Corporate Governance

Sustainability Statement

1. About this Sustainability Statement

In Hup Seng Industries Berhad’s (“HSIB” or “the Group”) progress of sustainability journey, the Group is pleased to present the fifth annual sustainability statement (“the Statement”) which provides a comprehensive overview of the Group’s approach to sustainability development.

The disclosures in this statement have been prepared in accordance to Global Reporting Initiative (“GRI”) Core Option Guidelines as the basis for the Group’s economic, environmental and social (“EES”) disclosures. Following the GRI guidelines, we address material issues or those that reflect significant EES impacts, and those issues that substantively influence the assessments of our stakeholders. The Statement, which showcases our sustainability progress for the period from 1st January 2021 to 31st December 2021 complies with the Sustainability Reporting Guide (“SRG”) as well as toolkit issued by Bursa Malaysia Securities Berhad (“Bursa Malaysia”).

The statement encompasses four key companies within the Group, namely HSIB, Hup Seng Perusahaan Makanan (M) Sdn. Bhd., Hup Seng Hoon Yong Brothers Sdn. Bhd. and In-Comix Food Industries Sdn. Bhd. These companies contribute the entire part of the Group’s environmental and societal impact.

Full details of our Sustainability Report is available here.

2. Sustainability governance structure

Sustainability requires a top-down approach where the Board of Director play a pivotal role in leading the Group towards achieving its goals and targets. We have established a governance structure for effective oversight and implementation of sustainability initiatives. The sustainability committee is setup to incorporate sustainability into the Group’s business processes and prepare the Group’s sustainability reporting. A sustainability coordinator works closely with representatives across various business functions to implement sustainability programmes and initiatives.

The Group's sustainability governance structure is outlined below:

The following are the core responsibilities of the sustainability project committee:

Integrate sustainability into the Group’s sustainability framework and value chain;
Conduct stakeholder engagement processes;
Perform materiality assessments;
Identify and manage material sustainability matters;
Monitor the Group’s sustainability performance for reporting purposes; and
Develop sustainability disclosure for reporting purposes.

3. Risk Management and Sustainability

Risk management is a critical pillar of good corporate governance and the Board is aware of the importance of establishing and maintaining a sound system of risk management and internal control.

The Group has established and implemented a risk management framework for the identification, assessment, treatment, monitoring and reporting of significant risks. The Board oversees the Management in the formulation, update and maintenance of an adequate and effective risk management framework. The Enterprise Risk Management (“ERM”) framework of Hup Seng Group is based on an internationally recognised risk management framework (ISO 31000). The Group maintains a risk register which identifies the material risks faced by the Group and the internal controls in place to manage and mitigate those risks.

During the year, we have revisited our risk profile with reference to the most current global standards and best practices. The Group’s emerging and principal risks, together with its appetite with respect to each risk, were identified and agreed upon.

In addition, the Board increased its focus on environmental, social and governance (“ESG”) matters and looked at how they should be embedded in our decision-making processes. In this regard, we have taken initial steps by integrating some ESG aspects into our ERM framework. Sustainability-related risks along ESG dimensions are part of the overall risk universe covered in the risk management framework and processes.

4. Stakeholder Engagement

In line with Bursa Malaysia’s SRG, we conducted a materiality assessment through data analysis and stakeholder engagement to gather insights on material related to EES issues. Creating the right communication platform is important to the Group and an open channel of communication is maintain to ensure that their concerns are addressed. The table below shows the types of engagement for each stakeholder and their frequency.

5. Materiality Assessment

Identifying the Group's EES matters that have a material impact is key to formulating and implementing sustainable strategies. The materiality matrix was developed based on the importance of material sustainability issues to key stakeholders and to the business operations. The matrix is as follows:

Material Topics and Risk Assessment

During the year, the Group has begun to integrate material sustainability topics into the overall ERM framework by identifying specific risks, opportunities, and key priorities to drive its strategic decisions. Upon obtaining stakeholders concerns on material issues, sustainability risks and opportunities are then considered for these material issues.

Potential sustainability risks are also derived from various perspectives including:

Revisit of existing and review of new and emerging risks from external sources as well as within the organisation;
Review of potential impact HSIB operations and products have on the environment; and
Review of risks from other sources (but not limited to) such as environmental trends and regulatory requirements

We have revisited and expanded our risk profile which considers potential sustainability risk(s) to each material issue identified by our stakeholders. Where applicable, these material issues are mapped to our risk profile to provide a meaningful correlation and broader view on the Group’s overall risks that they are facing.

We have reviewed and retained all 46 material sustainability matters that were identified in the previous year as these matters continue to be relevant to our stakeholders and have a significant impact to our Group’s business operations. Having assessed each of the assessment of the 46 material matters, we have identified the following 10 matters as material and significant to our Group’s business operations. These material matters are then evaluated for the potential sustainability risks and opportunities and correlatively mapped to our Group's risk profile:

6. Managing Sustainability

i. Economic/ Economic performance

FY2021 has been a challenging year for the Group due to the COVID-19 pandemic and the Movement Control Order (“MCO”) which led to a slowdown on business activities. Nevertheless, the Group has managed to generate RM296 million in revenue which was a 9.6% decrease from FY2020’s revenue.

We have adopted a dividend policy that will distribute an annual dividend payout of at least 60% of the annual profit after tax to the shareholders. We believe that such pay out rate will better reward the shareholders and be positively received by the investors.

ii. Environment/ Materials

We work with our partners and production personnel to recover and recycle the waste materials and packaging materials in our manufacturing processes. The Group is proactively developing management approaches to address the waste generated in our business operations. The following are our efforts to reduce our material consumption and hence the waste production:

1. Reduce packaging wastage at the source; and
2. Recover waste materials and sell them to licensed scrap collectors for re-cycling.

The Group also strives to reuse and recycle waste and sent approximately 550 tonnes to scrap collectors for recycling in this reporting period. This marked a decrease of 112 tonnes since FY2020 (662 tonnes).

iii. Environment/ Energy

The Group’s focus on energy efficiency is towards managing electricity consumption especially in the Group’s production area. To reduce our energy consumption, we are constantly raising awareness among factory employees about strengthening standard routines and installing energy efficient equipment.

We have implemented an electrical energy management initiative to reduce the electricity consumption of our plant and the energy intensity of our products. This has resulted in a reduction of electricity consumption in our manufacturing process.

iv. Environment/ Environmental compliance

The proper disposal of production waste is essential to regulate the environmental impact of the Group’s operation. Scheduled waste generated such as sludge residues, disposed containers, spent hydraulic oil, laboratory chemical waste, Chemical Oxygen Demand (“COD”) Vial and used Covid-19 test kits are collected by a licensed contractor and transported to a certified facility for disposal, in compliance with the Environmental Quality (Scheduled Waste) Regulations 2005.

Apart from the above, the Group also conducted the following:

Compliance with Chimney Air Emission for fume hood testing, required under Environmental Quality (Clean Air) Regulations 2014;
To monitor emissions from the Chimneys of Ovens with reports submitted to Department of Environment;
An air emission monitoring for Generators in compliance with Environmental Quality (Clean Air) Regulations 2014; and
A waste water discharge report in compliance with standards of the 2009 Environmental Quality (Industrial Waste Water) Regulations.

In the reporting period, the Group have had zero incidents of non-compliance in matters relating to solid waste and effluent.

v. Social / Occupational health and safety ("OHS")

The Group is looking to continuously improve the OHS management system and assess its effectiveness to reduce any potential hazards at the work place. Our goal is to reach alignment on a common safety practice and continuously improve safety performance throughout the OHS system.

Following steady and significant improvements in our safety performance during the year, no on-site fatalities were reported and our on-site lost-time injury however, has increased to 7 cases (2020: 5 cases).

COVID-19 response

In March 2020, the Group established the COVID-19 Emergency Response Protocol Committee (“ERP"), composed of the subsidiaries’ Chairman, Managing Director and relevant Department Heads, to address any critical issues caused by the pandemic.

The previously drawn up Standard Operating Procedures are continuously being updated to ensure relevancy as well as compliance with the directives of the Ministry of Health. Employees have been provided with updated guidelines regarding how they should act in the new normal.

We expect the training frequency with regard to OHS to be increased in 2022.

vi. Social / Training and development

Our employees are the Group’s greatest asset. We provide them with career development opportunities and groom them through various programmes in order to support our employees in building a fulfilling career with the Group. We conduct an annual training needs analysis to identify skill deficiencies among our employees. Thereafter, we aim to close the gap through training, whose effectiveness will be assessed via both pre and post-training. We also conduct annual performance appraisals for all employees.

Due to MCOs and CMCOs, training was conducted only during non-MCOs period and under controlled SOPs provided by MOH. The Group spent about 6,077 hours on training during the year 2021, a reduction of 41% when compared to 2020 of 10,281 hours.

vii. Social / Diversity and equal opportunity

Our recruitment and selection process are fair, objection and without discrimination. We focus in unleashing the potential of all our employees, regardless of gender, age and background. This is one of the most important contributions that our Group brings to the community. This also helps to make our business more sustainable by building a robust pipeline of future business leaders.

During the reporting period, female employees of the Group accounted for 37.5% of the total workforce, an increase of 2.5% compared to FY2020. This was due to the decrease in the number of male employees. The decrease was attributable to foreign workers whose contracts with us had expired or who had returned to their home countries.

Our annual employee turnover rate has declined to 1.5% (2020: 2.2%).

viii. Social / Quality and Healthy food

With a focus on healthy ingredients and high-quality production process, we develop and produce crackers, biscuits and cookies. As an official recognition of some of our quality products, we have been awarded the International High Quality Award by Monde Selection Belgium since FY1996 until FY2021 and the Gold Medal Award since FY1994. This is one of the most prestigious awards for product quality in the world.

ix. Social / Nutrition labelling

We provide transparent nutritional information on all of our product packaging. We believe that by providing consumers with factual, meaningful and understandable information as a reference, they will be able to choose the level of consumption that suits their specific requirements.

Currently, we provide the nutritional information and calorie intakes on all of our products to enable consumers to make informed decisions about what products will best suit their lifestyles.

x. Social / Food safety

As a responsible food producer, it is imperative for us to ensure the safety and quality of our food production. We are committed to producing safe and high-quality food, while following stringent standards designed to ensure the safety and quality of all our products. Our quality management programmes help us to identify and mitigate potential risks and drive continuous improvements. The Group's centralised procurement unit ensures high standards of quality and safety in raw materials by adhering to our procurement policies. The centralised procurement unit also ensures compliance with other regulatory requirements.

We are certified under the certification schemes of TQCSI, Australia on the ISO 22000:2018 Food Safety Management system, FSSC 22000, HACCP management system as well as the ISO 9001:2015 Quality Management system which is certified under certification schemes of KIWA, Italy. In addition, we have obtained HACCP, GMP and MeSTI certification through Malaysia’s Ministry of Health to demonstrate our commitment towards food safety and quality to ensure consumer confidence and to meet the export requirements for obtaining Health Certificate.

7. Key performance data

Sustainability is an integral part of our value chain and we tailor our sustainability framework to meet the needs of our market. We aim to report our sustainability performance annually to communicate and be accountable to our valued stakeholders. We will improve our sustainability milestones by constantly seeking feedback from our stakeholders, refining our business processes and extracting meaningful and high-quality data from our systems for this sustainability reporting. Below is our key performance data:

Economic

* The performance data has been restated in financial year ended 31 December 2020.

Environment

Social