amounted to RM81,210 and RM56,142 respectively. The net exchange losses were then deferred until the related sales and purchases were transacted, at which time they were included in the measurement of such transactions.

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15 SHARE CAPITAL

Group and Company

2010 2009 RM’000 RM’000

Authorised:1,000,000,000 ordinary shares of RM1 each 1,000,000 1,000,000

Issued and fully paid: 210,000,000 ordinary share of RM1 each 210,000 210,000

16 RESERVES

Group Company

2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000

Non-distributable: Share premium 5,866 5,866 5,866 5,866Foreign currency reserve (38) (26) 0 0

5,828 5,840 5,866 5,866Distributable: Retained earnings 102,691 100,448 126,067 125,657

108,519 106,288 131,933 131,523

Retained earnings

Under the single-tier tax system which came into effect from the year of assessment 2008, companies are not required to have tax credits under Section 108 of the Income Tax Act 1967 for dividend payment purposes. Dividends paid under this system are tax exempt in the hands of shareholders.

Companies with Section 108 credits as at 31 December 2010 may continue to pay franked dividends until the Section 108 credits are exhausted or 31 December 2013 whichever is earlier unless they opt to disregard the Section 108 credits to pay single-tier dividends under the special transitional provisions of the Finance Act 2007. As at 31 December 2010, subject to agreement with the tax authorities, the Company has sufficient Section 108 tax credit and exempt account to frank approximately RM20 million (2009: RM20 million) and RM63 million (2009: RM63 million) respectively of the retained earnings of the Company as franked and exempt dividend.

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Group Company

RM’000 RM’000

At 1 January 2009 8,618 70

Charged to statement of comprehensive income (note 24) 817 134 Benefits paid (1,147) (93)

At 31 December 2009 8,288 111

Charged to statement of comprehensive income (note 24) 1,489 133Benefits paid (536) (97) At 31 December 2010 9,241 147

The amounts recognised in the statements of financial position may be analysed as follows:

Group Company

RM’000 RM’000 Present value of unfunded obligations – non current At 31 December 2010 9,241 147At 31 December 2009 8,288 111At 31 December 2008 8,618 70At 31 December 2007 7,974 281At 31 December 2006 7,232 151

17 PROVISIONS

Defined benefit plan of the Group

The Group operates an unfunded final salary defined benefit plan for its employees in Malaysia and Hong Kong. The latest actuarial valuations of the plan were carried out on 29 December 2009.

The movements during the financial year in the amounts recognised in the Group’s and Company’s statements of financial position are as follows:

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17 PROVISIONS (CONTINUED)

Defined benefit plan of the Group (continued)

The expenses recognised in the statements of comprehensive income may be analysed as follows:

Group Company

2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000

Current service cost 795 770 66 65Interest cost 666 499 35 31Amortisation of net loss 28 24 32 38Curtailment gain 0 (476) 0 0

1,489 817 133 134

The principal actuarial assumptions used in respect of the Group’s and Company’s defined benefit plan were as follows:

Lump-sum retirement plan

2010 2009 % %

Discount rates 7.0 7.0Expected rate of salary increases 8.0 8.0

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18 BORROWINGS

Group Company

2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000

CurrentBank overdraft (unsecured) (note 14) 3,426 6,831 0 0Term loan (unsecured) 13,889 6,238 13,889 6,238Bankers acceptance (unsecured) 18,576 20,617 0 0Hire purchase liabilities (secured) (note 22) 164 164 0 0

36,055 33,850 13,889 6,238

Non-currentTerm loan (unsecured) 126,738 144,372 126,738 144,372Hire purchase liabilities (secured) (note 22) 96 246 0 0

126,834 144,618 126,738 144,372

TotalBank overdraft (unsecured) (note 14) 3,426 6,831 0 0Term loan (unsecured) 140,627 150,610 140,627 150,610Bankers acceptance (unsecured) 18,576 20,617 0 0Hire purchase liabilities (secured) (note 22) 260 410 0 0

162,889 178,468 140,627 150,610

Bank overdraft and bankers’ acceptance facilities, which are unsecured, are utilised to finance the purchase of raw materials and working capital.

The estimated fair value of the non-current portion of term loan as at 31 December 2009 was RM122.609 million.

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18 BORROWINGS (CONTINUED)

The terms and debt repayment shedule of the borrowings are as follows:

Carrying Within 1-2 2-5 Over Year of amount 1 year years years 5 years maturity RM’000 RM’000 RM’000 RM’000 RM’000

Group

2010Bank overdraft 2011 3,426 3,426 0 0 0Term loan 2015 140,627 13,889 62,501 64,237 0Bankers acceptance 2011 18,576 18,576 0 0 0Hire purchase liabilities 2012 260 164 96 0 0

162,889 36,055 62,597 64,237 0 2009Bank overdraft 2010 6,831 6,831 0 0 0Term loan 2015 150,610 6,238 14,259 103,377 26,736Bankers acceptance 2010 20,617 20,617 0 0 0Hire purchase liabilities 2012 410 164 246 0 0

178,468 33,850 14,505 103,377 26,736

Company

2010Term loan 2015 140,627 13,889 62,501 64,237 0

2009Term loan 2015 150,610 6,238 14,259 103,377 26,736

Interests on borrowings which are subject to floating interest rates are contractually repriced at intervals between 1 to 3 months. Interest on borrowings at fixed rates are fixed until the maturity of the borrowings.

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18 BORROWINGS (CONTINUED)

The weighted average interest rates of the borrowings at the repoting date are as follows:

Group Company

2010 2009 2010 2009 % % % %

Bank overdraft 7.05 6.30 0 0Term loan 5.48 5.20 5.48 5.20Bankers acceptance 3.64 – 4.12 3.67 – 3.94 0 0

The Company had, in the previous financial year, successfully restructured its term loans with reduced repayment of the principal outstanding borrowings. This reduced repayment shall end in the financial year ending 2012. The holding company has provided a letter of guarantee (“LG”) on the due and punctual payment by the Company in respect of the said term loans. After its expiry in 2012, the LG shall be released subject to the fulfilment of the following terms and conditions by the Company:

- compliance of all financial covenants under the term loans facility;- two reported consecutive quarters of net profit after tax of at least RM2 million each; and- provision of security to substitute the LG.

Accordingly, the Directors are of the view that it is appropriate to prepare the financial statements of the Group and of the Company as a going concern.

19 DEFERRED TAxATION

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred taxes relate to the same tax authority. The following amounts, determined after appropriate offsetting, are shown in the statements of financial position:

Group Company

2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000

Subject to income tax:Deferred tax assets 491 446 411 356Deferred tax liabilities (7,582) (7,580) 0 0

(7,091) (7,134) 411 356

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19 DEFERRED TAxATION (CONTINUED)

Group Company

2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000

As start of financial year (7,134) (8,975) 356 299

Credited/(charged) to statement of comprehensive income (note 27)- Property, plant and equipment (154) 5,548 37 38- Provisions 293 224 17 8- Inventories (119) (2,001) 0 0- Receivables 0 (1,988) 0 0- Others 23 58 1 11 43 1,841 55 57

At end of financial year (7,091) (7,134) 411 356

Subject to income tax:

Deferred tax assets (before offsetting)Provisions 1,826 1,533 135 118Inventories 1,854 1,973 0 0Receivables 184 184 171 171 Property, plant and equipment 91 73 123 67Others 1 0 1 0

3,956 3,763 430 356Offsetting (3,465) (3,317) (19) 0

Deferred tax assets (after offsetting) 491 446 411 356

Deferred tax liabilities (before offsetting)Property, plant and equipment (11,047) (10,875) (19) 0Others 0 (22) 0 0

(11,047) (10,897) (19) 0Offsetting 3,465 3,317 19 0

Deferred tax liabilities (after offsetting) (7,582) (7,580) 0 0

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19 DEFERRED TAxATION (CONTINUED)

The amount of deductible temporary differences, unutilised tax losses and unutilised investment tax allowance (all of which have no expiry date) for which no deferred tax asset is recognised on the statement of financial position are as follows:

Group Company

2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000

Deductible temporary differences 0 1 0 0Unutilised tax losses 9,167 9,415 4,803 4,842Unutilised investment tax allowance 430,518 427,853 0 0

20 AMOUNT DUE TO HOLDING COMPANY

The holding company is Bandar Raya Developments Berhad, a company incorporated in Malaysia.

Amount due to the holding company is denominated in Ringgit Malaysia, unsecured and is subordinated to the prior repayment of certain loans. The weighted average interest rate on the amount due to the holding company at the reporting date is 5.35% (2009: 5.35%) per annum as at 31 December 2010.

The estimated fair value of the amount due to holding company as at 31 December 2009 was RM26.16 million.

21 TRADE AND OTHER PAYABLES Group Company

2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000

Trade payables 22,238 20,535 0 0Accrued expenses 302 325 0 0 Other payables 10,405 10,646 2,160 2,106Amounts due to subsidiaries 0 0 3,451 3,346Amount due to holding company 2,369 2,577 2,369 2,577Payroll liabilities 2,121 1,400 99 204

37,435 35,483 8,079 8,233

Included in payroll liabilities is an accrual for contributions to the Employees Provident Fund amounting to RM288,294 (2009: RM270,215). Companies incorporated in Malaysia contribute to the Employees Provident Fund, the national defined contribution plan. Once the contributions have been paid, the Group has no further payment obligations.

Amounts due to subsidiaries and holding company are unsecured, interest free and have no fixed term of repayment.

The credit terms of trade and other payables range from 1 to 90 days (2009: 1 to 90 days).

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22 HIRE PURCHASE LIABILITIES Group

2010 2009 RM’000 RM’000

Payable within one year 182 182Payable between one to five years 91 273

273 455Less: Future finance charges (13) (45)

Present value of hire purchases liabilities 260 410

Hire purchase liabilities are classified as follows:Current (note 18) 164 164non-current (note 18) 96 246

260 410

Hire purchase creditors are denominated in Ringgit Malaysia. The weighted average effective interest rate as at the year end is 4.19% (2009: 4.19%) per annum for the Group.

The estimated fair value of the hire purchase liabilities (non-current portion) at the reporting date was RM89,770 (2009: RM232,670). The fair value of the current portion of the hire purchase liabilities approximates its carrying value at the reporting date.

Hire purchase liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default.

23 REVENUE

Group Company

2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000

Sales of goods 174,208 185,739 0 0Management fee received fromsubsidiaries 0 0 2,919 2,816

174,208 185,739 2,919 2,816

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24 STAFF COSTS Group Company

2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000

Wages, salaries and bonus 13,902 13,992 1,437 1,737 Defined contribution plan 1,817 1,765 177 210Defined retirement benefit plan (note 17) 1,489 817 133 134Other employee benefits 6,709 7,063 152 204

23,917 23,637 1,899 2,285

Details of the defined benefit plan and defined contribution plan for the Group and the Company are set out in note 17 and note 21 to the financial statements, respectively.

Included in staff costs above are the Company’s Executive Director’s remuneration, excluding fees and estimated money value of benefits-in-kind, as further disclosed in note 29 to the financial statement.

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25 PROFIT / (LOSS) FROM OPERATIONS

Group Company

2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000

The following items have been charged / (credited) in arriving at profit / (loss) from operations:Auditors’ remuneration (note 30):- current financial year 150 128 46 35- under/(over) provision in prior year (5) 16 (5) 10Allowance for / (write back of) bad and doubtful debts 52 (264) 0 0Directors’ remuneration (excluding estimated monetary value of benefits-in-kind) (note 29) 1,254 846 897 840Recovery of bad and doubtful debts (61) (283) 0 0Rental of building 209 299 18 20Loss on disposal of property, plant and equipment 12 635 2 0(Gain) / loss on realised foreign exchange (801) 4,555 (43) 1Unrealised gain on foreign exchange (3,707) (963) (10) 0(Write back)/ allowances for inventories obsolescence (476) 1,329 0 0Inventories (written-back) / written-off (260) 1,998 0 0Rental income (1,060) (960) 0 (62)Fair value gain on derivative financial instruments (112) 0 0 0Fair value gain on financial assets held for trading (25) 0 0 0Dividend income (1) (2) 0 0Government grant received 0 (1,163) 0 0Write back for impairment loss on marketable securities 0 (13) 0 0Loss on wood concession 0 474 0 0

Direct operating expenses from investment properties that generated rental income for the Group and for the Company during the previous financial year was RM0.225 million.

Direct operating expenses from investment properties that did not generate rental income for the Group and for the Company during the previous financial year amounted to RM0.364 million.

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26 FINANCE COSTS AND FINANCE INCOME

Group Company

2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000

Finance costsInterest expense on:- Overdraft interest 113 389 0 0- Bankers acceptance 761 1,127 0 0- Revolving credit 0 7 0 0- Promissory notes 0 139 0 0- Hire purchase liabilities 44 18 0 0- Term loan 7,880 7,964 7,880 7,964- Loan from holding company 1,820 1,759 1,820 1,759- Loan facility fee 30 49 0 0

10,648 11,452 9,700 9,723

Finance income- Recovery of interest from a subsidiary in respect of term loan 0 0 (7,880) (7,964)- Recovery of interest from a subsidiary in respect of loan from holding company 0 0 (1,820) (1,759)- Interest income (23) (26) (19) (4)

(23) (26) (9,719) (9,727)

net finance costs/(income) 10,625 11,426 (19) (4)

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27 TAx (ExPENSE) / CREDIT

Group Company

2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000

(Tax expense) / credit for the financial year:

In respect of the current financial year- Malaysian income tax (4) (8) 0 0- Foreign tax (6) (9) (6) (9)- Deferred tax (note 19) 52 3,530 55 81

42 3,513 49 72(Under)/over accrual in respect of prior years- Malaysian income tax (60) (9) (72) 0- Foreign tax (3) 22 (3) 18- Deferred tax (note 19) (9) (1,689) 0 (24)

(30) 1,837 (26) 66

The effective tax rates of the Group and the Company differ from the statutory tax rate of 25% (2009: 25%) and are reconciled as below:

Group Company

2010 2009 2010 2009 % % % %

Statutory income tax rate of Malaysia 25 (25) (25) (25)Effects of:- Income not subjected to tax (56) (1) 0 0- Expenses not deductible for tax purposes 33 3 7 16- Under accrual in prior year 4 10 35 0- (Utilisation of previously unrecognised tax losses)/tax losses not recognised (4) 2 (5) 5

Effective tax rate 2 (11) 12 (4)

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28 EARNINGS / (LOSS) PER SHARE

(a) The basic earnings per share of the Group is calculated based on the earnings attributable to equity holders of the Company of RM1.62 million (2009: loss of RM14.68 million) divided by the weighted average number of 210,000,000 (2009: 210,000,000) ordinary shares in issue during the financial year.

(b) There were no dilutive potential ordinary shares as at 31 December 2010 and 31 December 2009 as the warrants had expired on 21 April 2009. As such, the diluted earnings per share is the same as the basic earnings per share.

29 DIRECTORS’ REMUNERATION

Group Company

2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000

Directors of the Company

non-executive Directors:- fees 108 108 108 108- allowances and other emoluments 55 42 55 42

163 150 163 150

Executive Directors:- salaries and bonus 520 480 520 480- allowances and other emoluments 26 23 26 23- defined contribution plan 63 58 63 58- other employee benefits 125 129 125 129- estimated money value of benefits-in-kind 37 46 37 46

771 736 771 736

Sub-total 934 886 934 886

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29 DIRECTORS’ REMUNERATION (CONTINUED)

Group Company

2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000

Directors of subsidiariesnon-executive Directors:- fees 6 6 0 0- salaries and bonus 304 0 0 0- allowances and other emoluments 8 0 0 0- defined contribution plan 37 0 0 0- other employee benefits 2 0 0 0- estimated money value of benefits-in-kind 27 0 0 0

Sub-total 384 6 0 0

Total 1,318 892 934 886

Total (excluding estimated moneyvalue of benefits-in-kind) 1,254 846 897 840

As stated in note 24 to the financial statements, the Company’s Executive Directors’ remuneration (excluding fees and estimated money value of benefits-in-kind) have been included as part of staff costs.

Details of the defined benefit plan and defined contribution plan of the Group and the Company are set out in note 17 and note 21 to the financial statements, respectively.

30 AUDITORS’ REMUNERATION

Group Company

2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000

PricewaterhouseCoopers Malaysia- statutory audit 117 103 43 32- other services 27 18 3 3

Firms other than PricewaterhouseCoopers,Malaysia and member firms of PricewaterhouseCoopersInternational Limited 6 7 0 0

Total remuneration 150 128 46 35

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31 CAPITAL COMMITMENTS

Group Company

2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000

Capital expenditure- approved and contracted for 3,045 26 0 0- approved but not contracted for 3,469 5,552 100 100

6,514 5,578 100 100

Analysed as follows:- property, plant and equipment 6,514 5,578 100 100

32 SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES

In addition to related party disclosures mentioned elsewhere in the financial statements, set out below are other significant related party transactions and balances. The related party transactions described below were carried out on terms and conditions negotiated between the Group and the related parties.

(a) Relationship with related parties

Related party Relationship

Bandar Raya Developments Berhad Holding company

Mieco Manufacturing Sdn Bhd Wholly-owned subsidiary

(b) Transactions with related parties

Group Company

2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000

Bandar Raya Developments Berhad

(i) Management fee payable to holding company 400 400 400 400 (ii) Borrowings from holding company 0 14,000 0 14,000 (iii) Interest expense on borrowings from holding company 1,820 1,759 1,820 1,759 (iv) Proceeds from disposal of investment properties

to holding company 0 7,069 0 4,669

| 101nOTES TO THE FInAnCIAL STATEMEnTSMIECO AnnUAL REPORT 2010

32 SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES (CONTINUED)

(b) Transactions with related parties (continued)

Group Company

2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000

Mieco Manufacturing Sdn. Bhd. (v) Borrowings by a subsidiary 0 0 0 14,000 (vi) Interest expense on borrowings by a subsidiary 0 0 9,700 9,723 (vii) Management fee receivable from a subsidiary 0 0 2,273 2,228

(c) Compensation of key management personnel

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any Director of the Company.

The remuneration of the Directors and other members of key management during the financial year were as follows:

Group Company

2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000

Remuneration and benefits 1,503 1,706 809 1,093 Post-employment benefits 0 317 0 94

1,503 2,023 809 1,187

Included in the total key management personnel are: Group Company

2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000

Director’s remuneration and benefits 1,117 808 748 808

102 | nOTES TO THE FInAnCIAL STATEMEnTS MIECO AnnUAL REPORT 2010

nOTES TO THE FInAnCIAL STATEMEnTSFOR THE FInAnCIAL YEAR EnDED 31 DECEMBER 2010 (COnTInUED)

33 OPERATING SEGMENT

The Group operates principally within one industry, that is, manufacturing and sales of wood based products. Other operations of the Group mainly comprise investment holding, investment trading, property investment, all of which are not of sufficient size to be reported separately.

The Group operates in two main geographical areas.

Revenue Total assets Capital expenditure

2010 2009 2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Malaysia 133,211 185,739 575,210 583,503 5,391 536Hong Kong and China 10,091 0 59 108 0 42Others 30,976 0 91 313 0 0

174,278 185,739 575,360 583,924 5,391 578

The carrying value of non-current assets located in foreign countries is not material as at the reporting date.

34 CONTINGENT LIABILITIES

Group Company

2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000

Corporate guarantees (unsecured) issued by the Company to licensed financial institutions for banking facilities to certain subsidiaries 0 0 78,000 78,000

35 FAIR VALUES

The carrying amounts of the financial assets and liabilities of the Group and Company at the statements of financial position date approximate their fair values except as disclosed in note 22 of the financial statements.

| 103nOTES TO THE FInAnCIAL STATEMEnTSMIECO AnnUAL REPORT 2010

36 CHANGES IN ACCOUNTING POLICIES

The following tables disclose the adjustments that have been made in accordance with the adoption of the amended FRS 117 to each of the line items in the Group’s statement of financial position and statement of comprehensive income:

(i) Impact on the Group’s statements of financial position:

Property, plant and equipment Prepaid lease rentals RM’000 RM’000

Balance as at 31 December 2008

As previously reported 507,003 17,385 Effects of adopting the amendments to FRS 117 17,385 (17,385)

As restated 524,388 0

Balance as at 31 December 2009

As previously reported 486,039 17,149 Effects of adopting the amendments to FRS 117 17,149 (17,149)

As restated 503,188 0

Increase / (decrease) to balances as at 31 December 2010

Effects of adopting the amendments to FRS 117 16,913 (16,913)

(ii) Impact on the Group’s statements of comprehensive income:

Depreciation of property, Amortisation of plant and equipment prepaid lease rentals RM’000 RM’000

For the financial year ended 31 December 2009

As previously reported 18,838 236 Effects of adopting the amendments to FRS 117 236 (236)

As restated 19,074 0

Increase / (decrease) for the financial year ended 31 December 2010

Effects of adopting the amendments to FRS 117 236 (236)

104 | nOTES TO THE FInAnCIAL STATEMEnTS MIECO AnnUAL REPORT 2010

Group Company

2010 2010 RM’000 RM’000

Total retained earnings of the Company and its subsidiaries - Realised 103,200 132,628- Unrealised (1,513) (6,561)

101,687 126,067Add: Consolidation adjustments 1,004 0

Retained earnings as per financial statements 102,691 126,067

The disclosure of realised and unrealised profits/(losses) above is solely for compliance with the directive issued by Bursa Malaysia Securities Berhad and should not be used for any other purpose.

37 SUPPLEMENTARY INFORMATION – BREAKDOWN OF RETAINED EARNINGS INTO REALISED AND UNREALISED

The breakdown of the retained earnings of the Group and the Company as at 31 December 2010 into realised and unrealised profits is presented in accordance with the directive issued by Bursa Malaysia Securities Berhad dated 25 March 2010 and prepared in accordance with Guidance on Special Matter no. 1, Determination of Realised and Unrealised Profits or Losses on the Context of Disclosure Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, as issued by the Malaysian Institute of Accountants.

nOTES TO THE FInAnCIAL STATEMEnTSFOR THE FInAnCIAL YEAR EnDED 31 DECEMBER 2010 (COnTInUED)

| 105STATEMEnT BY DIRECTORSMIECO AnnUAL REPORT 2010

STATEMEnT BY DIRECTORSPURSUAnT TO SECTIOn 169(15) OF THE COMPAnIES ACT, 1965

We, Dato’ Mohamed Moiz Bin J M Ali Moiz and Dato’ Yong Seng Yeow , being two of the Directors of Mieco Chipboard Berhad, do hereby state that, in the opinion of the Directors, the accompanying financial statements set out on pages 52 to 103 are drawn up in accordance with MASB Approved Accounting Standards in Malaysia and the Companies Act, 1965 in Malaysia so as to give a true and fair view of the financial position of the Group and of the Company as of 31 December 2010 and of their financial performance and cash flows for the financial year then ended.

The information set out in note 37 to the financial statements have been prepared in accordance with the Guidance on Special Matter no.1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, as issued by the Malaysian Institute of Accountants.

Signed on behalf of the Board in accordance with a resolution of the Directors dated 27 April 2011.

DATO’ MOHAMED MOIZ BIN J M ALI MOIZ DATO’ YONG SENG YEOWDIRECTOR DIRECTOR

106 | STATUTORY DECLARATIOn MIECO AnnUAL REPORT 2010

STATUTORY DECLARATIOnPURSUAnT TO SECTIOn 169(16) OF THE COMPAnIES ACT, 1965

I, Wong Weng Kwong, the officer primarily responsible for the financial management of Mieco Chipboard Berhad, do solemnly and sincerely declare that the financial statements set out on pages 52 to 104 are, in my opinion, correct and I make this solemn declaration conscientiously believing the same to be true, and by virtue of the provisions of the Statutory Declarations Act, 1960.

WONG WENG KWONG

Subscribed and solemnly declared by the above named Wong Weng Kwong at Kuala Lumpur on 27 April 2011.

Before me,

COMMISSIONER FOR OATHS

| 107InDEPEnDEnT AUDITORS’ REPORTMIECO AnnUAL REPORT 2010

InDEPEnDEnT AUDITORS’ REPORTTO THE MEMBERS OF MIECO CHIPBOARD BERHAD(InCORPORATED In MALAYSIA) (COMPAnY nO: 12849 K)

REPORT ON THE FINANCIAL STATEMENTS

We have audited the financial statements of Mieco Chipboard Berhad on pages 52 to 103 which comprise the statements of financial position as at 31 December 2010 of the Group and of the Company, and the statements of comprehensive income, changes in equity and cash flows of the Group and of the Company for the financial year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on notes 1 to 36.

Directors’ Responsibility for the Financial Statements

The Directors of the Company are responsible for the preparation of financial statements that give a true and fair view in accordance with MASB Approved Accounting Standards in Malaysia for Entities Other than Private Entities and the Companies Act, 1965, and for such internal control as the Directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conductedour audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements have been properly drawn up in accordance with MASB Approved Accounting Standards in Malaysia for Entities Other than Private Entities and the Companies Act, 1965 so as to give a true and fair view of the financial position of the Group and of the Company as of 31 December 2010and of their financial performance and cash flows for the financial year then ended.

108 | InDEPEnDEnT AUDITORS’ REPORT MIECO AnnUAL REPORT 2010

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

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

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

(b) We have considered the financial statements and the auditors’ reports of all the subsidiaries of which we have not acted as auditors, which are indicated in note 8 to the financial statements.

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

(d) The audit reports on the financial statements of the subsidiaries did not contain any qualification or any adverse comment

made under Section 174(3) of the Act.

OTHER REPORTING RESPONSIBILITIES

The supplementary information set out in note 37 on page 104 is disclosed to meet the requirement of Bursa Malaysia Securities Berhad and is not part of the financial statements. The Directors are responsible for the preparation of the supplementary information in accordance with Guidance on Special Matter no. 1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, as issued by the Malaysian Institute of Accountants (“MIA Guidance”) and the directive of Bursa Malaysia Securities Berhad. In our opinion, the supplementary information is prepared, in all material respects, in accordance with the MIA Guidance and the directive of Bursa Malaysia Securities Berhad.

OTHER MATTERS

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

PRICEWATERHOUSECOOPERS THAYAPARAN A/L S.SANGARAPILLAI(no. AF: 1146) (no. 2085/09/12 (J)) Chartered Accountants Chartered Accountant

Kuala Lumpur 27 April 2011

InDEPEnDEnT AUDITORS’ REPORTTO THE MEMBERS OF MIECO CHIPBOARD BERHAD(InCORPORATED In MALAYSIA) (COMPAnY nO: 12849 K) (COnTInUED)

110 Analysis of Shareholdings

114 List of Properties

115 notice of Annual General Meeting

118 Statement Accompanying notice of Annual

Form of Proxy

OTHERInFORMATIOn

110 | AnALYSIS OF SHAREHOLDInGS MIECO AnnUAL REPORT 2010

AnALYSIS OF SHAREHOLDInGSAS AT 25 APRIL 2011

Authorised Share Capital : RM1,000,000,000Issued and Fully Paid-Up Capital : RM210,000,000Class of Shares : Ordinary Shares of RM1.00 eachVoting Rights : 1 vote per ordinary share

DISTRIBUTION OF SHAREHOLDINGS

no. of Holders % of Holders no. of Shares % of Shares

Largest Shareholders 30 0.47 144,953,998 69.03

Size of HoldingsLess than 100 524 8.12 16,994 0.01 100 - 1,000 1,524 23.62 1,464,463 0.701,001 - 10,000 3,215 49.84 15,807,050 7.5210,001 - 100,000 1,067 16.54 32,710,514 15.58100,001 - less than 5% of issued shares 120 1.86 40,807,008 19.435% and above of issued shares 1 0.02 119,193,971 56.76

Total 6,451 100.00 210,000,000 100.00

DIRECTORS’ INTERESTS IN SHARES BASED ON THE REGISTER OF DIRECTORS’ SHAREHOLDINGS

Direct Interest Indirect Interest

no. of Shares % no. of Shares %

In the CompanyDato’ Mohamed Moiz Bin J M Ali Moiz - - 119,193,971** 56.76 **Dato’ Yong Seng Yeow 130,000 0.06 - -Dato’ Jaganath Derek Steven Sabapathy - - - -Lt. Gen. (R) Dato’ Seri Mohamed Daud Bin Abu Bakar 16,000 0.01 - -Dato’ Dr Amarjit Singh A/L Santokh Singh 100,000 0.05 70,000*** 0.03 ***Vijeyaratnam A/L V. Thamotharam Pillay - - - -Low Kim Seng 10,000 0.00 * - -

| 111AnALYSIS OF SHAREHOLDInGSMIECO AnnUAL REPORT 2010

DIRECTORS’ INTERESTS IN SHARES BASED ON THE REGISTER OF DIRECTORS’ SHAREHOLDINGS (Continued)

Direct Interest Indirect Interest

no. of Shares % no. of Shares %

In Holding Company, Bandar Raya Developments BerhadDato’ Mohamed Moiz Bin J M Ali Moiz - - 92,070,812 ** 18.92**Dato’ Yong Seng Yeow - - - -Dato’ Jaganath Derek Steven Sabapathy - - - -Lt. Gen. (R) Dato’ Seri Mohamed Daud Bin Abu Bakar - - - -Dato’ Dr Amarjit Singh A/L Santokh Singh - - - -Vijeyaratnam A/L V. Thamotharam Pillay - - - -Low Kim Seng 57,000 0.01 - -

* neglible percentage

** Indirect interest held through Ambang Sehati Sdn Bhd

*** Indirect interest held through spouse

THIRTY (30) MAJOR SHAREHOLDERS BASED ON THE RECORD OF DEPOSITORS

Name Shareholding %

1) Bandar Raya Developments Berhad 119,193,971 56.76

2) HSBC nominees (Asing) Sdn Bhd 7,858,900 3.74 [Exempt An for RBS Coutts Bank Ltd (SG Branch)]

3) HSBC nominees (Asing) Sdn Bhd 2,764,400 1.32 [Exempt An for Clariden Leu Ltd. (EX-CLAR BK, ZRH)]

4) Mayban Securities nominees (Tempatan) Sdn Bhd 1,204,600 0.57 [Pledged Securities Account for Leong Chee Kwong (REM 825)]

5) Yeoh Ah Tu 1,169,000 0.56

6) M & A nominee (Tempatan) Sdn Bhd 1,097,100 0.52 [Titan Express Sdn Bhd]

7) Tan Kong Heng 1,024,100 0.49

8) HDM nominees (Asing) Sdn Bhd 1,000,000 0.48 [Lim & Tan Securities Pte Ltd for Leyau Yew Teck (Liao Youde)]

9) Yuet Kam Alice Lin 780,000 0.37

112 | AnALYSIS OF SHAREHOLDInGS MIECO AnnUAL REPORT 2010

THIRTY (30) MAJOR SHAREHOLDERS BASED ON THE RECORD OF DEPOSITORS (Continued)

Name Shareholding %

10) Affin nominees (Tempatan) Sdn Bhd 750,000 0.36 [Pledged Securities Account for Tan Kek Hian (TAn8215C)]

11) Lim Lee Ling 720,000 0.34

12) Cimsec nominees (Tempatan) Sdn Bhd 500,000 0.24 [Pledged Securities Account for Law Kok Wah (Selayang JY-CL)]

13) AIBB nominees (Tempatan) Sdn Bhd 455,500 0.22 [Pledged Securities Account for Phua Sin Mo]

14) HLG nominee (Tempatan) Sdn Bhd 455,500 0.22 [Hong Leong Bank Bhd for Ong Bee Lin]

15) Public nominees (Tempatan) Sdn Bhd 450,400 0.21 [Pledged Securities Account for Koay Ean Chim (IMO/TAS)]

16) Lee Thian Fook @ Lee Tian Fook 421,000 0.20

17) Pang Ah Mooi 410,000 0.19

18) Shoptra Jaya (M) Sdn Bhd 402,000 0.19

19) Chang Chai Kin 400,000 0.19

20) Mayban nominees (Tempatan) Sdn Bhd 400,000 0.19 [Lee Yu Yong @ Lee Yuen Ying]

21) Choong Yean Yaw 372,000 0.18

22) Tam Shuk Yi 372,000 0.18

23) Yoong Oai Tai 370,000 0.17

24) M & A nominee (Asing) Sdn Bhd 359,300 0.17 [Pedigree Limited]

25) M. I. T nominees (Tempatan) Sdn Bhd 350,000 0.17 [Pledged Securities Account for Success Secrets Sdn Bhd (MG0179-192)]

26) Ong Boon Kung 350,000 0.17

27) TA nominees (Tempatan) Sdn Bhd 342,000 0.16 [Pldeged Securities Account for Koay Ean Chim]

28) Aliya Akbar Khawaja Mohd Akbar 341,400 0.16

29) Tan Kim Eng 328,027 0.16

30) Mayban Securities nominees (Tempatan) Sdn Bhd 312,800 0.15 [Pledged Securities Account for Ting Yuet May (REM 825)]

Total 144,953,998 69.03

AnALYSIS OF SHAREHOLDInGSAS AT 25 APRIL 2011 (COnTInUED)

| 113AnALYSIS OF SHAREHOLDInGSMIECO AnnUAL REPORT 2010

SUBSTANTIAL SHAREHOLDERS BASED ON THE REGISTER OF SUBSTANTIAL SHAREHOLDERS

Direct Interest Indirect Interest

no. of Shares % no. of Shares %

Bandar Raya Developments Berhad 119,193,971 56.76 - -Ambang Sehati Sdn Bhd - - 119,193,971 56.76(a) Dato’ Mohamed Moiz Bin J M Ali Moiz - - 119,193,971 56.76(b)

Abdul Sathar Bin M S M Abdul Kadir - - 119,193,971 56.76(c)

Sascha Saleem Khan - - 119,193,971 56.76(d)

Tania Aishah Khan - - 119,193,971 56.76(e)

notes:(a) Deemed interest by virtue of Section 6A(4) of the Companies Act, 1965 held through Bandar Raya Developments Berhad. (b) Deemed interest by virtue of Section 6A(4) of the Companies Act, 1965 held through 26% shareholding in Ambang Sehati Sdn Bhd (“ASSB”). (c) Deemed interest by virtue of Section 6A(4) of the Companies Act, 1965 held through 25% shareholding in ASSB. (d) Deemed interest by virtue of Section 6A(4) of the Companies Act, 1965 held through 24.5% shareholding in ASSB. (e) Deemed interest by virtue of Section 6A(4) of the Companies Act, 1965 held through 24.5% shareholding in ASSB.

114 | LIST OF PROPERTIES MIECO AnnUAL REPORT 2010

LIST OF PROPERTIESAS AT 31 DECEMBER 2010

Lot 77-83 Semambu Industrial Estate, 25350 Kuantan, Pahang Darul Makmur

Lot 73, Gebeng Industrial Area, 26080 Kuantan, Pahang Darul Makmur

Lot 74, Gebeng Industrial Area, 26080 Kuantan, Pahang Darul Makmur

Lot 3, Kawasan Perindustrian Kechau Tui, 27100 Lipis, Pahang Darul Makmur

Lot 27, Kawasan Perindustrian Kechau Tui, Lipis, Pahang Darul Makmur

Lot 28, Kawasan Perindustrian Kechau Tui, Lipis, Pahang Darul Makmur

Lot 29, Kawasan Perindustrian Kechau Tui, Lipis, Pahang Darul Makmur

Lot 30, Kawasan Perindustrian Kechau Tui, Lipis, Pahang Darul Makmur

Leaseexpiring27.10.2041

Leaseexpiring18.08.2048

Leaseexpiring22.02.2097

Leaseexpiring2104

Leaseexpiring20.12.2105

Leaseexpiring20.12.2105

Leaseexpiring20.12.2105

Leaseexpiring20.12.2105

609,840 sq.ft.

653,670 sq.ft.

1,254,528 sq.ft.

2,178,000 sq.ft.

158,253 sq.ft.

299,257 sq.ft.

304,484 sq.ft.

281,398 sq.ft.

Chipboard factory

Industrial land

Chipboard factory

Chipboard factory

Industrial land

Industrial land

Industrial land

Industrial land

16 – 36

8 – 16

6

6,732

6,075

37,729

82,634

227

430

438

405

1975

26.10.1999

24.08.1995

05.12.2004

20.12.2006

20.12.2006

20.12.2006

20.12.2006

Location Tenure Land area Description

Approx.age of building(Years)

Net bookvalueRM’000

Acquisitiondate

PROPERTY, PLANT AND EQUIPMENT

PAHANG

| 115nOTICE OF AnnUAL GEnERAL MEETInG MIECO AnnUAL REPORT 2010

NOTICE IS HEREBY GIVEN that the Thirty-Eighth Annual General Meeting of Mieco Chipboard Berhad (“MIECO” or “the Company”) will

be held at Multi-Purpose Hall, 25th Floor, Menara Multi-Purpose, Capital Square, no. 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur on

Thursday, 23 June 2011 at 10.00 a.m.

AGENDA

1) To receive the Report of the Directors and the Audited Financial Statements for the year ended 31 December 2010

together with the Report of the Auditors thereon.

2) To approve the payment of Directors’ fees of RM108,000.00 in respect of the year ended 31 December 2010 (2009

: RM108,000.00).

3) To re-elect the following Directors retiring in accordance with Article 81 of the Company’s Articles of Association:

a) Mr Low Kim Seng

b) Mr Vijeyaratnam a/l V. Thamotharam Pillay

4) To consider and if thought fit, to pass the following Ordinary Resolution in accordance with Section 129 of the

Companies Act, 1965:

“THAT Lt. Gen. (R) Dato’ Seri Mohamed Daud Bin Abu Bakar, retiring pursuant to Section 129 of the Companies Act,

1965 after having attained the age of seventy years, be and is hereby re-appointed a Director of the Company to

hold office until the next Annual General Meeting of the Company.”

5) To re-appoint Messrs PricewaterhouseCoopers as auditors of the Company and to authorise the Directors to fix their

remuneration.

AS SPECIAL BUSINESS:To consider and if thought fit, to pass the following resolutions:

6) Ordinary Resolution

Authority To Issue Shares Pursuant To Section 132D Of The Companies Act, 1965

“THAT subject always to the Companies Act, 1965, the Articles of Association of the Company and the approvals of

the relevant governmental and/or regulatory authorities, the Directors be and are hereby empowered, pursuant to

Section 132D of the Companies Act, 1965, to issue shares in the Company from time to time and upon such terms

and conditions and for such purposes as the Directors may deem fit provided that the aggregate number of shares

issued pursuant to this resolution does not exceed ten per centum (10%) of the total issued capital of the Company

and that such authority shall continue in force until the conclusion of the next Annual General Meeting of the

Company.”

7) Special Resolution

Proposed Amendment To Article 143 Of The Articles Of Association Of MIECO

“THAT the existing Article 143 of the Articles of Association of the Company be deleted in its entirety and be

substituted thereof with a new Article 143 as follows:

(Resolution 1)

(Resolution 2)

(Resolution 3)

(Resolution 4)

(Resolution 5)

(Resolution 6)

(Resolution 7)

nOTICE OF AnnUAL GEnERAL MEETInG

116 | nOTICE OF AnnUAL GEnERAL MEETInG MIECO AnnUAL REPORT 2010

BY ORDER OF THE BOARDHO SWEE LINGCompany SecretaryKuala Lumpur30 May 2011

notes:

1) A proxy may but need not be a member of the Company and the provisions of Section 149(1)(b) of the Companies Act, 1965 shall not apply to the Company.

2) A member who is an authorised nominee may appoint one (1) proxy in respect of each securities account it holds with ordinary shares of the Company standing to the credit of the said securities account.

3) A member other than an authorised nominee shall be entitled to appoint not more than two (2) proxies to attend and vote at the same meeting.

4) Where a member appoints more than one (1) proxy, the appointment shall be invalid unless he specifies the proportions of his holdings to be represented by each proxy.

5) If the appointor is a corporation, the form of proxy must be executed under its Common Seal or under the hand of an officer or attorney duly authorised.

6) To be valid, the duly completed original form of proxy must be deposited at the office of the Share Registrar, Metra Management Sdn Bhd, 30.02, 30th Floor, Menara Multi-Purpose, Capital Square, no. 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur not less than 48 hours before the time for holding the meeting.

Fax copies of the duly executed form of proxy are not acceptable.

Existing Article 143 - Payment by cheque

Any dividend, interest or other money payable in cash in respect of shares may be paid by cheque or warrant, sent

through the post directed to the registered address of the holder or to such person and to such address as the

holder may in writing direct. Every such cheque or warrant shall be made payable to the order of the person to

whom it is sent, and the payment of any such cheque or warrant shall operate as a good discharge to the Company

in respect of the money represented thereby, notwithstanding that it may subsequently appear that the same has

been stolen or that the endorsement thereon has been forged. Every such cheque or warrant shall be sent at the

risk of the person entitled to the money thereby represented.

new Article 143 - Mode of payment of dividend

Any dividend, interest or other money payable in cash in respect of shares may be paid by cheque or warrant, sent

through the post directed to the registered address of the Member or person entitled thereto or paid by direct

transfer or such other electronic means to the bank account provided by the Member whose name appears in the

Record of Depositors. Every such cheque or warrant shall be made payable to the order of the Member or person

entitled thereto, and the payment of any such cheque or warrant or the payment by direct transfer or such other

electronic means to the bank account provided by the Member whose name appears in the Record of Depositors

shall operate as a good discharge to the Company in respect of dividend represented thereby, notwithstanding that

it may subsequently appear that the cheque has been stolen or that the endorsement thereon or instruction for the

payment by direct transfer or such other electronic means has been forged. Every such cheque or warrant sent or

payment by direct transfer or such other electronic means shall be at the risk of the person entitled to the dividend

thereby represented.”

8) To transact any other business for which due notice shall have been given in accordance with the Company’s

Articles of Association and the Companies Act, 1965.

(Resolution 8)

nOTICE OF AnnUAL GEnERAL MEETInG(COnTInUED)

| 117nOTICE OF AnnUAL GEnERAL MEETInG MIECO AnnUAL REPORT 2010

ExPLANATORY NOTES ON SPECIAL BUSINESS

a) The proposed Resolution 7 is for the renewal of mandate for the Directors to issue shares pursuant to Section 132D of the Companies Act, 1965.

The mandate will enable the Directors to act speedily to conclude business transactions that may involved issue of new shares as consideration for

the purchase of new businesses or for the raising of new funds that may be required to meet urgent business needs. The proposed Resolution 7,

if passed, will give the Directors the flexibility to allot and issue shares in the Company, up to an amount not exceeding in aggregate ten percent

(10%) of the issued share capital of the Company for the time being. This authority, unless revoked or varied at a general meeting, will expire at the

conclusion of the next AGM of the Company.

As at the date of the notice, no new shares in the Company were issued pursuant to the mandate granted to the Directors at the last AGM held on

24 June 2010 which will lapse at the conclusion of the forthcoming AGM to be held on 23 June 2011.

b) The proposed Resolution 8, if passed, will align Article 143 of the Company’s Articles of Association with Bursa Malaysia Securities Berhad’s

requirement that cash dividend must be paid to shareholders by direct credit into their bank accounts as provided to Bursa Malaysia Depository

Sdn Bhd.

118 | STATEMEnT ACCOMPAnYInG nOTICE OF AnnUAL GEnERAL MEETInGMIECO AnnUAL REPORT 2010

STATEMEnT ACCOMPAnYInG nOTICE OF AnnUAL GEnERAL MEETInG

1) Directors who are standing for re-election and re-appointment at the Thirty-Eighth Annual General Meeting

The directors retiring by rotation pursuant to Article 81 of the Articles of Association and seeking re-election are as follows:

a) Mr Low Kim Seng b) Mr Vijeyaratnam a/l V. Thamotharam Pillay The director who is seeking re-appointment pursuant to Section 129 of the Companies Act, 1965 is Lt. Gen. (R) Dato’

Seri Mohamed Daud Bin Abu Bakar.

The details of the abovenamed Directors who are standing for re-election and re-appointment are set out in the Board of Directors’ Profile appearing on pages 10 and 11 of this Annual Report. The details of the Directors’ securities holding in the Company are set out on pages 49 and 50 of this Annual Report.

2) Details of attendance of directors at board meetings

5 Board meetings were held during the financial year ended 31 December 2010. The details of attendance of the directors are as follows:

Total Number of Meetings Attended

5/55/55/53/35/5 5/55/55/5

Name of Director

Dato’ Mohamed Moiz Bin J M Ali MoizDato’ Yong Seng YeowDato’ Jaganath Derek Steven SabapathyDatin Sri Maria Bettina Chua Binti Abdullah*Lt. Gen. (R) Dato’ Seri Mohamed Daud Bin Abu BakarDato’ Dr Amarjit Singh A/L Santokh Singh Mr Vijeyaratnam A/L V. Thamotharam Pillay Mr Low Kim Seng

* Datin Sri Maria Bettina Chua Binti Abdullah was appointed on 23 February 2010 and resigned on 1 October 2010

3) Date, time and venue of the Thirty-Eighth Annual General Meeting

The Thirty-Eighth Annual General Meeting of Mieco Chipboard Berhad will be held at Multi-Purpose Hall, 25th Floor, Menara Multi-Purpose, Capital Square, no. 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur on Thursday, 23 June 2011 at 10.00 a.m.

nOTES

nOTES

MIECO CHIPBOARD BERHAD (12849-K)

I/WE TEL nO. nRIC nO./COMPAnY nO.

OF

BEInG A MEMBER OF MIECO CHIPBOARD BERHAD, HEREBY APPOInT

nRIC nO.

OF

OR FAILInG HIM, nRIC nO.

OF

* Please indicate with an “X” how you wish your vote to be cast. If no specific direction as to voting is given, the proxy will vote or abstain at his discretion.

Notes:1) A proxy may but need not be a member of the Company and the provisions of Section 149(1)(b) of the Companies Act, 1965 shall not apply to the Company.2) A member who is an authorised nominee may appoint one (1) proxy in respect of each securities account it holds with ordinary shares of the Company standing

to the credit of the said securities account.3) A member other than an authorised nominee shall be entitled to appoint not more than two (2) proxies to attend and vote at the same meeting.4) Where a member appoints more than one (1) proxy, the appointment shall be invalid unless he specifies the proportions of his holdings to be represented by each

proxy.5) If the appointor is a corporation, the form of proxy must be executed under its Common Seal or under the hand of an officer or attorney duly authorised.6) Any alteration made in the form of proxy must be initialled.7) To be valid, the duly completed original form of proxy must be deposited at the office of the Share Registrar, Metra Management Sdn Bhd, 30.02, 30th Floor.

Menara Multi-Purpose, Capital Square, No. 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur not less than 48 hours before the time for holding the meeting. Fax copies of the duly executed form of proxy are not acceptable.

Signature of Shareholder

1)

2)

3)

4)

5)

6)

7)

8)

RESOLUTIONS

To receive the audited financial statements

To approve the payment of Directors’ fees

To re-elect Mr Low Kim Seng as a Director

To re-elect Mr Vijeyaratnam a/l V. Thamotharam Pillay as a Director

To re-appoint Lt. Gen. (R) Dato’ Seri Mohamed Daud Bin Abu Bakar as a Director

To re-appoint Messrs PricewaterhouseCoopers as auditors of the Company

To approve authority to Directors to issue shares pursuant to Section 132D, Companies Act, 1965

To approve amendment to Article 143 of the Articles of Association of MIECO

CDS ACCOUnT nUMBER

– –

As witness my/our hand(s) this day of , 2011.

Number of Shares Held

(FULL nAME In BLOCK CAPITALS)

(FULL nAME In BLOCK CAPITALS)

(FULL nAME In BLOCK CAPITALS)

(ADDRESS)

(ADDRESS)

(ADDRESS)

(FULL nAME In BLOCK CAPITALS)

FORM OF PROxY

*FOR *AGAINST

OR FAILInG HIM, THE CHAIRMAn OF THE MEETInG as my/our proxy to vote on my/our behalf at the Thirty-Eighth Annual General Meeting of the Company to be held at Multi-Purpose Hall, 25th Floor, Menara Multi-Purpose, Capital Square, no. 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur on Thursday, 23 June 2011 at 10.00 a.m. and at any adjournment thereof.

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To: Share Registrar Metra Management Sdn Bhd 30.02, 30th Floor Menara Multi-Purpose, Capital Square no. 8 Jalan Munshi Abdullah 50100 Kuala Lumpur

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RTMIECO CHIPBOARD BERHAD

ANNUAL REPORT 2010

MIECO CHIPBOARDBERHAD