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journeymovesforwardAnnual Report 2016Iris Corporation Berhad (302232-X)

annual report 2016IRIS smart technology complextechnology park malaysia, bukit jalil57000 kuala lumpur, malaysiaTel 603 8996 0788Fax 603 8996 0441www.iris.com.myIris Corporation berhad (302232-X)Iris Corporation berhad (302232-X)journeymovesforwardAnnual Report 2016Iris Corporation Berhad (302232-X)

contents004 - 013040 - 063PERFORMANCE REVIEWOperations ReviewChairman’s Statement Group Financial SummaryCORPORATE GOVERNANCE & ACCOUNTABILITY004010013 Statementon Corporate GovernanceAudit Committee Report Statement on Risk Management and Internal Control Statement of Directors’ Responsibilities Additional Compliance Information040055059061062016 - 021company overview066 - 183Our Global FootprintCorporate ProfileCorporate StructureCorporate InformationAwards & Recognition016018018020021022 - 039CORPORATE INFORMATIONProfile of DirectorsKey Management TeamOur Capable TeamCalendar of EventsCorporate Social Responsibility022028030032036FINANCIAL STATEMENTS & other informationDirectors’ Report Statements of Financial Position Statements of Comprehensive Income Statements of Changes in Equity Statements of Cash Flows Notes to the Financial StatementsSupplementary Information on the Disclosure ofRealised and Unrealised Profits or LossesStatement by DirectorsStatutory DeclarationIndependent Auditors’ ReportStatistics on Shareholdings066071073075079082174175175176178184 - 192annual general meeting otice of Twenty-Second Annual General MeetingNStatement Accompanying Notice of Twenty-Second Annual General MeetingAppendix IProxy Form184189190

ourOUR JOURNEY MOVES FORWARDIRIS is on a journey towards greater successes and sustained growth. We continue topursue our strategy to narrow our focus, reduce our risk, and strengthen our ability todeliver long-term value to our customers, our shareholders and our workforce. Our planmoving forward is to emerge as a leading global technology solutions company focusedon creating solutions that make the world a better and safer place.refiningdirectionIRIS is uniquely placed to make adifference in people’s lives throughoutthe world due to our distinctive mix ofcomplementary business units andcapabilities. Our talent for bringingtechnology-based, robust solutions tolife is driven by sheer determinationand commitment to innovation andefficiency. We are prioritizing strengthareas that enable us to realize ourpurpose and establish leading positionsin the markets in which we compete.

roustrengtheningcoreWe are simplifying and accelerating our processes whilereducing complexity in our Company and strengtheningour internal setup by streamlining our Companystructure and realigning our management systems –simply put, we are building better governance. Led by astrong and experienced management team committedto operational and financial excellence, IRIS continues toface the challenges of changing business environmentshead on with optimism, tenacity and resilience.IRIS’ Total Automated BorderControl (ABC) Solution is automatingand accelerating border crossingsaround the world

004 - 013PERFORMANCE REVIEWOperations Review 004Chairman’s Statement 010 roup Financial Summary 013G

our journey moves forward0041.operationsreview At the start of Financial Year 2016 (FY 2016), IRIS initiateda turnaround programme of restructuring andrealignment. Our objective: to restore the foundationof our company as part of a change process that willspan several years. We began by realigning the businessto capitalise on marketplace changes and make rapidprogress towards becoming a leader in technologycentred solutions capable of generating better andmore attractive margins.IRIS has embarked on a journeyof change and improvement thatcontinues to be underpinned bya culture of innovation towardscreating a more efficient, inventiveand financially strong company.Underlining the turnaround andrealignment efforts also include aconscious effort to give back to thecommunities in which we operate.Despite the global business crunchwe continue to face as we embarkedon the turnaround exercise, IRIS’value remains strong. We continueto gain foothold in new markets,secure contracts, cultivate freshpartnerships while enhancingexisting networks.Group total turnover for FY 2016stood at RM519.6 million, a 7.5%attrition from FY 2015 numbers.TRUSTED IDENTIFICATIONOur turnaround programme placedgreater focus on improving customerservice by providing additionalvalue-added products and servicesfor existing clients and ensuring theflexibility required to align ourselvesin the dynamic Trusted Identificationmarketplace. With geographicgrowth and diversification ofproducts and services in all facets ofthe Trusted Identification division, itis important that we have a corporatestructure in place that supports thefuture directions of the ePassport,eID, ePayment and AutomatedBorder Control (ABC) industries.Our IRIS employees in the TrustedIdentification division continuesto be the nucleus that drives ourorganization and in securing majorePassport and eID contracts: uild-own-transfer (BOT)Bagreement valued atUSD22 million (RM92.6 million)for a term of 20 years with thegovernment of Solomon Islandsfor the establishment of aninformation and managementsystem for ICAO compliantePassport and border control Supply of an additional 1.55million ePassports for Nigeria Supply of 10 million identificationbiometric cards over five yearsto Senegal for 76.2 million(RM346.2 million)Industry research powerhouseAcuity Market Intelligence (Acuity)estimates that the rapidly evolvingABC eGate and Kiosk market willgenerate more than USD1.2 billiondollars in annual revenue by 2020.Spinning off from these numbersare the growing ePassport marketsvalued at USD7 billion. Acuity alsoforesees 127 countries implementingNational eID programs by 2018issuing more than 740 million eIDsannually while generating more thanUSD55 billion in revenue between2013 and 2018.With such encouraging numbers, wepersistently innovate and improve.New solutions slated for deploymentin FY 2016 include IRIS’ SmartBorder Control Solution for seamlessautomation and acceleration ofborder crossings at air, land and

operations reviewlocal governmentContinuing partnerships withFederal and State Governmentministries and agencies todevelop and deploy secureTrusted ID solutionsIris Corporation berhad annual report 2016sea ports; IRIS’ Stadium SecuritySystem Solution which ensurespositive spectator experience interms of ticketing, member cardissuance, access controls andscreening systems; IRIS LDS 2.0(Logical Data Structure) to support4th generation ePassports; and IRIS’IDenCert which allows verification ofauthenticity certificates using highlevel security technology (such asPKI) and unique digital signature.overseasAgressively expanding ourcurrent 32 nation ePassport/eVisa, Border Control,National ID global footprintRelated businesses such as theEMV, ePayment and Automated FareCollection (AFC) for Transportationsegments have been reorganised intothe Trusted Identification division.This realignment allows us to betterleverage our global footprint in 38countries and align the strengths anddiversity of the entire division.Payment & TransportProviding EMV (EuroPay,Mastercard and Visa)and American Expresspersonalisation for bankcards; Tourist RefundScheme; AFC (Automated FareCollection) for public/masstransit systemsOn the domestic front, revenue fromEMV products is expected to increaseexponentially as banks in Malaysiareplace 39 million credit and debitcards with new PIN-enabled cardsto meet the January 2017 deadlineset by Bank Negara Malaysia.As the deadline looms, we lookforward adding to IRIS’ bottom-lineby supplying millions of EMV cardsand personalisation services in themigration of current signature-basedcredit cards to chip and pin-basedcards to existing clients such asMaybank, BSN, HSBC, Bank Muamalatas well as various newly acquiredcustomers from the financial industry.The division remains committed tosupplying and providing the widestarray of specialized services andloyalty cards to Petron Malaysia. Wealso look to ramp up AFC offeringsas the public transportation servicesexpand in the greater Klang Valleyand other urban areas. In FY 2016,no fewer than 700,000 pcs of tokens,cards, Electronic Ticketing Machines(ETM) and readers for both busand rail were supplied contributingto RM3.5 million in sales to thedivision’s bottom line.The newly realigned TrustedIdentification Division achieved aprofit before taxation of RM50 millionand remains as the highest revenuecontributor representing 66% withrevenue of RM342 million in FY 2016.1. ePassports for the Solomon Islands.2. IRIS’ Mobile Border Control Tablet for identity authentication ‘on the go’.3. IRIS’ Border Control Kiosks enables quick and easy Self Check-In at airports.2.0053.

our journey moves forwardoperations review006As projects such as RimbunanKaseh and Sentuhan Kasih smartvillages near completion, theSustainable Development divisionwas afforded a window of opportunityto reshape its activities, focus andalignment to pursue growing marketopportunities in the segments ofIndustrialized Building System (IBS)construction, property development,renewable energy as well as foodand agro technologies.The Sustainable Developmentdivision wants to play an even moreactive role in unlocking the potentialassociated with these developments.Additionally, we will be looking toseize further opportunities to evolvein the highly promising field of timesaving IBS construction.At the same time, our intention isto shape a cost-effective propertydevelopment business that continuesto be underpinned by a high degreeof innovation. Our opportunityto showcase has culminated inthe successful securing of a newresidential and mixed developmentproject on 30 November 2015 whenIRIS was awarded a constructioncontract by Perbadanan Putrajayafor an estimated gross developmentcost (GDC) of RM622.73 million. Thecontract is for the development ofPerumahan Penjawat Awam 1Malaysia(PPA1M) and a mixed development on16.2 acres of land in Putrajaya.PPA1M is an affordable housingscheme for civil servants that will bedeveloped at high demand locationsacross Malaysia.In addition to our maiden high-riseproject in Malaysia using IRIS’ IBS, thedivision also secured orders for eitherreplacing dilapidated classroomblocks, or constructing new buildings,for new science lab or new library,at 8 rural schools in Sarawak. TheGovernment of Malaysia, via the1.1. Aerial View: Rimbunan Kaseh Kampung Gajah, Perak2. Artist Impression: Double Storey Villa in Solomon Islands.3. Artist Impression: PPA1M (Perumahan Penjawat Awam 1Malaysia) mixed residential andcommercial development.Ministry of Education, placed theorders when IRIS accomplishedthe feat of constructing of two newclassroom blocks from plan tocompletion in 5 short weeks for SJK(T) Dengkil.Demolition of the old classroom blockstook place at the start of the 2015year-end holidays and two new blockswere constructed and completed intime for the commencement of the2016 school year. Had conventionalconstruction methods been usedinstead of IRIS KOTO IBS, the schoolblocks would have taken between 3and 6 months to complete. To speedup construction of SJK (T) Dengkil’smodern and comfortable, new singlestorey and double storey classroomblocks, we used a combination ofstructural steel, bond deck and IRISKOTO IBS wall panels.On the international front, IRISis looking at expanding its IBSproducts and services into theAfrican continent. In Oceania, IRIS isventuring into a mixed developmentproject near Honaira - capital cityof the Solomon Islands whereseveral sample IBS houses are beingconstructed. The progress of GerehuHeights upscale residential project inPapua New Guinea has been hinderedby the unexpected inordinate delay bylocal and financial authorities.In FY 2016, collective revenuefor the Division was RM181.4million, a slight decrease of 1%from FY 2015. This year revenueis mainly attributed from thecompletion of the Bentong landfillproject, Rimbunan Kaseh andSentuhan Kasih projects.

Iris Corporation berhad annual report 2016operations review007Food & AgroEnabling sustainable and safe food production whileempowering underprivileged communities, throughgainful employment, on modern farmsIRIS Koto IBS systemHousing the world in faster and smarter waysthrough lightweight IBS construction methods andmaterialsenvironment & renewable energyProtecting and preserving the environment in whichwe operate for the benefit of future generations2.3.Global demand for feeding and housing a growingworld population in sustainable ways is beingembraced by governments and global markets.This movement is leading to more buoyant demandfor holistic projects and inclusive housingschemes across the globe, all of which benefit ourSustainable Development division.

our journey moves forwardoperations reviewEducation PartnersEnsuring studentshave access to worldrenowned institutionsof higher learning in theUnited Kindom, Australia,Europe, ASEAN and theUnited States of AmericaGraduatesPreparing and producinggenerations of skilledworkers for the globaljob market1.The World Bank classifies Malaysia as an openupper-middle income economy. With a high averageGDP growth and growing middle class, Malaysia isconsidered one of Asia’s strong tiger economiesdriving growth in the ASEAN region. Malaysia’sdemand for high-quality education continues tobe very strong and the division recorded a totalrevenue of RM8.0 million in FY 2016, a stellar 89.1%increase from FY 2015.2.008

Iris Corporation berhad annual report 2016operations reviewSeri Stamford College, ourISO9001:2008 certified and 6-STARrated Malaysian Quality EvaluationSystem (MyQUEST) institution, inconjunction with other institutionsof higher learning and partners,operates strategically to provideaccess to learning opportunitieswhile connecting with studentson a personal level. Since itsestablishment in 1950, Seri StamfordCollege has seen over 250,000students representing more than30 countries graduate from formerand present campuses.Our college has an importantrole in advancing Malaysia’sknowledge economy andintellectual fabric. Accountabilitywise, the division works hard toensure excellent achievementsin educational outcomes whileremaining fiscally responsible.Over the last six decades SeriStamford College continuesto maintain a structure thatanticipates and responds quickly toopportunities and demands of theglobal employment marketplaceas well as changes in industry,governments and technology. Toachieve sustainable operations basedon multiple bottom-line concepts, wecontinue to introduce education andprofessional development excellencewith programmes designed tomeet and exceed high standards ofachievement in both academic andpractical skills.009Through our long standingpartnership with the University ofLondon, we are the only privatecollege in Malaysia to offer studentsthe Bachelors in Political Scienceand Economics managed by theLondon School of Economics, aconstituent college of the federalUniversity of London.Another new introduction is the FilmMaking programme supported byFINAS (National Film DevelopmentCorporation) Media Corporation andvalidated by Federation University,Australia, which is intended tosupport and supply skilled graduatesto the multibillion film entertainmentindustry which, according to PwCwill grow from USD29.2 billion in2015 to USD35.3 billion in 2019.For FY 2017, we forecast an increasein student intake as we leverage onIRIS’ global footprint in 38 countries torecruit more international students.1. Seri Stamford College Menjalara Campus in Kuala Lumpur.2. Dato’ Vincent Leong, MD IRIS Education Division with our partners from University of London and FINAS.3. President of Seri Stamford College Tan Sri Razali Ismail addressing graduates during the 65th Graduation Ceremony on 22 November 2015.4. Seri Stamford College football team comprising Malaysian and International Students.3.4.

our journey moves forwarda sustainablejourneychairman’sstatementDear Shareholders,Financial Year 2016 (FY 2016) has been an incrediblychallenging year for the IRIS Group as we workedassiduously to implement our turnaround initiatives.Thanks to IRIS employees’ perseverance and effort,IRIS achieved a staggering increase of 197% in profitfrom a loss before taxation of RM18.28 million in FY 2015to a profit before taxation of RM17.82 million.revenueRM519.63 millionEBITDARM73.48 million010In FY 2016, the Board and IRISManagement team were cognisant ofthe potential business challenges andliquidity crunch that IRIS had to face.We initiated a decisive turnaroundplan to place IRIS on a better financialfooting and to ensure we bring backconfidence to the market.Our turnaround initiatives includedimplementing more cost containmentmeasures to drive down operatingcosts and executing targeted effortsto further increase efficiencies.These resulted in an improvement inoperating margin of 2.0 percentagepoints. The Group also realignedour resources by divesting assetsto focus on divisions that havepotential for better growth and soldIRIS’ Phuket Waste-to-Energy plantto monetize our investment andstrengthen IRIS’ balance sheet.profi t before taxationRM17.82 millionDisclaimer: The above financial information is inclusive of both continuing operations and discontinued operations’ performance.

chairman’s statementReview of ResultsThe Group achieved revenues ofRM519.63 million, a decrease fromRM561.95 million achieved over theprevious financial year. The decreasewas mainly due to lower deliveryof Malaysia ePassport project,slow demand for Rimbunan Kasehand Sentuhan Kasih projects, andgovernment fiscal stress constraintsamid declining oil revenue.Despite having a lower revenue, theGroup attained a profit before taxof RM17.82 million, a substantialincrease from loss of RM18.28 millionfor the previous financial year. Theincrease was mainly due to bettermargins in Trusted IdentificationDivision’s overseas projects namelyNigeria ePassports, SenegalePassports and Tanzania eID, inaddition to lower operating expenses.Overall, despite the incredibly tougheconomic and difficult businessenvironment, it was a commendableperformance for the Group in FY2016. The Group recorded a healthyEBITDA of RM73.48 million fromRM38.27 million recorded in theprevious financial year. The Group’sbalance sheet has strengthenedfurther by reducing its debts fromRM484.50 million to RM274.79million. As a result, the gearing ratiohas improved from 0.88 times to 0.50times in the end of this financial year.Shareholders’ funds were RM550.03million while earnings per share wasat 0.30 Sen.Divisional PerformanceIn our pursuit for efficiency andgrowth, we realigned the presenteight business divisions to threebusiness divisions to create a“more streamlined and nimble”organization. With cumbersomelayers of processes removed andmore focus on divisions that havea better future, IRIS can respondIris Corporation berhad annual report 2016swiftly to client needs, providedemand driven products andspecific go-to-market approachesto deliver results faster. The Groupis well-positioned to expand ourbusinesses organically and to facethe challenging economic conditionsin FY 2017.Trusted IdentificationDivisionAs part of our streamlininginitiatives, we have integratedPayment and Transportation Divisioninto Trusted Identification Divisionto better leverage on the strengthsof the entire division while achievingincreased operational efficiency.Trusted Identification Division willcontinue on its upward trajectory aswe leverage our global footprint in38 countries to seize market growthopportunity in world biometricsmarket which is anticipated to reachUSD20 billion by 2018, accordingto TechSci Research. In addition,Acuity Market Intelligence predictsthat global eID market