ADC605 ACCOUNTING FOR MANAGERS

Term Paper: Group Project

Title: Analysis of Financial Performance of Apex Healthcare Berhad

Name & Matric No:

Tan Wei Jen S-GSM0270/18

Khor Chau Wong P-GSM0272/18

Ong Foo Xiang P-GSM0184/18

Nurul Azzura P-GSM0129/19

SUBMITTED TO:

DR. FATHYAH HASHIM

On December 15, 2019

A Term Paper Submitted for ADC605 ACCOUNTING FOR MANAGERS in Partial

Fulfillment of the Requirements for the Degree of Master of Business Administration

UNIVERSITI SAINS MALAYSIA GRADUATE SCHOOL OF BUSINESS 2019

Page 1 of 34
 Table of Contents

1.0 Introduction 3

1.1 Industry Analysis and Financial Performance 5

2.0 Financial Statement Analysis 8

3.0 Measure of Profitability 14

4.0 Measure for Evaluating the Current Market Price of Common Stock 18

4.1 Future Prospect 22

5.0 Corporate Governance 24

6.0 References 32

Page 2 of 34
1.0 Introduction

Apex Healthcare Berhad, company number 473108-T, (hereinafter called “AHB”) is a

Malaysia-based investment holding company for a group of companies engaged in the

development, manufacturing, marketing and distribution of pharmaceuticals, diagnostics,

consumer healthcare products and orthopedic devices. AHB is a leading healthcare group with

direct operations in Malaysia, Singapore, Vietnam and Myanmar. AHB is listed on the Main

Market of Bursa Malaysia Securities Berhad (hereinafter called “Bursa Malaysia”) (Stock Code:

7090; Stock Name: AHEALTH) since 2000. (Bursa Malaysia, 2019)

AHB was founded in early 1962 by Mr. Kee Kah Peng with a retail pharmacy outlet

called Apex Pharmacy in Malacca, Malaysia. AHB is a vertically integrated Malaysian

pharmaceutical group with core expertise in the development, manufacture, sale and marketing,

distribution and distribution of pharmaceuticals, consumer health care products and diagnostics.

AHB employs a total of 1,357 employees (including the headcount of Associated Company),

operating two manufacturing plants in Melaka and Penang for pharmaceuticals and orthopedic

devices respectively and a network of distribution warehouses throughout Malaysia and

Singapore. AHB’s business operations are organized into 3 main reporting segments from 5 key

operating companies and their subsidiaries; namely Manufacturing and Marketing, Wholesale

and Distribution, and Corporate.

The Manufacturing and Marketing segment is engaged in manufacturing and marketing

of pharmaceutical products. The Wholesale and Distribution segment is engaged in wholesale,

marketing and distribution of pharmaceutical, diagnostic and consumer healthcare products. The

Corporate segment consists of investments in retail pharmacy, group properties and brand

Page 3 of 34
management contract manufacturing of orthopedic devices. In the retail area, the Company

operates 23 retail pharmacies throughout the country. These offer a range of pharmaceutical and

healthcare products. Distribution is carried out through a network of eight depots, which enable

the Company to supply products to doctors, clinics, medical centers, pharmacies and hospitals.

AHB was ranked sixth among the top among the top 10 gainers by price in December

2018 on Bursa Malaysia (The Star, 2018). In July 2018, Focus Malaysia listed AHB as the 24 th

and 11th fastest-growing Malaysian public listed company in terms of percentage revenue and

net profit growth respectively among its peers with market capitalization of RM 500 mil and

above (Focus Malaysia, 2018). This is an improvement over the 28th and 39th position we

secured in the same listing in 2017. On 9 th November 2018, AHB was awarded “Best Cash Flow

from Operations” at Focus Malaysia’s Best Under Billion Award (“BUBA”) 2018 for all

companies with a market capitalization of RM 500 million to RM 950 million on Bursa

Malaysia. This prestigious recognition is a testament to the sterling performance of AHB people

in maximizing operational efficiencies, especially in managing inventory and trade receivables.

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1.1 Industry Analysis and Financial Performance

AHB competes in both local and global markets. The primary local competitor is Pharmaniaga.

The main global competitors are McKesson Corporation, Amerisourcebergen Corporation,

Cardinal Health Inc, Henry Schein Inc and Sinopharm (Share Investor, 2019).

AHB market capitalization in 2018 is over RM 1 billion, making AHB the largest

pharmaceutical company on Bursa Malaysia by market capitalization (The Edge, 2018). In

2018, AHB counts a total of 619 products bearing AHB brands in its portfolio. It comprises a

good range of pharmaceutical, consumer healthcare, medical and diagnostic products in key

therapeutic areas.

In 2018, AHB’s profit before tax is RM 69.3 million, a significant improvement of

23.6% over 2017. Profit after tax grew 31.9% to RM 58.7 million from RM 44.5 million

recorded in 2017. Total dividends paid and payable by AHB in respect of financial year 2018 is

13.5 sen per ordinary share, an increase over the 12 sen paid in respect of financial year 2017.

AHB sales revenue is increased from RM 620.26 mil in 2017 to RM 652.66 mil in 2018, a

growth of 5.2%. Sales generated through AHB’s direct to consumer e-commerce

platformwww.apexpharmacy.com.my, which was introduced in 2017 has also tripled in 2018.

From AHB proprietary brands grew to 30.2% of the AHB’s total revenue for 2018. Market

opening initiatives continue, with proprietary brands now commercialized in 16 countries. AHB

continually invests to ensure that their manufacturing and distribution infrastructure stands

ready to meet future business growth and regulatory changes. Higher operating expenses came

from the start-up of AHB new Oral Solid Dosage manufacturing plant, SPP NOVO. Hence,

effort will be focused on accelerating manufacturing revenue growth in order to optimize

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capacity utilization at SPP NOVO and reduce the impact of its start up on margins. Research

and development expenditure rose 14.9% over 2017. Return on investment (ROI) grew from

10% to 11%.

Figure 1: Revenue and Profit before Tax Trend Analysis (Source: Annual Report,

2018)

From the above graph, revenue and profitability of AHB can be seen as increasing

consistently from 2014 to 2018.

From a regulatory perspective, Apex Pharmacy Marketing Sdn. Bhd. renewed

certifications for Good Distribution Practice for Medical Devices (“GDPMD”) and ISO

9001:2015 for warehousing and distribution for pharmaceutical and consumer healthcare

products.

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 Healthcare industry in Malaysia is predicted to remain strong. In Budget 2019, the

Malaysian government increased the allocation for health services to RM 29 billion which

includes RM 10.8 billion to restore clinics and hospitals as well as the purchase of medicine and

medical equipment (Budget, 2019). Additionally, Malaysian Ministry of Health, under the

National Health Protection Scheme will provide RM100 million for a health screening pilot

project for 800,000 people belonging to the B40 group, namely the bottom 40% of households

with monthly income of RM 3,900 and below (The Star, 2019) The budgeted increase in public

healthcare expenditure is positive for the healthcare industry.

Page 7 of 34
2.0 Financial Statement Analysis

Genting Plantation Berhad and IJM plantation Berhad are companies adopted to compare

the financial performance with Sime Darby Plantation Berhad because these two companies are

one of the leading companies in this market. Financial year of 2020 is used to analyze the

performance among these 3 companeis. The analyzing method adopted are liquidity ratio,

solvency ratio, profitability ratio, efficiency ratio and coverage ratio.

Liquidity

Curren Current Assets 2016 2017 2018

Current Liabilities
t Ratio 4.32
4.11 4.15
3.65
Quick Current Assets−Invenntory 3.46 3.52
Current Liabilities
Ratio

Cash Cash∧Cash Equivalent

Current Liabilities
Ratio 0.71 0.68
0.51

Current Ratio Quick Ratio Cash Ratio

2016 2017 2018

Current asset 418,407,878 456,903,113 539,965,121
Current liabilities 101,818,093 110,184,623 125,035,795
Inventory 65,777,599 69,017,815 83,105,832
Cash and cash
equivalents 71,812,074 74,908,554 64,246,703

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 2016 2017 2018
Current Ratio 4.11 4.15 4.32
Quick Ratio 3.46 3.52 3.65
Cash Ratio 0.71 0.68 0.51

In term of liquidity of Apex Healthcare Berhad, several ratios like current ratio, quick

ratio and cash ratio have been analysed for the year 2016, 2017 and 2018. This could help in

analysing the group financial obligations with the liquidity of their available assets over the next

business cycle of 12 months. For the accounting liquidity, where will look into the ability of the

group ability to pay off due debts, when necessary may access to their money too.

From the table above, it’s shown that the current ratio that measure of the group ability

on paying back their short-term obligation from 4.11 in the year 2016, 4.15 in the year 2017 and

increases to 4.32 in the year of 2018.This result show Apex healthcare Berhad have the high

current ratio and was the good current risk. The company Apex have 4 times more current assets

compare to their current liabilities, this show the company was in the very healthy financial

status and had more current asset compared to the liability.

For the quick ratio will also measures of the group to meet its short term obligation with

more liquid assets, whereby the current assets will deduct out the inventories cost. Quick ratios

are often explained as the measures of a company’s ability to pay their current debt liabilities

without relying on the sale of inventory. In Apex group, it’s shown that the increases from 3.46,

3.52 and 3.65 in year 2016 to 2018. The high ratio indicates that the group will not have any

difficulty to meeting its current obligations.

Look further into Cash ratio of Apex Group, analysis shown that there is the decreasing

trend from 0.71 in the Year 2016, 0.68 in Year 2017 and future drop to 0.51 in the year

Page 9 of 34
2018.Cash ratio is the most common and conservative tool to measures of the group liquidity and

only include of cash and cash equivalent in calculation and both major party inventory and

account receivable will not include in calculation. This ratio also indicate how fast the company

able to pay back the short term debt.

Financial Leverage

Solvency ratio indicates whether Apex Healthcare Berhad cash flow is able to meet their

long term and short term liabilities, or more generally, called financial leverage. It measures the

cash flow capacity in relation to all liabilities, instead of debts only. Therefore, solvency ratios,

like total debt ratio and debt-equity ratio are used (Investopedia, 2015)1.

Total Debt 2016 2017 2018

Ratio 1.34 1.33

1.40

Debt-Equity

Ratio

Equity
0.40
0.34 0.33
Multiplier 0.25 0.25 0.28

Total debt ratio Debt-equity ratio Equity multiple

2016 2017 2018

Total Liabilities 106,020,564 113,247,928 153,504,060
Total assets 418,407,878 456,903,113 539,965,121
Total equity 312,387,314 343,655,185 386,461,061

2016 2017 2018

Page 10 of 34
 Total debt ratio 0.25 0.25 0.28
Debt-equity
ratio 0.34 0.33 0.40
Equity multiple 1.34 1.33 1.40

In year 2016 and 2017, Apex Healthcare Berhad total debt ratio was 0.25, which means

that Apex Healthcare Berhad had RM 0.25 in debt for every RM 1 in assets and the total debt

ratio of Apex Healthcare Berhad was slightly increased to 0.28 in year 2018. The rate of 0.25 to

0.28 shown that Apex Healthcare Berhad asset was higher than their liability.

The debt-equity ratio was 0.34 in 2016, 0.33 in 2017 and 0.40 in 2018. This shows that

Apex Healthcare Berhad equity was higher than their liability. The formula for equity multiplier

is total assets divided by total equity. Equity multiplier is a financial leverage ratio that evaluates

a company's use of debt to purchase assets. The equity multiple of Apex healthcare Berhad was

in the range of 1.34 to 1.40 which mean their asset was higher than their equity. This company

financial was in the healthy status.

Turnover

The financial efficiency and competitive strength of Apex healthcare Berhad can be

known by measuring their inventory level and how fast they were collecting debts.

2016 2017 2018

Inventory
Cost of Goods Sold
7 .0 2
6 .8 8

5 .9 9

Average Inventory
Turnover
4 .4 5
4 .1 9

4 .0 7

Accounts
Net Sales
1 .3 9

1 .3 6

1 .2 1

Receivable Average Accounts

Receivable
Turnover

Total
Sales Page 11 of 34
Asset
Total Assets
Turnover
 2016 2017 2018
Cost of Goods sold 452,685,557 484,178,351 497,453,976
Average inventory 65,777,599 69,017,815 83,105,832
Net sales 581,188,954 620,182,806 652,573,772
Average account receivable 138,826,957 139,322,075 160,422,658
Sales 581,268,777 620,263,997 652,660,132
Total asset 418,407,878 456,903,113 539,965,121

2016 2017 2018

Inventory Turnover 6.88 7.02 5.99
Accounts Receivable Turnover 4.19 4.45 4.07
Total Asset Turnover 1.39 1.36 1.21

In year 2016, Apex Healthcare Berhad inventory turnover is 6.88 and increased 0.14% to

7.02 for year 2017 but had been reduce to 5.99% in the year of 2018, which means that Apex

Healthcare Berhad will have 6.88 time of inventory turnover in a year in the year 2016, 7.02

times in the year 2017, but reduce to 5.99 times in 2018 due to the increasing of the inventory

value. While the accounts receivable turnover of Apex Healthcare Berhad was 4.19 in the year

2016 and increases to 4.45 and 4.07 for the following year 2017, 2018.

Therefore, Apex Healthcare Berhad needed 4.19 month in the year 2016 and 4.45 month

in the year 2017 and 4.07 month in the year 2018 to collect their outstanding credit accounts.

Page 12 of 34
This reducing month to collect their outstanding credit account shows the ability of the company

to collect their outstanding.

The total asset turnover ratio is often be used to indicate how efficiency a company

deploying its assets to generate revenue. Generally, the higher the ratio, the better the company is

performing. Apex health care total asset turnover is reduced from 1.39 in year 2016 to 1.39 in

year 2017 and 1.21 in the year 2018. It means that Apex Healthcare Berhad was making RM

1.21 sales for every RM 1 in asset in year 2018 and the company still make profit from their

asset.

Page 13 of 34
3.0 Measure of Profitability

Revenue and the profits of Apex Healthcare Berhad

700,000 652,660
620,264
600,000 581,269

500,000

400,000

300,000

200,000

100,000
46,523 50,679 61,597 34,954 44,459
58,581

-
Revenue (000) Operating profit (000) Net Profit (000)

2016 2017 2018

Figure 2: Apex Healthcare Berhad revenue and profits of year 2016-2018

Revenue is the basic quantitative fundamental analysis whereby it represents the overall

value of all sales of goods and services recognized by a company in a stated period. Based on

figure 2 above, the revenue of Apex Healthcare Berhad has consistently increasing from year

2016 to 2018. The revenue has the increment of 6.71% and 5.22% for the year 2017 and 2018

from the preceding years respectively. Next is the comparison of the operating profit whereby

the operating profit is the results of difference between the profit from the business operations

Page 14 of 34
and the operating expenses such as administrative expenses, selling & marketing expenses and

other expenses. Apex Healthcare Berhad has shown the promising growth from year 2016 to

2017 and year 2017 to 2018 which it has achieved 8.93% and 21.54% respectively. The

significant growth of the operating profit especially in year 2018 despite the marginal decline in

the growth of revenue on the same year reflects a good expenses control in the company is taken

place as they generate higher revenue with minimal expenses incurred. Lastly, the net profit after

the deduction of all different expenses, cost and tax showed a positive progress as well whereby

the increment of 27.19% of the net profit from year 2016 to 2017 whereas the net profit

increment of 24% from year 2017 to 2018.

Overall the revenue and its profits reflect Apex Healthcare’s business is growing

consistently and was administered by good management in the past 3 years.

Profit margins of Apex Healthcare Berhad

10% 9.44%
8.98%
9% 8.17%
8.00%
8% 7.17%
7%
6.01%
6%
5%
4%
3%
2%
1%
0%
Operating Profit Margin (%) Net Profit Margin (%)

2016 2017 2018

Figure 3: Profit margins of Apex Healthcare Berhad

Page 15 of 34
 Profit margin is the common indicators that used to assess the business probability in a

company by determining the ratio of the profit divided by its revenue. It represents the

percentage of sales which has realized into profit. The higher the profit margin, the better the

profitability of the business it is.

This section is comparing the operating profit margin and net profit margin in the past 3

years from year 2016 to 2018. The operating profit margin growth from 8% to 9% whereas the

net profit margin from 6.01% to 8.98% in the past 3 years.

Overall, the percentage of profit gained from its revenue showed increasing year by year. In

another word, the company financial performance is getting better at every financial year.

Return of Asset and Equity of Apex Healthcare

Berhad
18.00
15.76
16.00
14.00 12.94
12.05 11.48
12.00 11.22 11.09
10.00
8.00
6.00
4.00
2.00
0.00
Retrun of Asset (%) Return of Equity (%)

2016 2017 2018

Figure 4: The Return of Asset and Equity of Apex Healthcare Berhad

Figure 4 shows the Return of Asset (ROA) and Return of Equity (ROE) performance of

the Apex Healthcare Berhad in the past 3 years. The overall trend of ROA is slightly increasing

from 11% to 12% which means the company is enhancing their ability to earn better return of

Page 16 of 34
funds from the company’s asset. In the aspect of ROE, its trend is increasing from 11% to 16%

as well in year 2016 to 2018. This shows of the higher ability of the company to generate profits

from its average stockholders’ equity.

Earnings Per Share (EPS) of Apex Healthcare

Berhad
60.00
49.98
50.00

40.00 37.95

29.85
30.00

20.00

10.00

-
2016 2017 2018

Figure 5: Earnings per Share (EPS) of Apex Healthcare Berhad

The EPS is calculated as a company’s profit divided by the outstanding shares of its

common stock. It is an indicator of a company’s profitability. The higher the EPS, the more

profitable it is considered. The company’s earnings per share (EPS) has drastically improved

from 29.85 to 49.98 which is the increment of 67.4% in the past 3 years according to figure 4.

Overall, the profitability from the business run by Apex Healthcare Berhad has shown of

consistent growth.

Page 17 of 34
4.0 Measure for Evaluating the Current Market Price of Common Stock

The basis of segmentation is based on operating segment. The Group’s operating segments

are as follows:

(i) Stock and Futures Broking

(ii) Building Management and Property Investment

(iii) Money Lending and Property Development

(iv) Investment Holdings

(v) Other Segments

The segment information for the current period is as follows:

Table 1: 2018 Financial Table

Stock Building Money

Period and managem lending
Investm
ended 30 future ent and and Other
ent Total
Sept s property property s
holdings
2018 broki investme developm
ng nt ent
RM’0 RM’0 RM’00
RM’000 RM’000 RM’000
00 00 0

Revenue
from
28 31,3
external
,818 599 1,217 661 24 19
custome
rs

Page 18 of 34
 Inter-
1, 1,1
segment
- 036 - 132 - 68
revenue
Reporta
ble
6 ( ( 7,5
segment
,676 374) 1,844 623) 23 46
profit/(lo
ss)
Share of
loss of (1
an 68)
associate
7,3
78

Total
228 40, 6 233, 572,9
segment
,412 862 9,814 604 291 83
assets
Less:
(231,2
eliminati
61)
on
Group 341,7
Total 22

Table 2: 2017 Financial Table

Building
Stock Money
Period management
and lending and Investment
ended 30 and Others Total
futures property Holdings
Sept 2017 property
broking development
investment
RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Revenue
from 32,8 69 1,3 4
- 34,947
external 82 6 29 0
customers
Inter- 1,03 6,28 - 7,318
segment - 4 - 4

Page 19 of 34
 revenue
Reportable
11,3 1,15 1,8 5 3
segment 14,413
22 5 53 2 1
profit/(loss)
Share of
loss of an (271)
associate
14,142
Total
200,0 41,24 67,4 231,50 26
segment 540,572
82 4 78 8 0
assets
Less: (229,557
elimination )
Group
311,015
Total
The Group’s results for the current financial period ended 30 September 2018 registered lower

revenue and pre-tax profit of RM31.32 million and RM7.38 million respectively as compared to

RM34.95 million and RM14.14 million respectively in the corresponding period. The

performance analysis (PBT) of various active segments is set out below:

Stock and Futures Broking

Segment results decreased 41% to RM6.68 million as compared to RM11.32 million in the

corresponding period due to lower brokerage income on lower volume of securities transactions

and impairment loss on trade receivables of RM4.15 million.

Building management and property investment

Segment results turned to a loss of RM0.37 million from profit of RM1.16 million in the

corresponding period due to higher operating expenses.

Money Lending and Property Development

Page 20 of 34
Segment results decreased 0.48% to RM1.84 million from RM1.85 million in the corresponding

period due to lower processing fee from loan debtors.

Investment Holding

Segment results turned to a loss of RM0.62 million from profit of RM0.05 million in the

corresponding period due to loss on changes in fair value of marketable securities and higher

expenses.

Earnings per Share

The basic earnings per share have been calculated based on the following:

Individual Quarter Cumulative Quarter

Preceding Preceding
Current Current
Year Year
Year Year To
Comparative Comparative
Quarter Date
Quarter Period
30-Sep-18 30-Sep-17 30-Sep-18 30-Sep-17
Net profit/(loss)
attributable to equity
3,520 2,534 5,249 10,889
holders of the parent
(RM’000)

No of ordinary shares in
213,563 213,563 213,563 213,563
issued (‘000)
Less: treasury shares
-10,923 -10,922 -10,923 -10,922
(‘000)
Adjusted number of
202,640 202,641 202,640 202,641
ordinary shares (‘000)

Basic earnings per share

1.74 1.25 2.59 5.37
(Sen)

Page 21 of 34
4.1 Future Prospects

Apex’s earnings could likely be weaker in the coming quarters. The fourth quarter of

financial year 2018 (4Q18) profit before tax (PBT) contracted by 0.4 percentage point (ppt)

year-on-year (y-o-y) and 1 ppt quarter-on-quarter, impacted by start-up and related costs from

its new oral solid-dosage plant, SPP NOVO.

Moreover, we understand that it can only commence selling the products manufactured

by SPP NOVO after receiving approval from the National Pharmaceutical Regulatory Agency

(NPRA), the latest by late-2Q19.

Also, it has already fully used its reinvestment allowance, hence the effective tax rate

will normalise to previous levels of circa 24-25% onwards (2018: 15%).

In the long term, we believe its prospects will remain intact, underpinned by:

(i) SPP NOVO, where the potential capacity of its oral solid production may quadruple existing

capacity;

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(ii) The continuous expansion of its portfolio of group-branded products, which enjoy higher

margins; and,

(iii) Its growing orthopaedic devices manufacturing business.

We lower our earnings estimates by 15-24% for 2019-21E (estimate) to account for the

start-up expenses for SPP NOVO. While we remain upbeat on Apex’s long-term prospects, the

group’s near-term earnings are expected to show weakness given the estimated one-two years’

gestation period for SPP NOVO.

Given the estimated lower pay out and the recent surge in share price, the dividend

yields are not attractive at the current level of 1.5-1.9% for 2019-21E.

The key upside risks are lower-than-expected start-up expenses and the shorter-than-expected

gestation period for SPP NOVO.

The key downside risks are higher-than-expected start-up expenses and product recall risk.

To recap, Apex’s 4Q18 revenue grew 7% y-o-y but PBT only grew 2% y-o-y mainly

due to a lower margin as it started recognising start-up costs from SPP NOVO. Nonetheless,

4Q18’s core net profit rose by a much greater extent of 31% y-o-y, primarily boosted by the

reinvestment allowance arising from its investment in SPP NOVO.

However, the management has clarified that the group has already fully utilised the

reinvestment allowance in 2017 and 2018 when it reported lower effective tax rates of 21% and

15% respectively.

As a result, the effective tax rate is expected to normalise to previous levels of about 24-

25% from 2019 onwards. Without the support from the reinvestment allowance, we expect the

additional cost from the new plant to impact its bottom line directly.

Page 23 of 34
 The construction of SPP NOVO was completed in end-2018 and received the certificate

of practical completion and certificate of completion and compliance on Oct 31 and Dec 21

2018 respectively.

The final hurdle will be the NPRA inspection. Despite the commencement of start-up

and recognition of additional expenses since 4Q18, we understand that the group will only be

allowed to start selling the products manufactured by SPP NOVO after receiving approval from

the NPRA, expected at the latest by late-2Q19.The estimated total start-up cost is about RM12

million for 2019E (estimate) and it is targeted to break even by end-2020.

5.0 Corporate Governance

Corporate Governance refers to the way in which companies are governed and to what

purpose. It identifies who has power and accountability, and who makes decisions. It is, in

essence, a toolkit that enables management and the board to deal more effectively with the

challenges of running a company. Corporate governance ensures that businesses have

appropriate decision-making processes and controls in place so that the interests of all

stakeholders (shareholders, employees, suppliers, customers and the community) are balanced.

Governance at a corporate level includes the processes through which a company’s

objectives are set and pursued in the context of the social, regulatory and market environment. It

is concerned with practices and procedures for trying to make sure that a company is run in such

a way that it achieves its objectives, while ensuring that stakeholders can have confidence that

their trust in that company is well founded.

Page 24 of 34
 The Malaysian Code on Corporate Governance 2012 (MCCG 2012) focuses on

strengthening board structure and composition as well as recognizing the role of directors as

active and responsible fiduciaries. The MCCG 2012 supersedes the 2007 Code. It sets out eight

broad principles and 26 specific recommendations on structures and processes which companies

should adopt in making good corporate governance an integral part of their business dealings and

culture. This article provides a brief overview of its guidelines:

Principle 1 – Establish Clear Roles and Responsibilities

The responsibilities of the board, which should be set out in a board charter, include management

oversight, setting strategic direction premised on sustainability and promoting ethical conduct in

business dealings. It is recommended that the board should:

 Establish clear functions reserved for the board and those delegated to management.

 Establish clear roles and responsibilities in discharging its fiduciary and leadership

functions.

 Formalize ethical standards through a code of conduct and ensure its compliance.

 Ensure that the company’s strategies promote sustainability.

 Have procedures to allow its members access to information and advice.

 Ensure it is supported by a suitably qualified and competent company secretary.

 Formalize, periodically review and make public its board charter. 

Page 25 of 34
Principle 2 – Strengthen Composition

The board should have transparent policies and procedures that will assist in the selection of

board members. The board should comprise members who bring value to board deliberations. It

is recommended that:

 The board should establish a Nominating Committee which should comprise exclusively

of non-executive directors, a majority of whom must be independent.

 The Nominating Committee should develop, maintain and review the criteria to be used

in the recruitment process and annual assessment of directors.

 The board should establish formal and transparent remuneration policies and procedures

to attract and retain directors.

Principle 3 – Reinforce Independence

The board should have policies and procedures to ensure effectiveness of independent directors.

It is recommended that:

 The board should undertake an assessment of its independent directors annually.

 The tenure of an independent director should not exceed a cumulative term of nine years.

Upon completion of the nine years, an independent director may continue to serve on the

board subject to the director’s re-designation as a non-independent director.

 The board must justify and seek shareholders’ approval in the event it retains as an

independent director, a person who has served in that capacity for more than nine years.

 The positions of chairman and CEO should be held by different individuals, and the

chairman must be a non-executive member of the board.

Page 26 of 34
  The board must comprise of a majority of independent directors where the chairman of

the board is not an independent director.

Principle 4 – Foster Commitment

Directors should devote sufficient time to carry out their responsibilities, regularly update their

knowledge and enhance their skills. It is recommended that:

 The board should set out expectations on time commitment for its members and protocols

for accepting new directorships.

 The board should ensure its members have access to appropriate continuing education

programs.

Principle 5 – Uphold Integrity in Financial Reporting

The board should ensure financial statements are a reliable source of information. It is

recommended that:

 The Audit Committee should ensure financial statements comply with applicable

financial reporting standards.

 The Audit Committee should have policies and procedures to assess the suitability and

independence of external auditors.

Principle 6 – Recognize and Manage Risks

The board should establish a sound risk management framework and internal controls system. It

is recommended that:

Page 27 of 34
  The board should establish a sound framework to manage risks.

 The board should establish an internal audit function which reports directly to the Audit

Committee.

Principle 7 – Ensure Timely and High Quality Disclosure

Companies should establish corporate disclosure policies and procedures to ensure

comprehensive, accurate and timely disclosures. It is recommended that:

 The board should ensure the company has appropriate corporate disclosure policies and

procedures.

 The board should encourage the company to leverage on information technology for

effective dissemination of information.

Principle 8 – Strengthen Relationship between Company and Shareholders

The board should facilitate the exercise of ownership rights by shareholders. It is recommended

that:

 The board should take reasonable steps to encourage shareholder participation at general

meetings.

 The board should encourage poll voting.

 The board should promote effective communication and proactive engagements with

shareholders.

Corporate Governance of Apex Healthcare Berhad

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 The Company subscribes to the ideals of good Corporate Governance and fair dealing in

all its activities with a view to increasing shareholders’ value. It recognizes that a strong

governance framework is necessary for the continuous strengthening of self-discipline and the

development of a good corporate governance culture. Since the introduction of the first

Malaysian Code on Corporate Governance in 2000, and its subsequent revisions in 2007 and

2012, the Company has taken conscious steps and made efforts to review, adopt and embrace

corporate governance as an essential component in guiding its corporate strategies. With the

release of the latest MCCG, the Company remains steadfast in upholding its Principles to

achieve the Intended Outcomes through implementation of MCCG Practices in its operations. At

the start of financial year 2018, Apex Healthcare Berhad is not a Large Company as defined in

the MCCG and hence the Practices set out in the MCCG which are applicable to Large

Companies have not been adopted by the Company. The Board has taken cognizance of Step up

Practices as prescribed in the MCCG in its endeavor to attain higher standards of corporate

governance. With regards to Practices that are applicable to Apex Healthcare Berhad,

explanations on how the Company has applied the Practices are disclosed in the Corporate

Governance Report. If there is departure from a Practice, explanations for the departure are also

provided with disclosure of the alternative practice which Apex Healthcare Berhad has adopted

to achieve the Intended Outcome as set out in the MCCG. This Corporate Governance Overview

Statement provides a summary of the corporate governance practices implemented by Apex

Healthcare Berhad during financial year 2018 with reference to the three Principles of MCCG:

Principle A: Board Leadership and Effectiveness

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Save for Practice 1.3 and Practice 7.2, the Company has complied with all the Practices under

the Principle of board leadership and effectiveness. In variance from Practice 1.3, the functions

of the Chairman and CEO are combined befitting the circumstances of AHB and the

explanations for the alternative practice are disclosed in the CG Report. The alternative practice

of disclosure of Senior Management’s remuneration in relation to Practice 7.2 and the

explanation for the departure are also provided. The Board is satisfied that the alternative

practices of Practice 1.3 and Practice 7.2 achieve the Intended Outcome as set out in the MCCG.

Overall, the Board is satisfied that the Company has put in place its corporate governance

practices that are effectively led and driven by the Board with support from the Management.

Principle B: Effective Audit and Risk Management

All the prescribed Practices under this Principle are complied with by the Company, and in this

regard, the Board is satisfied that an objective and effective audit function, risk management and

internal controls are in place in line with the demands of a good and robust corporate governance

practices.

Principle C: Integrity in Corporate Reporting and Meaningful Relationship with

Stakeholders

While all the prescribed Practices under this Principle are adopted by the Company, the

Company will consider leveraging on technology to facilitate voting including voting in absentia

and remote shareholder’s participation at General Meetings as prescribed under Practice 12.3

when the shareholder base of the Company has grown to a substantial size to warrant such

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adoption in due course. The Board is satisfied that communication by the Company with its

shareholders and other stakeholders through transparent and timely communication is in place.

The Board is mindful of the need to continually strengthen its governance practices and

processes in identified key focus areas and future priorities as part of its forward looking

strategies. Moving forward, these Practices will be constantly reviewed and strengthened where

needed. Key focus areas that have been identified and reported in the Corporate Governance

Overview Statement published in the Annual Report 2017 and Annual Report 2018 of the

Company are the tenure of Independent Directors and the reorganization of Board Committees,

both of which relate to Board Succession Planning. The Group has developed a Board

Succession Planning Policy and this is regularly reviewed with the ultimate aim of enhancing

Board leadership and effectiveness. In line with the spirit of Practice 4.2 of MCCG, the tenure of

Independent Directors has been enshrined as a tenet of the Company’s Board Succession

Planning Policy. To ensure that the decisions of the Board are made objectively in the best

interests of the Company, taking into account the evolution and developments in the

pharmaceutical industry, the compositions of the Board and Board Committees are constantly

assessed. In this regard, reorganization of Board Committees will be undertaken where

necessary, so that the members of each Board Committee have the pertinent skills, expertise and

experience in addition to the appropriate character, integrity and competence required of every

Director. In terms of Board composition, effort is also directed at widening the identification of

candidates suitable as future Board Directors of the Group.

The Board is cognizant of the importance of the various dimensions of good corporate

governance culture and in this regard, strives to ensure equal attention is paid to all Practices of

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MCCG such that the Intended Outcomes are achieved, taking into account the business

environment, culture and needs of Apex Healthcare Berhad. While there is departure of certain

Practices of the Company from MCCG, the Board is satisfied that the corporate governance

infrastructure of the Company is in line with the Intended Outcome of MCCG. The Board is of

the view that the Company has in all material aspects satisfactorily complied with the Principles

set out in MCCG and has approved this Corporate Governance Overview Statement.

6.0 References

1. Apex Healthcare Berhad Annual Report. (2018). Annual Report.

http://www.apexhealthcare.com.my/current_annual.php. (retrieved on 25th November 2019)

2. Apex Healthcare Berhad Annual Report. (2017). Annual Report.

3. Bursa Malaysia. (2019). Listed company.

https://www.bursamalaysia.com/trade/trading_resources/listing_directory/main_market?

id=7090 (retrieved on 25th November 2019)

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4. Focus Malaysia. (2018). Revenue Growth Affected by Market Sentiment.

http://www.focusmalaysia.my/Mainstream/revenue-growth-affected-by-market-sentiment

(retrieved on 30th November 2019)

5. Malaysia Stock https://www.malaysiastock.biz/Corporate-fomation.aspx?securityCode=5088

(retrieved on 30th November 2019)

6. Malaysia Code of Corporate Governance 2012 – An Overview and Summary

http://www.complianceonline.com/malaysia-code-of-corporate-governance-2012-an-

overview-and-summary-13470-prdad (retrieved on 30th November 2019)

7. Share Investor. (2019). Fundamental – Factsheet.

https://www.shareinvestor.com/fundamental/factsheet.html?counter=7090.MY (retrieved on

30th November 2019)

8. The Edge. (2018). Apex Healthcare Climbs to New Peak.

https://www.theedgemarkets.com/article/apex-healthcare-climbs-new-peak (retrieved on 30th

November 2019)

9. The Star Online. (2018). Winners and Losers.

https://www.thestar.com.my/business/business-news/2018/12/15/winners-and-losers/

(retrieved on 30th November 2019)

10. The Star Online. (2018). Budget 2019: Health Services Get RM2bil Increase in Allocation,

Enjoying Largest Share of Budget.

https://www.thestar.com.my/news/nation/2018/11/02/budget-2019-health-services-get-

rm2bil-increase-in-allocation-enjoying-largest-share-of-budget (retrieved on 25th November

2019)

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11. The Star Online (2019). Medical Coverage for the B40 Group.

https://www.thestar.com.my/news/nation/2019/01/25/medical-coverage-for-the-b40-group.

(retrieved on 30th November 2019)

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