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L a p o r a n Ta h u n a n Annual Report

DFZ CAPITAL BERHAD (104556-X)

Laporan Tahunan 2007 Annual Report

2007

Serving You

DFZ CAPITAL BERHAD

(104556-X)

Wisma Atlan 8 Persiaran Kampung Jawa 11900 Bayan Lepas, Penang http://www.dfzcapital.com.my

Tel : 604 641 3200 Fax : 604 642 3200

2007

table of contents

2 Corporate Information ........................................... Corporate Structure .............................................. Location Map ........................................................ Directors' Profile .................................................... Managing Director's Statement ............................. Penyata Pengarah Urusan..................................... ......................................................... Statement On Corporate Governance .................. Additional Compliance Information ....................... Audit Committee Report ....................................... Statement On Internal Control .............................. Corporate Social Responsibility ............................ Financial Statements ............................................. 3 4 5 8 0 2 4 20 23 27 28 29

Analysis Of Ordinary And Preference Shareholdings ..................................... 03 List Of Properties................................................... 3 Notice Of Annual General Meeting ........................ 5 Form Of Proxy

(Company No.: 04556-X)

D F Z

C A P I TA L

(Incorporated in Malaysia)

B E R H A D

Corporate Information

BOARD OF DIRECTORS

Dato' Ong Kar Beau Managing Director Dato' Sri Khalid bin Mohamad Jiwa Executive Director Wong Peng Yew Executive Director Dato' Paduka Syed Mansor bin Syed Kassim Barakbah Independent Non-Executive Director Mohamed Suhaimi bin Sulaiman Independent Non-Executive Director Mohd Kamarudin bin Haron Independent Non-Executive Director

AUDIT COMMITTEE

Mohamed Suhaimi bin Sulaiman Chairman, Independent Non-Executive Director Wong Peng Yew Executive Director Dato' Paduka Syed Mansor bin Syed Kassim Barakbah Independent Non-Executive Director

AUDITORS

Ernst & Young (AF 0039) Chartered Accountants

PRINCIPAL BANKERS

Affin Bank Berhad Alliance Bank Malaysia Berhad Malayan Banking Berhad Public Bank Berhad

REMUNERATION COMMITTEE

Mohamed Suhaimi bin Sulaiman Chairman, Independent Non-Executive Director Dato' Ong Kar Beau Managing Director Dato' Paduka Syed Mansor bin Syed Kassim Barakbah Independent Non-Executive Director

REGISTERED OFFICE

Wisma Atlan, 8 Persiaran Kampung Jawa, 900 Bayan Lepas, Penang Tel No: 604-64 3200 Fax No: 604-642 3200

SHARE REGISTRAR

Symphony Share Registrars Sdn. Bhd. (378993-D) Level 26, Menara Multi-Purpose, Capital Square No. 8 Jalan Munshi Abdullah 5000 Kuala Lumpur Tel No: 603-272 2222 Fax No: 603-272 2530/ 272 253

NOMINATION COMMITTEE

Dato' Paduka Syed Mansor bin Syed Kassim Barakbah Chairman, Independent Non-Executive Director Mohamed Suhaimi bin Sulaiman Independent Non-Executive Director Mohd Kamarudin bin Haron Independent Non-Executive Director

STOCK EXCHANGE LISTING

Main Board of Bursa Malaysia Securities Berhad Stock Name/Code : DFZ/577 Stock Sector : Trading/Services

WEBSITE ADDRESS

http://www.dfzcapital.com.my

COMPANY SECRETARY

Thum Sook Fun (MAICSA 702569)

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D F Z

(Company No.: 04556-X)

C A P I TA L

(Incorporated in Malaysia)

B E R H A D

Corporate Structure

as at 2 May 2008

(formerly known as Sriwani Tours & Travel Sdn. Bhd.)

(Company No.: 04556-X)

D F Z

C A P I TA L

(Incorporated in Malaysia)

B E R H A D

3

Location Map

4

D F Z

(Company No.: 04556-X)

C A P I TA L

(Incorporated in Malaysia)

B E R H A D

Directors' Profile

DATO' ONG KAR BEAU

Managing Director

DATO' ONG KAR BEAU, Malaysian, aged 54 is the Managing Director of DFZ. He was appointed to the Board of DFZ on 9 October 2002. He is also a member of the Remuneration Committee of DFZ. Dato' Ong ran a sole proprietor business in dealing and transportation of palm oil products from 974 to 990 and also for logging and gold mining in Terengganu and Kelantan from 988 to 99. From 992 until now, he has been managing his own investment portfolio. Dato' Ong does not hold directorship in any other public companies. Dato' Ong does not have any family relationship with any director and/or major shareholder of the Company. He does not have any conflict of interest with the Company. He has had no convictions for any offences within the past ten (0) years other than traffic offences, if any. Dato' Ong has attended all the six (6) Board Meetings held in the financial year ended 3 December 2007.

DATO' SRI KHALID BIN MOHAMAD JIWA

Executive Director

DATO' SRI KHALID BIN MOHAMAD JIWA, a Malaysian aged 49, is an Executive Director of DFZ. He was appointed to the Board of DFZ on 9 October 2002. Dato' Sri Khalid began his impressive career in the financial sector when he joined Bank Bumiputera Malaysia Berhad ("BBMB") (now known as CIMB Bank Berhad) in 98. Dato' Sri Khalid is a business graduate from UiTM and during his tenure with BBMB, he has gathered vast knowledge and experience in financial business activities. At the same time, he has contributed significantly in the company's operations and business development especially when he was the Head of Credit at one of its Selangor branches, responsible for analysing and managing credit portfolio. His tremendous experience in the financial sector and other business fields has led to his involvement in corporate ventures. Being an aggressive entrepreneur, he began making inroads into the corporate world when he was appointed as a Director of PASDEC Holdings Berhad ­ a public listed company on the Main Board of Bursa Malaysia Securities Berhad. Dato' Sri Khalid is also a Director of Naluri Corporation Berhad and United Industries Holdings Sdn Bhd. He is also the Advisor to the Committee of several community associations. He is the Executive Chairman of Ace Global Ventures Sdn Bhd and its group of companies, which is involved in TV media services, supply of TV programmes, events management, supply of broadcast and other specialised equipment, property, construction and engineering works. Dato' Sri Khalid does not have any family relationship with any director and / or major shareholder of the Company. He does not have any conflict of interest with the Company. He has had no convictions for any offences within the past ten (0) years other than traffic offences, if any. Dato' Sri Khalid has attended five (5) out of the six (6) Board Meetings held in the financial year ended 3 December 2007.

(Company No.: 04556-X)

D F Z

C A P I TA L

(Incorporated in Malaysia)

B E R H A D

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Directors' Profile (Cont'd)

WONG PENG YEW

Executive Director

WONG PENG YEW, Malaysian, aged 42, is an Executive Director of DFZ. He was appointed to the Board of DFZ on 5 October 2002. He is also a member of the Audit Committee of DFZ. He graduated from Monash University, Australia in 993 with a Bachelor of Economics (Accounting) and Graduate Diploma in Business Information System. He started his career with PricewaterhouseCoopers in 993 and later joined Ban Hin Lee Bank Berhad as a Senior CIS Audit Supervisor/Analyst Programmer from 993 to 994. He was in DFZ Group of Companies from 994 to 2000. During this period, he holds various senior positions such as Chief Internal Auditor, Chief Business Engineering Officer, General Manager-Business Development and Director-Corporate Affairs. He ventured into consultancy business in 2000 to 2002. Wong Peng Yew also sits on the Board of Naluri Corporation Berhad, a company listed on Bursa Malaysia Securities Berhad as well as several private limited companies. He does not have any family relationship with any director and/or major shareholder of the Company. He does not have any conflict of interest with the Company or any convictions for offences within the past ten (0) years other than traffic offences, if any. He has attended all the six (6) Board Meetings held in the financial year ended 3 December 2007.

DATO' PADUKA SYED MANSOR BIN SYED KASSIM BARAKBAH

Independent Non-Executive Director

DATO' PADUKA SYED MANSOR BIN SYED KASSIM BARAKBAH, Malaysian, aged 73, is an Independent Non-Executive Director of DFZ. He was appointed to the Board of DFZ on April 994. He is also the Chairman of the Nomination Committee, a member of the Audit Committee as well as the Remuneration Committee of DFZ. Dato' Paduka graduated from the University of Malaya in Singapore with a Bachelor of Arts Degree. He joined the Kedah Civil Service after receiving his Bachelor Degree. He has also served in various capacities including such posts as Kedah Directors of Land and Mines, State Financial Officer and finally, the State Secretary before retiring in 989. Dato' Paduka is also a Director of Yayasan Kedah Berhad, Yayasan Sultanah Bahiyah Berhad and Thong Guan Industries Berhad. Dato' Paduka does not have any family relationship with any director and/or major shareholder of the Company. He does not have any conflict of interest with the Company. He has had no convictions for any offences within the past ten (0) years other than traffic offences, if any. Dato' Paduka has attended four (4) out of the six (6) Board Meetings held in the financial year ended 3 December 2007.

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(Company No.: 04556-X)

C A P I TA L

(Incorporated in Malaysia)

B E R H A D

Directors' Profile (Cont'd)

MOHAMED SUHAIMI BIN SULAIMAN

Independent Non-Executive Director

MOHAMED SUHAIMI BIN SULAIMAN, Malaysian, aged 48, is an Independent Non-Executive Director of DFZ. He was appointed to the Board of DFZ on 23 April 2004. He is also the Chairman of the Audit Committee and Remuneration Committee as well as a member of the Nomination Committee of DFZ. He graduated from the Central State University, Edmond, Oklahoma with a Bachelor of Business Administration (Finance). Mohamed Suhaimi is currently with Konsortium Jaringan Selangor as an Executive Director since 998. He also served as a credit analyst in Bank Bumiputra Malaysia Berhad (now known as CIMB Bank Berhad) from 99 to 200. He does not have any family relationship with any director and/or major shareholder of the Company. He does not have any conflict of interest with the Company. He has had no convictions for any offences within the past ten (0) years other than traffic offences, if any. He has attended all the six (6) Board Meetings held in the financial year ended 3 December 2007.

MOHD KAMARUDIN BIN HARON

Independent Non-Executive Director

MOHD KAMARUDIN BIN HARON, Malaysian, aged 55, is an Independent Non-Executive Director of DFZ. He was appointed to the Board of DFZ on 2 February 2005. He is also a member of the Nomination Committee of DFZ. After finishing his S.E./MCE Form 5 education from English College J.B., he attended various management programme and courses ranging from 3 months to a year with the Malaysian Institute of Management. He has over 30 years experience in the construction and property development industry. He currently has investments as well as directorships in several private limited companies. Mohd Kamarudin also sits on the Board of Merge Housing Bhd. as an Independent Non-Executive Chairman, a company listed on Bursa Malaysia Securities Berhad. He does not have any family relationship with any director and/or major shareholder of the Company. He does not have any conflict of interest with the Company. He has had no convictions for any offences within the past ten (0) years other than traffic offences, if any. He has attended all the six (6) Board Meetings held in the financial year ended 3 December 2007.

(Company No.: 04556-X)

D F Z

C A P I TA L

(Incorporated in Malaysia)

B E R H A D

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Managing Director's Statement

On behalf of the Board of Directors, I am pleased to present to you the Annual Report and Audited Financial Statements of DFZ Capital Berhad ("DFZ") for the year ended 31 December 2007.

FINANCIAL HIGHLIGHTS

DFZ Group achieved a total revenue of RM304.97 million in 2007, which is RM29.04 million or 0.5% higher than RM275.93 million recorded in 2006. DFZ Group is able to reap the benefits from the higher arrival of tourists' with the successful Visit Malaysia Year 2007, and the increased traveling by Malaysians with the strengthening of Malaysian economy in 2007. DFZ Group continues to emphasise on serving its customers with quality products and services in trading of duty free goods and non-dutiable merchandise and properties and hospitality segments. DFZ Group achieved an operating profit of RM30.04 million in 2007, which is RM9.27 million or 44.6% higher than RM20.77 million achieved in 2006. The much higher year-on-year operating profit growth over the revenue growth in 2007 is because the higher profit margin in 2007 is not hampered by any one-off additional expenses incurred in 2006. After incurring higher finance costs and relatively higher tax, DFZ Group achieved a profit after tax of RM8.57 million, which is RM5.53 million or 42.4% higher than the RM3.04 million achieved in 2006.

BUSINESS DEVELOPMENT

As stated in the 2006 Annual Report, in July 2006, we commenced the re-development of part of the open-air car park area and service road at the front of the ZON Johor Bahru and the adjacent ground and first floors into a theme entertainment area branded as the FUN ZON. The re-development includes the following main components:-

· · · · ·

·

·

water feature including a fountain at the car park area; waterfront broad walk; beach club besides the waterfront; open grand staircase leading to the first floor; bubble lift leading to the second floor above the ZON Jetty, as well as converting it into an entertainment hall; renovation to the ground and first floors at the ZON Mall leading to the ZON Jetty into theme entertainment outlets; and renovation to the ground floor bus bays under the ZON Jetty into theme restaurants.

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(Company No.: 04556-X)

C A P I TA L

(Incorporated in Malaysia)

B E R H A D

Managing Director's Statement (Cont'd)

The re-development is completed during the year under review and the increased space has been taken up. The ZON Johor Bahru has since established itself as the key player in the hospitality scene in Johor Bahru, with its quality hotel, convention facilities, duty free shopping, theme restaurants and entertainment outlets, all integrated, as well as acting as the gateway to Indonesia in Johor Bahru. On 2 September 2007, we signed a shares sale and purchase agreement with Atlan Holdings Bhd for the acquisition of the entire equity interest in Emas Kerajang Sdn Bhd ("EKSB") for a cash consideration of RM40.0 million. EKSB owns and operates a duty free complex at Padang Besar town, Perlis Indra Kayangan. The duty free complex offers one-stop shopping for shoppers crossing the Malaysia-Thailand border at Padang Besar town. DFZ Group already has a presence at the Malaysia-Thailand border through its subsidiary operating in Bukit Kayu Hitam, Kedah Darul Aman. The acquisition represents a synergistic move for DFZ Group to further capture the duty free market and hence dominate the duty free market at the Malaysia-Thailand border. The acquisition was completed on 8 January 2008.

OUTLOOK

We are cautiously optimistic with our business performance in 2008, under the environment of global economic uncertainty. The resilience of the economy in Malaysia and in the region should help to sustain both domestic and overseas traveling. We continue to give priority to customers' satisfaction and are always embarking on incremental improvements.

ACKNOWLEDGEMENT

We are deeply saddened by the demise of our Chairman, the late Tan Sri Dato' Seri Megat Junid bin Megat Ayob on 24 January 2008. His leadership to DFZ Group is extremely invaluable and will be forever remembered. We wish to express our deepest condolence to the late Tan Sri's family. We continue to receive support from our valued customers, suppliers, bankers and employees, and invaluable guidance and assistance of our government officers. We are indeed grateful to them. To our shareholders, we thank you for your trust in us from the bottom of our hearts. Your trust in us encourages us to move forward and we are committed to delivering our best. Yours sincerely, ONG KAR BEAU Managing Director 22 May 2008

(Company No.: 04556-X)

D F Z

C A P I TA L

(Incorporated in Malaysia)

B E R H A D

9

Penyata Pengarah Urusan

Bagi pihak Lembaga Pengarah, saya dengan sukacitanya membentangkan Laporan Tahunan dan Penyata Kewangan DFZ Capital Berhad ("DFZ") bagi tahun berakhir 31 Disember 2007 yang telah diaudit.

KAJIAN KEWANGAN

Kumpulan DFZ telah mencapai perolehan sebanyak RM304.97 juta pada tahun 2007, peningkatan sebanyak RM29.04 juta atau 0.5% berbanding RM275.93 juta yang dicatatkan pada tahun 2006. Kumpulan DFZ berupaya memperoleh manfaat daripada peningkatan ketibaan pelancong-pelancong dengan kejayaan Tahun Melawat Malaysia 2007, berserta peningkatan kegiatan pelancongan oleh rakyat tempatan berikutan pengukuhan ekonomi Malaysia pada tahun 2007. Kumpulan DFZ terus memberi penekanan terhadap kualiti barangan dan perkhidmatan kepada pelanggan-pelanggan di dalam kedua-dua bahagian peruncitan barangan bebas cukai dan barangan tidak bercukai, hartanah dan juga hospitaliti. Kumpulan DFZ telah mencapai keuntungan operasi sebanyak RM30.04 juta pada tahun 2007, iaitu peningkatan sebanyak RM9.27 juta atau 44.6% daripada RM20.77 juta yang dicapai pada tahun 2006. Keuntungan operasi lebih tinggi yang dicapai ke atas peningkatan perolehan pada tahun 2007 ini adalah disebabkan marjin keuntungan pada tahun 2007 tidak dibebankan oleh perbelanjaan tambahan yang tidak berulang seperti di dalam tahun 2006. Setelah mengambilkira kos kewangan serta cukai yang lebih tinggi, Kumpulan DFZ mencatat keuntungan selepas cukai sebanyak RM8.57 juta pada tahun 2007, iaitu peningkatan RM5.53 juta atau 42.4% berbanding RM3.04 juta yang dicapai pada tahun 2006.

PERKEMBANGAN PERNIAGAAN

Sebagaimana yang dinyatakan di dalam Laporan Tahunan 2006, pada bulan Julai 2006, kami telah memulakan pembangunan semula sebahagian daripada tempat letak kereta terbuka dan jalan di hadapan ZON Johor Bahru berserta tingkat bawah dan tingkat satu di bangunan bersebelahan menjadi tempat hiburan bertema yang dijenamakan sebagai FUN ZON. Pembangunan semula tersebut melibat, komponen-komponen utama yang berikut:· · · · · · · Tema air termasuk kolam pancutan air di tempat letak kereta; Tempat pejalan kaki di kawasan dermaga; Kelab pantai di tepi kawasan dermaga; Tangga mewah terbuka yang menghala ke tingkat satu; Lif gelembung yang memberi perkhidmatan sehingga tingkat dua di atas Jeti ZON, yang juga telah diubahsuai menjadi dewan hiburan; Pengubahsuaian tingkat bawah dan tingkat satu di ZON Mall di laluan yang menuju ke Jeti ZON kepada tempat-tempat hiburan; dan Pengubahsuaian tempat letak bas di tingkat bawah Jeti ZON kepada rangkaian restoran bertema.

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D F Z

(Company No.: 04556-X)

C A P I TA L

(Incorporated in Malaysia)

B E R H A D

Penyata Pengarah Urusan (Samb.)

Pembangunan semula ini telah disiapkan sepenuhnya dalam tahun yang dikaji dan ruang tambahan yang diwujudkan juga telah disewakan. Semenjak itu, ZON Johor Bahru telah melakar nama di dalam bidang hospitaliti di Johor Bahru, dengan adanya hotel berkualiti, kemudahan konvensyen, pusat membeli-belah bebas cukai, restoran-restoran bertema dan tempat-tempat hiburan, kesemuanya bersepadu serta turut berperanan sebagai gerbang laluan ke Indonesia di Johor Bahru. Pada 2 September 2007, kami telah menandatangani satu perjanjian jual beli saham dengan Atlan Holdings Bhd untuk membeli keseluruhan saham ekuiti dalam Emas Kerajang Sdn Bhd ("EKSB") bagi balasan tunai sebanyak RM40.0 juta. EKSB memiliki dan mengusahakan kompleks barangan bebas cukai di Padang Besar, Perlis Indra Kayangan. Kompleks barangan bebas cukai ini menawarkan aktiviti membelibelah sepusat kepada para pembeli yang melalui sempadan Malaysia-Thailand di Padang Besar. Kumpulan DFZ sudahpun menjalankan perniagaan di bidang yang sama di sempadan MalaysiaThailand melalui anak syarikatnya yang beroperasi di Bukit Kayu Hitam, Kedah Darulaman. Pengambilalihan ini melambangkan satu langkah sinergi kepada Kumpulan DFZ untuk menawan pasaran bebas cukai dan dengan itu menguasai pasaran bebas cukai di sempadan MalaysiaThailand. Pengambilalihan ini telah disempurnakan pada 8 Januari 2008.

TINJAUAN PERNIAGAAN

Kami optimistik tetapi juga berwaspada terhadap prestasi perniagaan kami untuk tahun 2008, di dalam suasana ketidakpastian ekonomi sejagat. Ekonomi yang agak resilian di Malaysia dan di rantau ini diharap akan membantu mengekalkan pelancongan tempatan dan luar negara. Kami akan terus memberikan keutamaan kepada kepuasan pelanggan dan akan sentiasa mencari ruang untuk meningkatkan perkhidmatan kami.

PENGHARGAAN

Kami amat berdukacita dengan pemergian Pengerusi Eksekutif kami, Allahyarham Tan Sri Dato' Seri Megat Junid bin Megat Ayob yang telah pulang ke rahmatullah pada 24 Januari 2008. Kepimpinan Allahyarham Tan Sri kepada Kumpulan DFZ adalah tidak ternilai dan akan dikenang selama-lamanya. Kami ingin mengucapkan takziah kepada keluarga Allahyarham Tan Sri. Kami amat menghargai sokongan berterusan daripada para pelanggan yang dihargai, para pembekal, pihak bank, para kakitangan dan panduan berserta bantuan pegawai Kerajaan kepada Kumpulan kami. Kami amat terhutang budi kepada mereka. Kepada para pemegang saham, kami berterima kasih ke atas kepercayaan yang anda berikan kepada kami. Kepercayaan anda meyakinkan kami untuk terus bergerak maju dan kami bertekad untuk memberikan yang terbaik untuk anda. Yang benar, ONG KAR BEAU Pengarah Urusan 22 Mei 2008

D F Z C A P I TA L B E R H A D

(Company No.: 04556-X)

(Incorporated in Malaysia)

200723 DFZ Capital Berhad ("DFZ")

DFZ 20073497 2006275932 9040.52007 DFZ DFZ DFZ 2007342006 277 92744.62007 20062007 DFZ 8572006 30455342.4

2006 20067 FUN ZON

· · · · · · ·

ZON 2 ZON ZON ZON

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D F Z

(Company No.: 04556-X)

C A P I TA L

(Incorporated in Malaysia)

B E R H A D

()

200792 Atlan Holdings Bhd 4 Emas Kerajang Sdn Bhd ("EKSB") EKSB DFZ DFZ 20088

2008

Tan Sri Dato' Seri Megat Junid bin Megat Ayob DFZ Tan Sri 2008522

(Company No.: 04556-X)

D F Z

C A P I TA L

(Incorporated in Malaysia)

B E R H A D

3

Statement on Corporate Governance

The Board of Directors of DFZ Capital Berhad ("the Board") is pleased to report to the shareholders on the manner the Group has applied the principles and the extent of compliance with the best practices of corporate governance as set out in the Malaysian Code on Corporate Governance ("Code") together with the provisions contained in the Listing Requirements of Bursa Malaysia Securities Berhad ("Bursa Securities"). The Board is committed to ensuring that good corporate governance is practised throughout the Group as a fundamental element and basis of discharging its responsibilities to protect shareholders' value and enhance financial performance of the Group both in the immediate future as well as in the long term. The following statements outline the main corporate governance practices of the Group which were in place throughout the financial year ended 3 December 2007.

BOARD OF DIRECTORS

The Board comprises members with a wide range of experience which bring an independent judgment to bear on issues of strategy, performance, resources and standards of conduct. The Board recognises its ultimate responsibility and accountability for the Group's operations and retains full and effective control of the Group. The Board assumes responsibilities for determining the Company's overall strategic direction, as well as development and control of the Group. It has further adopted the pertinent responsibilities as listed in the Code to facilitate the discharge of the Board's stewardship function. Key matters, such as approvals of annual and interim financial results, acquisitions and disposals, as well as material agreements, major capital expenditures, budgets, long term plans and succession planning are reserved for the Board.

BOARD COMPOSITION AND BALANCE

The Board currently has six (6) members, comprising three (3) Independent Non-Executive Directors and three (3) Executive Directors. The Company fully complies with the requirement of the Listing Requirements of Bursa Securities for Independent Non-Executive Directors to make up at least one-third (/3) of the Board membership, as well as the requirement for a Director who is a member of the Malaysian Institute of Accountants to sit on the Audit Committee. The composition of the Board is deemed fairly balanced and complements itself in providing industry-specific knowledge, technical knowledge and commercial experience. Together, the Board members bring a wide range of business and financial experience relevant to ensure the Group continues to be competitive in the duty free, trading and service industries. A brief profile of each Director is presented in the preceding pages of this Annual Report. There is a clear division of responsibilities between the Independent Non-Executive Directors and the Managing Director to ensure the desired balance of power and authority. The presence of Independent Non-Executive Directors fulfills a pivotal role in corporate governance accountability and they are fully independent of management and free from any relationship which could interfere with their unbiased and independent judgment. Balance is further ensured by way of active and unrestricted participation of Independent Non-Executive Directors in the deliberation and decision of the Board. All Directors have full access to background information pertaining to all matters placed before them for decision and are entitled to call for full disclosure by the management. This is to ensure that matters moved for decision by the Board can be discussed and examined in a balanced manner that take into account the long term interests, not only of the shareholders, but also of the employees, suppliers, customers and the communities with which the Group conducts businesses with.

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Statement on Corporate Governance (Cont'd)

BOARD MEETINGS

The Board has at least four (4) regular scheduled meetings annually, with additional meetings convened as and when necessary. Six (6) Board meetings were held during the financial year ended 3 December 2007. The attendance record of each Director is as follows: Number of Board Meetings held 6 Number of Board Meetings attended 3

Director Tan Sri Dato' Seri Megat Junid bin Megat Ayob (Demised on 24-01-2008) Dato' Ong Kar Beau Dato' Sri Khalid bin Mohamad Jiwa Wong Peng Yew Dato' Paduka Syed Mansor bin Syed Kassim Barakbah Mohamed Suhaimi bin Sulaiman Mohd Kamarudin bin Haron

Date of appointment 5-04-2003

Percentage (%) 50

09-0-2002 09-0-2002 5-0-2002

6 6 6

6 5 6

00 83 00

-04-994 23-04-2004 02-02-2005

6 6 6

4 6 6

67 00 00

SUPPLY OF INFORMATION

All Directors are provided with quarterly reports on major operational, financial and corporate issues prior to the Board Meetings. Agenda and papers on specific subjects are sent to members of the Board in advance to ensure that there is sufficient time to enable the Directors to obtain further explanations where necessary and to facilitate informed decision-making process. All members of the Board, whether as a full Board or in their individual capacity, have access to all information within the Group and ready and direct access to the advice and services of the Company Secretary to assist them in furtherance of their duties. Where necessary, the Board may engage independent professional advisors, at the Group's expense, on specialised issues to enable them to discharge their duties proficiently.

APPOINTMENT AND RE-ELECTION OF DIRECTORS

In accordance with the Company's Articles of Association, one-third (/3) of the Directors shall retire from office at every annual general meeting ("AGM") but shall be eligible for re-election. The Articles also provide that Directors appointed during the year by the Board shall hold office only until the next AGM, and shall be eligible for reelection. Director over seventy (70) years of age is subject to re-appointment annually in accordance with Section 29 (6) of the Companies Act, 965.

(Company No.: 04556-X)

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Statement on Corporate Governance (Cont'd)

DIRECTORS' TRAINING

The Board are mindful that they should receive appropriate continuous training and they have attended seminars and briefings in order to broaden their perspectives and to keep abreast with the changes on guidelines issued by the relevant authorities as well as the latest developments in the market place. The Board will continue to undergo other relevant training programmes as appropriate, to further enhance their skills and knowledge. The Company organizes trainings at least once every two (2) years for the Board to ensure they are kept up-to-date on relevant developments. The Board has attended a training program on improving the Board's performance, leadership and governance on 22 August 2007.

BOARD COMMITTEES

The Board has appointed Board committees, which operate within clearly defined terms of reference. Standing committees of the Board include the Audit Committee, the Nomination Committee and the Remuneration Committee. (a) Audit Committee The Audit Committee's role and functions are set out on pages 23 to 26 of this Annual Report. (b) Nomination Committee The Nomination Committee, comprising exclusively Independent Non-Executive Directors, is given the responsibility of proposing new nominees for the Board including the Board's committees and assessing the performance of each individual Director and overall effectiveness of the Board on an ongoing basis. The Nomination Committee currently comprises the following: · · · Dato' Paduka Syed Mansor bin Syed Kassim Barakbah (Chairman) Mohamed Suhaimi bin Sulaiman Mohd Kamarudin bin Haron

The appointment of new Directors is the responsibility of the full Board after considering the recommendation of the Nomination Committee. In making its recommendation, the Committee will consider the required mix of skills and experience and other qualities, including core competencies which Directors of the Company should bring to the Board. The Committee met once during the financial year ended 3 December 2007. (c) Remuneration Committee The Remuneration Committee, comprising a majority of Independent Non-Executive Directors, is given the responsibility of recommending to the Board the framework and quantum values for the Executive Directors' remuneration and the remuneration package for each Executive Director. The Remuneration Committee currently comprises the following: · · · Mohamed Suhaimi bin Sulaiman (Chairman) Dato' Ong Kar Beau Dato' Paduka Syed Mansor bin Syed Kassim Barakbah

The Committee met once during the financial year ended 3 December 2007 to deliberate on the remuneration of the Executive Directors for the financial year ended 3 December 2007.

6

D F Z

(Company No.: 04556-X)

C A P I TA L

(Incorporated in Malaysia)

B E R H A D

Statement on Corporate Governance (Cont'd)

DIRECTORS' REMUNERATION

The Board endeavours to ensure that the level of remuneration offered to Directors is sufficient to attract and retain people needed to run the Group successfully. In the case of Executive Directors, the component parts of remuneration are structured to link rewards to corporate and individual performance. In the case of Non-Executive Directors, the level of remuneration reflects the experience and level of responsibilities undertaken by the particular Non-Executive Director concerned. The policy of the Executive Directors' Remuneration will be in line with the Group's overall practice on pay and benefits. Non-Executive Directors' and the Independent Non-Executive Chairman's remuneration will be a matter to be decided by the Board as a whole with the Director concerned abstaining from deliberation and voting on decisions in respect of his individual remuneration. The Company will reimburse reasonable expenses incurred by Non-Executive Directors in the course of their duties as Directors. A summary of the remuneration of Directors for the financial year ended 3 December 2007 are as follows: . Aggregate remuneration of Directors categorised into appropriate components: Salaries & other emoluments RM'000 Executive Directors Non-Executive Directors ,838 ­ Allowances and Fees RM'000 ­ 343 Total RM'000 ,838 343

2.

Number of Directors whose remuneration fall into the following bands: 2007 Number of Directors NonExecutive Executive * Below RM50,000 RM00,00 ­ RM50,000 RM50,00 ­ RM200,000 RM400,00 ­ RM450,000 RM550,00 ­ RM600,000 RM750,00 ­ RM800,000 RM850,00 ­ RM900,000 * ­ ­ ­ ­ 2 2 ­ ­ ­ ­ ­ 2006 Number of Directors NonExecutive Executive ­ ­ ­ ­ 2 ­ ­ ­ ­

including Tan Sri Dato' Seri Megat Junid who demised on 24 January 2008.

(Company No.: 04556-X)

D F Z

C A P I TA L

(Incorporated in Malaysia)

B E R H A D

7

Statement on Corporate Governance (Cont'd)

ACCOUNTABILITY AND AUDIT

Financial Reporting In presenting the announcements of annual financial statements and quarterly financial results to shareholders, investors and regulatory authorities, the Board of Directors aim to present a balanced and understandable assessment of the Group's position and prospects. The Audit Committee assists the Board in scrutinising information for disclosure to ensure accuracy and adequacy. The Statement by Directors pursuant to Section 69 of the Companies Act, 965 is set out on page 34 of this Annual Report. Statement of Directors' Responsibilities in respect of the Audited Financial Statements The Board are required by the Companies Act, 965 to prepare financial statements which give a true and fair view of the state of affairs of the Group and the Company at the end of each financial year and of their results and cash flows for the financial year. In exercising the functions of the Board, the Directors have considered the following in preparing the financial statements: i) ii) iii) Appropriate accounting policies have been consistently applied by the Company; Reasonable and prudent judgments and estimates have been made; and All applicable approved accounting standards in Malaysia have been followed.

The Board are responsible for ensuring that the Company keeps proper accounting records, which disclose with reasonable accuracy the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act, 965. The Board has overall responsibilities for taking such steps that are reasonably available to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities, if any. Internal Control The Board recognise their responsibilities for the maintenance of a system of internal controls and reviewing its effectiveness. As with any such system, controls can only provide reasonable but not absolute assurance against material misstatement or loss. The Group's Audit and Risk Assessment division regularly reports on compliance with internal financial controls and procedures to the Audit Committee. It also ensures that the recommendations to improve controls are followed through by management. Relationship with the External Auditors The Board has always maintained a professional and transparent relationship with the External Auditors in seeking their professional advice through the Audit Committee. The role of the Audit Committee in relation to the External Auditors is described on pages 23 to 26 of this Annual Report. Statement on Internal Control The Statement on Internal Control provides an overview of the Internal Control within the Group and is set out on page 27 of this Annual Report.

8

D F Z

(Company No.: 04556-X)

C A P I TA L

(Incorporated in Malaysia)

B E R H A D

Statement on Corporate Governance (Cont'd)

RELATIONSHIP WITH SHAREHOLDERS AND INVESTORS

Dialogue between the Company and Investors The Company acknowledges the importance of transparency and accountability to its shareholders and as such maintains a constructive communication policy with its shareholders and investors through timely dissemination of information to ascertain that they are well informed of any major developments of the Group. In addition to the Company's compliances with the continuing disclosure and announcement obligations contained in the Listing Requirements of Bursa Securities, shareholders and investors are kept informed of the Group's progress through the provision of Annual Report, quarterly financial results, announcements to Bursa Securities and in the circulars to shareholders. The Group has also established a website www.dfzcapital.com.my from which shareholders can access information on the operations and activities of the Group. Annual and Extraordinary General Meeting The Board holds the view that the AGM serves as the primary means of communicating with its shareholders. At each AGM, the Board presents the progress and performance of the Group's businesses as contained in the Annual Report and encourages shareholders to participate in the questions and answers session. The members of the Board and Board Committees are available to respond to the shareholders' questions during the meeting. Extraordinary general meetings ("EGM") are held as and when shareholders' approvals are required on specific matters. Each item of special business included in the notice of the AGM and each item of the EGM are accompanied by an explanatory statement to facilitate full understanding and evaluation of issue involved.

COMPLIANCE WITH THE BEST PRACTICES OF THE CODE

The Group is in substantial compliance throughout the financial year with the Principles and Best Practices of the Code. This statement is made in accordance with a resolution of the Board of Directors dated 3 March 2008.

(Company No.: 04556-X)

D F Z

C A P I TA L

(Incorporated in Malaysia)

B E R H A D

9

Additional Compliance Information

The information set out below is disclosed in compliance with the Listing Requirements of Bursa Malaysia Securities Berhad.

STATUS OF UTILISATION OF PROCEEDS RAISED FROM CORPORATE PROPOSAL

The status of the utilisation of Rights Issue proceeds are as follows: Revised utilisation RM'000 Repayment to Scheme Creditors () Repayment to essential creditors (2) Working capital Establishment of new duty-free outlets Refurbishment and upkeep of existing duty-free outlets and hotel of the Group Estimated fees relating to the Existing Restructuring Plan and/or Proposed Alternative Restructuring Plan 2,00 0,000 37,442 20 2,000 4,602 66,264 Notes:

(1)

Actual utilisation RM'000 2,00 0,000 37,442 20 2,000 4,602 66,264

Balance yet to be utilised RM'000 ­ ­ ­ ­ ­ ­ ­

(2)

In event that borrowings are taken to repay the Scheme Creditors prior to completion of the Rights Issue, such amount shall be used to repay the financial institution(s) from which the borrowings are taken. Being payment of RM10.0 million to Majlis Bandaraya Johor Bahru, including the lease payments and additional lease and royalty payments for subsequent period.

SHARE BUY-BACK

During the financial year, on 4 June 2007 and 3 December 2007, the Company had purchased a total of ,200 of its issued ordinary shares from the open market at an average price of RM2.03 per share. The total consideration paid for the purchase was RM2,468 comprising consideration paid amounting to RM2,440 and transaction costs of RM28 and this was financed by internally generated funds. The shares purchased are being held as treasury shares in accordance with Section 67A of the Companies Act, 965. No shares were resold or cancelled during the financial year.

OPTIONS, WARRANTS OR CONVERTIBLE SECURITIES

No options, warrants or convertible securities were issued during the financial year ended 3 December 2007. During the financial year, a total of 3,056,969 irredeemable convertible preference shares series A ("ICPS-A") were converted into 277,90 new ordinary shares of RM.00 each at a conversion price of RM.0 per new ordinary share which were satisfied by tendering the equivalent par value of ICPS-A for every one () new ordinary share. In addition, a total of 36,46,903 irredeemable convertible preference shares series B ("ICPS-B") were converted into 36,46,903 new ordinary shares of RM.00 each by tendering one () unit of ICPS-B for conversion into new ordinary shares of RM.00 each of which RM0.0 is paid-up and the remaining RM0.90 shall be paid up from the share premium reserve.

20

D F Z

(Company No.: 04556-X)

C A P I TA L

(Incorporated in Malaysia)

B E R H A D

Additional Compliance Information (Cont'd)

AMERICAN DEPOSITORY RECEIPT ("ADR") OR GLOBAL DEPOSITORY RECEIPT ("GDR") PROGRAMME

During the financial year, the Company did not sponsor any ADR or GDR programme.

SANCTIONS AND/OR PENALTIES

There were no sanctions or penalties imposed on the Company and its subsidiaries, Directors or management by the relevant regulatory bodies during the financial year.

NON-AUDIT FEES

The amount of non-audit fees paid to the external auditors by the Group and the Company for the financial year ended 3 December 2007 amounted to RM20,700 and RM3,200 respectively.

VARIATION IN RESULTS

There were no material variations between the audited results for the financial year ended 3 December 2007 and the unaudited results for the quarter ended 3 December 2007 of the Group announced on 26 February 2008. There was no profit forecast announced during the financial year.

PROFIT GUARANTEE

During the financial year, there was no profit guarantee given by the Company.

MATERIAL CONTRACTS INVOLVING DIRECTORS' AND MAJOR SHAREHOLDERS' INTERESTS

Save as disclosed below, there were no material contracts entered into by the Company and its subsidiaries involving Directors' and major shareholders' interests which were still subsisting as at the end of the financial year or if not then subsisting, entered into since the end of the previous financial year: (i) Kelana Megah Sdn. Bhd. ("KMSB"), a 85.3% owned subsidiary of DFZ Capital Berhad ("DFZ") has entered into a Tenancy Agreement, Deed of Assignment and Power of Attorney with Naluri Corporation Berhad ("Naluri"), a substantial shareholder of DFZ, in respect of the leaseback of the duty free complex in Johor Bahru from December 2004 onwards for a consideration of RM0.0 million per annum and upon the terms and conditions contained in the said Tenancy Agreement. KMSB has entered into various agreements with Tenggara Senandung Sdn. Bhd. ("TSSB"), a wholly-owned subsidiary of Naluri, for the rental and management of a shoplot, the ferry terminal together with the car parks all located at the duty free complex in Johor Bahru from November 2003 onwards for a total cash consideration of RM2.4 million per annum and upon the terms and conditions contained in the said agreements. Cergasjaya Sdn. Bhd. and Cergasjaya Properties Sdn. Bhd., both wholly-owned subsidiaries of DFZ, have also entered into various agreements with TSSB for the management of the car parks located at the duty free complex in Bukit Kayu Hitam from 30 June 2004 onwards for a total cash consideration of RM0.2 million per annum and upon the terms and conditions contained in the said agreements.

(ii)

(iii)

REVALUATION POLICY ON LANDED PROPERTIES

The Group has not adopted a policy of regular revaluation of such assets as permitted under the transitional provisions.

(Company No.: 04556-X)

D F Z

C A P I TA L

(Incorporated in Malaysia)

B E R H A D

2

Additional Compliance Information (Cont'd)

RECURRENT RELATED PARTY TRANSACTION

The summary of the Recurrent Related Party Transactions which have been entered by the Group during the financial year 2007 are as follows:Name of subsidiary of DFZ Nature of transaction Interested related party Transaction value RM'000

Total sales to Emas Kerajang Sdn. Bhd. ("EKSB") Winner Prompt Sdn. Bhd. Sale of duty free products Atlan Holdings Bhd. ("Atlan") Atlan 8,324

DFZ Duty Free Supplies Sdn. Bhd.

Sale of duty free and duty paid products such as household items, gift items and toys

,33

9,637 Total purchases from EKSB Cergasjaya Sdn. Bhd. Jasa Duty Free Sdn. Bhd. DFZ Duty Free Supplies Sdn. Bhd. Black Forest Golf And Country Club Sdn. Bhd. Purchases of duty free products Purchases of duty free products Purchases of duty free products Purchases of duty free products Atlan Atlan Atlan Atlan 5,4 ,245 ,00 2,424

20,090

However, subsequent to year end, EKSB has become a wholly owned subsidiary of the Company.

22

D F Z

(Company No.: 04556-X)

C A P I TA L

(Incorporated in Malaysia)

B E R H A D

Audit Committee Report

1. COMPOSITION

The Audit Committee consists of three (3) members of the Board of Directors, the majority of whom are independent. The members are as follows: Mohamed Suhaimi bin Sulaiman (Chairman) Dato' Paduka Syed Mansor bin Syed Kassim Barakbah Wong Peng Yew : : : Independent Non-Executive Director Independent Non-Executive Director Executive Director

Wong Peng Yew is a member of the Malaysian Institute of Accountants.

2.

TERMS OF REFERENCE

The terms of reference of the Audit Committee are as follows: 2.1 Objectives The principal objectives of the Audit Committee are to assist the Board of Directors ("the Board") in discharging its statutory duties and responsibilities relating to accounting and financial reporting practices of the Company and its subsidiaries ("the Group"). In addition, the Audit Committee shall: (a) evaluate the quality of the audits performed by the internal and external auditors; (b) provide assurance that the financial information presented by management is relevant, reliable and timely; (c) oversee compliance with laws and regulations and observance of a proper code of conduct; and (d) determine the adequacy and effectiveness of the Group's internal control environment and quality of the audits. 2.2 Composition The Audit Committee shall be appointed by the Board from amongst the directors of the Company and shall consist of no fewer than three (3) members. A majority of the Audit Committee must be independent non-executive directors. No alternate director is to be appointed as a member of the Audit Committee. At least one () member of the Audit Committee: (a) must be a member of the Malaysian Institute of Accountants; or (b) if he is not a member of the Malaysian Institute of Accountants, he must have at least three (3) years' working experience and: (i) he must have passed the examinations specified in Part I of the st Schedule of the Accountants Act, 967; or (ii) he must be a member of one of the associations of accountants specified in Part II of the st Schedule of the Accountants Act, 967; or (c) fulfills such other requirements as prescribed or approved by Bursa Malaysia Securities Berhad ("Bursa Securities"). The Chairman of the Audit Committee shall be appointed among the members of the Audit Committee who shall be an independent director. The definition of "independent director" shall have the meaning given in Chapter .0 of the Listing Requirements of Bursa Securities.

(Company No.: 04556-X)

D F Z

C A P I TA L

(Incorporated in Malaysia)

B E R H A D

23

Audit Committee Report (Cont'd)

2. TERMS OF REFERENCE (CONT'D)

2.3 Meetings The Audit Committee shall hold at least four (4) regular meetings per year, with due notice of issues to be discussed, and shall record its conclusions in discharging its duties and responsibilities. In addition, the Chairman may call for additional meetings at any time at the Chairman's discretion. The quorum for the Audit Committee meeting shall be the majority of members present whom must be independent directors. Upon the request of the external auditors, the Chairman of the Audit Committee shall convene a meeting of the Audit Committee to consider any matter the external auditors believe should be brought to the attention of the directors or shareholders. Notice of Audit Committee meetings shall be given to all the Audit Committee members unless the Audit Committee waives such requirement. The finance manager, the head of internal audit and representatives of the external auditors shall normally attend meetings. Other Board members and employees may attend meetings upon the invitation of the Audit Committee. However, the Audit Committee shall meet with the external auditors, the internal auditors or both, without other Board members and management present whenever deemed necessary. Questions arising at any meeting of the Audit Committee shall be decided by a majority of votes of the members present, and in the case of equality of votes, the Chairman of the Audit Committee shall have a second or casting vote. The Company Secretary shall be the secretary of the Audit Committee. 2.4 Authority The Audit Committee shall, in accordance with a procedure to be determined by the Board and at the expense of the Company: (a) have explicit authority to investigate any matter within its terms of reference; (b) have the resources which are required to perform its duties; (c) have full and unrestricted access to any information pertaining to the Company; (d) have direct communication channels with 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 (f) be able to convene meetings with the external auditors, the internal auditors or both, excluding the attendance of other directors and employees of the Company, whenever deemed necessary. Where the Audit Committee is of the view that the matter reported by it to the Board has not been satisfactorily resolved resulting in a breach of the Listing Requirements, the Audit Committee shall promptly report such matter to Bursa Securities.

24

D F Z

(Company No.: 04556-X)

C A P I TA L

(Incorporated in Malaysia)

B E R H A D

Audit Committee Report (Cont'd)

2. TERMS OF REFERENCE (CONT'D)

2.5 Duties and Responsibilities The duties and responsibilities of the Audit Committee are as follows: (a) To consider the appointment of the external auditors, the audit fee and any question of resignation or dismissal; (b) To discuss with the external auditors before the audit commences, the nature and scope of the audit, ensure co-ordination where more than one () audit firm is involved; (c) To review the quarterly and year-end financial statements before submission to the Board, focusing particularly on: · any changes to the accounting policies and practices; · significant adjustments arising from the audit; · the going concern assumption; and · compliance with accounting standards and other legal requirements. (d) To discuss problems and reservations arising from the interim and final audits, and any matter the auditors may wish to discuss (in the absence of management, where necessary); (e) To review the external auditors' management letter and management's response; (f) To do the following, in relation to the internal audit function: · 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 work; · review the internal audit programme and results of the internal audit process and, where necessary, ensure that appropriate actions are taken on the recommendations of the internal audit function; · review any appraisal or assessment of the performance of members of the internal audit function; · approve any appointment or termination of senior staff members of the internal audit function; and · take cognisance of resignations of internal audit staff members and provide the resigning staff member an opportunity to submit his reasons for resigning. (g) To consider the major findings of internal investigations and management's response; (h) To report its findings on the financial and management performance, and other material matters to the Board; (i) To review any related party transaction and conflict of interest situation that may arise within the Company or group including any transaction, procedure or course of conduct that raises questions of management's integrity; (j) To review with the external auditors, their evaluation of the system of internal controls and their audit report; (k) To consider and make recommendations to the Board, to be put to shareholders for approval at the general meeting in relation to the appointment, re-appointment and removal of the Company's external auditors; (l) To verify the allocation of share option scheme ("ESOS") in compliance with the criteria as stipulated in the by-law of ESOS of the Company, if any; and (m) To consider and examine any other matters as defined by the Board from time to time. 2.6 Reporting Procedures Minutes of each meeting shall be distributed to each member of the Audit Committee. The Audit Committee Chairman shall report on each meeting to the Board. The minutes of the Audit Committee meeting shall be signed by the Chairman of the meeting at which the proceedings were held or by the Chairman of the next succeeding meeting.

(Company No.: 04556-X)

D F Z

C A P I TA L

(Incorporated in Malaysia)

B E R H A D

25

Audit Committee Report (Cont'd)

3. ATTENDANCE

The Audit Committee met four (4) times during the financial year ended 3 December 2007 and the attendance of the Directors for the meetings held during the year are as follows: Number of Audit Committee meetings held 4 4 4 Number of meetings attended by Directors 4 4 4

Directors Mohamed Suhaimi Bin Sulaiman Dato' Paduka Syed Mansor Bin Syed Kassim Barakbah Wong Peng Yew

4.

ACTIVITIES OF THE AUDIT COMMITTEE DURING THE FINANCIAL YEAR 2007

During the financial year ended 3 December 2007, the Audit Committee carried out the following activities in the discharge of its functions and duties: · · · · · · Reviewed and discussed the re-election of the external auditors of the Company before tabling to the shareholders for approval at the Annual General Meeting. Reviewed with the external auditors their audit plan, audit approach and reporting requirements before the commencement of the audit. Reviewed the quarterly and annual consolidated financial statements of the Group before submission to the Board for approval. Reviewed any related party transactions that may arise within the Group or Company. Reviewed with the external auditors their audit findings and approved for adoption their recommendations. Reviewed the internal audit programme, considered the major findings of the internal audit programme and management's response and ensure appropriate action was taken.

5.

INTERNAL AUDIT FUNCTION

The Audit Committee is supported by an independent and adequately resourced internal audit function. The Committee is aware of the fact that an independent and adequately resourced internal audit function is essential to assist in obtaining the assurance it requires regarding the effectiveness of the internal control. The main role of the internal audit function is to review the effectiveness of the system of internal control. This is performed with impartiality, proficiency and due professional care. During the financial year, the internal audit activities have been carried out according to the internal audit plan which has been approved by the Audit Committee. This report is made in accordance with a resolution of the Board of Directors dated 3 March 2008.

26

D F Z

(Company No.: 04556-X)

C A P I TA L

(Incorporated in Malaysia)

B E R H A D

Statement on Internal Control

The Board assumes the responsibilities for the Group's system of internal control and for reviewing the adequacy and integrity of those systems. However, such system is designed to manage the risk of failure to achieve business objectives, and provide reasonable and not absolute assurance against material misstatement or loss. In compliance with the Listing Requirements of the Bursa Malaysia Securities Berhad in the annual reports and the publication of guidance for directors on internal control, "Statement on Internal Control: Guidance for Directors of Public Listed Companies", the Board confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Group and this has been in place for the financial year and up to the date of approval of the annual report and financial statements. The Board further confirms that this process is regularly reviewed by the Board and accords with the guidance. The Group's system of internal control is maintained to achieve the following objectives: · · · · Safeguard the shareholders' interest and assets of the Group. Ensure the achievement of financial and operational objectives. Ensure compliance with regulatory requirements. Identify and manage risks affecting the Group.

Salient features of the framework of internal control system of the Group are as follows: · The management and organisation structure are well defined, with clear line of responsibilities and delegation of authorities. Key responsibilities are properly segregated in achieving a proper check and balance review and approval process. Executive Directors and heads of divisions meet regularly to discuss operational, corporate, financial and key management issues. The Board continuously assesses the key business risks with the help of the Audit Committee and external professionals. Financial results are reviewed quarterly by the Board and the Audit Committee. Internal control policies and procedures are properly documented and communicated to all staff members. Through the internal audit process, the effectiveness of internal control policies and procedures are subject to continuous assessments, reviews and improvements. Effective reporting system to ensure timely generation of financial information for management review.

·

·

·

· · ·

·

The Directors are of the opinion that the existing system of internal control is adequate in achieving the above objectives. This statement is made in accordance with a resolution of the Board of Directors dated 3 March 2008. The external auditors have reviewed the Statement on Internal Control as required by paragraph 5.24 of the Listing Requirements of Bursa Malaysia Securities Berhad. Their review was performed in accordance with Recommended Practice Guide 5 issued by the Malaysian Institute of Accountants.

(Company No.: 04556-X)

D F Z

C A P I TA L

(Incorporated in Malaysia)

B E R H A D

27

Corporate Social Responsibility

The Board of Directors of DFZ Capital Berhad recognise the importance of balancing the interest of all or key stakeholders ­ our customers, our shareholders, our employees, our suppliers and the communities in which we work. We see the need for corporate social responsibility ("CSR") as an integral part of the whole operations and a key factor in our continued growth and success of the businesses of the Group. The CSR initiatives undertaken by the Group is summarised below.

COMMUNITY

We encourage all our businesses to support the particular needs of their communities by contributing to local charities and community initiatives. Support takes the form of employees' time and skill, gifts in kind and cash donations. In 2007, we continued to support education and welfares in our local communities and one of the significant contributions was for the Johor Flood effort in early 2007. In addition to financial contribution to the effort, the Group also contributed in kind when the employees volunteered their services one weekend to assist in the clean up and distribution of food and essentials to the flood victims. The Group will continue to support and encourage all our employees and businesses to find new ways of helping their communities.

WORKPLACE

The Group aims to attract, retain and motivate the highest calibre of employees within the operating structure that encourages their contribution and development, considers its human resource as its most valuable asset, and thus, ensures that it is well taken care of. The employees have access to trainings (internal and external) for their continuous improvement and development so as to help our employees prepare for new initiatives, as well as equipping them with the very best customer service skills. In addition, health and safety awareness programs and sports activities were held to encourage employees to lead a healthy lifestyle. The Group also organised annual dinners and festive celebrations for its employees.

ENVIRONMENT

Good environment practice and the impact that our operations have on the environment are of great importance to the Group. We undertook several initiatives in preserving the environment, including reducing the usage of paper via electronic communication and recycling paper and closely monitor energy consumption such as replacing existing equipments with more energy efficient and fitting temperature control devices.

MARKETPLACE

The Group ensures that its operations are in line with the best practices guidelines set in the Code of Corporate Governance. All activities are conducted at arms length and do not favour any single party. The Group had carried out extensive refurbishment and improvement to the shopping floors such as brighter environment and clearer layout making stores easier to navigate. Our aim is to make shopping environment as convenient and pleasant for our customers. Corporate social responsibility is an on-going process, and the Group is committed to continue its efforts to ensure that it makes a difference to the society and world at large.

28

D F Z

(Company No.: 04556-X)

C A P I TA L

(Incorporated in Malaysia)

B E R H A D

Information

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