ANNUAL REPORT 2008 - KNM Steel Sdn Bhd

KNM GROUP BERHAD 

(521348-H) 

World Class Process Equipment Manufacturer 

ANNUAL REPORT 

2008

vision 

vision 

To be a top 5 global manufacturer of process equipment for the oil, gas, 

petrochemicals, minerals processing and energy industries 

mission 

• To be a one stop centre for world class process equipment manufacturer 

mission 

with technology 

• To enhance our global market share and reputation 

• To add value to our stakeholders with care towards society 

• To be the global employer of choice 

mission

CONTENTS 

2 Corporate Information 

3 Corporate Structure 

4 KNM at a Glance 

6 Chairman's Message 

11 5-Year Group Financial Highlights 

12 Award and Achievements 

13 Profile of Directors 

17 Corporate Governance Statement 

32 Audit Committee Report 

37 Statement on Internal Control 

39 Analysis of Shareholdings 

42 List of Major Properties 

44 Financial Statements 

121 Notice of Annual General Meeting 

Form of Proxy

CORPORATE 

INFORMATION 

BOARD OF DIRECTORS 

Dato’ Mohamad Idris bin Mansor 

Independent Non-Executive Chairman 

Ir Lee Swee Eng 

Group Managing Director 

Lim Yu Tey 

Senior Independent Non-Executive Director 

Dato’ Ab Halim bin Mohyiddin, DPMS 

Independent Non-Executive Director 

Lee Hui Leong 

Executive Director 

Gan Siew Liat 


Chew Fook Sin 


Ng Boon Su 


Board Committees 

Audit Nomination Remuneration ESOS 

Committee Committee Committee Committee 

Chairman Dato’ Ab Halim Lim Yu Tey Dato’ Mohamad Lim Yu Tey 

bin Mohyiddin 

Idris bin Mansor 

Member Dato’ Mohamad Dato’ Mohamad Ir Lee Swee Eng Dato’ Mohamad 

Idris bin Mansor Idris bin Mansor Idris bin Mansor 

Member Lim Yu Tey Dato’ Ab Halim Lim Yu Tey Gan Siew Liat 

bin Mohyiddin 

Company Secretaries 

Lau Bee Gee 

MAICSA 0817743 

Chia Kwok Why 

MAICSA 7005833 

Registered Office 

15, Jalan Dagang SB 4/1 

Taman Sungai Besi Indah 

43300 Seri Kembangan 

Selangor Darul Ehsan Malaysia 

Tel No. : 603-8946 3000 

Fax No. : 603-8943 4781 

Email address: knm@knm-group.com 

Website: www.knm-group.com 

Date of Incorporation 

Incorporated on 22 July 2000 as a 

private company limited by shares. 

Converted to a public company limited 

by shares on 12 September 2000. 

Share Registrar 

Symphony Share Registrars Sdn Bhd 

Level 26, Menara Multi-Purpose 

Capital Square 

No. 8, Jalan Munshi Abdullah 

50100 Kuala Lumpur 

Malaysia 

Tel No. : 603-2721 2222 

Fax No. : 603-2721 2530 / 2531 

Auditors 

KPMG 

Chartered Accountants 

Level 10, KPMG Tower 

8 First Avenue 

Bandar Utama 

47800 Petaling Jaya 

Selangor Darul Ehsan Malaysia 

Tel No. : 603-7721 3388 

Fax No. : 603-7721 3399 

Stock Exchange Listing 

Listed on the Second Board of 

Bursa Malaysia Securities Berhad 

on 11 August 2003 

Transferred to the Main Board of 

Bursa Malaysia Securities Berhad 

on 30 September 2005 

Stock name : KNM 

Stock code : 7164 


 

ANNUAL REPORT 2008

CORPORATE 

STRUCTURE AS AT 18 MAY 2009 


 


KNM AT A 

GLANCE 

Germany 

Italy 

Saudi Arabia 

UAE 

India 

Indonesia 

Operating subsidiaries: 

MALAYSIA 

KNM Process Systems Sdn Bhd 

KPN Gas Technology Sdn Bhd 

GERMANY 

BORSIG Process Heat Exchanger GmbH 

BORSIG ZM Compression GmbH 

BORSIG Boiler Systems GmbH 

BORSIG Membrane Technology GmbH 

BORSIG Service GmbH 

ITALY 

FBM Hudson Italiana SpA 

FBM Icoss Srl 

UNITED ARAB EMIRATES 

FBM-KNM FZCO 

CHINA 

KNM Special Process Equipment 

(Changshu) Co Ltd 


 


Malaysia 

China 

Canada 

USA 

Brazil 

Australia 

INDIA 

KNM Engineering Services Private Limited 

CANADA 

KNM Process Equipment Inc 

SAUDI ARABIA 

KNM Saudi Limited Co 

UNITED STATES OF AMERICA 

KPS Technology & Engineering LLC 

BRAZIL 

KNM Metalmec Group of Companies 

AUSTRALIA 

W.E. Smith Engineering Pty Ltd 

HEA Australia Pty Ltd 

INDONESIA 

PT Heat Exchangers Indonesia 


 


CHAIRMAN'S 

MESSAGE 

On behalf of the Board of Directors, it gives me great pleasure to report on the 

activities undertaken by the Company and the Group in 2008. 


 


CHAIRMAN'S 

MESSAGE (CONT’D) 

FINANCIAL HIGHLIGHTS 

The Group continued to register a strong performance in 2008 despite it being a year full of paradox that shook the 

financial world and affected most, if not all, economies and industries globally. Year 2008 signified a truly historic 

year of growth and expansion for the Group when it completed its acquisition of the Borsig Group of Companies in 

Germany (“Borsig”) for approximately RM1.78 billion (“Borsig Acquisition”). 

Despite operating in challenging times as falling demands have weakened or eroded margins for most sectors across 

the board due to economic slowdown caused by lower global consumption and investments, the Group continued 

to deliver strong commendable financial results. The Group’s overall progress in 2008 has charted record sales and 

increased manufacturing network and capacity for future growth, larger market share and more expansions. 

Revenue generated jumped by 106% to a high of RM2.53 billion over the RM1.23 billion recorded in the previous 

year. 

Group Profit Before Tax rose 111% at RM453.7 million compared to RM215.4 million in 2007 whilst Group Profit After 

Tax increased to RM 336.2 million by 80% over previous year. 

Key contributors to the sharp improvement of the Group’s financial results in year 2008 were attributable to the 

consolidation of results in June 2008 resulting from the completion of the Borsig Acquisition as well as higher revenue 

contributions from the Group’s high-end process equipment sector particularly from its foreign subsidiaries. 

The Group will continuously focus on improving quality, productivity and cost efficiencies as well as maximizing its 

resource utilization. Efforts will be intensified to reinforce the Group’s position in the domestic front as well as to 

capitalize on global opportunities. Client satisfaction will remain one of the Group’s priorities. The Group will strive 

to reduce its turnaround execution and delivery time by improving its procurement and operational centres. 

BUSINESS DIRECTION 

The direction and growth of the Group have been and are constantly fuelled by innovative and aggressive business 

strategies aligned to managing the ever changing and dynamic operating forces. 

In brief, year 2008 was an expansionary year for the Group. New subsidiaries from Germany and Brazil were 

acquired, new strategic partnerships e.g. with Prosernat SA of France were formed and new market networks and 

supply chains were added. 


 


CHAIRMAN'S 


Since being listed in year 2003, this “quantum leap” from joint ventures (JVs) and merger and acquisition (M&A) 

activities as well as from the Group’s own organic growth has enabled the Group to build up and leverage on its 

technical and technological prowess with the completion of the “KPL Group” acquisition in Australia in 2006, the 

“FBM” acquisition in Italy in 2006 and the recent “Borsig” acquisition in Germany and “HZM” acquisition (now known 

as the “KNM Metalmec”) in Brazil, both in year 2008. These acquisitions have also sped up the Group’s foray into 

the high-end process equipment value chain, thereby diversifying the Group into different geographical markets and 

industry sectors. 

Moving forward, the Group will continue to focus on its core competencies, on rationalizing its resources, on integrating 

its new acquisitions apart from continuing to invest, train and upgrade the skills, knowledge and proficiencies of its 

human assets and capital. 

BUSINESS STRATEGIES 

The Group will seek to consolidate and automate more of its existing manual systems and processes to improve 

quality, speed up delivery and have better optimization and usage of resources. New product lines, new markets 

and new ventures to move up the process equipment value chain will be delved into. 

Whilst ensuring that organic expansion is sustained and remains an important catalyst for growth, the Group strives to 

improve its global reach and market share for process equipment by rationalizing its resources, increasing its sales 

and marketing activities and creating more significant presence in the process equipment segment by undertaking 

and providing engineering, design, procurement, construction, management and maintenance services not just to the 

oil and gas industry but covering other energy, power, chemicals, petrochemicals, minerals as well as the biomass 

and agri-technology sectors too. 

NEW TECHNOLOGIES & BUSINESSES 

The Group has ventured into the “sulphur removal and recovery” technology :- 

(a) in the United States of America (“USA”), via the formation of KPS Technology & Engineering LLC, its 60% 

subsidiary company in Kansas, USA, to provide licenced technology and process design packages as well as 

engineering and procurement services for sulphur removal and sulphur recovery; and 

(b) 

in Malaysia, via the formation of KPN Gas Technology Sdn Bhd, a JV company with Prosernat SA, a company 

based in Paris, France, to provide process technologies, engineering, procurement, construction, commissioning, 

start-up, operation and maintenance for field gas separation and gas treatment facilities including desalting, 

gas dehydration, gas sweetening, NGL recovery, sulphur recovery and modular units. 

The investment in “sulphur recovery” technology was made to address environmental concerns in seeking to limit, 

control and restrict such sulphuric gas emissions worldwide. 

As part of its growth plans, the Group will continue to explore new ventures and new business activities which are 

synergistic or complementary to the operations of the Group worldwide to make further inroads into potential new 

M&A opportunities, new JV tie-ups, new products and business development to penetrate other promising market 

segments and market places. 


 


CHAIRMAN'S 


GLOBAL STANDING & ACHIEVEMENTS 

The Group catapulted from being a domestically known brand name into a globally renowned international brand 

aided by the technical contributions from the Group’s main subsidiaries, i.e. the Borsig Group in Germany, the FBM 

Hudson Italiana Group (“FBM”) in Italy and the KPL Group (“KPL”) in Australia. 

With nineteen (19) patents to its credit, Borsig’s strong forte lies notably in design, engineering, fabrication and 

providing maintenance services for process gas waste heat recovery systems, membrane technology, gas compressors 

and quench coolers; whereas FBM specializes in thermal design, fabrication and engineering of air cooled heat 

exchangers, process gas waste heat recovery systems, heavy duty heat exchangers and special shell and tube heat 

exchangers; and KPL specializes in autoclaves and butted kettle heat exchangers. 

On the home front, KNM Group has to-date clinched seven (7) Malaysia Book of Records since inception for its 

products in the following categories - (a) Tallest Roof Supporting Single Mast in 1998, (b) Tallest Column in 1999, 

(c) Largest LPG Mounded Vessel in 2002, (d) Biggest Furnace in 2003 and (e) Largest Process Tank in 2005. More 

details can be found on page 12 of this Annual Report. 

Completion of the Group’s manufacturing plants in Tofield (Canada) this year and in Jubail (Saudi Arabia) and Kabil 

(Batam, Indonesia) next year will provide additional manufacturing capacity. These will elevate and enhance the 

Group’s strong global presence to be geographically spread over 12 countries and to bring the Group closer to its 

clients and projects. 

Being a global employer, the KNM Group currently has a workforce of more than 4,000 staff worldwide whereby, 

approximately 67% of the Group’s Revenue for year 2008 was derived from overseas operations and over 95% 

from the export market. 

CORPORATE GOVERNANCE 

The Directors are fully committed to ensure that the Group adheres to and complies with the principles and best 

practices’ standards of corporate governance as set out in the Malaysian Code on Corporate Governance. 

The Group believes that long-term 

shareholder value can be attained 

through maintaining conscientious 

accountability for the Group’s 

effectiveness, operational efficiency 

and competitiveness. Initiatives 

undertaken will focus on intensifying 

performance management, enhancing 

effectiveness and building up 

management’s capabilities. 

RISKS & CHALLENGES 

The Board is mindful of the ever 

changing sphere of economic 

challenges that faces every individual, 

corporation, industry and sector both 

at home and abroad. 

Externally, the operating environment continues to be highly competitive whilst internally, the Group is continually 

focused on strengthening the Group’s market share and position. The energy sector remains highly dependent on 

the demand, supply and prices for crude oil. 


 


CHAIRMAN'S 


FUTURE PROSPECTS & OUTLOOK 

The Group’s fundamentals remain upbeat. Amid a slowdown in the world 

economy that started in early 2008, the Group expects to do well moving 

forward as a result of its leadership in the high-end process equipment 

such as process gas waste heat recovery systems, compressors, quench 

coolers, membrane technology, air condensers, air cooled heat exchangers 

and autoclaves. 

With its strong global presence and superior manufacturing know-how, the 

Group will benefit from projects globally. As the Group strategically moves 

up the product value chain to lessen competition, this would invariably help 

to improve margins in the long term. 

As energy demands around the world remain robust, the Group sees great 

potential for numerous oil and gas and power related projects to kick off or 

be initiated once the global financial crisis shows signs of recovery. Despite 

the gloomy apprehension over the current market situation, the Group is 

nevertheless optimistic that the long term outlook for the oil and gas/energy 

sectors remains strong. 

In facing these challenging times, the Group will intensify management 

efforts to improve cost efficiencies. Capital expenditure will be spent 

cautiously for plant upgrade and maintenance. Sales and marketing 

activities will be stepped up. New business opportunities will be explored 

and all measures taken will be constantly reviewed to ensure that the 

Group’s long-term growth is sustained. 

DIVIDEND 

In recognition of the Group’s performance during the year, the Directors had declared an interim dividend of 1 sen 

less income tax of 25% and 0.5 sen tax exempt per ordinary share of RM0.25 each for the financial year ended 31 

December 2008 which was paid on 18 March 2009. 

APPRECIATION 

On behalf of the Board, I would like to thank our shareholders, clients, affiliates, financiers and business partners for 

your continued support and unwavering confidence in the Group, and to the various regulatory authorities for their 

assistance, guidance and counsel. My sincere appreciation also goes to the employees of the KNM Group for their 

contribution, dedication and commitment that have been significant to the Group’s success. 

Last but not least, I wish to record my gratitude to my fellow Board members for their continuous prudent advice in 

steering the Group’s direction to ensure its continued growth and success in the business. 


Independent Non-Executive Chairman 


10 


5-YEAR 

GROUP FINANCIAL HIGHLIGHTS 


11 


AWARD AND 

ACHIEVEMENTS 

LARGEST PROCESS 

TANK 2005 

BIGGEST FURNACE 2003 

LARGEST LPG MOUNDED 

VESSEL 2002 

BIGGEST & HEAVIEST LPG 

MOUNDED VESSELS 2001 

TALLEST COLUMN 1999 

TALLEST ROOF SUPPORTING 

SINGLE MAST 1998 

2006 INDUSTRY EXCELLENCE AWARD 

Export Excellence Award (Merchandise) 

by Ministry of International Trade & Industry Malaysia 


12 


PROFILE OF 

DIRECTORS 

DATO’ MOHAMAD IDRIS BIN MANSOR 

Independent Non-Executive Chairman, aged 64, Malaysian 

Dato’ Mohamad Idris bin Mansor holds a Degree in Mining from Cambourne School of Mines (UK), M.Sc (Mining 

Geology and Exploration) from the University of Leicester (UK) and M.S. in Petroleum Engineering from the University 

of Tulsa, Oklahoma, United States of America. He was appointed to the Board of KNM Group Berhad as Independent 

Non-Executive Director on 23 February 2006 and subsequently as Independent Non-Executive Chairman on 23 

August 2006. 

Dato’ Idris joined Petroliam Nasional Berhad (Petronas) in February 1976 as a Petroleum Engineer with the Production 

Department. In the following years, he served as the Production Manager from 1977 to 1980 and was later seconded 

to Petronas Carigali Sdn Bhd, a wholly-owned subsidiary of Petronas, having served as the Deputy General Manager, 

Technical from 1980 to 1984, General Manager from 1984 to 1989 and Chief Executive Officer from 1989 to 2000. 

He was appointed Senior Vice President and Board Member of Petronas from 1 October 1993 until his retirement 

on 30 September 2002. He was also Advisor to the Exploration and Production Business for another year. 

He also sat as a member on the Board of the Premier Oil Plc from 1999 to 2003, a company listed on the London 

Stock Exchange; as Chairman of Energy Africa Ltd, South Africa, from 1999 to 2004, and on the board of various 

Petronas subsidiaries and associate companies in Malaysia and overseas. 

He was the Chairman of the Society of Petroleum Engineers (SPE), Asia Pacific from 1995 to 2004 and now continues 

to serve as a Board Member of the Society. He is an Independent Non-Executive Director of Alam Maritim Resources 

Berhad and Transmile Group Berhad. 

Dato’ Idris is a member of the Audit Committee, Remuneration Committee, Nomination Committee and ESOS 

Committee. 

IR LEE SWEE ENG 

Managing Director, aged 53, Malaysian 

Ir Lee Swee Eng is a founding member of the Group since inception in 1990. He is responsible for overseeing the 

strategic direction and management of the Group’s operations and was appointed Group Managing Director of 

KNM Group Berhad on 14 June 2003. 

He graduated in 1979 with a Bachelor of Science (First Class Hons) in Mechanical Engineering from the University 

of Strathclyde in Glasgow, Scotland and served 8 years in several positions with Petroliam Nasional Berhad, starting 

from Production Engineer to Head of Pipeline Systems to Project Leader for major oil and gas development projects. 

In 1986, he joined John Brown E&C Inc in Houston, USA. before opting to join Technip Geoproduction (Malaysia) 

Sdn Bhd, a subsidiary of Technip France, initially as Technical Manager and subsequently promoted to Director and 

Managing Director from 1986 to 1990. 

He is a Registered Professional Engineer since 1984 and a Fellow of the Institute of Engineers Malaysia since 1993. 

He has been a Council Member of the Federation of the Malaysian Manufacturers (FMM) since 1999 till to date, and 

was elected as a member of the Executive Committee of the Malaysian Iron and Steel Industry Federation (MISIF) 

for the sessions 2000/2002 and 2003/2004. He is the founding Chairman of the MISIF Boiler and Pressure Vessels 

Group and the Institution of Engineers, Malaysia Oil and Gas Division. In May 2000, he was appointed to represent 

Malaysia as a Member of the International Council of Pressure Vessels Technology. He was recently invited as a 

panel member of the Industrial Advisory Panel for the Faculty of Engineering of University Tunku Abdul Rahman. 

Ir Lee Swee Eng also serves as a member of the Remuneration Committee. He is not a Director of any other public 

company. 

He is the spouse of Gan Siew Liat and the brother-in-law to Chew Fook Sin. 


13 


PROFILE OF 

DIRECTORS (CONT’D) 

LIM YU TEY 

Senior Independent Non-Executive Director, aged 68, Malaysian 

Lim Yu Tey was appointed an Independent Non-Executive Director on 14 June 2003 and subsequently as Senior 

Independent Non-Executive Director of KNM Group Berhad on 19 November 2003. 

He graduated in 1972 with a Bachelor of Commerce from Nanyang University, Singapore, joined Lam Soon (M) 

Bhd in 1974 and served in various senior positions until his retirement in 2003 as Managing Director (Marketing and 

Manufacturing). He also served as a Council Member of the Federation of Malaysian Manufacturers. He is a Chartered 

Member of the Royal Institute of Marketing, United Kingdom and an alumni of the Asian Institute of Management, 

Philippines. He currently sits as Deputy Chairman of Commerce Committee of the Associated Chinese Chambers 

of Commerce and Industry of Malaysia. 

Lim Yu Tey is the Chairman of the Nomination Committee and ESOS Committee, and is a member of the Audit 

Committee and Remuneration Committee. 

He is not a Director of any other public company. 

DATO’ AB HALIM BIN MOHYIDDIN, DPMS 

Independent Non-Executive Director, aged 63, Malaysian 

Dato’ Ab Halim bin Mohyiddin was appointed to the Board of KNM Group Berhad on 14 June 2003 as Independent 

Non-Executive Director. 

He graduated with a Bachelor of Economics (Accounting) from University of Malaya in 1971 and thereafter joined 

Universiti Kebangsaan Malaysia as a Faculty Member of the Faculty of Economics. He obtained his Masters of 

Business Administration degree from University of Alberta, Edmonton, Alberta, Canada in 1973. He retired from 

KPMG/KPMG Desa Megat & Co. on 1 October 2001, a firm he joined in 1977 and had his early accounting training in 

both Malaysia and United States of America. He was made partner of the Firm in 1985. At the time of his retirement, 

he was Partner-in-Charge of the Assurance and Financial Advisory Services Divisions and was also looking after 

the Secured e-Commerce Practice of the Firm. He has extensive experience in tax, audit, corporate turnaround and 

financial restructuring of various companies and has also acted as receiver and manager and liquidator for several 

companies during his tenure with KPMG. 

He is a member of the Malaysian Institute of Certified Public Accountants (MICPA) and Malaysian Institute of 

Accountants (MIA). He is currently the Chairman of the Education and Training Committee of MICPA. He served as 

a member of the Education Committee of the International Federation of Accountants (IFAC) from 2001 to 2005. He 

was the President of the MICPA from June 2004 to June 2007 and a council member of MIA from 2001 to 2007. 

Presently, he is a Board member of Kumpulan Perangsang Selangor Berhad, HeiTech Padu Berhad, MCM 

Technologies Berhad, Utusan Melayu Malaysia Berhad, Digi.Com Berhad, Idaman Unggul Berhad, Amway (Malaysia) 

Holdings Berhad, Bank Pembangunan Malaysia Berhad, ECM Libra Financial Group Bhd and AMDB Berhad. 

Dato’ Halim is the Chairman of the Audit Committee and is a member of the Nomination Committee. 


14 


PROFILE OF 


LEE HUI LEONG 

Executive Director, aged 54, Malaysian 

Lee Hui Leong is primarily responsible for the Group’s operations. He has been with the Group since 1992 and was 

appointed an Executive Director of KNM Group Berhad on 14 June 2003. 

He graduated in 1978 with a Bachelor of Science (Hons) in Mechanical Engineering from the University of Strathclyde 

in Glasgow, Scotland. He joined Mechmar Corporation (M) Bhd as Engineer before his appointment in 1989 as a 

director of a subsidiary company. 

He has over 30 years of experience in the design, engineering and manufacturing of process plant equipment, 

particularly for the oil, gas and petrochemicals industries. He takes an active role in the development of the process 

equipment industry, where he was the Chairman of the sub-committee for redrafting of Pressure Vessel Rules and 

Regulations under the Department of Safety and Health, and sat on the committee for the drafting of standards for 

non-destructive testing of pressure vessels under SIRIM. 


GAN SIEW LIAT 


Gan Siew Liat is primarily responsible for the Group’s human capital functions. She has been with the KNM Group 

since 1990 and was appointed an Executive Director of KNM Group Berhad on 14 June 2003. 

She was awarded a Certificate in Personnel Management from the Malaysian Institute of Personnel Management, 

and completed a Dale Carnegie course in Effective Speaking and Human Relations at the Dale Carnegie Institute of 

Houston in the United States of America. In 1990, she joined the Inter Merger Group as Administration Manager. 

She is a member of the ESOS Committee. She is not a Director of any other public company. 

She is the spouse of Ir Lee Swee Eng and the sister-in-law to Chew Fook Sin. 

CHEW FOOK SIN 


Chew Fook Sin is primarily responsible for the Group’s global sales and marketing activities. He has been with the 

Group since 1995 and was appointed an Executive Director of KNM Group Berhad on 14 June 2003. 

He graduated in 1987 with a Bachelor of Science in Electrical Engineering from the University of Arkansas, United 

States of America, then joined the Broadcasting Department of Malaysia. In 1990, he joined the Inter Merger Group 

as General Manager. He subsequently joined the KNM Group as Procurement Manager in 1995, was promoted to 

Vice President (Manufacturing) in 1999 and Director, Commercial Division in 2002. 


He is the brother-in-law to Ir Lee Swee Eng and Gan Siew Liat. 


15 


PROFILE OF 


NG BOON SU 


Ng Boon Su joined the Group as Chief Operating Officer (Operational Headquarters) and was appointed to the Board 

of KNM Group Berhad as an Executive Director on 14 March 2008. He is primarily responsible for the Group’s central 

treasury management and operational headquarters services to subsidiaries of KNM Group. He holds a Bachelor of 

Arts Degree majoring in Economics from University Malaya in 1980. 

He is a banker with over 28 years experience in management, retail and commercial banking with RHB Bank Berhad 

since 1980. He has held several management positions from Branch Manager to Regional Manager, Commercial 

Banking and Area Manager for the Shah Alam, Klang and Port Klang area. 


Notes: 

1. Save for Ir Lee Swee Eng, Gan Siew Liat and Chew Fook Sin, all other Directors of KNM Group Berhad are 

not related to any family members of the Directors and/or major shareholders of the Company. 

2. All Directors have no conflict of interests with the Company. 

3. All Directors have no conviction for offences within the past 10 years. 


16 



STATEMENT 

The Board of Directors of KNM Group Berhad (“the Board”) is guided and committed to continuously uphold the 

principles and best practices and to attain high standards of good corporate governance within the Group. The 

following paragraphs set out the manner in which the Group has applied the principles and best practices of the 

Malaysian Code on Corporate Governance throughout the financial year ended 31 December 2008. 

THE BOARD 

Role and Principal Responsibilities 

The Company is headed by the Board who leads and controls the Company. The Board is responsible towards 

the overall strategic planning for the Group, setting policies and directing the Company’s strategic objectives, 

providing leadership and oversight control, identifying and implementing appropriate systems to manage principal 

risks, reviewing the adequacy and integrity of its internal control and management information system, ensuring 

a management succession plan as well as having a dedicated investor relations programme and shareholders’ 

communication policy in place. 

Where appropriate, the Board delegates certain responsibilities to the various Board Committees to assist the 

Board in the discharging its responsibilities. The Board also reviews the recommendations of the Audit Committee, 

Remuneration Committee, Nomination Committee and Employees’ Share Option Scheme (“ESOS”) Committee as 

well as feedbacks from the management. 

However, certain key matters are reserved and determined by the Board itself. These include, formulating the 

Company’s annual business plan to help grow and create shareholders’ value, determining overall corporate strategy 

and business direction, determining funding needs and capital expenditure, setting financial plans and budgets, 

reviewing financial statements and the financial performance of the Company, ensuring that necessary financial and 

other resources are made available to the management to enable such objectives to be met as well as the undertaking 

of corporate exercises involving mergers and acquisitions, new issues of securities and fund raising activities. 

Constituting an Effective Board 

The establishment of an active and independent Board of Directors is paramount in improving corporate governance 

practices. The Board currently comprises of eight (8) Directors, five (5) of which are Executive Directors and three 

(3) Independent Non-Executive Directors. Independent Non-Executive Directors make up one-third of the Board 

membership. 

The Independent Non-Executive Chairman, the Managing Director, the Senior Independent Non-Executive Director, 

four (4) Executive Directors and an Independent Non-Executive Director together, with their different age, financial, 

commercial, technical and operational expertise as well as business acumen and skills, bring with them a wide 

and diverse range of experience to the Company. In view of the composition of the Board and having regard to the 

caliber of the Directors and their range of skills, expertise and experience, the interests of investors, including the 

Company’s minority shareholders and the public, are adequately protected and advanced. The brief profile of the 

members of the Board is set out in the Profile of Directors in this Annual Report. Together, the Directors possess 

a wide range of business, financial and commercial experience essential in the management and direction of a 

corporation with global presence. 

The role of the Chairman, who is an Independent Non-Executive Director, is distinct and separate with a clear division 

of responsibilities from the role of the Managing Director who acts also as Chief Executive Officer. This ensures a 

clear balance of control, power and authority. The Chairman is responsible for managing the conduct of the Board and 

ensuring Board effectiveness, including ensuring all Directors receive timely and sufficient relevant information on all 

financial, business, operational and corporate matters to enable each of them to actively and effectively participate 

in Board decisions. The Chairman encourages constructive and healthy debates and ensures that resolutions are 

put to a vote so that all Board decisions reflect the collective view of the Board and not the views of an individual or 

small group of individuals. 


17 



STATEMENT (CONT’D) 

The Managing Director is responsible for the efficient and effective day-to-day management of the business, operations 

and strategic direction of the Group and together with the other Executive Directors, ensures that the strategies, 

policies and matters approved by the Board are effectively implemented. 

The Independent Non-Executive Directors are independent of management and are free from any and all business 

or other relationship which may materially affect or interfere with the exercise of their independent judgment. The 

role of the Non-Executive Directors is to constructively review and help develop proposals on strategy, scrutinise 

the performance of management in meeting agreed objectives and monitor the reporting of performance, including 

satisfying themselves on the integrity of financial information, and that financial controls and systems of risk 

management put in place by the Company are effective. 

Any queries or concerns regarding the Group may be conveyed to Mr Lim Yu Tey, the Senior Independent Non- 

Executive Director of the Company. 

Board Meetings and Supply of Information 

The Board meets on a schedular basis of at least four (4) times a year. Additional Board meetings will be convened 

as and when necessary. Dates for Board meetings are decided in advance after consultation with all Board members. 

In 2008, seven (7) Board meetings were held. The attendance of each Director at the Board meetings held during 

2008 is set out below:- 

Number of meetings attended % 

Dato’ Mohamad Idris bin Mansor 7/7 100 

Ir Lee Swee Eng 7/7 100 

Lim Yu Tey 7/7 100 

Dato’ Ab Halim bin Mohyiddin 7/7 100 

Lee Hui Leong 7/7 100 

Gan Siew Liat 7/7 100 

Chew Fook Sin 7/7 100 

Ng Boon Su (appointed on 14 March 2008) 5/5 100 

The Board has a formal schedule of matters specifically reserved to it for decision to ensure that the direction 

and control of the Company is firmly in the Board’s hand. In consultation with the Board, the Managing Director 

and the respective committee(s) or management team(s), where applicable, will develop the Group’s corporate 

objectives and set out the limits of empowerment for the respective management/committees’ authority, duties and 

responsibilities. 

The Board stresses on having timely reports and has full access to quality information which are not just historical 

or financial oriented but information which goes beyond assessing the quantitative performance of the Company 

and/or the Group and looks at other performance factors such as customer satisfaction, product and service quality, 

market share, market reaction and so forth, to enable each of them to effectively participate in Board decisions and 

discharge their duties. 

The Chairman of the Board together with the Managing Director and as assisted by the Company Secretaries, 

undertake primary responsibility for organizing information necessary for the Board to deal with the agenda at Board 

meetings and for providing the Board papers to be circulated to all Board members to facilitate in the effective conduct 

and discussion of matters brought up in meetings. During the course of a meeting, proposals put forth by management 

to the Board for the Board’s deliberation and decision are provided with written reports and supporting documents 

with due facts, analysis and recommendations. The Chairman of the Board ensures that all Board members are given 

ample opportunity to express their views and opinions during the meeting. Constructive debates on issues before 

the Board are highly encouraged. External parties and management representatives may be present to provide 

additional insights into matters to be discussed during Board meetings. Advisers and professionals appointed by 

the Company in relation to any corporate proposals would be invited to attend Board meetings to explain, advise 

and to clarify any issues raised. 


18 




The Board is briefed on issues raised at Board and Board Committees meetings. All discussions, decisions and 

conclusions are recorded and duly minuted (although not in “per verbatim” form). Such minutes are subsequently 

circulated to ensure that all Directors are kept well informed of the Board’s and Board Committees’ activities and 

recommendations. These minutes are kept by the Company Secretaries and are open to inspection by the Directors 

at any time. 

Appointments to the Board and Size of Board 

All appointments to the Board and its various Board Committees are assessed and considered by the Nomination 

Committee. In making these recommendations, due consideration is given to the required mix of skills, knowledge, 

expertise, experience, professionalism and integrity that the proposed candidate(s) shall bring to complement the 

Board. 

The Board may consider and exercise judgment in determining the appropriate number and size of the Board, relative 

to the level of investment by the shareholders in the Company. 

Re-election 

In compliance with the Listing Requirements of Bursa Malaysia Securities Berhad (“Listing Requirements”) and the 

provisions of the Company’s Articles of Association (“Articles”), all Directors of the Company shall retire from office at 

least once in every three (3) years and shall be eligible for re-election at the annual general meeting. New Director(s) 

appointed during any year shall retire and seek re-appointment at the next annual general meeting. This provides 

an opportunity for shareholders to renew their mandates and the re-election of Directors ensures that shareholders 

have a regular opportunity to reassess the composition of the Board. 

At the forthcoming Annual General Meeting, one-third of the Board of Directors are subject to retirement by rotation 

pursuant the provisions of the Company’s Articles. These Directors will retire and their re-election will be voted on 

by shareholders. To assist shareholders in their decision, information on each Director standing for re-election is set 

out in the Profile of Directors. 

THE BOARD COMMITTEES 

There are four (4) standing Board Committees, comprising the Audit Committee, Nomination Committee, 

Remuneration Committee and the ESOS Committee. Each Board Committee operates within the approved and 

clearly defined terms of reference and reports to the Board with their findings and recommendations. An extension of 

such authority may be expressly given for a specific purpose and the Board may delegate to such Board Committees 

or other ad hoc Committees to act on its behalf. 

Audit Committee 

All the present Audit Committee members comprise of totally Independent Directors. The Audit Committee is 

chaired by an Independent Non-Executive Director who is a member of the Malaysian Institute of Accountants and 

the Malaysian Institute of Certified Public Accountants. Its other members comprise the Independent Non-Executive 

Chairman and the Senior Independent Non-Executive Director. The duties of the Audit Committee include inter alia, 

reviewing the Group’s accounting policies, financial reporting procedures, the Group’s system of internal controls, 

status of the Group’s risks and approval of the annual internal audit plan. In addition, all the Audit Committee members 

are able to read, analyse and interpret the quarterly results and year end financial statements from the external 

auditors in order to effectively discharge their functions. 

The Company’s internal and external auditors do attend the Audit Committee meetings and have the opportunity 

to raise matters or concerns independently or separately with the Audit Committee without any Executive Director 

or management present. The Chairman and Audit Committee members have free and direct access to consult, 

communicate and enquire with any senior management of the Company as well as the external and internal auditors 

of the Company at any time in order to be kept informed of matters affecting the Company. 


19 




The Audit Committee has explicit authority to investigate any matter within its terms of reference and shall have full 

access to all information and resources required. Further details of the terms of reference and activities of the Audit 

Committee during the year are set out in the Audit Committee Report. 

The Audit Committee meets regularly at least four (4) times annually and all discussions, decisions and conclusions 

are recorded and duly minuted (although not in “per verbatim” form). Additional meetings may be held at the request 

of the Board, the Audit Committee, the management, the external and internal auditors. The Audit Committee met 

six (6) times in 2008 and the attendance of each member at the meetings is set out below:- 


Dato’ Ab Halim bin Mohyiddin (Chairman) 6/6 100 



Nomination Committee 

The Nomination Committee is chaired by the Senior Independent Non-Executive Director. Its other members comprise 

the Independent Non-Executive Chairman and an Independent Non-Executive Director. The Nomination Committee 

is mainly responsible for assessing and recommending candidates with the required mix of skills and attributes to 

fill Board and Board Committees vacancies; as well as reviews or evaluates the appropriate balance, size, optimum 

mix of skills, experience and other qualities including core competencies which Non-Executive Directors will bring 

to the Board. The Nomination Committee also recommends to the Board the Directors who are to seek re-election 

at annual general meetings. 

The Nomination Committee will meet at least once a year. All assessments and evaluations (if any) will be discussed 

and minuted. In 2008, the Nomination Committee met up twice and the attendance of each member at the meetings 

is set out below:- 


Lim Yu Tey (Chairman) 2/2 100 


Dato’ Ab Halim bin Mohyiddin 2/2 100 

Remuneration Committee 

The Remuneration Committee is chaired by the Independent Non-Executive Chairman. Its other members comprise 

the Senior Independent Non-Executive Director and the Managing Director. The Remuneration Committee is 

responsible for recommending to the Board, the remuneration of the Executive Directors, in all its forms, drawing 

from outside advice as necessary. With the assistance of remuneration policy for the Directors and market survey 

information provided from external sources, the Remuneration Committee ensures that the remuneration packages 

of the Directors are appropriate and competitive. All recommendations of the Remuneration Committee in respect 

of remuneration packages of the Executive Directors are referred to the Board for approval. 

The Company’s remuneration scheme is linked to performance, service seniority, experience and scope of 

responsibilities. The Remuneration Committee ascertains and approves the remuneration packages of the Executive 

Directors in accordance with the Company’s policy guidelines which maintain a proportionately high variable pay 

component in the remuneration package so as to strongly link remuneration to performances and benchmarking 

the same periodically against market or industry surveys conducted by external sources or human resource 

consultants. 


20 




Determination of remuneration packages of Non-Executive Directors, including the Non-Executive Chairman is a 

matter for the Board as a whole. No Director takes part in any discussion or decision concerning his or her own 

remuneration. Fees are paid to the Directors with the approval of shareholders at the annual general meeting. 

The Remuneration Committee met once in 2008, and the attendance of each member at the meeting is set out 

below:- 

Number of meeting attended % 

Dato’ Mohamad Idris bin Mansor (Chairman) 1/1 100 

Ir Lee Swee Eng 1/1 100 


ESOS Committee 

The ESOS Committee is chaired by the Senior Independent Non-Executive Director. Its other members comprise the 

Independent Non-Executive Chairman and an Executive Director. The ESOS Committee is primarily responsible for 

inter alia, recommending to the Board, the criteria and allocation of any ESOS options to be granted to any Eligible 

Employee and Director of the Company and its subsidiaries and ensuring that all exercise of ESOS options are in 

compliance with the Listing Requirements and in accordance with the ESOS By-Laws and Company’s Articles. 

The ESOS Committee met three (3) times in 2008, and the attendance of each member at the meetings is set out 

below:- 


Lim Yu Tey (Chairman) 3/3 100 


Gan Siew Liat 3/3 100 

DIRECTORS’ REMUNERATION 

The primary objective of the Group’s remuneration policy is to attract and retain the Directors who lead and control 

the Group. The remuneration of each Director generally reflects the level of responsibility and commitment that goes 

with Board membership. 

For Non-Executive Directors, the level of remuneration is reflective of their experience and level of responsibilities, 

whereas, the component parts of remuneration package for Executive Directors are structured to link corporate and 

individual performance in line with the Company’s remuneration policy for its Directors. 

The Remuneration Committee reviews annually the salaries of the Executive Directors and formulates recommendations 

to the Board for approval. The individuals concerned will abstain from all deliberations and decisions affecting his 

or her remuneration and that of persons deemed connected to him or her. 


21 




The aggregate remuneration of the Company’s Directors for the financial year ended 31 December 2008 is categorised 

into appropriate components as follows:- 

Other 

Category of Fee Salary* emoluments** Benefits-in-kind (RM) Total 

Directors (RM) (RM) (RM) ESOS*** Others**** (RM) 

Executive Directors 320,903 2,611,420 1,189,167 192,000 74,400 4,387,890 

Non-Executive Directors 292,000 0 45,800 14,000 0 351,800 

Total 612,903 2,611,420 1,234,967 206,000 74,400 4,739,690 

Notes: 

* The salary is inclusive of statutory employer’s contribution to Employees Provident Fund. 

** Other emoluments include bonuses and allowances. 

*** For the financial year under review, none of the Directors was offered share options under the Company’s ESOS except for 

the 300,000 share options as offered to the Independent Non-Executive Chairman pursuant to the shareholders’ mandate 

obtained at the Company’s Extraordinary General Meeting held on 27 March 2008. 

**** Other benefits include the provision of hand-phones and company cars. 

The aggregate remuneration of the Company’s Directors as analysed into bands for the financial year ended 31 

December 2008 is as follows:- 

No. of 

No. of 

Remuneration range Executive Directors Non-Executive Directors Total 

RM10,000 to RM50,000 – – – 

RM50,001 to RM100,000 – – – 

RM100,001 to RM150,000 – 3 3 

RM150,001 to RM200,000 – – – 

RM200,001 to RM250,000 – – – 

RM250,001 to RM300,000 1 – 1 

RM300,001 to RM350,000 – – – 

RM350,001 to RM400,000 – – – 

RM400,001 to RM450,000 – – – 

RM450,001 to RM500,000 – – – 

RM500,001 to RM550,000 – – – 

RM550,001 to RM600,000 – – – 

RM600,001 to RM650,000 1 – 1 

RM650,001 to RM700,000 1 – 1 

RM700,001 to RM750,000 1 – 1 

RM2,050,001 to RM2,100,000 1 – 1 

Total 5 3 8 

DIRECTORS’ TRAINING 

The Company realizes and stresses the importance of training and having continuous upgrading of skills, knowledge 

and competencies as the strategic advancement and competitive tool not just for the Company but also for the personal 

development of the respective Directors and the relevant staff concerned. It is the commitment of the Board to ensure 

that Directors will receive further training and be kept updated from time to time. In pursuit of this commitment, the 

Company has a dedicated training budget for Directors’ continuous education in connection with their duties. The 

Board shall on a continuous basis, evaluate and determine the training needs of its members which subject matter 

of training shall be one that aids the Directors in the discharge of his or her duties as a Director. 


22 




All the current Directors of the Company have attended and completed the Mandatory Accreditation Programme and 

will undergo such similar training or education programmes from time to time to equip and keep themselves abreast 

of the latest developments in order to discharge their duties and responsibilities more effectively. A brief description 

of the various training or courses attended by the Directors for the financial year under review is as set out below:- 

Title of the training programme/ 

Directors Name of organiser Date 

Dato’ Mohamad Idris Duties & Liabilities of Company Directors, Impact of 8 January 2008 

bin Mansor 

Companies (Amendment) Act 2007 & Malaysian 

Code of Corporate Governance (Revised 2007)/ 

MEF Academy Sdn Bhd 

Ir Lee Swee Eng Management Leadership Workshop/ 13 March 2008 

KNM Group Berhad 

Managing Sideways/ 10 & 11 

Price Pritchett December 2008 

Lim Yu Tey Managing Sideways/ 10 & 11 


Dato’ Ab Halim Financial Reporting Standards in Malaysia – An Overview/ 9 & 10 

bin Mohyiddin Malaysian Institute of Certified Accountants June 2008 

(“MICPA”) and Federation of Public Listed Companies 

The Economic Value Added Approach to Value Creation/ 10 July 2008 

PNM Nominee Directors’ Convention 

Risk Management: Challenges and Opportunities/ 10 July 2008 

PNM Nominee Directors’ Convention 

Board of Directors and Senior Management 23 July 2008 

Programme: Briefing on Anti-Money Laundering and 

Ant-Terrorism Act 2001/ 

Bank Pembangunan Malaysia Berhad 

Directors’ Duties and Liabilities, Beyond Compliance/ 21 August 2008 

Digi.Com Berhad 

MICPA-BURSA Malaysia Business Forum 2008/ 20 & 21 

MICPA and Bursa Malaysia Securities Berhad October 2008 

WHAT’S NEXT – Managing Business Realities and 3 November 2008 

Challenges in an Uncertain World/ 

Utusan Melayu Malaysia Berhad 

Innovation and Creativity for Business Growth/ 17 November 2008 

PNM Lecture Series 


23 




DIRECTORS’ TRAINING (CONT'D) 

Title of the training programme/ 

Directors Name of organiser Date 

Lee Hui Leong Management Leadership Workshop/ 13 March 2008 




Gan Siew Liat Management Leadership Workshop/ 13 March 2008 




Chew Fook Sin Management Leadership Workshop/ 13 March 2008 


Ng Boon Su Management Leadership Workshop/ 13 March 2008 




ACCESS TO INFORMATION AND ADVICE 

The Directors, whether individually or as a full Board, have full access to all Company’s information and direct access 

to the advice and services of the Company Secretaries and may seek such independent professional advice at the 

Company’s expense in furtherance of their duties, wherever necessary, on a case to case basis and depending on 

the complexities involved. Currently, the Group’s in-house Company Secretary is assisted by the external Company 

Secretary to assist and effect all proper documentation, meeting all statutory obligations and compliances and to 

support the Chairman of the Board in ensuring the effective functioning of the Board. 

Both the in-house and externally appointed Company Secretaries meet the requirements for the discharge of their 

duties and his/her removal is a matter for the Board as a whole. 

ACCOUNTABILITY AND AUDIT 

Financial Reporting 

Shareholders are provided with fair assessments on the Company’s financial performance and prospects vide the 

timely issuance of all quarterly reports, annual audited financial statements as well as announcements on significant 

developments affecting the Company, in compliance with the Listing Requirements and/or the Companies Act, 1965 

(“the Act”). 

The Board is assisted by the external auditors, the Company Secretaries and the Audit Committee to scrutinize 

information for disclosure to ensure its timeliness, accuracy and adequacy. 


24 




Directors’ Responsibilities for the Financial Statements 

Pursuant to the Act, the Directors are required to prepare and ensure that financial statements are drawn up in 

accordance with the applicable approved accounting standards in Malaysia and the provisions of the Act so as to 

give a true and fair view of the state of affairs of the Company and the Group for each financial year. 

The Directors have the overall responsibility for taking such steps as are reasonably open to them to safeguard the 

assets of the Group, to detect and prevent frauds as well as other irregularities. They are responsible for ensuring 

that the Company and the Group keep accounting records which disclose with reasonable accuracy the financial 

position of the Company and the Group in compliance with the Act. 

In preparing the financial statements, the Directors have:- 

1. applied appropriate accounting policies and applied them consistently; 

2. made judgments and estimates that are reasonable and prudent; 

3. ensured that all applicable accounting standards have been followed; and 

4. prepared the financial statements on the going concern basis as the Directors have a reasonable expectation, 

having assessed and made enquiries on the Company’s financial position and prospects, that the Group and 

the Company have adequate resources to continue in operational existence for the foreseeable future. 

The annual financial statements are audited by external auditors in accordance with the applicable approved 

standards on auditing in Malaysia. In conducting the audit, the external auditors obtain reasonable assurance that 

the financial statements are free of material misstatements. The external auditors assess the accounting principles 

used and significant estimates made by Directors in addition to evaluating the overall presentation of the financial 

statements. 

Internal Control and Internal Audit Functions 

The Board has overall responsibility for maintaining a sound system of internal controls to safeguard shareholders’ 

investment and the Group’s assets, which encompass risk management, financial, organizational, operational and 

compliance controls necessary for the Group to achieve its objectives within an acceptable risk profile. These controls 

can only provide reasonable but not absolute assurances against material misstatements, errors of judgment, losses 

or fraud. 

The Board has established an Internal Audit function for the Group to review adequacy of operational controls and 

in identifying, evaluating, monitoring and managing risks so as to provide reasonable assurance that such system 

continues to operate satisfactorily and effectively in the Group. The Internal Audit function will add value and improve 

the Group’s operations and to assist the Audit Committee to effectively discharge its duties by providing independent 

and objective assurance. 

The Internal Audit function is an independent function within the Group and reports directly to the Audit Committee. 

The Head of Internal Audit regularly reviews and appraises the effectiveness of the risk management, internal control 

and governance processes within the Company. The Internal Audit operates in accordance with the framework set 

out by the Internal Audit Charter as approved by the Audit Committee. 

The Company’s Internal Audit function is currently managed and performed in-house and the costs attributable to 

the discharge of duties and performance of the Internal Audit function of the Company for the financial year under 

review is RM493,715. 

The Company’s Internal Audit function is competently and adequately resourced to fulfill its purpose and perform its 

activities and is independently positioned to assist the Board and the Audit Committee in obtaining the assurance it 

requires regarding the effectiveness of the Group’s system of internal controls. 

More details of the Company’s internal control systems are set out in the Statement on Internal Control. 


25 




Relationship with the Auditors 

The Company maintains a strong relationship with its external auditors. Under its terms of reference, the Audit 

Committee has explicit authority to communicate directly with the Company’s internal and external auditors. Meetings 

with the senior management, internal and/or external auditors are held as appropriate to discuss any issues arising 

from the interim and final audits, the audit plans, the audit findings and on any matter that the internal and/or external 

auditors may wish to discuss. The Audit Committee meets with the external auditors at least twice a year or whenever 

deemed necessary without the presence of any management or Executive Board members. 

The Audit Committee also reviews on an annual basis the appointment of the Company’s external auditors and the 

fees payable to them. The Audit Committee has received relevant information on the external auditors’ independence, 

including the nature of non-audit services provided by the external auditors in 2008. Based on such information, 

the Audit Committee has no reason to believe that such engagements have or will impair the independence of the 

external auditors. 

Further details of the terms of reference and activities of Audit Committee during 2008 are set out in the Audit 

Committee Report. 

SHAREHOLDERS 

The Company maintains an open channel of communication with its shareholders, institutional investors and the 

investing public at large with the objectives of inter alia, providing as clear and complete a picture of the Group’s 

performance and position as possible. The Company values feedbacks and dialogues with its investors and believes 

that a constructive and effective investor relationship is an essential factor in enhancing value for its shareholders. 

However, whilst the Company endeavours to provide as much information as possible to its shareholders and 

stakeholders, it is mindful of the legal and regulatory framework governing the release and disclosure of material 

and price-sensitive information. 

Investor Relations 

The Company uses the following key investor relations activities to update its investors:- 

(a) 

(b) 

(c) 

holding briefings, plant visits, conference calls and meetings with the institutional fund managers and financial 

analysts; 

participating in roadshows and investors conferences, both domestically and internationally; and 

establishing a website at www.knm-group.com for easy access and dissemination of the Group’s corporate 

information, financial statements, news and latest happenings. 

Communication with shareholders is also maintained by way of immediate announcements made in connection with 

material developments in the Company’s business and operations, in addition to the timely issuance of annual and 

quarterly reports. 

As part of the Group’s commitment towards having an effective investor relations and shareholders’ communication 

policy, the following have been established:- 

(a) 

(b) 

the Company’s Corporate Advisory Department attends to the Group’s investor relations activities and whenever 

required, the services of an external public relations firm to promote the Group’s branding activities and to 

create greater public awareness of the Group’s products and services apart from fostering and maintaining 

closer relations with the press and other members of the media, will be engaged; and 

internally, the Corporate Affairs Department headed by the Group’s in-house Company Secretary maintains 

most of the official communication and correspondences with the various authorities. 


26 




Annual General Meeting 

Shareholder meetings, especially the Annual General Meeting, represent an important platform and forum for 

dialogue and interaction between the Company and its shareholders. Such general meetings are normally attended 

by all Directors. Explanations are provided during shareholder meetings in relation to proposed resolutions on 

key corporate proposals to enable shareholders to make informed decisions. Notice of general meetings provides 

separate resolutions to be proposed at the general meetings for each distinct issue and any item of special business 

included in a notice of general meeting is accompanied by an explanatory note on the effects of the proposed 

resolution. Questions from and interaction with shareholders are highly encouraged and practiced to further enhance 

communication between shareholders and the Board. 

The Company’s external auditors and the relevant advisers of the Company would attend such general meetings 

upon invitation and be available to answer questions raised where appropriate. The Company accords sufficient 

time for discussion and questions at general meetings and the Company ensures that all questions and issues are 

properly addressed and explained at general meetings. All meetings are recorded by the Company Secretaries and 

minutes of the general meetings are available for inspection at the Company’s registered office. 

In addition, a press conference will generally be held immediately after such general meetings whereat, the Directors 

would explain and clarify any issues posed by the members of the media regarding the Company, save and except 

for such information that may be regarded as material or price sensitive in nature, which disclosure shall be made 

in strict adherence to the disclosure requirements as prescribed under the Listing Requirements and other various 

contractual or statutory rules and provisions that the Group may be subjected to. 

CORPORATE SOCIAL RESPONSIBILITY (“CSR”) 

The Group is committed to observe and carry out their corporate social responsibilities in any manner possible to 

promote humanitarian works to the deserving and underprivileged, to alleviate the social well being of the community 

as well as to ensure the sustainability of the environment, both locally and on the international front. 

To the Company, corporate social responsibility starts by integrating business practices that are based on ethical 

values and respect for the community, the environment, shareholders and other stakeholders. The Group CSR 

framework is designed to deliver sustainable value to society at large, while ensuring that the interest of the public, 

including investors in general, are adequately protected and complies with the relevant regulatory requirements for 

which the Group and the Company are subjected to. The Group continually strives to be good, caring and responsible 

corporate citizens. 

Presently, the Group CSR framework focuses on four main areas, being the environment, the workplace, the 

community and the marketplace, in no particular order of priority. 

Environment 

The Group manages its operations in a manner which minimises environmental impacts and devotes to all the 

applicable environmental regulations in its consumption of resources and the generation of waste processes. The 

Group’s Health, Safety and Environment Division establishes, regulates and enforces, among others, the environmental 

policies, rules and regulations of the Group. 

The Group’s move and diversification into the renewable energy sector is based mainly, if not primarily, on the Group’s 

dedication to support the reduction of waste and gas emissions into the environment from its business operations. 

Wherever possible, all staff are encouraged to “reduce, reuse and recycle”. 


27 




Workplace 

The Group acknowledges and is committed to create a safe and conducive working environment for all its employees. 

The Group’s Health, Safety and Environment Division establishes policies and procedures and reinforces the Group’s 

safety culture by inculcating good safety and fire prevention practices, heightening safety awareness and providing 

safety gear, conducting safety talks, and implementing such other safety courses and training activities so as to 

attain zero loss time injury hours at its manufacturing facilities. 

Children of the Company’s staff who have performed well in their primary and secondary school examinations are 

given cash rewards in recognition of their success so as to help bolster their morale and confidence, to encourage 

and motivate them to continue further and excel in their studies. 

As part of the human capital development, the Group conducts various in-house training programmes focusing on 

quality leadership, building effective performance and job skills related training to equip the employees with improved 

skills and knowledge. 

Community 

The Group’s main sponsorship, outreach and community investment activities include contributions, donations and 

philanthropic support towards various deserving and worthy causes such as:- 

(a) 

(b) 

contributions to the earthquake victims in Chengdu, China; and 

contributions towards the cost of corrective heart surgeries for two (2) children in Malaysia. 

The Group also provides internship training programmes to local diploma and vocational students for knowledge 

enrichment, complementing and nurturing talents among these students for their personal growth and future 

employment needs. 

Marketplace 

The Company is committed to ensure that all information released are accurate, concise and timely given in compliance 

with the various regulatory requirements that the Group is subjected to. 

The Company maintains good visibility and constantly interacts with its stakeholders such as investors, portfolio 

analysts, fund managers, bankers, government bodies and its corporate clients through a variety of channels, 

whereby accurate and concise information on the Group are provided through briefings, meetings, teleconferences, 

dialogues and visits to the Group’s manufacturing facilities to enable its stakeholders to better understand its business 

operations. 

Briefings to investors are usually conducted on a quarterly basis after the release of the Company’s quarterly financial 

results. The Group is mindful of the expectations of the investment community and therefore, strategizes effectively 

to attain and surpass their expectations. 


28 




ADDITIONAL COMPLIANCE INFORMATION 

The following additional information is provided in compliance with the Listing Requirements:- 

1. Approved Utilisation of Funds 

On 14 September 2006, the Company’s wholly owned subsidiary, KNM Capital Sdn Bhd (“KNMC”), had obtained 

the necessary approval from the Securities Commission for the issuance of up to RM300.0 million in Nominal 

Value Islamic Commercial Papers/Islamic Medium-Term Notes under the Islamic Commercial Papers/Islamic 

Medium-Term Notes (“ICP/IMTN”) Programme. During the financial year under review, the following new issues 

were drawn and its proceeds were utilised as set out follows: 

Utilisation of ICP/IMTN Proceeds 

RM’000 

Total ICP/IMTN drawn 300,000 

Group working capital purposes 150,000 

Murabahah Underwritten Notes Issuance Facility/IMTN repayment 150,000 

300,000 

A total of 9,767,500 options were exercised during the financial year pursuant to the Company’s ESOS. 

Proceeds raised from the exercise of KNM Group’s Employees’ Share Option Scheme (“ESOS”) and its due 

utilisation thereof are as follows: 

Utilisation of ESOS Proceeds 

RM’000 

Total ESOS proceeds 3,967 

Group working capital purposes 3,967 

The Rights Issue of KNM shares was completed on 30 June 2008, upon the listing and quotation for the 

263,735,925 new ordinary shares of RM0.25 each issued at an issue price of RM4.00 per share (“Rights 

Issue”). Proceeds raised from the Rights Issue and its due utilisation thereof are as follows: 

Purpose Actual 

utilisation utilisation Deviation 

Intended 

Purpose RM’000 RM’000 RM’000 time frame Explanation 

Potential strategic 1,024,944 (1,024,944) – 12 months N/A 

acquisition and/or 

working capital 

purposes 

Defray estimated 30,000 (20,299) 9,701 Immediately Pending 

expenses for the 

completion of 

Rights Issue, 

Exchangeable 

Bonus Issue and 

Bonds Issue 

Exchangeable 

Bonds Issue** 

Total 1,054,944 (1,045,243) 9,701* N/A N/A 

Notes: 

* Any unutilised amount shall be used for the Group’s working capital and/or investment for future strategic acquisitions 

of the Group. 

** The Company has not embarked on the Exchangeable Bonds Issue given the current economic situation and the 

Securities Commission has vide its letter dated 1 December 2008, approved an extension of time of twelve (12) 

months until 29 November 2009 for the implementation of the proposed Exchangeable Bonds Issue by KNMC. 


29 




2. Share Buy-Backs 

The Company had purchased 36,635,100 of its own shares during the financial year ended 31 December 

2008, all of which were held as treasury shares and maintained by the Company. Details are as follows: 

Total 

Lowest Highest consideration 

No. of price paid price paid Average paid (including 

shares Par value for each for each price per transaction 

bought per share share share share costs) 

Month back (RM) (RM) (RM) (RM) (RM) 

January – – – – – – 

February – – – – – – 

March – – – – – – 

April – – – – – – 

May – – – – – – 

June – – – – – – 

July – – – – – – 

August – – – – – – 

September – – – – – – 

October 26,190,200 0.25 0.415 0.690 0.595 15,594,145.75 

November 7,100,000 0.25 0.540 0.640 0.575 4,081,718.43 

December 3,344,900 0.25 0.395 0.425 0.410 1,372,750.12 

Total 36,635,100 0.575 21,048,614.30 

3. Related Party Transactions 

All related party transactions for 2008 are set out in Note 27 to the Financial Statements. 

An internal compliance framework exists to ensure the Company meets its obligations under the Listing 

Requirements, including obligations relating to related party transactions. The Audit Committee will review all 

related party transactions and report the same to the Board. 

A Director who has an interest in a transaction abstains from deliberation and voting on the relevant 

resolution in respect of such transaction at the Board and at any general meeting convened to consider such 

transactions. 

4. Options, Warrants or Convertible Securities 

No options, warrants or convertible securities were issued by the Company during the financial year under 

review except for the 300,000 ESOS share options as granted to the Independent Non-Executive Chairman 

pursuant to the shareholders’ mandate obtained at the Company’s Extraordinary General Meeting held on 27 

March 2008. 

5. American Depository Receipt (“ADR”) or Global Depository Receipt (“GDR”) programme 

The Company did not sponsor any ADR or GDR programme during the financial year under review. 

6. Imposition of Sanctions and/or Penalties 

There were no sanctions and/or penalties imposed on the Company and its subsidiaries, Directors or 

management by any relevant regulatory bodies. 


30 




7. Non-Audit Fees 

The amount of non-audit fees paid or payable to the external auditors and its affiliates in connection with 

services rendered to the Group and/or the Company for the financial year ended 31 December 2008 is as 

follows: 

Due/Payment to Purpose Amount (RM) 

Messrs KPMG 

Affiliates of KPMG 

Professional fees rendered for taxation, financial due 

diligence and as Reporting Accountants 732,112 

Professional fees rendered for taxation, financial and 

tax due diligence 2,574,595 

Total : 3,306,707 

8. Variation in Results 

There was no significant variance between the results for the financial year under review and the unaudited 

results previously released by the Company. The Company had not released or announced any estimated 

profit, financial forecast and projection for the financial year ended 31 December 2008. 

9. Profit Guarantee 

No profit guarantees were received by the Company for the financial year under review. 

10. Material Contracts 

There were no material contracts entered into by the Company and/or its subsidiaries involving Directors and/or 

major shareholders’ interests either still subsisting at the end of the financial year ended 31 December 2008 

or which were entered into since the end of the previous financial year. 

11. Contracts Related to Loans 

There were no contracts relating to a loan by the Company and its subsidiaries in respect of the preceding 

item. 

12. Revaluation of Landed Properties 

The Company’s revaluation policy in respect of the financial year ended 31 December 2008 is disclosed in 

Note 2 to the Financial Statements. 


31 


AUDIT COMMITTEE 

REPORT 

The Audit Committee of the Company is pleased to present the Audit Committee Report for the financial year ended 

31 December 2008. 

MEMBERS, MEETINGS HELD AND ATTENDANCE OF MEMBERS 

The members of the Audit Committee are totally Independent Non-Executive Directors and they comprise three (3) in 

number. The attendance of each member at the six (6) meetings held during the financial year ended 31 December 

2008 are as follows: 

Directorship of 

Name of member Designation the member Attendance 

Dato’ Ab Halim bin Mohyiddin Chairman Independent Non-Executive 6/6 

Director (100%) 

Dato’ Mohamad Idris bin Mansor Member Independent Non-Executive 6/6 

Director (100%) 

Lim Yu Tey Member Senior Independent 6/6 

Non-Executive Director (100%) 

TERMS OF REFERENCE 

(I) 

Composition 

1. The Board of Directors (“Board”) of the Company must appoint an audit committee (“Committee”) from amongst 

its Directors which fulfils the following requirements:- 

(a) 

(b) 

the Committee must be composed of no fewer than three (3) members; 

all the Committee members must be Non-Executive Directors, with a majority of them being Independent 

Directors, of whom none shall be:- 

(i) 

(ii) 

(iii) 

Executive Directors of the Company or any related corporations; or 

a spouse, parent, brother, sister, child (including adopted or step child and the spouse of such 

brother, sister or child) of an Executive Director of the Company, or any of the Company’s related 

corporation; or 

any person having a relationship which, in the opinion of the Board, would interfere with the exercise 

of the independent judgment in carrying out the functions of the Committee. 

(c) 

at least one member of the Committee:- 

(i) 

(ii) 

must be a member of the Malaysian Institute of Accountants; or 

if he is not a member of the Malaysian Institute of Accountants, he must have at least 3 years’ 

working experience and: 

(aa) he must have passed the examinations specified in Part I of the 1st Schedule of the 

Accountants Act, 1967; or 

(bb) he must be a member of one of the associations of accountants specified in Part II of the 

1st Schedule of the Accountants Act, 1967; or 

(iii) 

fulfils such other requirements as prescribed or approved by the Exchange. 


32 



REPORT (CONT’D) 

2. The Company must ensure that no Alternate Director is appointed as a member of the Committee. 

3. The members shall elect a Chairman from amongst their number who shall be an Independent Director. 

4. If a member ceases to be a member which results in the non-compliance of the composition, the Board shall, 

within three (3) months of that event appoint such number of new member or members as may be required 

to make up the minimum number of three (3) members. 

5. The Board of the Company must review the term of office and performance of the Committee and each of its 

members at least once every three (3) years to determine whether such Committee and members have carried 

out their duties in accordance with their terms of reference. 

(II) 

Objectives 

The objectives of the Committee are to:- 

1. provide assistance to the Board in fulfilling the Board’s fiduciary responsibilities on financial, accounting, 

management controls, financial reporting and business ethics practices of the Company, and to ensure that 

such practices conform to the highest possible standards of corporate governance; and 

2. provide greater emphasis on the audit functions by serving as the focal point for communication between 

other Directors, the external auditors, internal auditors and the management in all matters relating to financial 

accounting, reporting and controls and providing a forum for discussion that is independent of the management. 

It is the Board’s principal agent in ensuring the independence of the Company’s external auditors, the objectivity 

of the Company’s internal auditors, the integrity of management and management policies and the adequacy 

of disclosures to shareholders. 

(III) 

Functions 

Without limiting the generality of this written terms of reference, the Company must ensure the Committee shall, 

amongst others, discharge the following functions:- 

1. review the following and report the same to the Board of the Company:- 

(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

(g) 

with the external auditor, the audit plan; 

with the external auditor, his evaluation of the system of internal controls; 

with the external auditor, his audit report; 

the assistance given by employees of the Company to the external auditor; 

the adequacy of the scope, functions, competency and resources of the internal audit function and that 

it has the necessary authority to carry out his work; 

the internal audit programme, processes, the results of the internal audit programme, processes or 

investigation undertaken and whether or not appropriate action is taken on the recommendations of the 

internal audit functions; 

the quarterly results and year end financial statements, prior to the approval by the Board, focusing 

particularly on:- 

(i) 

(ii) 

(iii) 

changes in or implementation of major accounting policy changes; 

significant and unusual events; and 

compliance with accounting standards and other legal requirements; 


33 




(h) 

(i) 

(j) 

(k) 

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 

integrity; 

any letter of resignation from the external auditors of the Company; 

whether there is reason (supported by grounds) to believe that the Company’s external auditor is not 

suitable for re-appointment; and 

any allocation of options during the year under the Company’s Employee Share Option Scheme (“ESOS”) 

to ensure compliance in accordance to the By-laws of the Company’s ESOS. 

2. recommend the nomination of a person or persons as external auditors. 

3. carry out such other responsibilities, functions or assignments as may be assigned by the Board. 

4. where the Committee is of the view that a matter reported by it to the Board of the Company has not been 

satisfactorily resolved resulting in a breach of the relevant Listing Requirements of Bursa Malaysia Securities 

Berhad (“Bursa Securities”), the Committee must promptly report such matter to Bursa Securities. 

(IV) 

Audit Committee Report 

1. The Company must ensure that its Board prepares an Audit Committee Report at the end of each financial 

year that complies with items (IV)2 and (IV)3 below. 

2. The Audit Committee Report must be clearly set out in the Annual Report of the Company. 

3. The Audit Committee Report shall include the following:- 

(a) 

(b) 

(c) 

(d) 

(e) 

the composition of the Committee, including the name, designation (indicating the chairman) and the 

directorship of the members (indicating whether the directors are independent or otherwise); 

the terms of reference of the Committee; 

the number of Committee meetings held during the financial year and details of attendance of each 

Committee member; 

a summary of the activities of the Committee in the discharge of its functions and duties for that financial 

year of the Company; and 

a summary of the activities of the internal audit function or activity. 

(V) 

Rights 

The Company must ensure that wherever necessary and reasonable for the performance of its duties, the Committee 

shall, in accordance with a procedure to be determined by the Board and at the cost of the Company:- 

(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

have authority to investigate any matter within its terms of reference; 

have the resources which are required to perform its duties; 

have full and unrestricted access to any information pertaining to the Company; 

have direct communication channels with the internal auditors and person(s) carrying out the internal audit 

function or activity; 

be able to obtain independent professional or other advice; and 

be able to convene meetings with the external auditors, the internal auditors or both, excluding the attendance 

of other Executive Directors and management or employees of the Company, whenever deemed necessary. 


34 




(VI) 

Internal Audit 

1. The Company must establish an internal audit function which is independent of the activities it audits. 

2. The Company must ensure its internal audit function reports directly to the Committee. 

(VII) Procedure and Meetings 

1. The Committee may regulate its own procedure, in particular:- 

(a) 

(b) 

(c) 

(d) 

(e) 

the calling of meetings; 

the notice to be given of such meetings; 

the voting and proceedings of such meetings; 

the keeping of minutes; and 

the custody, production and inspection of such minutes. 

2. The Committee must have not less than 4 meetings in a financial year, and such additional meetings as the 

Chairman may decide in order to fulfill its duties. 

3. The Chairman shall also convene a meeting of the Committee if requested to do so by any member, the 

management or the internal or external auditors to consider any matter within the scope of responsibilities of 

the Committee. 

4. A quorum must comprise a majority of Independent Non-Executive Directors and must not have less than two 

(2) members. 

5. The Head of Finance, Head of Internal Audit, and if required, the external auditors, shall normally attend 

meetings but may be excused at the discretion of the Committee. 

6. The Company must ensure that other Directors and employees attend any particular Committee meeting only 

at the Committee’s invitation, specific to the relevant meeting. 

7. The Company Secretary or Company Secretaries, if more than one (1) of them, shall be the Secretary of the 

Committee. 

8. The Secretary shall give notice of meetings, record minutes of all meetings and maintain a record of minutes 

of all meetings held by the Committee and circulate minutes of each meeting of the Committee to all members 

of the Board as a reporting procedure. 

ACTIVITIES DURING THE YEAR 

During the financial year under review, the Committee had: 

1. reviewed with the external auditors the audit plan, results of the audit, audit reports and recommendations; 

2. reviewed and adopted the annual internal audit plan for 2009, including its scope and areas of audit; 

3. reviewed and deliberated on activities of audits conducted by the Internal Audit department for the year under 

review; 


35 




4. reviewed financial statements including quarterly financial announcements to the Bursa Securities and year 

end financial statements and recommended the same for approval by the Board, upon being satisfied that, 

inter alia, the financial reporting and disclosure requirements of the relevant authorities had been complied 

with, including deliberation of any significant issues resulting from the audit of the financial statements by the 

external auditors; 

5. reviewed recurrent related party transactions that were entered into by the Group; 

6. reviewed significant accounting policies that were affected by the introduction of the new Malaysian Accounting 

Standards and Financial Reporting Standards; 

7. reviewed with the external auditors on audit strategy and scope for the statutory audit of the Company accounts 

for the financial year ended 31 December 2008. 

8. verified the allocation of options pursuant to the Company’s employee share option scheme. 

INTERNAL AUDIT FUNCTIONS 

The Group has an in-house Internal Audit Department which operates across the Group and independent of the 

activities or operations of the subsidiaries and departments. The duties of the Internal Audit Department are to provide 

reasonable assurance in the effective execution of responsibilities of Committee members by providing verifications, 

examinations and evaluations of the Group’s system of internal controls. 

The Head of the Internal Audit Department reports directly to the Committee highlighting major weaknesses in control 

procedures of auditable areas as set out in the annual internal audit plan. Where appropriate, relevant corrective 

and/or preventive actions will also be recommended for implementation in order to further strengthen the existing 

system of internal controls of the Group. The costs amounting to RM493,715 were incurred for the internal audit 

functions in respect of the financial year ended 31 December 2008. 


36 


STATEMENT ON 

INTERNAL CONTROL 

The Board of Directors is committed to maintaining a sound system of internal controls in the Group and is pleased to 

provide the following statement on internal control that outlines the nature and scope of internal control of the Group 

during the year as required under Paragraph 15.27(b) of the Listing Requirements of Bursa Malaysia Securities 

Berhad. 

RESPONSIBILITY 

The Board is ultimately responsible for the Group’s system of internal controls and reviewing its effectiveness. Such 

a system is designed to manage and reduce, rather than eliminate, the risk of failure to achieve business objectives 

and can provide only a reasonable and not an absolute assurance against risk. The system of internal controls covers 

risk management, financial, operational and compliance controls. On-going reviews are and will continuously be 

carried out to ensure the effectiveness, adequacy and integrity of the system of internal controls in safeguarding the 

Group’s assets and shareholders’ investment in the Company. The Board also believes that the Group’s system of 

internal controls and risk management practices are vital to good corporate governance. 

RISK MANAGEMENT 

The Company has developed a risk management framework and has put in place an Enterprise-Wide Risk 

Management framework to identify the key risks facing the Group, the potential impact and likelihood of those risks 

occurring, the control effectiveness and the action plans being taken to manage those risks to the desired level. 

INTERNAL CONTROL 

The key elements of the Group’s system of internal controls are as follows:- 

• An organisational structure specifying lines of responsibility and delegation of authority. 

• The Financial Authority Limits delineate authorization limits for securing of jobs and services, purchases of 

goods and/or services and capital expenditure for each level of management within the Group to ensure proper 

identification of accountabilities and segregation of duties. 

• Management executive meetings are conducted regularly for performance review at certain operations 

level. 

• The Executive Directors and senior management visit fabrication shops and aware of the state of affairs and 

progress of the projects and/or subsidiaries’ businesses. 

• The Group Quality Assurance department conducts routine internal quality audits at most of the fabrication 

shops and monitors to ensure their operational processes are in accordance with the ISO 9001: 2000 Quality 

Systems. 

• The Group Health, Safety and Environment department carries out ongoing safety activities at certain fabrication 

shops. 

• The Board and Audit Committee review the operational and financial performance of the Group at quarterly 

Board and Audit Committee meetings. 

The Head of the Group Internal Audit Department reports directly to the Audit Committee of the Group functionally 

to preserve the independence of the function. The internal audit work is focused on areas of priority in accordance 

with its annual audit plan as approved by the Audit Committee. 


37 


STATEMENT ON 

INTERNAL CONTROL (CONT’D) 

ASSOCIATED COMPANIES 

The Group’s system of internal controls does not cover associated companies. 

MONITORING 

The system of internal controls will continue to be reviewed, added to or updated by the Board in line with the changes 

in operating environment. 

The Board is pleased to report that there were no material losses or contingencies requiring disclosure in the 

Company’s Annual Report 2008 under review as a result from weaknesses in internal control. 


38 


ANALYSIS OF 

SHAREHOLDINGS as at 18 MAY 2009 

Authorised Share Capital : RM1,250,000,000.00 

Issued and Paid-up Share Capital : RM997,805,093.75* 

Class of Shares : Ordinary shares of RM0.25 each 

Voting Rights : On show of hand - 1 vote for each shareholder 

On a poll - 1 vote for each share held 

* Inclusive of 44,579,500 treasury shares 

DISTRIBUTION OF Shareholdings (as per Record of Depositors as at 18 May 2009) 

No. of 

No. of 

Range of Shareholdings Shareholders % Shares % # 

Less than 100 52 0.16 2,444 0.00 

100 to 1,000 1,791 5.40 1,531,041 0.04 

1,001 to 10,000 18,149 54.69 102,718,049 2.60 

10,001 to 100,000 11,481 34.59 367,511,784 9.31 

100,001 to less than 5% of issued shares^ 1,708 5.15 2,122,245,731 53.78 

5% and above of issued shares 4 0.01 1,352,631,826 34.27 

TOTAL 33,185 100.00 3,946,640,875 100.00 

^ Excluding 44,579,500 treasury shares 

THIRTY LARGEST SHAREHOLDERS (as per Record of Depositors as at 18 May 2009) 

No. Name of Shareholders No. of Shares Held % # 

1. Inter Merger Sdn Bhd 479,636,322 12.15 

2. CIMSEC Nominees (Tempatan) Sdn Bhd 368,053,400 9.33 

- CIMB Bank Bhd for Inter Merger Sdn Bhd 

3. Employees Provident Fund Board 273,791,104 6.94 

4. Cartaban Nominees (Asing) Sdn Bhd 231,151,000 5.86 

- SSBT Fund HG22 for SMALLCAP World Fund, Inc. 

5. HSBC Nominees (Asing) Sdn Bhd 146,106,375 3.70 

- Exempt AN for JPMorgan Chase Bank, National Association (U.S.A.) 

6. Tegas Klasik Sdn Bhd 71,842,908 1.82 

7. Lembaga Tabung Haji 64,777,100 1.64 


- BBH And Co Boston for Matthews Pacific Tiger Fund 

9. AllianceGroup Nominees (Tempatan) Sdn Bhd 43,167,550 1.09 

- PHEIM Asset Management Sdn Bhd for Employees Provident Fund 


- PICTET And CIE for VKF Investment Ltd 


- Exempt AN for JPMorgan Chase Bank, National Association 

(Norges Bank) 


- Exempt AN for JPMorgan Chase Bank, National Association (U.K.) 


39 


ANALYSIS OF 

SHAREHOLDINGS as at 18 MAY 2009 (CONT’D) 

THIRTY LARGEST SHAREHOLDERS (CONT’D) 

No. Name of Shareholders No. of Shares Held % # 



(Saudi Arabia) 


- SSBT Fund HG19 Global Small Capitalization (AM Funds INS SR) 

15. Citigroup Nominees (Asing) Sdn Bhd 31,923,000 0.81 

- CIPLC for UBS (Lux) Equity Sicav-Emerging Markets Growth 

16. HSBC Nominees (Tempatan) Sdn Bhd 28,000,000 0.71 

- Nomura Asset Management Malaysia for Employees Provident Fund 

17. Lee Swee Eng 25,650,000 0.65 


- State Street London Fund JY67 for the Emerging Markets Equity 

Fund (RIC Plc) 


- SSBT Fund ILNO for The Genesis Group Trust Employees 

Benefit Plans 


- SSBT Fund D26J for Emerging Markets Global Small 

Capitalization Fund (TEMMUF) 


- SSBT Fund IE1J for Van ECK Worldwide Insurance Trust 

Worldwide Emerging Markets Fund 


- State Street Luxembourg Fund AD07 for Allianz Global 

Investors Fund-Allianz RCM Little Dragons 

23. DB (Malaysia) Nominee (Tempatan) Sdn Bhd 16,797,675 0.43 

- Exempt AN for Deutsche Trustee Malaysia Berhad (MYETF-DJIM25) 

24. Gan Siew Liat 16,790,000 0.43 



(Netherlands) 


- Credit Suisse Securities (Europe) Limited for Goldman Sachs 

GSIP Master Company (Ireland) Limited 


- CBNY for DFA Emerging Markets Fund 


- ING Insurance Berhad (Inv-IL Par) 

29. Ooi Cheow Har 15,667,500 0.40 


- BBH (Lux) SCA for Fidelity Funds (Thailand) 

TOTAL 2,233,353,809 56.59 


40 


ANALYSIS OF 

SHAREHOLDINGS as at 18 MAY 2009 (CONT’D) 

SHAREHOLDINGS OF SUBSTANTIAL SHAREHOLDERS (as per Register of Substantial Shareholders of the 

Company as at 18 May 2009) 

No. of Shares Held 

Name of Shareholders Direct % # Indirect % # 

Inter Merger Sdn Bhd 851,827,337 21.58 – – 

Ir Lee Swee Eng 77,034,745 1.95 923,670,245 a 23.40 

Gan Siew Liat 16,790,000 0.43 923,670,245 b 23.40 

Chew Fook Sin 12,229,200 0.31 923,670,245 c 23.40 

Employees Provident Fund Board 392,582,104 9.95 – – 

SMALLCAP World Fund, Inc. 231,151,000 5.86 – – 

DIRECTORS’ interests in shares IN KNM GROUP BERHAD and related corporation (as per 

Register of Directors’ Shareholdings of the Company as at 18 May 2009) 

No. of Shares Held in KNM Group Berhad 

Name of Directors Direct % # Indirect % # 

Dato’ Mohamad Idris bin Mansor 1,125,000 0.03 – – 

Ir Lee Swee Eng 77,034,745 1.95 923,670,245 a 23.40 

Lim Yu Tey 4,287,500 0.11 – – 

Dato’ Ab Halim bin Mohyiddin 5,950,000 0.15 – – 

Lee Hui Leong 2,240,000 0.06 71,842,908 d 1.82 

Gan Siew Liat 16,790,000 0.43 923,670,245 b 23.40 

Chew Fook Sin 12,229,200 0.31 923,670,245 c 23.40 

Ng Boon Su – – – – 

No. of unexercised options 

over ordinary shares of RM0.25 each 

pursuant to KNM Group Berhad’s 

Employees’ Share Option Scheme 

Name of Directors as at 18 May 2009 

Dato’ Mohamad Idris bin Mansor – 

Ir Lee Swee Eng – 

Lim Yu Tey 400,000 

Dato’ Ab Halim bin Mohyiddin 800,000 

Lee Hui Leong – 

Gan Siew Liat – 

Chew Fook Sin – 

Ng Boon Su – 

No. of Shares Held in 

KPS Technology & Engineering LLC 

Name of Director Direct % Indirect % 

Ir Lee Swee Eng 100,000 10.0 600,000 e 60.0 

Notes: 

# Percentage interest is based on the total issued and paid-up share capital of RM986,660,218.75 comprising 3,946,640,875 

ordinary shares and excludes 44,579,500 treasury shares held as at 18 May 2009. 

a Deemed interested by virtue of his indirect interest in Inter Merger Sdn Bhd (“IMSB”) and direct interest in Tegas Klasik Sdn 

Bhd (“TKSB”). 

b Deemed interested by virtue of her indirect interest in IMSB. 

c Deemed interested by virtue of his direct interest in TKSB, and by virtue of his sister-in-law, Gan Siew Liat’s indirect interest 

in IMSB. 

d Deemed interested by virtue of his direct interest in TKSB. 

e Deemed interested by virtue of his direct and indirect interests in KNM Group Berhad. 


41 


LIST OF MAJOR 

PROPERTIES OWNED BY THE GROUP AS AT 31 DECEMBER 2008 

Approximate Date of Net Book 

Built-up Age of the Acquisition/ Value 

Location Existing Use Tenure Land Area Area Building Revaluation (RM’000) 

1. Via Valtrighe, 5 & 6 - 24030 (i) Fabrication plant – – 48,582 m 2 1st phase - 31-12-2006 } 152,189 

Terno d’lsola (BG), Italy & 43 years; } 

2nd phase - } 

18 years } 

} 

(ii) Staff house – – 396 m 2 49 years – } 

} 

(iii) Staff house – – 120 m 2 28 years – } 

} 

(iv) Agricultural area – 22,595 m 2 – – – } 

} 

(v) Industrial area – 194,660 m 2 – – – } 

} 

Via Italia, - 24030 (vi) Reserved land area – 3,225 m 2 – – 31-12-2006 } 

Mapello (BG), ltaly } 

2. 6204-46 Ave (i) Industrial land – 457,299 m 2 – – 6-4-2007 } 35,094 

Tofield, AB TOB 450 } 

Canada (ii) Fabrication plant – – 9,862 m 2 – 6-4-2007 } 

and office building } 

3. Jiangsu Province (i) Industrial land Leasehold 33,537 m 2 – – 27-12-2004 } 33,601 

Changshu Economic (50 years) } 

Development Area expiring on } 

“Chang Guo Yong 9-7-2052 } 

(2002) Zi No. 192” } 

& “Chang Guo Yong (ii) Fabrication plant Leasehold – 17,380 m 2 7 years 27-12-2004 } 

(2007) Zi No. 001982” and office building (50 years) } 

China expiring on } 

9-7-2052 } 

} 

(iii) Industrial land Leasehold 33,333 m 2 – – 31-12-2008 } 

(50 years) } 

expiring on } 

5-5-2057 } 

} 

(iv) Fabrication plant Leasehold – 20,868 m 2 – 31-12-2008 } 

and office building (50 years) } 

expiring on } 

5-5-2057 } 

4. Lot PT 7552, HS(D) 17934 (i) Industrial land Leasehold 36,420 m 2 – – 31-12-2004 } 32,841 

Mukim Sungai Karang (66 years) } 

District Kuantan expiring on } 

Pahang Darul Makmur & 1-6-2064 } 

} 

(ii) Fabrication plant – – 17,111 m 2 9 years 31-12-2004 } 


} 

Lot 75, Jalan Gebeng (iii) Fabrication plant – 38,856 m 2 6,859 m 2 4 years 17-4-2005 } 

1/6 Kawasan and office building } 

Perindustrian Gebeng } 

Mukim Sungai Karang (iv) Fabrication plant – – 3,150 m 2 – 17-4-2005 } 

26080 District Kuantan } 

Pahang Darul Makmur } 


42 


LIST OF MAJOR 

PROPERTIES OWNED BY THE GROUP AS AT 31 DECEMBER 2008 (CONT’D) 

Approximate Date of Net Book 

Built-up Age of the Acquisition/ Value 

Location Existing Use Tenure Land Area Area Building Revaluation (RM’000) 

5. Lot –Rodovia BR-101 (i) Vacant land Freehold 20,000 m 2 – – 12-3-2007 } 31,063 

Km279 Distrito de, Serra } 

Espirito Santo, Brazil } 

} 

Piranema Street, corner (ii) Vacant land Freehold 2,388.6 m 2 – – 31-12-2007 } 

Republic Square and } 

Ceciliano Adel de Almeida } 

Street, Serra } 


} 

Lot-Luiz Prestes Street (iii) Vacant land Freehold 1,746.5 m 2 – – 31-12-2007 } 

corner Jacob Dalla Street } 

Serra, Espirito Santo, Brazil } 

} 

Lot –North Road BR-101 (iv) Fabrication plant Freehold 190,000 m 2 9,658.21 m 2 8 years 31-12-2007 } 

Sooretama and office building } 


} 

Lot –Castelo Branco Avenue (v) Fabrication plant Freehold 25,500 m 2 9,790.4 m 2 30 years 31-12-2007 } 

1577 Carapina, Serra and office building } 


6. Lot 1863, Mukim Sungai (i) Fabrication plant – 41,600 m 2 4,809 m 2 4 years 15-2-2005 } 23,289 

Karang, Daerah Kuantan and office building } 

Negeri Pahang } 

(ii) Fabrication plant – 50,741.3 m 2 10,800 m 2 – 17-5-2007 } 

} 

(iii) Fabrication plant – – 7,200 m 2 – 17-5-2007 } 

7. HS(D) 30211, 30212 & 30213 (i) Industrial land Leasehold 18,268 m 2 – – 31-12-2004 } 23,115 

Mukim Tanjong Minyak (Lot 523) (99 years) } 

District Melaka Tengah expiring on } 

Melaka 28-5-2094 } 

} 

(ii) Industrial land Leasehold 5,145 m 2 6,612 m 2 5 years 31-12-2004 } 

(Lot 522) (99 years) } 

expiring on } 

28-5-2094 } 

} 

(iii) Industrial land Leasehold 5,972 m 2 – – – } 

(Lot 521) (99 years) } 

expiring on } 

28-5-2094 } 

} 

(iv) Fabrication plant – – 10,279.6 m 2 17 years 31-12-2004 } 


(Lot 523) } 

8. Jebel Ali Free Zone Fabrication plant – – 23,000 m 2 17 years 1-9-2004 21,206 

Dubai, UAE 

and office building 

9. Bottroper Strasse 279 Land & building Freehold 26,290 m 2 6,363 m 2 47 years 19-1-2005/ 17,536 

Gladbeck 2-6-2008 

Germany 

10. Dennheritzer Strasse 3 Fabrication plant – 11,500 m 2 5,300 m 2 3 years 6-3-2006 17,379 

Meerane 

and office building 

Germany 


43 


FINANCIAL 

STATEMENTS 

45 Directors' Report 

51 Balance Sheets 

53 Income Statements 

54 Consolidated Statement of 

Changes in Equity 

56 Statement of Changes in Equity 

57 Cash Flow Statements 

60 Notes to the Financial Statements 

118 Statement by Directors 

118 Statutory Declaration 

119 Independent Auditors’ Report

DIRECTORS’ 

REPORT for year ended 31 DECEMBER 2008 

The Directors have pleasure in submitting their report and the audited financial statements of the Group and of the 

Company for the year ended 31 December 2008. 

Principal activities 

The Company is principally engaged in investment holding and provision of management services, whilst the principal 

activities of the subsidiaries are as stated in Note 31 to the financial statements. There has been no significant change 

in the nature of these activities during the financial year. 

Results 

Group 

RM’000 

Company 

RM’000 

Profit attributable to: 

Shareholders of the Company 336,383 69,594 

Minority interest (151) – 

336,232 69,594 

Reserves and provisions 

There were no material transfers to or from reserves and provisions during the year except as disclosed in the 

financial statements. 

Dividends 

Since the end of the previous financial year, the Company paid an interim ordinary dividend of 4 sen per share less 

tax at 26% totaling RM31,065,463 (2.96 sen net per share) in respect of the year ended 31 December 2007 on 18 

April 2008. 

On 24 February 2009, the Board of Directors declared an interim ordinary dividend of 1 sen per share less tax at 

25% totaling RM29,524,538 (0.75 sen net per share) and 0.5 sen per share tax exempt totaling RM19,683,029 in 

respect of the year ended 31 December 2008. The dividend was paid on 18 March 2009. 

No final dividend is recommended to be paid for the year under review. 

Directors of the Company 

Directors who served since the date of the last report are: 


Lee Swee Eng 

Dato’ Ab. Halim bin Mohyiddin 

Lim Yu Tey 

Lee Hui Leong 

Gan Siew Liat 

Chew Fook Sin 

Ng Boon Su 


45 


DIRECTORS’ 


Directors of the Company (CONT'D) 

The interests and deemed interests in the shares and options over ordinary shares of the Company and of its related 

corporations (other than wholly-owned subsidiaries) of those who were Directors at year end (including the interest 

of the spouses or children of the Directors who themselves are not Directors of the Company) as recorded in the 

Register of Directors’ Shareholdings are as follows: 

Shareholdings in 

which Directors 

have direct interests 

in the Company 

Number of ordinary shares of RM0.25 each 

Exercise 

At of options/ Bonus Rights At 

1.1.2008 Bought issue issue Sold 31.12.2008 

Dato’ Mohamad Idris 

bin Mansor – 300,000 750,000 75,000 – 1,125,000 

Lee Swee Eng 7,200,000 21,001,000 36,895,830 6,537,915 – 71,634,745 

Dato’ Ab. Halim 

bin Mohyiddin 1,200,000 200,000 3,500,000 350,000 – 5,250,000 

Lim Yu Tey 1,050,000 – 2,525,000 262,500 (50,000) 3,787,500 

Lee Hui Leong 1,080,000 2,161,873 2,500,000 – (5,741,873) – 

Gan Siew Liat 240,000 9,680,000 3,300,000 330,000 – 13,550,000 

Chew Fook Sin 40,800 2,180,000 5,992,800 775,600 – 8,989,200 

Shareholdings in 

which Directors 

have indirect interests 

in the Company 

Lee Swee Eng 281,688,000 12,241,524 656,377,230 45,635,091 (72,271,600) 923,670,245 

Lee Hui Leong 23,947,636 – 47,895,272 – – 71,842,908 

Gan Siew Liat 281,688,000 12,241,524 656,377,230 45,635,091 (72,271,600) 923,670,245 

Chew Fook Sin 281,688,000 12,241,524 656,377,230 45,635,091 (72,271,600) 923,670,245 

Number of options over ordinary shares of RM0.25 each 

At Bonus At 

Company 1.1.2008 issue Granted Exercised 31.12.2008 

Dato’Mohamad Idris 

bin Mansor – – 300,000 (300,000) – 

Lee Swee Eng 5,400,000 3,600,000 – (3,600,000) 5,400,000 

Dato’Ab. Halim 

bin Mohyiddin 900,000 1,400,000 – (200,000) 2,100,000 

Lim Yu Tey 300,000 600,000 – – 900,000 

Lee Hui Leong 1,080,000 2,160,000 – – 3,240,000 

Gan Siew Liat 2,160,000 2,160,000 – (1,080,000) 3,240,000 

Chew Fook Sin 2,160,000 2,160,000 – (1,080,000) 3,240,000 


46 


DIRECTORS’ 


Directors of the Company (CONT'D) 

Number of ordinary shares of USD1 each 

Date of 

At 

incorporation Bought Exercised 31.12.2008 

Shareholdings in which a 

Director have direct interest in 

a subsidiary - KPS Technology 

& Engineering LLC 

Lee Swee Eng 100,000 – – 100,000 

By virtue of their interests in the Company, Lee Swee Eng, Gan Siew Liat and Chew Fook Sin are also deemed to 

have interests in the subsidiaries during the financial year to the extent that KNM Group Berhad has an interest. 

None of the other Directors holding office at 31 December 2008 had any interest in the ordinary shares of the 

Company and of its related corporations during the financial year. 

Directors’ benefits 

Since the end of the previous financial year, no Director of the Company has received nor become entitled to receive 

any benefit (other than a benefit included in the aggregate amount of emoluments received or due and receivable 

by certain Directors as shown in the financial statements or the fixed salaries of full time employees of the Company 

or of related corporation) by reason of a contract made by the Company or a related corporation with the Director or 

with a firm of which the Director is a member, or with a corporation in which the Director has a substantial financial 

interest, other than as disclosed in Note 27 to the financial statements. 

There were no arrangements during and at the end of the financial year which had the object of enabling Directors 

of the Company to acquire benefits by means of the acquisition of shares in or debentures of the Company or any 

other body corporate apart from the options granted pursuant to the Employees’ Share Option Scheme (“ESOS”) 

of the Company. 

Issue of shares and debentures 

During the financial year, the authorised share capital of the Company was increased from RM300,000,000 comprising 

1,200,000,000 ordinary shares of RM0.25 each to RM1,250,000,000 comprising 5,000,000,000 ordinary shares of 

RM0.25 each by the creation of an additional 3,800,000,000 ordinary shares of RM0.25 each. 

During the financial year, the Company issued: 

(a) 

(b) 

(c) 

(d) 

right issue of 263,735,925 new ordinary shares of RM0.25 each at an issue price of RM4.00 per share on the 

basis of one (1) new ordinary share for every four (4) existing ordinary shares held. 

bonus issue of 2,637,394,050 new ordinary shares on the basis of two (2) new ordinary share of RM0.25 each 

for every one (1) existing ordinary shares held via capitalisation of the share premium. 

7,621,200 new ordinary shares of RM0.25 each for cash arising from the exercise of employees’ share option 

at an exercise price of RM0.27 per ordinary share. 

2,342,300 new ordinary shares of RM0.25 each for cash arising from the exercise of employees’ share option 



47 


DIRECTORS’ 


Issue of shares and debentures (CONT'D) 

(e) 

(f) 

463,700 new ordinary shares of RM0.25 each for cash arising from the exercise of employees’ share option 


300,000 new ordinary shares of RM0.25 each for cash arising from the exercise of employees’ share option 


All the ordinary shares issued rank pari passu in all respect with the existing shares of the Company. 

There were no other changes in the authorised, issued and paid-up capital of the Company during the financial 

year. 

There were no debentures issued during the financial year. 

Options granted over unissued shares 

No options were granted to any person to take up unissued shares of the Company during the year apart from the 

issue of options pursuant to the Employees’ Share Option Scheme of the Company. 

Employees’ share option scheme (“ESOS”) 

At an Extraordinary General Meeting held on 22 July 2004, the Company’s shareholders approved the establishment 

of an ESOS of not more than 15% of the issued share capital of the Company. 

The options offered to take up unissued ordinary shares of RM0.25 each and the option prices are as follow:- 


Date of Exercise At Bonus At 

offer price * 1.1.2008 issue Granted Exercised Lapsed 31.12.2008 

RM ’000 ’000 ’000 ’000 ’000 ’000 

25.08.2004 0.25 21,785 29,503 – (9,013) (325) 41,950 

07.12.2005 0.25 1,853 2,900 – (455) (2) 4,296 

27.03.2008 4.58 – – 300 (300) – – 

* During the financial year, the Company had a bonus issue of 2,637,394,050 new ordinary shares of RM0.25 

each. This has resulted in an adjustment in the exercise price of the ESOS offered on 25 August 2004 of 

RM0.27 and on 7 December 2005 of RM0.48 to RM0.25. 

The salient features of the scheme are as follows: 

(i) 

(ii) 

(iii) 

(iv) 

Subject to the discretion of the ESOS Committee, any employee of at least eighteen (18) years of age on the 

date of offer, shall be eligible to participate. 

The option is personal to the grantee and is non-assignable, non-transferable and non-disposable. 

The option price shall be determined by the weighted average of the market price of the shares as shown 

in the daily official list issued by the Bursa Securities for the five (5) Market Days immediately preceding the 

dates of offer subject to a discount of not more than ten percent (10%) thereto to be decided by the ESOS 

committee or at the par value of the share, whichever is higher. 

The options shall not carry any right to vote at any general meeting of Company and the grantee shall not be 

entitled to any dividends, rights, allotments and or other distributions on his/her unexercised options. 


48 


DIRECTORS’ 


Options granted over unissued shares (CONT'D) 

Employees’ share option scheme (“ESOS”) (Cont’d) 

(v) 

(vi) 

The options granted may be exercised in respect of such lesser number of new shares as the grantee may 

decide provided that the number shall be in multiples of and not less than one hundred (100) new shares. 

The new shares to be allotted and issued upon any exercise of the options will upon such allotment and 

issuance, rank pari passu in all respect with the then existing issued and fully paid-up shares. 

The persons to whom the options have been granted have no rights to participate by virtue of the options in any 

share issue of any other company. 

The options offered to take up unissued ordinary shares of RM0.25 each and the exercise price during the year is 

as follows: 


Name Date of Exercise At At 

offer price 1.1.2008 Granted Exercised 31.12.2008 

RM ‘000 ‘000 ‘000 ‘000 

Dato’Mohamad Idris 

bin Mansor 27.03.2008 4.58 – 300 (300) – 

Share buy-back 

On 17 June 2008, the shareholders of the Company approved the Company’s plan to repurchase its own shares as 

disclosed in Note 14.5 to the financial statements. During the financial year, the Company repurchased 36,635,100 

of its issued ordinary shares of RM0.25 each (“KNM Shares”) listed on the Main Board of Bursa Securities from the 

open market at an average price of RM0.57 per share. The total consideration paid was RM21,048,614 including 

transaction costs of RM42,916. The repurchase transactions were financed by internally generated funds. The 

shares repurchased are retained as treasury shares. None of the treasury shares held were resold or cancelled 

during the financial year. 

As at 31 December 2008, the Company held 36,635,100 KNM Shares as treasury shares out of its total issued 

and paid-up share capital. Hence, the number of outstanding shares in issue and paid up after the set off as at 31 

December 2008 is 3,921,804,875 ordinary shares of RM0.25 each. 

Other statutory information 

Before the balance sheets and income statements of the Group and of the Company were made out, the Directors 

took reasonable steps to ascertain that: 

(i) 

(ii) 

all known bad debts have been written off and adequate provision made for doubtful debts, and 

all current assets have been stated at the lower of cost and net realisable value. 

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

(i) 

(ii) 

that would render the amount written off for bad debts, or the amount of the provision for doubtful debts, in the 

Group and in the Company inadequate to any substantial extent, or 

that would render the value attributed to the current assets in the Group and in the Company financial statements 

misleading, or 


49 


DIRECTORS’ 


Other statutory information (CONT'D) 

(iii) 

(iv) 

which have arisen which render adherence to the existing method of valuation of assets or liabilities of the 

Group and of the Company misleading or inappropriate, or 

not otherwise dealt with in this report or the financial statements, that would render any amount stated in the 

financial statements of the Group and of the Company misleading. 

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

(i) 

(ii) 

any charge on the assets of the Group or of the Company that has arisen since the end of the financial year 

and which secures the liabilities of any other person, or 

any contingent liability in respect of the Group or of the Company that has arisen since the end of the financial 

year. 

No contingent liability or other liability of any company in the Group has become enforceable, or is likely to become 

enforceable within the period of twelve months after the end of the financial year which, in the opinion of the Directors, 

will or may substantially affect the ability of the Group and of the Company to meet their obligations as and when 

they fall due. 

In the opinion of the Directors, except for the effect arising from acquisition of the subsidiaries as disclosed in Note 

32 to the financial statements, the results of the operations of the Group and of the Company for the financial year 

ended 31 December 2008 have not been substantially affected by any item, transaction or event of a material and 

unusual nature nor has any such item, transaction or event occurred in the interval between the end of that financial 

year and the date of this report. 

Significant events during the year 

The significant events during the year are as disclosed in Note 30 to the financial statements. 

Auditors 

The auditors, Messrs KPMG, have indicated their willingness to accept re-appointment. 

Signed on behalf of the Board of Directors in accordance with a resolution of the Directors: 


Lee Swee Eng 

Kuala Lumpur, 

Date: 28 April 2009 


50 


BALANCE 

SHEETS AT 31 DECEMBER 2008 

Group 

Company 

Note 2008 2007 2008 2007 

RM’000 RM’000 RM’000 RM’000 

Assets 

Property, plant and equipment 3 734,655 468,973 – – 

Goodwill 4 928,168 6,672 – – 

Other intangible asset 4 845,806 – – – 

Prepaid lease payments 5 18,022 15,826 – – 

Investments in subsidiaries 6 – – 36,686 36,686 

Investments in associates 7 2,212 – – – 

Other investments 8 2,720 2,474 – – 

Deferred tax assets 9 36,351 37,664 556 – 

Amount due from subsidiaries 10 – – 1,217,170 249,761 

Total non-current assets 2,567,934 531,609 1,254,412 286,447 

Inventories 11 97,166 62,185 – – 

Receivables, deposits and 

prepayments 12 1,251,168 547,925 87,713 3 

Current tax assets 16,492 2,659 – – 

Cash and cash equivalents 13 516,303 105,330 11,304 335 

Total current assets 1,881,129 718,099 99,017 338 

Total assets 4,449,063 1,249,708 1,353,429 286,785 

Equity 

Share capital 989,610 261,646 989,610 261,646 

Reserves 217,600 (7,541) 298,420 862 

Retained earnings 606,683 301,365 61,503 22,974 

Total equity attributable to 

equity holders of the Company 14 1,813,893 555,470 1,349,533 285,482 

Minority interest 6,224 199 – – 

Total equity 1,820,117 555,669 1,349,533 285,482 


51 


BALANCE 

SHEETS AT 31 DECEMBER 2008 (CONT’D) 

Group 

Company 


RM’000 RM’000 RM’000 RM’000 

Liabilities 

Loans and borrowings 15 296,722 45,007 – – 

Long term payables 16 30,672 33,345 – – 

Long service leave liability 2,514 2,832 – – 

Deferred tax liabilities 9 429,361 53,855 – – 

Total non-current liabilities 759,269 135,039 – – 

Payables and accruals 17 702,611 310,379 3,131 1,062 

Loans and borrowings 15 1,133,667 220,907 – – 

Current tax liabilities 33,399 27,714 765 241 

Total current liabilities 1,869,677 559,000 3,896 1,303 

Total liabilities 2,628,946 694,039 3,896 1,303 

Total equity and liabilities 4,449,063 1,249,708 1,353,429 286,785 

The notes on pages 60 to 117 are an integral part of these financial statements. 


52 


INCOME 

STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 

Group 

Company 


RM’000 RM’000 RM’000 RM’000 

Revenue 

Contract revenue 2,515,412 1,230,116 – – 

Sales of goods and services 13,338 – – – 

Management fees – – 10,194 8,013 

Dividend income – – 67,000 96,817 

2,528,750 1,230,116 77,194 104,830 

Cost of sales 

Contract costs recognised 

as an expense (1,810,588) (911,727) – – 

Cost of goods sold and services (11,772) – – – 

(1,822,360) (911,727) – – 

Gross profit 706,390 318,389 77,194 104,830 

Other income 85,987 19,080 – – 

Administration expenses (194,317) (83,190) (7,624) (3,671) 

Other operating expenses (86,528) (29,298) – – 

Results from operating activities 19 511,532 224,981 69,570 101,159 

Goodwill written off – (1,050) – – 

Financing costs 20 (64,643) (9,875) (3) (542) 

Interest income 6,832 1,302 1,403 545 

Profit before tax 453,721 215,358 70,970 101,162 

Tax expense 21 (117,489) (28,882) (1,376) (18,639) 

Profit for the year 336,232 186,476 69,594 82,523 

Attributable to: 

Equity holders of the Company 336,383 188,133 69,594 82,523 

Minority interest (151) (1,657) – – 


Basic earnings per 

ordinary share (sen) 22 8.80 5.12 

Diluted earnings per 

ordinary share (sen) 22 8.71 5.05 

Dividend per ordinary share 

(sen) - net 23 2.96 5.00 2.96 5.00 



53 


CONSOLIDATED STATEMENT OF CHANGES IN 

EQUITY FOR THE YEAR ENDED 31 DECEMBER 2008 

Group Non-Distributable Distributable 

Share 

Share Share Revaluation Translation option Treasury Retained Minority Total 

Note capital premium reserve reserve reserve Shares earnings Total interest equity 

RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 

At 1 January 2007 128,891 55,837 6,735 (523) 541 – 198,849 390,330 14,702 405,032 

Foreign exchange 

translation differences – – – (4,152) – – – (4,152) 439 (3,713) 

Net gain on hedge of net 

investment in 

foreign subsidiary – – – (10,521) – – – (10,521) – (10,521) 

Expenses not recognised 

in income statement 

- Share issue expenses – (260) – – – – – (260) – (260) 

Derecognition of deferred 

tax liabilities arising from 

Real Propery Gains 

Tax Exemption – – 58 – – – – 58 – 58 

Net gains recognised 

directly in equity – (260) 58 (14,673) – – – (14,875) 439 (14,436) 

Profit for the year – – – – – – 188,133 188,133 (1,657) 186,476 

Total recognised income and 

expense for the year – (260) 58 (14,673) – – 188,133 173,258 (1,218) 172,040 

Issuance of shares 

- ESOS 3,232 1,477 – – – – – 4,709 – 4,709 

- Bonus issue 129,523 (56,858) – – – – (72,665) – – – 

Share-based payments 18 – – – – 125 – – 125 – 125 

Dividend to shareholders 23 – – – – – – (12,952) (12,952) – (12,952) 

Acquisition of minority interest 32 – – – – – – – – (13,285) (13,285) 

Transfer to share premium for 

share options exercised – 375 – – (375) – – – – – 

At 31 December 2007/ 

1 January 2008 261,646 571 6,793 (15,196) 291 – 301,365 555,470 199 555,669 

Note 14.1 Note 14.2 Note 14.3 Note 14.4 


54 


CONSOLIDATED STATEMENT OF CHANGES IN 

EQUITY FOR THE YEAR ENDED 31 DECEMBER 2008 (CONT’D) 

Group Non-Distributable Distributable 

Share 

Share Share Revaluation Translation option Treasury Retained Minority Total 

Note capital premium reserve reserve reserve Shares earnings Total interest equity 

RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 

At 1 January 2008 261,646 571 6,793 (15,196) 291 – 301,365 555,470 199 555,669 

Foreign exchange translation 

differences – – – (80,756) – – – (80,756) 48 (80,708) 

Net gain on hedge of net 

investment in foreign 

subsidiary – – – 7,869 – – – 7,869 – 7,869 

Expenses not recognised 

in income statement 

- Share issue expenses – (13,221) – – – – – (13,221) – (13,221) 

Reduction of deferred tax 

liabilities arising from 

changes in deferred 

tax rate used – – 470 – – – – 470 – 470 

Net gains recognised 

directly in equity – (13,221) 470 (72,887) – – – (85,638) 48 (85,590) 

Profit for the year – – – – – – 336,383 336,383 (151) 336,232 


expense for the year – (13,221) 470 (72,887) – – 336,383 250,745 (103) 250,642 


- ESOS 2,682 1,558 – – – – – 4,240 – 4,240 

- Rights issue 65,934 989,010 – – – – – 1,054,944 – 1,054,944 

- Bonus issue 659,348 (659,348) – – – – – – – – 

Acquisition of equity interest 

in subsidiaries – – – – – – – – 6,327 6,327 

Share-based payments 18 – – – – 565 – – 565 – 565 

Dividend to shareholders 23 – – – – – – (31,065) (31,065) – (31,065) 

Acquisition of minority 

interest 32 – – – – – – – – (199) (199) 

Transfer to share premium for 

share options exercised – 569 – – (569) – – – – – 

Share buy-back – – – – – (21,006) – (21,006) – (21,006) 

At 31 December 2008 989,610 319,139 7,263 (88,083) 287 (21,006) 606,683 1,813,893 6,224 1,820,117 

Note 14.1 Note 14.2 Note 14.3 Note 14.4 Note 14.5 



55 


STATEMENT OF CHANGES IN 

EQUITY FOR THE YEAR ENDED 31 DECEMBER 2008 

Company Non-distributable Distributable 

Share 

Share Share option Treasury Retained 

capital premium reserve shares earnings Total 

Note RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 

At 1 January 2007 128,891 55,837 541 – 26,068 211,337 

Expenses not recognised in 

income statement 

- Share issue expenses – (260) – – – (260) 

Net gains recognised directly 

in equity – (260) – – – (260) 

Profit for the year – – – – 82,523 82,523 


expense for the year – (260) – – 82,523 82,263 


- ESOS 3,232 1,477 – – – 4,709 

- Bonus issue 129,523 (56,858) – – (72,665) – 

Share-based payments 18 – – 125 – – 125 

Dividend to shareholders 23 – – – – (12,952) (12,952) 

Transfer to share premium 

for share options exercised – 375 (375) – – – 


1 January 2008 261,646 571 291 – 22,974 285,482 

Expenses not recognised in 

income statement 

- Share issue expenses – (13,221) – – – (13,221) 

Net gains recognised directly 

in equity – (13,221) – – – (13,221) 

Profit for the year – – – – 69,594 69,594 


expense for the year – (13,221) – – 69,594 56,373 


- ESOS 2,682 1,558 – – – 4,240 

- Rights issue 65,934 989,010 – – – 1,054,944 

- Bonus issue 659,348 (659,348) – – – – 

Share-based payments 18 – – 565 – – 565 

Dividend to shareholders 23 – – – – (31,065) (31,065) 

Transfer to share premium 

for share options exercised – 569 (569) – – – 

Share buy-back – – – (21,006) – (21,006) 

At 31 December 2008 989,610 319,139 287 (21,006) 61,503 1,349,533 

Note 14.1 Note 14.4 Note 14.5 Note 14.6 



56 


CASH FLOW 

STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 

Group 

Company 


RM’000 RM’000 RM’000 RM’000 

Cash flows from 

operating activities 

Profit before tax 453,721 215,358 70,970 101,162 

Adjustments for: 

Amortisation of prepaid 

lease payments 193 162 – – 

Amortisation of intangible assets 33,670 – – – 

Depreciation of property, 

plant and equipment 6,301 2,524 – – 

Dividend income – – (67,000) (96,817) 

Loss/(Gain) on disposal of 

property, plant and equipment 163 (280) – – 

Gain on foreign exchange 

- unrealised (39,147) (6,239) – – 

Interest expenses 53,666 8,294 – 539 

Interest income (6,832) (1,302) (1,403) (545) 

Goodwill written off – 1,050 – – 

Share-based payments 565 125 532 70 

Provision for foreseeable losses 2,452 – – – 

Operating profit before changes in 

working capital 504,752 219,692 3,099 4,409 

Changes in working capital: 

Inventories (1,555) (37,429) – – 

Receivables, deposits and 

prepayments (365,569) (98,082) (7,919) 78 

Payables and accruals 145,394 18,660 2,069 (68,569) 

Cash generated from/(used in) 

operations 283,022 102,841 (2,751) (64,082) 

Tax paid (115,092) (22,780) (1,408) (2,733) 

Interest paid (426) (1,097) – – 

Interest received 6,832 1,302 1,403 545 

Net cash generated from/ 

(used in) operating activities 174,336 80,266 (2,756) (66,270) 


57 


CASH FLOW 

STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (CONT’D) 

Group 

Company 


RM’000 RM’000 RM’000 RM’000 

Cash flows from 

investing activities 

Acquisition of other intangible 

assets (6,856) – – – 

Acquisition of minority interest (199) (15,924) – – 

Acquisition of other investments (114) – – – 

Acquisition of prepaid lease 

payments (1,790) (4,625) – – 

Acquisition of property, plant and 

equipment (ii) (149,976) (98,045) – – 

Acquisition of subsidiaries, 

net of cash acquired 32.1 (1,608,909) – – – 

Advances to subsidiary 

companies – – (1,047,167) (13,091) 

Dividend received – – 67,000 79,500 

Increase in investment in associate (291) – – – 

Increase in investment in subsidiary – – – (500) 

Proceeds from disposal of property, 

plant and equipment 1,460 1,551 – – 

Proceeds from issuance of shares 

to minority interest 210 200 – – 

Net cash used in 

investing activities (1,766,465) (116,843) (980,167) 65,909 

Cash flows from financing activities 

Dividend paid to shareholders 

of the Company (31,065) (12,952) (31,065) (12,952) 

Finance charges/Interest paid (53,609) (7,206) – (539) 

Proceeds from CP/MTN 215,000 92,000 – – 

Repayment of CP/MTN (115,000) – – – 

Proceeds from issuance of 

share capital 1,059,184 4,709 1,059,184 4,709 

Withdrawal of pledged deposits – 19,244 – – 

Proceeds/(Repayment) of 

bills payable 108,474 (175) – – 

Repayment of finance lease liabilities (377) (2,703) – – 

Proceeds from/(Repayment) 

of term loans 861,669 (15,896) – – 

Share issue expenses (13,221) (260) (13,221) (260) 

Share buy-back (21,006) – (21,006) – 

Net cash generated from/(used in) 

financing activities 2,010,049 76,761 993,892 (9,042) 

Net increase/(decrease) in cash 

and cash equivalents 417,920 40,184 10,969 (9,403) 

Cash and cash equivalents 

at 1 January 98,233 58,049 335 9,738 


at 31 December (i) 516,153 98,233 11,304 335 


58 


CASH FLOW 

STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (CONT’D) 

(i) 


Cash and cash equivalents included in the cash flow statements comprise the following balance sheet 

amounts: 

Group 

Company 

2008 2007 2008 2007 

RM’000 RM’000 RM’000 RM’000 

Cash and bank balances 361,024 73,483 11,304 335 

Deposits with licensed banks 

and financial institutions 155,279 31,847 – – 

Bank overdrafts (150) (7,097) – – 

516,153 98,233 11,304 335 

(ii) 

Acquisition of property, plant and equipment 

During the financial year, the Group acquired property, plant and equipment with an aggregate cost of 

RM150,583,000 (2007 – RM98,045,000), of which RM607,000 (2007 – Nil) was acquired by means of hire 

purchase. 



59 


NOTES TO THE 

FINANCIAL STATEMENTS 

KNM Group Berhad is a public limited liability company, incorporated and domiciled in Malaysia and is listed on the 

Main Board of the Bursa Malaysia Securities Berhad. The addresses of the principal place of business and registered 

office are as follows: 

Registered office and principal place of business 

15, Jalan Dagang SB 4/1 



Selangor Darul Ehsan 

The consolidated financial statements as at and for the year ended 31 December 2008 comprise the Company and 

its subsidiaries (together referred to as the Group) and the Group’s interest in associates. The financial statements 

of the Company as at and for the year ended 31 December 2008 do not include other entities. 

The Company is principally engaged in investment holding activities and provision of management services, whilst 

the principal activities of the subsidiaries are as stated in Note 31 to the financial statements. 

The financial statements were approved by the Board of Directors on 28 April 2009. 

1. Basis of preparation 

(a) 

Statement of compliance 

The financial statements of the Group and of the Company have been prepared in accordance with 

Financial Reporting Standards (FRS), accounting principles generally accepted and the Companies Act, 

1965 in Malaysia. These financial statements also comply with the applicable disclosure provisions of 

the Listing Requirements of the Bursa Malaysia Securities Berhad. 

The Group and the Company have not applied the following accounting standards (including its 

consequential amendments) and interpretations that have been issued by the Malaysian Accounting 

Standards Board (MASB) but are not yet effective: 

FRSs / Interpretations 

Effective date 

FRS 4, Insurance Contracts 1 January 2010 

FRS 7, Financial Instruments: Disclosures 1 January 2010 

FRS 8, Operating Segments 1 July 2009 

FRS 139, Financial Instruments: Recognition and Measurement 1 January 2010 

IC Interpretation 9, Reassessment of Embedded Derivatives 1 January 2010 

IC Interpretation 10, Interim Financial Reporting and Impairment 1 January 2010 

The Group and the Company plan to apply the abovementioned FRSs / Interpretations from the 

annual period beginning 1 January 2010 except for FRS 4 which is not applicable to the Group and the 

Company. 

The impact of applying FRS 7 and FRS 139 on the financial statements upon first adoption as required 

by paragraph 30(b) of FRS 108, Accounting Policies, Changes in Accounting Estimates and Errors is 

not disclosed by virtue of the exemptions given in the respective FRSs. Other than the implications as 

discussed below, the initial application of the above standards (and its consequential amendments) and 

interpretations is not expected to have any material impact on the financial statements of the Group and 

the Company. 


60 


NOTES TO THE 

FINANCIAL STATEMENTS (CONT’D) 

1. Basis of preparation (CONT'D) 

(a) 

Statement of compliance (Cont’d) 

FRS 8, Operating Segments 

FRS 8 will become effective for financial statements for the year ending 31 December 2010. FRS 8, 

which replaces FRS 114, Segment Reporting, requires identification and reporting of operating segments 

based on internal reports that are regularly reviewed by the entity’s chief operating decision maker in 

order to allocate resources to the segment and to assess its performance. Currently, the Group presents 

segment information in respect of its geographical segments (see note 29). Under FRS 8, the Group will 

continue to present segment information in respect of its operating geographical segments. 

(b) 

Basis of measurement 

The financial statements have been prepared on the historical cost basis except as disclosed in the 

notes to the financial statements. 

(c) 

Functional and presentation currency 

These financial statements are presented in Ringgit Malaysia (RM), which is the Company’s functional 

currency. All financial information is presented in RM and has been rounded to the nearest thousand, 

unless otherwise stated. 

(d) 

Use of estimates and judgements 

The preparation of financial statements requires management to make judgements, estimates and 

assumptions that affect the application of accounting policies and the reported amounts of assets, 

liabilities, income and expenses. Actual results may differ from these estimates. 

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting 

estimates are recognised in the period in which the estimate is revised and in any future periods 

affected. 

There are no significant areas of estimation uncertainty and critical judgements in applying accounting 

policies that have significant effect on the amount recognised in the financial statements other than those 

disclosed in the following note: 

• Note 3 - Depreciation of plant and machinery 

• Note 9 - Recognition of unutilised tax losses and unabsorbed capital allowances 

• Note 12.2 - Construction work-in-progress 

• Note 18 - Share-based payment 

• Note 32 - Business combinations 


61 


NOTES TO THE 


2. Significant accounting policies 

The accounting policies set out below have been applied consistently to the periods presented in these financial 

statements, and have been applied consistently by Group entities, unless otherwise stated. 

(a) 

Basis of consolidation 

(i) 

Subsidiaries 

Subsidiaries are entities controlled by the Group. Control exists when the Group has the ability to 

exercise its power to govern the financial and operating policies of an entity so as to obtain benefits 

from its activities. In assessing control, potential voting rights that presently are exercisable are 

taken into account. Subsidiaries are consolidated using the purchase method of accounting. 

Under the purchase method of accounting, the financial statements of subsidiaries are included 

in the consolidated financial statements from the date that control commences until the date that 

control ceases. 

Investments in subsidiaries are stated in the Company’s balance sheet at cost less any impairment 

losses. 

(ii) 

Associates 

Associates are entities in which the Group has significant influence, but not control, over the 

financial and operating policies. 

Associates are accounted for in the consolidated financial statements using the equity method. 

The consolidated financial statements include the Group’s share of the profit or loss of the equity 

accounted associates, after adjustments, if any, to align the accounting policies with those of the 

Group, from the date that significant influence commences until the date that significant influence 

ceases. 

When the Group’s share of losses exceeds its interest in an equity accounted associate, the 

carrying amount of that interest (including any long-term investments) is reduced to nil and the 

recognition of further losses is discontinued except to the extent that the Group has an obligation 

or has made payments on behalf of the investee. 

Investments in associates are stated in the Company’s balance sheet at cost less any impairment 

losses. 

(iii) 

Changes in Group composition 

When a group purchases a subsidiary’s equity shares from minority interests for cash consideration 

and the purchase price has been established at fair value, the accretion of the Group’s interests in 

the subsidiary is accounted for as a purchase of equity interest for which the acquisition method 

of accounting is applied. 

The Group treats all other changes in group composition as equity transactions between the Group 

and its minority shareholders. Any difference between the Group’s share of net assets before 

and after the change, and any consideration received or paid, is adjusted to or against Group 

reserves. 


62 


NOTES TO THE 


2. Significant accounting policies (CONT'D) 

(a) 

Basis of consolidation (Cont’d) 

(iv) 

Minority interest 

Minority interest at the balance sheet date, being the portion of the net identifiable assets of 

subsidiaries attributable to equity interests that are not owned by the Company, whether directly 

or indirectly through subsidiaries, are presented in the consolidated balance sheet and statement 

of changes in equity within equity, separately from equity attributable to the equity shareholders 

of the Company. Minority interests in the results of the Group are presented on the face of the 

consolidated income statement as an allocation of the total profit or loss for the year between 

minority interests and the equity holders of the Company. 

Where losses applicable to the minority exceed the minority’s interest in the equity of a subsidiary, 

the excess, and any further losses applicable to the minority, are charged against the Group’s 

interest except to the extent that the minority has a binding obligation to, and is able to, make 

additional investment to cover the losses. If the subsidiary subsequently reports profits, the Group’s 

interest is allocated all such profits until the minority’s share of losses previously absorbed by the 

Group has been recovered. 

(v) 

Transactions eliminated on consolidation 

Intra-group balances and transactions, and any unrealised income and expenses arising from 

intra-group transactions, are eliminated in preparing the consolidated financial statements. 

(b) 

Foreign currency 

(i) 

Foreign currency transactions 

Transactions in foreign currencies are translated to the respective functional currencies of Group 

entities at exchange rates at the dates of the transaction. 

Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are 

retranslated to the functional currency at the exchange rate at that date. Non-monetary assets 

and liabilities denominated in foreign currencies are translated at exchange rates at the date of 

the transactions except for those that are measured at fair value, which are retranslated to the 

functional currency at the exchange rate at the date that the fair value was determined. Foreign 

currency differences arising on retranslation are recognised in the income statements. 

(ii) 

Operations denominated in functional currencies other than Ringgit Malaysia (RM) 

The assets and liabilities of operations in functional currencies other than RM, including goodwill 

and fair value adjustments arising on acquisition, are translated to RM at exchange rates at 

the balance sheet date, except for goodwill and fair value adjustments arising from business 

combinations before 1 January 2006 which are reported using the exchange rates at the dates of 

the acquisitions. The income and expenses of foreign operations are translated to RM at exchange 

rates at the dates of the transactions. 

Foreign currency differences are recognised in translation reserve. 

On disposal of operations, accumulated translation differences are recognised in the consolidated 

income statements as part of the gain or loss on sale. 


63 


NOTES TO THE 



(b) 

Foreign currency (Cont’d) 

(iii) 

Net investment in foreign operations 

Exchange differences arising from monetary items that in substance form part of the Company’s 

net investment in foreign operations, are recognised in the Company’s income statement. Such 

exchange differences are reclassified to equity in the consolidated financial statements. Deferred 

exchange differences are recognised in the consolidated income statements upon disposal of the 

investment. 

(c) 

Derivative financial instruments 

The Group holds derivative financial instruments to hedge its foreign currency and interest rate risk 

exposures. 

Forward foreign exchange contracts and swaps used are accounted for on an equivalent basis as the 

underlying assets, liabilities or net positions. Any profit or loss arising is recognised on the same basis 

as that arising from the related assets, liabilities or net positions. 

(d) 

Property, plant and equipment 

(i) 

Recognition and measurement 

Capital work-in-progress and freehold land are stated at cost less any accumulated impairment. 

All other items of property, plant and equipment are stated at cost/valuation less accumulated 

depreciation and any accumulated impairment losses. 

The Group revalues its buildings every 5 years and at shorter intervals whenever the fair value of 

the revalued assets is expected to differ materially from their carrying value. Additions subsequent to 

their revaluation are stated in the financial statements at cost until the next revaluation exercise. 

Buildings are stated at Directors’ valuation based on professional valuations made by W.M. Malik 

& Kamaruzaman and Tian Yuan Fixed Assets Consultation and Valuation Ltd. Co., on the open 

market basis conducted in December 2004. The next valuation is expected to be in 2009. 

Surpluses arising from revaluation are dealt with in the revaluation reserve account. Any deficit 

arising is offset against the revaluation reserve to the extent of a previous increase for the same 

property. In all other cases, a decrease in carrying amount is charged to the income statement. 

Cost includes expenditures that are directly attributable to the acquisition of the asset, any other 

costs directly attributable to bringing the asset to working condition for its intended use, and the 

costs of dismantling and removing the items and restoring the site on which they are located. The 

cost of self-constructed assets includes the cost of materials and direct labour and for qualifying 

assets, borrowing costs are capitalized in accordance with the Group’s accounting policy. Purchased 

software that is integral to the functionality of the related equipment is capitalised as part of that 

equipment. 

The cost of property, plant and equipment recognised as a result of a business combination is 

based on fair value at acquisition date. The fair value of property is the estimated amount for 

which a property could be exchanged on the date of valuation between a willing buyer and a 

willing seller in an arm’s length transaction after proper marketing wherein the parties had each 

acted knowledgeably, prudently and without compulsion. The fair value of other items of plant and 

equipment is based on the quoted market prices for similar items. 


64 


NOTES TO THE 



(d) 

Property, plant and equipment (Cont’d) 

(i) 

Recognition and measurement (Cont’d) 

When significant parts of an item of property, plant and equipment have different useful lives, they 

are accounted for as separate items (major components) of property, plant and equipment. 

Gains and losses on disposal of an item of property, plant and equipment are determined by 

comparing the proceeds from disposal with the carrying amount of property, plant and equipment 

and are recognised not within “other income” or “other operating expenses” respectively in the 

income statements. When revalued assets are sold, the amounts included in the revaluation surplus 

reserve are transferred to retained earnings. 

(ii) 

Subsequent costs 

The cost of replacing part of an item of property, plant and equipment is recognised in the carrying 

amount of the item if it is probable that the future economic benefits embodied within the part will 

flow to the Group and its cost can be measured reliably. The carrying amount of these parts that are 

replaced is derecognised. The costs of the day-to-day servicing of property, plant and equipment 

are recognised in the income statement as incurred. 

(iii) 

Depreciation 

Depreciation is recognised in the income statement on a straight-line basis over the estimated useful 

lives of each part of an item of property, plant and equipment. Leased assets are depreciated over 

the shorter of the lease term and their useful lives unless it is reasonably certain that the Group 

will obtain ownership by the end of the lease term. Freehold land is not depreciated. Property, 

plant and equipment under construction are not depreciated until the assets are ready for their 

intended use. 

The estimated useful lives for the current and comparative periods are as follows: 

Buildings 

Building improvements 

Plant and machineries 

Motor vehicles 

Furniture, fittings and equipment 

25 - 60 years 

14 years 

4 - 10 years 

5 years 

10 years 

Depreciation methods, useful lives and residual values are reassessed at the balance sheet 

date. 

(e) 

Leased assets 

(i) 

Finance lease 

Leases in terms of which the Group or the Company assumes substantially all the risks and 

rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is 

measured at an amount equal to the lower of its fair value and the present value of the minimum 

lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with 

the accounting policy applicable to that asset. 

Minimum lease payments made under finance leases are apportioned between the finance expense 

and the reduction of the outstanding liability. The finance expense is allocated to each period during 

the lease term so as to produce a constant periodic rate of interest on the remaining balance of the 

liability. Contingent lease payments are accounted for by revising the minimum lease payments 

over the remaining term of the lease when the lease adjustment is confirmed. 


65 


NOTES TO THE 



(e) 

Leased assets (Cont’d) 

(ii) 

Operating lease 

Leases, where the Group or the Company does not assume substantially all the risks and rewards 

of the ownership are classified as operating leases except for property interest held under operating 

lease, and the leased assets are not recognised on the Group’s balance sheet. 

Leasehold land that normally has an indefinite economic life and title is not expected to pass to 

the lessee by the end of the lease term is treated as an operating lease. The payment made on 

entering into or acquiring a leasehold land is accounted for as prepaid lease payments that are 

amortised over the lease term in accordance with the pattern of benefits provided. 

Certain leasehold land were revalued in December 2004 and the Group has retained the 

unamortised revalued amount as the surrogate carrying amount of prepaid lease payments in 

accordance with the transitional provision in FRS 117.67A when it first adopted FRS 117, Leases 

in 2006. 

Payments made under operating leases are recognised in the income statements on a straight-line 

basis over the term of the lease. Lease incentives received are recognised as an integral part of 

the total lease expense, over the term of the lease. 

(f) 

Intangible assets 

(i) 

Goodwill 

Goodwill arises on business combinations and is measured at cost less any accumulated impairment 

losses. 

For acquisitions prior to 1 January 2006, goodwill represents the excess of the cost of the business 

combination over the acquirer’s interest in the net fair values of the identifiable assets, liabilities 

and contingent liabilities recognised. 

For business acquisitions beginning from 1 January 2006, goodwill represents the excess of the 

cost of the acquisition over the Group’s interest in the net fair value of the identifiable assets, 

liabilities and contingent liabilities of the acquiree. 

Any excess of the Group’s interest in the net fair value of acquiree’s identifiable assets, liabilities 

and contingent liabilities over the cost of acquisition (negative goodwill) is recognised immediately 

in income statement. 

(ii) 

Other intangible assets 

Intangible assets, other than goodwill, that are acquired by the Group are stated at cost less any 

accumulated amortisation and any accumulated impairment losses. 

The fair value of technology and marketing related intangible assets acquired in a business 

combination is based on the discounted estimated royalty payments that have been avoided as a 

result of the intangible assets being owned. The fair value of customer related intangible assets 

acquired in a business combination is determined using the multi-period excess earnings method, 

whereby the subject assets is valued after deducting a fair return on all other assets that are part 

of creating the related cash flows. 

The fair value of other intangible assets is based on the discounted cash flows expected to be 

derived from the use and eventual sale of the assets. 


66 


NOTES TO THE 



(f) 

Intangible assets (Cont’d) 

(iii) 

Subsequent expenditure 

Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the 

future economic benefits embodied in the specific asset to which it relates. All other expenditure 

is expensed as incurred. 

(iv) 

Amortisation 

Goodwill and intangible assets with indefinite useful lives are tested for impairment annually and 

whenever there is an indication that they may be impaired. 

Other intangible assets are amortised from the date that they are available for use. Amortisation of 

intangible assets is charged to the income statements on a straight-line basis over the estimated 

useful lives of intangible assets. 

The estimated useful lives are as follows: 

• Technology related intangible asset 15 years 

• Customer related intangible asset 1 - 20 years 

(g) 

Investments in debt and equity securities 

Investments in debt and equity securities are recognised initially at fair value plus attributable transaction 

costs. 

Subsequent to initial recognition: 

a) Investments in non-current equity securities other than investments in subsidiaries and associates, 

are stated at cost less any allowance for diminution in value, 

b) Investments in non-current debt securities are stated at amortised cost using the effective interest 

method less any allowance for diminution in value, 

c) All current investments are carried at the lower of cost and market value, determined on an 

aggregate portfolio basis by category of investments. 

Where in the opinion of the Directors, there is a decline other than temporary in the value of non-current 

equity securities and non-current debt securities other than investment in subsidiaries and associates, 

the allowance for diminution in value is recognised as an expense in the financial year in which the 

decline is identified. 

On disposal of an investment, the difference between net disposal proceeds and its carrying amount is 

recognised in the income statement. 

All investments in debt and equity securities are accounted for using settlement date accounting. 

Settlement date accounting refers to: 

a) the recognition of an asset on the day it is received by the entity, and 

b) the derecognition on an asset and recognition of any gain or loss on disposal on the date it is 

delivered. 


67 


NOTES TO THE 


2. Significant accounting policies (cont’d) 

(h) 

Inventories 

Inventories comprise raw materials, tools and consumables, work in progress, merchandise for resale and 

finished goods which are stated at the lower of cost and net realisable value. The cost of raw materials, 

tools and consumables and merchandise for resale is determined on a first-in first-out principle and 

includes the cost of direct materials and incidental costs in bringing these inventories to their existing 

location and condition. In the case of work in progress and finished goods, cost includes an appropriate 

share of production overheads based on normal operating capacity. Net realisable value is the estimated 

selling price in the ordinary course of business, less the estimated costs of completion and the estimated 

costs necessary to make the sale. 

The fair value of inventories acquired in a business combination is determined based on its estimated 

selling price in the ordinary course of business less the estimated costs of completion and sale, and a 

reasonable profit margin based on the effort required to complete and sell the inventories. 

(i) 

Receivables 

Receivables are initially recognised at their cost when the contractual right to receive cash or another 

financial asset from another entity is established. 

Subsequent to initial recognition, receivables are stated at cost less allowance for doubtful debts. 

Receivables are not held for the purpose of trading. 

(j) 

Constructions work-in-progress 

Constructions work-in-progress represent the gross unbilled amount expected to be collected from 

customers for contract work performed to date. It is measured at cost plus profit recognised to date less 

progress billing and recognised losses. Cost includes all expenditure related directly to specific projects 

and an allocation of fixed and variable overheads incurred in the Group’s contract activities based on 

normal operating capacity. 

Constructions work-in-progress is presented as part of receivables, deposits and prepayments in the 

balance sheet. If payments received from customers exceed the income recognised, then the difference 

is presented as deferred income in the balance sheet. 

(k) 


Cash and cash equivalents consist of cash on hand, balances and deposits with banks and financial 

institutions. For the purpose of the cash flow statement, cash and cash equivalents are presented net 

of bank overdrafts and pledged deposits. 

(l) 

Impairment of assets 

The carrying amounts of assets except for inventories, assets arising from construction contracts, deferred 

tax assets and financial assets (other than investments in subsidiaries and associates) are reviewed at 

each reporting date to determine whether there is any indication of impairment. If any such indication 

exists, then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have 

indefinite useful lives or that are not yet available for use, the recoverable amount is estimated usually 

at each reporting date. 


68 


NOTES TO THE 



(l) 

Impairment of assets (Cont’d) 

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair 

value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their 

present value using a pre-tax discount rate that reflects current market assessments of the time value 

of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped 

together into the smallest group of assets that generates cash inflows from continuing use that are 

largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”). 

The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to 

cash-generating units that are expected to benefit from the synergies of the combination. 

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds 

its recoverable amount unless the asset is carried at a revalued amount, in which case the impairment 

loss is recognised directly against any revaluation surplus for the asset to the extent that the impairment 

loss does not exceed the amount in the revaluation surplus for that same asset. Impairment losses are 

recognised in the income statements. Impairment losses recognised in respect of cash-generating units 

are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce 

the carrying amount of the other assets in the unit (groups of units) on a pro rata basis. 

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses 

recognised in prior periods are assessed at each reporting date for any indications that the loss has 

decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates 

used to determine the recoverable amount. An impairment loss is reversed only to the extent that the 

asset’s carrying amount does not exceed the carrying amount that would have been determined, net 

of depreciation or amortisation, if no impairment loss had been recognised. Reversals of impairment 

losses are credited to the income statements in the year in which the reversals are recognised, unless 

it reverses an impairment loss on a revalued asset, in which case it is credited directly to revaluation 

surplus. Where an impairment loss on the same revalued asset was previously recognised in the income 

statements, a reversal of that impairment loss is also recognised in the income statements. 

(m) 

Equity instruments 

All equity instruments are stated at cost on initial recognition and are not re-measured subsequently. 

(i) 

Issue expenses 

Incremental costs directly attributable to issue of equity instruments are recognised as a deduction 

from equity. 

(ii) 

Repurchase of share capital 

When share capital recognised as equity is repurchased, the amount of the consideration paid, 

including directly attributable costs, is recognised as a deduction from equity and is not re-valued 

for subsequent changes in the fair value or market price of shares. Repurchased shares are 

classified as treasury shares and are presented as a deduction from total equity. 

Where treasury shares are distributed as share dividends, the cost of the treasury shares is applied 

in the reduction of the share premium account or distributable reserves, or both. 

Where treasury shares are reissued by re-sale in the open market, the difference between the 

sales consideration net of directly attributable costs and the carrying amount of the treasury shares 

is recognised in equity. 


69 


NOTES TO THE 



(n) 

Employee benefits 

(i) 

Short-term employee benefits 

Short-term employee benefit obligations in respect of salaries, annual bonuses, paid annual leave 

and sick leave are measured on an undiscounted basis and are expensed as the related service 

is provided. 

A provision is recognised for the amount expected to be paid under short-term cash bonus or profitsharing 

plans if the Group has a present legal or constructive obligation to pay this amount as a 

result of past service provided by the employee and the obligation can be estimated reliably. 

The Group’s contribution to the statutory pension funds are charged to the income statements in 

the year to which they relate. Once the contributions have been paid, the Group has no further 

payment obligations. 

(ii) 

Share-based payment transactions 

The grant date fair value of share options granted to employees is recognised as an employee 

expense, with a corresponding increase in equity, over the period in which the employees become 

unconditionally entitled to the options. The amount recognised as an expense is adjusted to reflect 

the actual number of share options that has been vested. 

The fair value of employee share options is measured using a trinomial option pricing model. 

Measurement inputs include share price on measurement date, exercise price of the instrument, 

expected volatility (based on weighted average historic volatility adjusted for changes expected 

due to publicly available information), weighted average expected life of the instruments (based 

on historical experience and general option holder behaviour) and expected dividends. Service 

and non-market performance conditions attached to the transactions are not taken into account 

in determining fair value. 

(iii) Long service leave 

The Group’s net obligation in respect of long-term employee benefits is the amount of future benefit 

that employees have earned in return for their service in the current and prior periods. That benefit 

is discounted to determine its present value, and the fair value of any related assets is deducted. 

The discount rate is the yield at the reporting date on national government bonds that have maturity 

dates approximating the terms of the Group’s obligations. 

(o) 

Loans and borrowings 

Loans and borrowings are stated at amortised cost with any difference between cost and redemption 

value being recognised in the income statement over the period of the loans and borrowings using the 

effective interest method. 

(p) 

Payables 

Payables are measured initially and subsequently at cost. Payables are recognised when there is a 

contractual obligation to deliver cash or another financial asset to another entity. 


70 


NOTES TO THE 



(q) 

Tax expense 

Tax expense comprises current and deferred tax. Tax expense is recognised in the income statements 

except to the extent that it relates to items recognised directly in equity, in which case it is recognised 

in equity. 

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or 

substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous 

years. 

Deferred tax is recognised using the balance sheet method, providing for temporary differences between 

the carrying amounts of assets and liabilities for reporting purposes and the amounts used for taxation 

purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of 

goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination 

and that affects neither accounting nor taxable profit (tax loss). Deferred tax is measured at the tax rates 

that are expected to be applied to the temporary differences when they reverse, based on the laws that 

have been enacted or substantively enacted by the balance sheet date. 

Deferred tax liability is recognised for all taxable temporary differences. 

A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be 

available against which temporary difference can be utilised. Deferred tax assets are reviewed at each 

reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will 

be realised. 

Unutilised tax incentives are treated as tax base of assets and are recognised as a reduction of tax 

expense as and when they are utilised. 

(r) 

Revenue recognition 

(i) 

Construction contracts 

As soon as the outcome of a construction contract can be estimated reliably, contract revenue and 

expenses are recognised in the income statement in proportion to the stage of completion of the 

contract. Contract revenue includes the initial amount agreed in the contract plus any variations in 

contract work, claims and incentive payments to the extent that it is probable that they will result 

in revenue and can be measured reliably. 

The stage of completion is assessed by reference to surveys of work performed. When the outcome 

of a construction contract cannot be estimated reliably, contract revenue is recognised only to the 

extent of contract costs incurred that are likely to be recoverable. 

An expected loss on a contract is recognised immediately in the income statement. 

(ii) 

Dividend income 

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

(iii) 

Management fee 

Management fee is recognised on an accrual basis. 

(iv) 

Goods sold 

Revenue from the sale of goods is measured at fair value of the consideration received or receivable, 

net of returns and allowances, trade discounts and volume rebates. Revenue is recognised when 

the significant risks and rewards of ownership have been transferred to the buyer, recovery of the 

consideration is probable, the associated costs and possible return of goods can be estimated 

reliably, and there is no continuing management involvement with the goods. 


71 


NOTES TO THE 



(r) 

Revenue recognition (Cont’d) 

(v) 

Services 

Revenue from services rendered is recognised in the income statements in proportion to the stage 

of completion of the transaction at the balance sheet date. The stage of completion is assessed 

by reference to surveys of work performed. 

(s) 

Interest income and borrowing costs 

Interest income is recognised as it accrues, using the effective interest method. 

All borrowing costs are recognised in the income statement using the effective interest method, in the 

period in which they are incurred except to the extent that they are capitalised as being directly attributable 

to the acquisition, construction or production of an asset which necessarily takes a substantial period of 

time to be prepared for its intended use. 

The capitalisation of borrowing costs as part of the cost of a qualifying asset commences when expenditure 

for the asset is being incurred, borrowing costs are being incurred and activities that are necessary 

to prepare the asset for its intended use or sale are in progress. Capitalisation of borrowing costs is 

suspended or ceases when substantially all the activities necessary to prepare the qualifying asset for 

its intended use or sale are interrupted or completed. 

(t) 

Earnings per ordinary share 

The Group presents basic and diluted earnings per ordinary share (“EPS”) data for its ordinary shares. 

Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the 

Company by the weighted average number of ordinary shares outstanding during the period. Diluted 

EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted 

average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, 

which comprise share options granted to employees. 

(u) 

Segment reporting 

A segment is a distinguishable component of the Group that is engaged either in providing products or 

services (business segment), or in providing products or services within a particular economic environment 

(geographical segment), which is subject to risks and rewards that are different from those of other 

segments. 

(v) 

Contingent liabilities 

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be 

estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow 

of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the 

occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities 

unless the probability of outflow of economic benefits is remote. 

Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other 

companies within its group, the Company considers these to be insurance arrangements, and accounts 

for them as such. In this respect, the Company treats the guarantee contract as a contingent liability 

until such time as it becomes probable that the Company will be required to make a payment under the 

guarantee. 


72 


NOTES TO THE 


3. Property, plant and equipment 

Furniture, Capital 

Group Freehold Building Plant and Motor fittings and work-inland 

Buildings improvements machineries vehicles equipment progress Total 

RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 

Cost/Valuation 

At 1 January 2007 4,317 256,445 2,419 221,655 8,083 15,126 3,975 512,020 

Additions 3,895 13,031 – 36,168 2,753 2,438 39,760 98,045 

Disposals – – (60) (1,974) (1,092) (139) – (3,265) 

Effect of movements in 

exchange rates – 3,254 104 1,723 97 (614) 6 4,570 


1 January 2008 8,212 272,730 2,463 257,572 9,841 16,811 43,741 611,370 

Additions 1,645 11,484 544 62,038 451 7,995 66,426 150,583 

Disposals – (269) – (758) (1,095) (189) – (2,311) 

Transfer – 57,898 524 12,860 1,096 1,652 (74,030) – 

Acquisition of subsidiaries 18,270 46,203 3,115 79,421 2,381 22,413 12,284 184,087 


exchange rates (2,085) 4,605 (376) (4,452) (16) 3,683 (1,519) (160) 

At 31 December 2008 26,042 392,651 6,270 406,681 12,658 52,365 46,902 943,569 

Representing items at: 

Cost 26,042 341,257 6,270 406,681 12,658 52,365 46,902 892,175 

Directors’ valuation – 2004 – 51,394 – – – – – 51,394 

26,042 392,651 6,270 406,681 12,658 52,365 46,902 943,569 

Depreciation 

At 1 January 2007 – 11,431 1,004 91,392 6,417 7,821 – 118,065 

Depreciation for the year – 4,467 212 18,859 911 1,472 – 25,921 

Disposals – – (58) (898) (922) (116) – (1,994) 


exchange rates – 63 44 139 99 60 – 405 


1 January 2008 – 15,961 1,202 109,492 6,505 9,237 – 142,397 

Depreciation for the year – 7,321 371 24,707 1,057 5,361 – 38,817 

Disposals – (54) – (363) (92) (179) – (688) 

Acquisition of subsidiaries – 2,302 880 11,261 514 11,456 – 26,413 


exchange rates – 616 (134) 421 79 993 – 1,975 

At 31 December 2008 – 26,146 2,319 145,518 8,063 26,868 – 208,914 

Carrying amounts 

At 1 January 2007 4,317 245,014 1,415 130,263 1,666 7,305 3,975 393,955 


1 January 2008 8,212 256,769 1,261 148,080 3,336 7,574 43,741 468,973 

At 31 December 2008 26,042 366,505 3,951 261,163 4,595 25,497 46,902 734,655 


73 


NOTES TO THE 


3. Property, plant and equipment (cont’d) 

3.1 Depreciation charge for the year is allocated as follows: 

Group 

2008 2007 

RM’000 RM’000 

Income statement (Note 19) 6,301 2,524 

Construction work-in-progress (Note 12.2) 32,516 23,397 

38,817 25,921 

3.2 Revaluation 

Buildings are stated at Directors’ valuation based on professional valuations on the open market 

basis conducted in December 2004 by Kamaruzaman Jamil, a chartered surveyor in W.M. Malik & 

Kamaruzaman and Wong Fong and Xu Xiao Fan, certified valuers in Tian Yuan Fixed Assets Consultation 

and Valuation Ltd. Co. 

Had the buildings been carried at historical cost less accumulated depreciation, the carrying amount of 

the buildings that would have been included in the financial statements at the end of the year would be 

as follows: 

Group 


RM’000 RM’000 

Buildings 40,390 41,414 

3.3 Security 

Certain freehold land and buildings of the Group costing/valued at RM119,655,985 (2007 - RM95,701,000) 

in a subsidiary are charged to certain licensed banks as security for credit facilities granted to the 

subsidiaries (Note 15). 

3.4 Assets acquired under finance lease 

The carrying amounts of property, plant and equipment acquired under finance lease purchase agreements 

are as follows: 

Group 


RM’000 RM’000 

Freehold land 5,899 – 

Building 7,794 – 

Plant and machineries 399 – 

Furniture, fittings and equipment 16 – 

14,108 – 


74 


NOTES TO THE 


4. Intangible asset 

Other 

Goodwill intangible assets Total 

Group RM’000 RM’000 RM’000 

Cost 

At 1 January 2007 4,233 – 4,233 

Acquisition of minority interest 2,439 – 2,439 

At 31 December 2007/At 1 January 2008 6,672 – 6,672 

Acquisitions through business combinations 946,675 894,368 1,841,043 

Additions – 6,856 6,856 

Effect of movements in exchange rates (25,179) (21,606) (46,785) 

At 31 December 2008 928,168 879,618 1,807,786 

Amortisation 

At 1 January 2007/31 December 2007/ 

1 January 2008 – – – 

Amortisation for the year – (33,670) (33,670) 

Effect of movements in exchange rates – (142) (142) 

At 31 December 2008 – (33,812) (33,812) 


At 1 January 2007 4,233 – 4,233 

At 31 December 2007/1 January 2008 6,672 – 6,672 

At 31 December 2008 928,168 845,806 1,773,974 

The goodwill recognised on the acquisition is attributable mainly to the skills and technical talent of the acquired 

business’s work force and the synergies expected to be achieved from integrating the companies into the 

Group’s existing oil, gas and petrochemical industry. 

4.1 Other intangible assets 

Other intangible assets comprise mainly technology including patents, customers related intangibles 

including customer contracts and supply agreement and marketing related intangibles including 

tradenames. These intangible assets with finite useful lives are amortised over their useful lives ranging 

from 1 to 20 years while the others with infinite useful lives are tested for impairment annually. 

4.2 Amortisation and impairment charge 

Amortisation of technology and customers related intangible assets is included in other operating expenses 

in the income statement. 


75 


NOTES TO THE 


4. Intangible asset (CONT’D) 

4.3 Impairment testing for cash-generating units containing goodwill 

For the purpose of impairment testing, goodwill is allocated to the Group’s geographical unit which 

represents lowest level within the Group at which the goodwill is monitored for internal management 

purpose. 

The aggregate carrying amounts of goodwill allocated to each unit are as follow: 

Group 


RM’000 RM’000 

Australia unit 6,672 6,672 

Germany unit 897,248 – 

Brazil unit 24,248 – 

Total 928,168 6,672 

4.3.1 The recoverable amounts of the Australia and Germany units were based on value in use 

calculations. These calculations use pre-tax cash flow projections based on financial budgets 

approved by management covering a five-year period. Cash flows beyond the five-year period 

are extrapolated using the estimated growth rates of 1%. 

Value in use was determined by discounting the future cash flows generated from the continuing 

use of the unit and was based on the following key assumptions: 

(i) 

(ii) 

The basis used to determine the value assigned to the budgeted gross margins is the average 

gross margins achieved in the year immediately before the budgeted year increased for 

expected efficiency improvements. 

The pre-tax discount rate used is as follows: 


Australia unit 14% 15% 

Germany unit 15% – 

The values assigned to the key assumptions represent management’s assessment of future trends 

in the industry and are based on both external sources and internal sources (historical data). 

4.3.2 The goodwill arising from the acquisition of HZM Group of Companies (Brazil unit) in October 

2008 which was determined provisionally, represents the value of synergies arising from the 

acquisition. Fair value adjustments and values attributed to the identified assets and liabilities will 

be finalised in the 2009 financial statements. Hence, annual impairment testing on the goodwill 

will commence in 2009. 


76 


NOTES TO THE 


5. Prepaid lease payments 

Group 

Leasehold land 

Unexpired 

Unexpired 

period less period more 

than 50 years than 50 years Total 

RM’000 RM’000 RM’000 

Cost/Valuation 

At 1 January 2007 3,056 8,850 11,906 

Additions 4,585 40 4,625 

Effect of movements in exchange rates 75 (257) (182) 

At 31 December 2007/1 January 2008 7,716 8,633 16,349 

Additions 1,790 – 1,790 

Effect of movements in exchange rates 411 218 629 

At 31 December 2008 9,917 8,851 18,768 

Amortisation 

At 1 January 2007 83 254 337 

Amortisation during the year 35 127 162 

Effect of movements in exchange rates 30 (6) 24 

At 31 December 2007/1 January 2008 148 375 523 

Amortisation during the year 67 126 193 

Effect of movements in exchange rates 20 10 30 

At 31 December 2008 235 511 746 


At 1 January 2007 2,973 8,596 11,569 

At 31 December 2007/1 January 2008 7,568 8,258 15,826 

At 31 December 2008 9,682 8,340 18,022 

Security 

Certain leasehold land of the Group costing/valued at RM1,591,000 (2007 - RM1,591,000) in subsidiaries are 

charged to certain licensed banks as security for credit facilities granted to the subsidiaries (Note 15). 

Title 

The land title of a long term leasehold land valued at RM1,430,000 (2007 - RM1,430,000) is pending issuance 

by the authorities. 


77 


NOTES TO THE 


6. Investments in subsidiaries 

Company 


RM’000 RM’000 

Unquoted shares - at cost 36,686 36,686 

Details of the subsidiaries are shown in Note 31 to the financial statements. 

7. Investments in associates 

Group 


RM’000 RM’000 

Unquoted shares - at cost 138 138 

Less: Impairment loss (138) (138) 

– – 

Acquisitions through business combination (Note 32) 1,969 – 

Additions 291 – 

Effects of movement in exchange rates (48) – 

2,212 – 

Details of the associates are as follows: 

Effective 

ownership 

Country of 

interest 

Name of Company incorporation Principal Activities 2008 2007 

PolyAn Gesellschaft Germany Development, modification 20.25% – 

zur Herstellung von 

and production of polymers 

Polymeren fiir spezielle 

for special applications and 

Anwen dungen und 

services in the field of 

Analytic mbH 

polymer analytics. 

KNM-DP Fabricators Malaysia Fabrication and maintenance 28% 28% 

Sdn. Bhd. 

of process equipment, storage 

tanks, modular assemblies 

and steel structural components 

for oil, gas and petrochemical 

industries. 

Subsidiary of KNM-DP 

Fabricators Sdn. Bhd. 

KNM-DP Harta Bina Malaysia Dormant 65% 65% 



78 


NOTES TO THE 


7. Investments in associates (cont’d) 

Summary financial information on associates: 

Group Profit / Total Total 

Revenues (Loss) assets liabilities 

(100%) (100%) (100%) (100%) 

RM’000 RM’000 RM’000 RM’000 

2008 

PolyAn Gesellschaft zur Herstellung 

Von Polymeren fiir spezielle Anwen 

dungen und Analytic mbH^ 3,712 (1,186) 5,006 3,338 

KNM-DP Fabricators Sdn. Bhd.** – (1) 115 3,403 

KNM-DP Harta Bina Sdn. Bhd. ** – (3) 141 3 

3,712 (1,190) 5,262 6,744 

2007 

KNM-DP Fabricators Sdn. Bhd.** – (18) 205 3,492 

KNM-DP Harta Bina Sdn. Bhd. ** – (3) 149 7 

– (21) 354 3,499 

** Audited by another firm of accountants. 

^ Based on management accounts as at 31 December 2008. 

The results of PolyAn Gesellschaft zur Herstellung von Polymeren fiir spezielle Anwen dungen und Analytic 

mbH has not been equity accounted for as it is not material in the context of the financial statements. 

The Group’s share of the cumulative losses of KNM-DP Fabricators Sdn. Bhd. and its subsidiary, KNM-DP 

Harta Bina Sdn. Bhd. amounting to RM734,963 (2007 - RM734,095) has not been recognised in the Group’s 

income statements using equity accounting because the Group’s share of losses of these associates exceeded 

the carrying amount of its investments in the associates. 

8. Other investments 

Group 


RM’000 RM’000 

Unquoted shares, at cost 

At 1 January 2,404 2,304 

Acquisitions through business combinations (Note 32) 130 – 

Additions 114 – 

Effect of movements in exchange rates 2 100 

At 31 December 2,650 2,404 

Club membership 70 70 

2,720 2,474 


79 


NOTES TO THE 


9. Deferred tax assets and liabilities 

Recognised deferred tax assets and liabilities 

Deferred tax assets and liabilities are attributable to the following: 

Group 

Assets Liabilities Net 

2008 2007 2008 2007 2008 2007 

RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 

Property, plant and 

equipment – 37 (16,259) (8,965) (16,259) (8,928) 

Revaluation – – (317,320) (46,070) (317,320) (46,070) 

Provisions 11,433 2,311 – – 11,433 2,311 

Other items 857 – (80,780) (1,329) (79,923) (1,329) 

Tax loss carry-forward 9,059 37,825 – – 9,059 37,825 

Tax assets/(liabilities) 21,349 40,173 (414,359) (56,364) (393,010) (16,191) 

Set off of tax 15,002 (2,509) (15,002) 2,509 – – 

Net tax assets/(liabilities) 36,351 37,664 (429,361) (53,855) (393,010) (16,191) 

Company 

Provisions 556 – – – 556 – 

The unutilised tax losses do not expire under current tax legislation except for unutilised tax losses of 

RM28,664,000 (2007 - RM36,502,000) relating to an overseas subsidiary which will expire after 5 years under 

the legislation of that country. 

No deferred tax has been recognised for the following item: 

Group 


RM’000 RM’000 

Tax loss carry-forward 49,517 36,497 

Unutilised capital allowances 27 – 

The deductible temporary differences do not expire under current tax legislation unless there is a substantial 

change in shareholders (more than 50%). If there is substantial change in shareholders, unutilised tax losses 

and unutilised capital allowances amounting to RM202,000 (2007 - RM233,000) and RM27,000 (2007- Nil) 

respectively will not be available to the Group. Deferred tax assets have not been recognised in respect of 

unutilised tax losses and unutilised capital allowances above because it is not probable that future taxable 

profit will be available against which the Group can utilise the benefits there from. 


80 


NOTES TO THE 


9. Deferred tax assets and liabilities (cont’d) 

Movement in temporary differences during the year 

Group 

Recognised Recognised Acquired 

in income Acquired in income Recognised in business Effect of 

At statement in business At statement in equity combinations movements in At 

1.1.2007 (Note 21) combinations 31.12.2007 (Note 21) (Note 21) (Note 32.1) exchange rates 31.12.2008 

RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 

Property, plant and 

equipment (7,658) (1,270) – (8,928) (7,331) – – – (16,259) 

Revaluation (48,569) 2,441 58 (46,070) – 470 (271,720) – (317,320) 

Provisions 3,778 (1,467) – 2,311 9,122 – – – 11,433 

Other items 1,172 (2,501) – (1,329) (15,646) – (66,530) 3,582 (79,923) 

Tax loss carry-forward 43,999 (6,174) – 37,825 (28,766) – – – 9,059 

(7,278) (8,971) 58 (16,191) (42,621) 470 (338,250) 3,582 (393,010) 

Company 

Provisions – – – – 556 – – – 556 

10. Amount due from subsidiaries 

The amount due from subsidiaries relates to advances, is unsecured, interest free and is not repayable within 

the next twelve months. 

11. Inventories 

Group 


RM’000 RM’000 

At cost: 

Raw materials 39,108 37,877 

Tools and consumables 22,248 14,865 

Work in progress 3,966 – 

Merchandise for resale 1,810 – 

Finished goods 1,448 – 

68,580 52,742 

At net realisable value: 

Raw materials 19,221 3,243 

Tools and consumables 9,365 6,200 

97,166 62,185 


81 


NOTES TO THE 


12. Receivables, deposits and prepayments 

Group 

Company 


RM’000 RM’000 RM’000 RM’000 

Trade 

Trade receivables 12.1 511,232 165,839 – – 

Amount due from 

contract customers 12.2 616,548 335,955 – – 

1,127,780 501,794 – – 

Non-trade 

Amount due from associates 12.3 – 16 – – 

Amount due from subsidiaries 12.4 – – 79,791 – 

Other receivables 86,454 36,442 6,322 3 

Deposits 12.5 3,942 2,597 – – 

Prepayments 32,992 7,076 1,600 – 

123,388 46,131 87,713 3 

1,251,168 547,925 87,713 3 

12.1 Analysis of foreign currency exposure for significant receivables 

Significant receivables outstanding at year end that are not in the functional currencies of the Group 

entities are as follows: 

Group 

Functional Foreign 2008 2007 

currency currency RM’000 RM’000 

USD AUD 3,215 2,822 

USD EUR 11,723 9,253 

USD MYR 5,418 – 

RMB USD 10,164 1,211 

RMB EUR 6,978 1,065 

EUR AED 3,033 557 

EUR USD 61,333 9,960 

AED USD 24,101 20,583 

AED EUR 13,561 5,432 

AUD USD 34,019 – 


82 


NOTES TO THE 


12. Receivables, deposits and prepayments (CONT’D) 

12.2 Construction work-in-progress 

Group 


RM’000 RM’000 

Aggregate costs incurred to date 2,537,880 1,762,700 

Add: Net attributable profits 772,796 449,974 

3,310,676 2,212,674 

Less: Progress billings (2,856,230) (1,901,041) 

454,446 311,633 

Amount due to contract customers (Note 17) 162,102 24,322 

Amount due from contract customers 616,548 335,955 

Additions to aggregate costs incurred during the year include: 

Group 


RM’000 RM’000 

Depreciation of property, plant and equipment (Note 3.1) 32,516 23,397 

Hire of plant and machineries 10,828 6,061 

Interest expenses 369 9 

Rental of premises 8,356 6,375 

Rental of machineries 739 25 

Staff costs 127,536 64,513 

Interest in aggregate costs was capitalised at an average rate of 3.3% (2007 - 4.3%) per annum. 

12.3 Amount due from associates 

In the previous year, the amount due from associates is unsecured, interest free with no fixed terms of 

repayment. 

12.4 Amount due from subsidiaries 

The amount due from subsidiaries is unsecured, interest free with no fixed terms of repayment. 

12.5 Deposits 

Included in deposits of the Group is rental deposit for building of RM165,000 (2007 - RM165,000) paid 

to a company in which certain directors have financial interest. 


83 


NOTES TO THE 


13. Cash and cash equivalents 

Group 

Company 


RM’000 RM’000 RM’000 RM’000 

Cash and bank balances 361,024 73,483 11,304 335 

Deposits with licensed banks 129,201 28,067 – – 

Deposits with financial institutions 26,078 3,780 – – 

516,303 105,330 11,304 335 

14. Capital and reserves 

14.1 Share capital 

Group and Company 


Number 

Number 

of shares Amount of shares Amount 

’000 RM’000 ’000 RM’000 

Ordinary shares of RM0.25 each 

Authorised: 

At 1 January 1,200,000 300,000 400,000 200,000 

Increased during the year 3,800,000 950,000 200,000 100,000 

Share split – – 600,000 – 

At 31 December 5,000,000 1,250,000 1,200,000 300,000 

Issued and fully paid 

At 1 January 1,046,582 261,646 257,782 128,891 

Issued during the year 

pursuant to: 

- Rights Issue 263,736 65,934 – – 

- Bonus issue 2,637,394 659,348 259,046 129,523 

- Share split – – 518,091 – 

- Employees’ share option 

scheme (“ESOS”) 10,728 2,682 11,663 3,232 

At 31 December 3,958,440 989,610 1,046,582 261,646 

The Company had also issued share options (see Note 18). 

14.2 Revaluation reserve 

The revaluation reserve relates to the revaluation of buildings and leasehold land prior to its reclassification 

as prepaid lease payments. Movement in revaluation reserve during the financial year is in relation to 

effect of changes in deferred tax rate to 25% (2007 – 26%) applicable during the year. 


84 


NOTES TO THE 


14. Capital and reserves (CONT’D) 

14.3 Translation reserve 

The translation reserve comprises all foreign currency differences arising from the translation of the 

financial statements of foreign operations as well as from the translation of liabilities that hedge the 

Company’s net investment in a foreign subsidiary. 

14.4 Share option reserve 

The share option reserve comprises the cumulative value of employee services received for the issue of 

share options. When the option is exercised, the amount from the share option reserve is transferred to 

share premium. When the share options expire, the amount from the share option reserve is transferred 

to retained earnings. 

14.5 Treasury shares 

The shareholders of the Company, by a special resolution passed in the annual general meeting held 

on 17 June 2008, approved the Company’s plan to repurchase its own shares. The Directors of the 

Company are committed to enhancing the value of the Company to its shareholders and believe that 

the repurchase plan can be applied in the best interests of the Company and its shareholders. 

During the financial year, the Company repurchased 36,635,100 of its issued ordinary shares of RM0.25 

each (“KNM Shares”) listed on the Main Board of Bursa Securities from the open market at an average 

price of RM0.57 per share. The total consideration paid was RM21,048,614 including transaction costs 

of RM42,916. The repurchase transactions were financed by internally generated funds. The shares 

repurchased are retained as treasury shares. 

As at 31 December 2008, the Company held 36,635,100 KNM Shares as treasury shares out of its total 

issued and paid-up share capital. Hence, the number of outstanding shares in issue and paid up after 

the set off as at 31 December 2008 is 3,921,804,875 ordinary shares of RM0.25 each. 

None of the treasury shares held were resold or cancelled during the financial year. Treasury shares 

have no rights to voting, dividends or participation in other distribution. 

14.6 Retained earnings 

Subject to agreement by the Inland Revenue Board, the Company has sufficient tax exempt income 

and Section 108 tax credit to frank all of its retained earnings at 31 December 2008 if paid out as 

dividends. 

The Finance Act, 2007 introduced a single tier company income tax system with effect from year of 

assessment 2008. As such, the Section 108 tax credit as at 31 December 2007 will be available to the 

Company until such time the credit is fully utilised or upon expiry of the six-year transitional period on 

31 December 2013, whichever is earlier. 


85 


NOTES TO THE 


15. Loans and borrowings 

Group 


RM’000 RM’000 

Non-current 

Floating rate term loans - secured 46,493 35,744 

- unsecured 86,426 – 

Fixed rate term loans - unsecured 3,043 9,263 

Murabahah Commercial 

Paper (CP)/Medium 

Term Notes (MTN) - unsecured 150,000 – 

Finance lease liabilities 10,760 – 

296,722 45,007 

Current 

Bank overdrafts - secured – 54 

- unsecured 150 7,043 

Bills payable - unsecured 108,474 – 

Floating rate term loans - secured 6,861 3,948 

- unsecured 123,431 – 

Fixed rate term loans - unsecured 6,372 9,862 

Murabahah Commercial 

Paper (CP)/Medium 

Term Notes (MTN) - unsecured 150,000 200,000 

Bridging loan - secured 737,400 – 

Finance lease liabilities 979 – 

1,133,667 220,907 

1,430,389 265,914 


86 


NOTES TO THE 


15. Loans and borrowings (cont’d) 

15.1 Terms and debt repayment schedule 

Carrying Under 1 - 2 2 - 5 Over 5 

Group Year of amount 1 year years years years 

maturity RM’000 RM’000 RM’000 RM’000 RM’000 


Bank overdraft 

- Unsecured 

- RM 103 103 – – – 

- Euro 47 47 – – – 

Floating rate term loans 

- Secured 

- RMB 2010 5,243 2,302 2,941 – – 

- Euro 2009 - 2022 44,639 4,559 3,400 10,339 26,341 

- USD 2010 3,472 – 3,472 – – 

- Unsecured 

- RMB 2013 19,437 5,115 – 14,322 – 

- Euro 2012 147,480 110,610 12,290 24,580 – 

- CAD 2015 34,427 - - 25,340 9,087 

- BRL 2010 8,513 7,706 383 424 – 

Fixed rate term loans 

- Unsecured 

- Euro 2009 - 2016 9,415 6,372 396 1,263 1,384 

CP/MTN 2009 - 2014 300,000 150,000 – 105,000 45,000 

Bill Payable - Unsecured 108,474 108,474 – – – 

Bridging loan – Secured 

- Euro 737,400 737,400 – – – 

Finance lease liabilities 2010 - 2019 11,739 979 1,009 2,673 7,078 

1,430,389 1,133,667 23,891 183,941 88,890 

2007 

Bank overdraft 

- Secured 

- AUD 54 54 – – – 

- Unsecured 

- RM 3,652 3,652 – – – 

- AED 3,345 3,345 – – – 

- Euro 46 46 – – – 

Floating rate term loans 

- Secured 

- RMB 2010 6,704 2,045 2,045 2,614 – 

- Euro 2016 32,988 1,903 2,538 7,612 20,935 

Fixed rate term loans 

- Unsecured 

- Euro 2008 - 2016 19,125 9,862 6,241 1,217 1,805 

CP/MTN 2008 200,000 200,000 – – – 

265,914 220,907 10,824 11,443 22,740 


87 


NOTES TO THE 



15.2 Certain bank overdraft facilities of the Group are secured by way of legal charges over certain long term 

leasehold land and buildings of the Group and assets of certain subsidiaries. 

The bank overdraft for the Malaysian’s subsidiaries are subject to interest ranging from 0.5% to 1.5% 

(2007 - 0.25% to 1.25%) above the lenders’ base lending rate or discount rate per annum whilst the bill 

payables are subject to interest ranging from 3.97% to 4.54% (2007 - Nil) per annum. 

The bank overdraft and bills payable for the overseas subsidiaries are subject to interest ranging from 

5.59% to 7.13% (2007 - 6.18% to 10.50%) per annum. 

In connection with the bank overdraft and bills payable facilities granted by licensed banks, the subsidiaries 

has agreed on the following significant covenants, among others: 

(i) 

(ii) 

(iii) 

(iv) 

The Group debt to equity ratio shall not be more than 1.75 times at all times. 

The ratio of profit before interest and tax to interest expense of a subsidiary shall not be less than 

2 times at all times. 

Not to dispose or divest any of its tangible assets which will materially and adversely affect its 

existing business operation (other than in the ordinary course of business). 

Not to dispose or divest any of its material subsidiaries. 

15.3 Certain term loans of the Group are secured by way of: 

(i) 

(ii) 

(iii) 

Fixed charges over certain land use rights and building of a subsidiary located in the People’s 

Republic of China. 

Legal charge over the industrial land and buildings of a subsidiary located in the Italian 

Republic. 

Legal charge over the building of a subsidiary located in Germany. 

The secured term loans are subject to interest ranging from 4.49% to 7.52% (2007 - 1.0% to 6.8%) per 

annum. 

15.4 The unsecured term loans of the Group were supported by way of corporate guarantee by the 

Company. 

The term loans were subject to interest ranging from 2.75% to 27.11% (2007 - 1.0% to 3.99%) per 

annum. 

15.5 CP/MTN granted by licensed banks has the following significant covenants: 

(i) 

(ii) 

(iii) 


The finance service cover ratio of the Group shall not be less than 1.5 times at all times. 

Not to declare or pay any dividend or make any distributions whether income or capital in nature 

to its shareholders in the event that:- 

(a) 

(b) 

a breach of financial covenant would occur if such payment is made; or 

an event of default has occurred and is continuing or following such payment, an event of 

default would occur. 

(iv) 

First legal charge over the Syariah compliant Designated Accounts and monies standing 

therein. 

The CP/MTN are subject to profit rates ranging from 3.69% to 5.80% (2007 - 3.51% to 3.99%) per 

annum. 


88 


NOTES TO THE 



15.6 During the financial year, the Group obtained a bridging loan amounting to EUR350,000,000 

(RM1,779,400,000) from a licensed bank to finance the acquisition of Borsig Group of Companies. The 

outstanding amount as at the end of financial year is EUR150,000,000 (equivalent to RM737,400,000). 

The bridging loan bears interest ranging from 6.25% to 7.75% during the financial year. 

Subsequent to year end, the licensed bank has approved and the Group has successfully converted the 

EUR150,000,000 bridging loan into a 3-year Ringgit Term Loan facility of RM702,660,000 in February 

2009. 

The 3-Year term loan facility has the following significant covenants: 

(i) 

(ii) 


The finance service cover ratio of the Group shall not be less than 1.5 times at all times. 

In addition, the term loan facility is secured by way of a pledge of the Group’s shares in a foreign subsidiary, 

including assignment over all dividend payments arising there from. 

The secured term loan is repayable on an agreed half yearly installment commencing from 2009. 

15.7 Finance lease liabilities 

Finance lease liabilities are payable as follows: 


Minimum 

Minimum 

lease 

lease 

payments Interest Principal payments Interest Principal 

Group RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 

Less than one year 1,530 551 979 – – – 

Between one and 

five years 5,640 1,958 3,682 – – – 

More than five years 7,755 677 7,078 – – – 

14,925 3,186 11,739 – – – 

The finance lease liabilities are subject to interest ranging from 4.5% to 15% per annum. 

16. Long term payables 

Group 


RM’000 RM’000 

Social security institutions 23,608 33,345 

Other long term payables 7,064 – 

30,672 33,345 

Amounts payable to social security institutions of foreign subsidiaries are unsecured, subject to interest of 4% 

(2007 - 2.5% to 8.0%) with no fixed terms of repayment. 


89 


NOTES TO THE 


17. Payables and accruals 

Group 

Company 


RM’000 RM’000 RM’000 RM’000 

Trade 

Trade payables 17.1 328,542 199,053 – – 

Amount due to contract 

customers (Note 12.2) 162,102 24,322 – – 

490,644 223,375 – – 

Non-trade 

Related parties 17.2 14,882 13,792 - - 

Other payables 91,496 36,984 640 46 

Accrued expenses 105,589 35,956 2,491 744 

Share application monies – 272 – 272 

211,967 87,004 3,131 1,062 

702,611 310,379 3,131 1,062 

17.1 Analysis of foreign currency exposure for significant payables 

Significant payables outstanding at year end that are not in the functional currencies of the Group entities 


Group 

Functional Foreign 2008 2007 

currency currency RM’000 RM’000 

USD RM 42,107 17,573 

USD AUD 1,037 1,356 

USD EUR 17,298 213 

USD GBP 318 65 

USD SGD 7,221 3,944 

USD CHF 1,221 – 

EUR NOK 843 199 

EUR AED 4,448 353 

EUR USD 9,910 14,155 

EUR CAD 234 56 

EUR GBP 456 604 

EUR CHF 268 46 

EUR SGD 119 22 

EUR MYR 6,180 12,428 

EUR JPY – 858 

AED USD 37 162 

AED EUR – 885 

AED GBP – 38 

17.2 Related parties 

The amounts due to related parties are unsecured, interest free and with no fixed term of repayment. 


90 


NOTES TO THE 


18. Employee benefits 

Equity compensation benefits 

Employees’ Share Option Scheme 

On 22 July 2004, the shareholders of the Company approved a share option programme that entitles employees 

to purchase shares in the Company. On 7 December 2005 and 27 March 2008, a further grant on similar 

terms was offered to employees. In accordance with these programmes, the options are exercisable based on 

the weighted average market price of the Shares as shown in the daily official list issued by Bursa Malaysia 

Securities Berhad for the five (5) Market Days immediately preceding the date of offer subject to a discount 

of not more than ten percent (10%) at the date of grant. 

Additionally, 15,127,000 share option arrangements granted and vested before 1 January 2005 exist. As 

allowed by the transitional provisions in FRS 2, the recognition and measurement principles in FRS 2 have 

not been applied to these options granted since it was granted and vested before 1 January 2005. 

The terms and conditions of the grants are as follows; all options are to be settled by physical delivery of 

shares: 

Number of 

Contractual 

instruments 

life of 

Grant date ’000 Vesting conditions options 

Option granted on 25.08.2004* 15,127 Employees in service on 5 years 

grant date 

Option granted on 7.12.2005 5,034 Employees in service 4 years 

throughout the option period 

Option granted on 27.03.2008 300 Employee in service on grant date 1 year 

Total share options 20,461 

* The recognition and measurement principles in FRS 2 have not been applied to these grants as they 

were granted and vested prior to the effective date of FRS 2. 

The number and weighted average exercise prices of share options are as follows: 

Weighted 

Weighted 

average Number average Number 

exercise of options exercise of options 

price (’000) price (’000) 

2008 2008 2007 2007 

Outstanding at 1 January 0.29 23,638 1.18 9,631 

Granted during the year 4.58 300 – – 

Lapsed during the year 0.27 (327) 0.88 (145) 

Exercised during the year 0.41 (9,768) 0.36 (12,143) 

Bonus issue during the year 0.25 32,403 0.29 8,765 

Share split during the year – – 0.29 17,530 

Outstanding at 31 December 0.25 46,246 0.29 23,638 


91 


NOTES TO THE 


18. Employee benefits (cont’d) 

Equity compensation benefits (Cont’d) 

Employees’ Share Option Scheme (Cont’d) 

The options outstanding at 31 December 2008 have an exercise price of RM0.25 (2007 – RM0.27 to RM0.48) 

and a weighted average contractual life of 1 year. 

During the year, 9,767,500 (2007 - 12,143,000) share options were exercised. The weighted average share 

price for the year was RM3.84 (2007 - RM9.02). 

The fair value of services received in return for share options granted is based on the fair value of share options 

granted, measured using a trinomial lattice model, with the following inputs: 

Fair value of share options and assumptions 

Group and Company 


Fair value at grant date RM1.64 RM0.74 

Weighted average share price RM5.08 RM2.21 

Exercise price RM4.58 RM1.92 

Expected volatility (weighted average volatility) 55.49% 28.5% 

Option life (expected weighted average life) 1 year 3 years 

Expected dividend yield 0.79% 1.5% 

Employee expenses 

Group 

Company 


RM’000 RM’000 RM’000 RM’000 

Share options granted in 2007 73 125 40 70 

Share options granted in 2008 492 – 492 – 

Total expense recognised as 

share-based payments 565 125 532 70 


92 


NOTES TO THE 


19. Operating profit 

Operating profit is arrived at 

after charging: 

Group 

Company 


RM’000 RM’000 RM’000 RM’000 

Auditors’ remuneration 

Audit services 

Company’s auditors 

- current year 387 325 110 70 

- prior year 56 88 35 17 

Affiliates of Company’s auditors 

- current year 2,860 1,496 – – 

- prior year 41 507 – – 

Other auditors 30 6 – – 

Other services 

- Company’s auditors 655 151 444 151 

Allowance for doubtful debts 22,767 17,103 – – 

Amortisation of intangible assets 33,670 – – – 

Amortisation of prepaid 

lease payments 193 162 – – 

Depreciation of property, plant 

and equipment (Note 3.1) 6,301 2,524 – – 

Directors’ emoluments: 

- Remuneration 3,846 1,946 3,642 1,946 

- Fees 613 378 613 378 

- Share-based payments 532 70 532 70 

Goodwill written off – 1,050 – – 

Loss on foreign exchange - realised – 4,213 – – 

Rental of premises 9,183 4,175 – – 

Rental of equipment 3,108 1,069 – – 

Personnel expenses 

- Contribution to Employees’ 

Provident Fund 11,191 6,576 – – 

- Share-based payments 33 55 – – 

- Wages, salaries and others 153,216 59,547 – – 

Bad debts written off 1,062 – – – 

Loss on disposal of property, plant 

and equipment 163 – – – 

Provision for foreseeable losses 2,452 – – – 

and after crediting: 

Gain on disposal of property, plant 

and equipment – 280 – – 

Gain on foreign exchange - unrealised 39,147 6,239 – – 

- realised 16,473 – – – 

Rental income 9 – – – 

Bad debts recovered 1,346 – – – 


93 


NOTES TO THE 


20. Financing costs 

Group 

Company 


RM’000 RM’000 RM’000 RM’000 

Finance charges/Interest payable on: 

Bank overdraft 57 1,097 – – 

Term loans and bridging loan 41,937 2,238 – – 

Finance lease 25 1 – – 

CP/MTN 11,647 4,958 – 539 

53,666 8,294 – 539 

Bank and other charges 10,977 1,581 3 3 

64,643 9,875 3 542 

21. Tax expense 

Group 

Company 


RM’000 RM’000 RM’000 RM’000 

Current tax expense 

Malaysian 

- current year 9,293 19,451 1,779 18,505 

- (over)/under provision in prior year (10,185) (1,842) 153 134 

Overseas 

- current year 75,508 2,302 – – 

- under provision in prior year 252 – – – 

74,868 19,911 1,932 18,639 

Deferred tax expense 

- current year 39,240 8,971 (556) – 

- under provision in prior year 3,381 – – – 

42,621 8,971 (556) – 

Total tax expense 117,489 28,882 1,376 18,639 


94 


NOTES TO THE 


21. Tax expense (cont’d) 

Group 

Company 


RM’000 RM’000 RM’000 RM’000 



Profit excluding tax 453,721 215,358 70,970 101,162 

Income tax using Malaysian tax rate 

of 26% (2007 - 27%) 117,967 58,147 18,452 27,314 

Effect of tax rates in foreign jurisdictions* 26,567 (3,962) – – 

Effect of change in tax rate ** (1,024) (437) 22 – 

Non-deductible expenses 11,088 2,465 328 15 

Tax exempt income (21,452) (12,475) (17,420) (8,824) 

Tax incentives (12,236) (13,252) – – 

Effect of tax losses not recognised 3,062 2,444 – – 

Utilisation of previously unrecognised 

temporary differences (159) (2,489) (159) – 

Others 228 283 – – 

124,041 30,724 1,223 18,505 

(Over)/Under provision in prior year 

- Current tax expense (9,933) (1,842) 153 134 

- Deferred tax expense 3,381 – – – 


* Tax rates in several foreign jurisdictions are different from the tax rates in Malaysia. 

** The corporate tax rates are 26% for year of assessment 2008 and 25% for the subsequent years of 

assessment. Consequently deferred tax assets and liabilities are measured using these tax rates. 

Tax recognised directly in equity 

Group 


RM’000 RM’000 

Reversal of deferred tax liabilities due to changes in tax rate (470) – 


95 


NOTES TO THE 


22. Earnings per ordinary share - Group 

22.1 Basic earnings per ordinary share 

The calculation of basic earnings per ordinary share at 31 December 2008 was based on the profit 

attributable to ordinary shareholders of RM336,383,000 (2007 - RM188,133,000) and the weighted average 

number of ordinary shares outstanding during the year of 3,822,261,000 (2007 - 3,675,652,000). 

Group 


’000 ’000 

Restated 

Issued ordinary shares at beginning of the year 1,046,583 257,782 

Effect of Rights Issue 138,010 – 

Effect of Bonus Issue 2,637,394 2,896,440 

Effect of exercise of ESOS 6,481 3,338 

Effect of share split – 518,092 

Effect of treasury shares held (6,207) – 

Weighted average number of ordinary shares 3,822,261 3,675,652 

Group 


sen 

sen 

Basic earnings per ordinary share 8.80 5.12 

The previous year’s earnings per ordinary share has been restated based on the profit attributable 

to ordinary shareholders of RM188,133,000 and the weighted average number of ordinary shares 

outstanding during the year of 3,675,652,000 ordinary shares after taking into consideration the bonus 

issue of 2,637,394,000 ordinary shares of RM0.25 each. 

22.2 Diluted earnings per ordinary share 

The calculation of diluted earnings per ordinary share is based on the profit attributable to ordinary 

shareholders of RM336,383,000 (2007 - RM188,133,000) and weighted average number of ordinary 

shares outstanding during the year of 3,861,444,000 (2007 - 3,722,899,000). 


’000 ’000 

Weighted average number of ordinary shares as above 3,822,261 3,675,652 

Effect of share options 39,183 47,247 

Weighted average number of ordinary shares (diluted) 3,861,444 3,722,899 


96 


NOTES TO THE 


22. Earnings per ordinary share – Group (cont’d) 

22.2 Diluted earnings per ordinary share (Cont’d) 

Group 


sen 

sen 

Diluted earnings per ordinary share 8.71 5.05 

The previous year’s earnings per ordinary share has been restated based on the profit attributable 

to ordinary shareholders of RM188,133,000 and the weighted average number of ordinary shares 

outstanding during the year of 3,722,899,000 ordinary shares after taking into consideration the bonus 

issue of 2,637,394,000 ordinary shares of RM0.25 each which had also affected the share options. 

The average market value of the Company’s shares for purpose of calculating the dilutive effect of shares 

options was based on quoted market prices for the period the options were outstanding. 

23. Dividend 

Dividend recognised in the current year by the Company are: 

Sen per Total 

share amount Date of 

(net) RM’000 payment 


Interim 2007 ordinary (net of tax) 2.96 31,065 18 April 2008 

2007 

Final 2006 ordinary (tax exempt) 5.00 12,952 1 August 2007 

On 24 February 2009, the Board of Directors declared an interim dividend of 1 sen per ordinary share less tax 

at 25% totaling RM29,524,538 and 0.5 sen per ordinary share tax exempt totaling RM19,683,029 in respect 

of the year ended 31 December 2008. The dividend was paid on 18 March 2009. 

24. Contingent liabilities - unsecured 

Group 

Company 


RM’000 RM’000 RM’000 RM’000 

Guarantees and contingencies relating 

to borrowings of subsidiaries – – 4,071,083 1,429,981 


97 


NOTES TO THE 


25. Commitments 

Group 


RM’000 RM’000 

Capital commitments: 

Property, plant and equipment 

Contracted but not provided for in the financial statements 45,620 120,415 

Authorised but not contracted for 52,752 141,749 

98,372 262,164 

Investment 

Contracted but not provided for in the financial statements – 2,043 

Authorised but not contracted for – 81,882 

– 83,925 

26. Key management personnel compensation 

The key management personnel compensation are as follows: 

Group 

Company 


RM’000 RM’000 RM’000 RM’000 

Directors 

- Fees 613 378 613 378 

- Remuneration 3,846 1,946 3,642 1,946 

- Employee benefits 

(including estimated monetary 

value of benefit-in-kind) 74 86 74 86 

- Share-based payment 532 70 532 70 

5,065 2,480 4,861 2,480 

Subsidiaries directors 

- Short term employee benefits 7,637 911 – – 

Other key management personnel 

- Short term employee benefits 627 4,780 – – 

13,329 8,171 4,861 2,480 

Other key management personnel comprises persons other than the Directors of Group entities, having authority 

and responsibility for planning, directing and controlling the activities of the entity either direct or indirectly. 


98 


NOTES TO THE 


27. Related parties 

For the purposes of these financial statements, parties are considered to be related to the Group or the Company 

if the Group or the Company has the ability, directly or indirectly, to control the party or exercise significant 

influence over the party in making financial and operating decisions, or vice versa, or where the Group or the 

Company and the party are subject to common control or common significant influence. Related parties may 

be individuals or other entities. 

Controlling related party relationships are as follows: 

(i) Its’ subsidiaries companies as disclosed in Note 31. 

(ii) 

(iii) 

(iv) 

(v) 

The substantial shareholders of the Company, Inter Merger Sdn. Bhd. 

Inter Merger Sdn. Bhd., Inter Merger Trading Sdn. Bhd. and IM Bina Sdn. Bhd., companies in which the 

directors, Lee Swee Eng and Gan Siew Liat have substantial financial interest. 

Tofield Realty Development Corporation, wholly owned subsidiary of Asiavertek Sdn. Bhd. of which Lee 

Swee Eng and Gan Siew Liat have substantial financial interest. 

Nasser Hazza is an entity controlled by Mohammed Nasser Hazza Al Fehaid Al Subaei, a director of 

KNM Saudi Limited Co. 

The significant related party transactions of the Group, other than key management personnel compensation 

are as follow: 

Group Allowance Bad or doubtful 

Transactions Gross balance Net balance for doubtful receivables 

amount for outstanding outstanding receivables recognised for 

the year ended from / (to) from / (to) at the year end 

31 December 31 December 31 December 31 December 31 December 

2008 RM’000 RM’000 RM’000 RM’000 RM’000 

Related parties 

Inter Merger Sdn. Bhd. (269) (269) – – 

Rental of premises 1,214 

Administrative charges 588 

IM Bina Sdn. Bhd. (4,870) (4,870) – – 

Contract billing payable 22,716 

Inter Merger Trading 

Sdn. Bhd. (1) (1) – – 

Purchase of materials 89 

Tofield Realty 

Development Corporation – – – – 

General mechanical 

and engineering 6,835 

Nasser Hazza (3,559) (3,559) – – 

General construction, 

civil and related 

mechanical 

and engineering work 10,205 


99 


NOTES TO THE 


27. Related parties (cont’d) 

Group Allowance Bad or doubtful 

Transactions Gross balance Net balance for doubtful receivables 

amount for outstanding outstanding receivables recognised for 

the year ended from / (to) from / (to) at the year end 

31 December 31 December 31 December 31 December 31 December 

2007 RM’000 RM’000 RM’000 RM’000 RM’000 

Related parties 

Inter Merger Sdn. Bhd. (1,832) (1,832) – – 

Rental of premises 1,230 

Administrative charges 615 

IM Bina Sdn. Bhd. (11,742) (11,742) – – 

Contract billing payable 18,638 

Inter Merger Trading 

Sdn. Bhd. – – – – 

Purchase of materials 149 

The terms and conditions for the above transactions are based on normal trade terms. All the amounts 

outstanding are unsecured, interest free with no fixed term of repayment and expected to be settled with 

cash. 

28. Financial instruments 

Financial risk management objectives and policies 

Exposure to credit, interest rate, liquidity and foreign currency risks arises in the normal course of Group’s 

business. The Group monitors the interest rate trend and currency exchange rate on an ongoing basis. 

Credit risk 

The Group’s primary exposure to credit risk arises through its receivables. The management has an informal 

credit policy in place and the exposure to credit risk is monitored on an ongoing basis. 

The Group also places excess funds with reputable licensed financial institutions. The management is of the 

view that credit risk exposure to licensed financial institutions is minimal. 

There were no significant concentrations of credit risk. The maximum exposure to credit risk for the Group is 

represented by the carrying amount of the receivables presented in the balance sheet. 

Interest rate risk 

The Group’s exposure to interest rate risk mainly arises through its fixed deposits and borrowings. 


100 


NOTES TO THE 


28. Financial instruments (cont’d) 

Financial risk management objectives and policies (Cont’d) 

Effective interest rates/profit rates and repricing analysis 

In respect of interest-earning financial assets and interest-bearing financial liabilities, the following table indicates 

their effective interest rates/profit rates at the balance sheet date and the periods in which they reprice or 

mature, whichever is earlier. 

Group 

Average 

effective 

interest rates/ 

More 

profit rates Less than 1 - 2 2 – 3 3 – 4 4 – 5 than 5 

per annum Total 1 year years years years years years 

2008 % RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 

Floating rate instruments 

Bank overdraft - unsecured 

- RM 7.05 – 7.25 (103) (103) – – – – – 

- Euro 8.00 (47) (47) – – – – – 

CP/MTN 3.69 – 5.80 (300,000) (300,000) – – – – – 

Bridging loan – secured 6.25 – 7.75 (737,400) (737,400) – – – – – 

Floating rate term loans – secured 

- RMB 5.51 – 7.52 (5,243) (5,243) – – – – – 

- Euro 4.49 – 6.40 (44,639) (44,639) – – – – – 

- USD 5.00 (3,472) (3,472) – – – – – 

Floating rate term loans – unsecured 

- RMB 5.51 – 7.52 (19,437) (19,437) – – – – – 

- Euro 2.75 – 5.35 (147,480) (147,480) – – – – – 

- CAD 4.35 (34,427) (34,427) – – – – – 

- BRL 6.05 – 27.11 (8,513) (8,513) – – – – – 

(1,300,761) (1,300,761) – – – – – 

Fixed rate instruments 

Fixed rate term loans - unsecured 

- Euro 3.10 – 4.40 (9,415) (6,372) (396) (408) (421) (434) (1,384) 

Bills Payables - RM 3.97 – 4.54 (108,474) (108,474) – – – – – 

Finance lease - EUR 4.50 (11,230) (746) (787) (828) (872) (919) (7,078) 

Finance lease - CAD 4.83 – 15.00 (509) (233) (223) (53) – – – 

Deposits with licensed banks 3.45 – 5.50 129,201 129,201 – – – – – 

Deposits with financial institutions 3.35 26,078 26,078 – – – – – 

25,651 39,454 (1,406) (1,289) (1,293) (1,353) (8,462) 


101 


NOTES TO THE 




Effective interest rates/profit rates and repricing analysis (Cont’d) 

Group 

Average 

effective 

interest rates/ 

More 

profit rates Less than 1 - 2 2 – 3 3 – 4 4 – 5 than 5 

per annum Total 1 year years years years years years 

2007 % RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 

Floating rate instruments 

Bank overdraft - secured 

- AUD 10.00 – 10.50 (54) (54) – – – – – 

Bank overdraft - unsecured 

- RM 7.25 – 8.25 (3,652) (3,652) – – – – – 

- Euro 8.00 (46) (46) – – – – – 

- AED 6.18 (3,345) (3,345) – – – – – 

CP/MTN 3.51 – 3.99 (200,000) (200,000) – – – – – 

Floating rate term loans - secured 

- RMB 6.16 – 6.80 (6,704) (6,704) – – – – – 

- Euro 5.63 (32,988) (32,988) – – – – – 

(246,789) (246,789) – – – – – 

Fixed rate instruments 

Fixed rate term loans - unsecured 

- Euro 1.00 - 4.03 (19,125) (9,862) (6,241) (393) (405) (419) (1,805) 

Deposits with licensed banks 3.45 - 5.50 28,067 28,067 – – – – – 

Deposits with financial institutions 3.35 3,780 3,780 – – – – – 

12,722 21,985 (6,241) (393) (405) (419) (1,805) 

Foreign currency risk 

The Group’s exposure to foreign currency risk is mainly from contract revenue, purchases and borrowings 

denominated in US Dollars, Australian Dollars, United Arabs Emirates Dirham, Chinese Renminbi, Euro, Brazilian 

Real and Canadian Dollars. The Group does not view the exposure to these currencies to be significant. 

Certain subsidiaries’ financial statements are denominated exclusively in Euro, Indian Rupees, US Dollars, 

Brazilian Real, Australian Dollars, Chinese Renminbi, United Arab Emirates Dirhams, Saudi Riyal, Canadian 

Dollars and Brunei Dollars. The Group does not view the exposure to Euro, Indian Rupees, US Dollars, Brazilian 

Real, Australian Dollars, Chinese Renminbi, United Arab Emirates Dirhams, Saudi Riyal, Canadian Dollars 

and Brunei Dollars to be significant. 

Exposure to foreign currency risk is monitored on an ongoing basis. The Group hedges its foreign currency 

risk of its trade balances denominated in foreign currency. 


102 


NOTES TO THE 




Liquidity risk 

Prudent liquid risk management implies maintaining sufficient cash and the availability of funding through an 

adequate amount of committed credit facilities. 

Fair values 

Recognised financial instruments 

At balance sheet date, the carrying amounts of cash and cash equivalents, receivables, deposits and 

prepayments, payables and accrued expenses, short term borrowings, and floating rate term loan - secured 

approximate fair value due to the relatively short term nature of these financial instruments. In respect of 

amount due from subsidiary companies, a reasonable estimate of fair value could not be made as the financial 

instrument has an unspecified period of repayment. The carrying amounts of the long term loans approximate 

fair values as they are subject to variable interest rates which in turn approximate the current market interest 

rates for similar loans at balance sheet date. 

The Company provides financial guarantees to banks for credit facilities extended to certain subsidiaries. The 

fair value of such financial guarantees is not expected to be material as the probability of the subsidiaries 

defaulting on the credit lines is remote. 

It was not practicable to estimate the fair value of the Group’s investment in unquoted shares due to the lack of 

comparable quoted market prices and the inability to estimate fair value without incurring excessive costs. 

The fair value of fixed rate term loan - unsecured, together with the carrying amounts shown in the balance 

sheets, is as follows: 


Carrying Fair Carrying Fair 

amount value amount value 

RM’000 RM’000 RM’000 RM’000 

Fixed rate term loan - unsecured 9,414 8,748 19,125 17,849 

Unrecognised financial instruments 

The fair value of the unrecognised financial instruments, together with the carrying amounts is as follows: 


Carrying Fair Carrying Fair 

amount value amount value 

RM’000 RM’000 RM’000 RM’000 

Forward foreign exchange contracts – (20,689) – 10,143 


103 


NOTES TO THE 




Fair values (Cont’d) 

The nominal value of the derivatives is as follows: 


RM’000 RM’000 

Forward foreign exchange contracts 695,713 632,033 

Estimation of fair values 

The following summarises the methods used in determining the fair values of financial instruments reflected 

in the table. 

Forward foreign exchange contracts are marked to market using listed market prices. 

29. Segment information 

Segment information is presented by geographical locations that the Group operates in. The format of the 

geographical segments is based on the Group’s operation management and internal reporting structure. Intersegment 

pricing is determined based on arms length transactions. 

The Group is involved mainly in the business of designing and manufacturing process equipment for oil, gas, 

petrochemicals, minerals processing, desalination, renewable energy, environmental and power industries. 

Accordingly, segmental reporting by business is not applicable. 

Reporting on segmental results, assets and liabilities include items directly attributable to geographical segments 

as well as those that can be allocated on a reasonable basis. Unallocated items mainly comprise of interest 

earning assets and related revenue, interest bearing loans, borrowings and related expenses, and tax assets 

and liabilities. 

Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are 

expected to be used for more than one period. 

The segments are classified into geographical presence as follows: 

Geographical segment 

Asia & Oceania 

Europe & America 

Countries 

Malaysia, the People’s Republic of China, India, Brunei Darussalam, 

Indonesia and Australia 

British Virgin Islands, United Arab Emirates, Kingdom of Saudi Arabia, 

Canada, Brazil, Italy, United States of America and Germany 


104 


NOTES TO THE 


29. Segment information (cont’d) 

Geographical segments 

Asia and Oceania Europe & America Consolidated 

2008 2007 2008 2007 2008 2007 

RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 

Revenue 1,041,188 918,009 1,487,562 312,107 2,528,750 1,230,116 

Cost of sales (811,149) (691,878) (1,011,211) (219,849) (1,822,360) (911,727) 

Gross profit 230,039 226,131 476,351 92,258 706,390 318,389 

Administration expenses 

and others (42,249) (62,787) (152,609) (30,621) (194,858) (93,408) 

Operating profit 187,790 163,344 323,742 61,637 511,532 224,981 

Financing costs (64,643) (9,875) 

Interest income 6,832 1,302 

Goodwill written off – (1,050) 

Profit before tax 453,721 215,358 

Tax expense (117,489) (28,882) 

Profit for the year 336,232 186,476 

Segment assets 1,180,598 718,910 3,215,622 490,475 4,396,220 1,209,385 

Unallocated assets 18,022 3,870 34,821 36,453 52,843 40,323 

Total assets 1,198,620 722,780 3,250,443 526,928 4,449,063 1,249,708 

Segment liabilities 261,161 207,701 474,636 138,855 735,797 346,556 

Unallocated liabilities 1,324,739 255,404 568,410 92,079 1,893,149 347,483 

Total liabilities 1,585,900 463,105 1,043,046 230,934 2,628,946 694,039 

Capital expenditure 83,785 56,439 66,798 41,606 150,583 98,045 

Depreciation 2,416 2,266 3,885 258 6,301 2,524 

Non-cash expenses 

other than depreciation 18,523 12,555 38,107 5,760 56,630 18,315 


105 


NOTES TO THE 


30. Significant events during the year 

30.1 KNM Group Berhad had completed the following corporate exercises during the year:- 

(a) 

(b) 

(c) 

(d) 

Renounceable Rights Issue of up to 263,735,925 new ordinary shares of RM0.25 each in KNM 

(“KNM Shares”) on the basis of one (1) new KNM Share for every four (4) existing KNM Shares 

held at the issue price of RM4.00 per right share. 

Bonus issue of up to 2,637,394,050 new KNM shares on the basis of two (2) new KNM share 

for every share held after the Rights issue. 

Increase in the Authorised share capital of KNM Group Berhad from RM300,000,000 comprising 

1,200,000,000 ordinary shares of RM0.25 each to RM1,250,000,000 comprising 5,000,000,000 

ordinary shares of RM0.25 each by the creation of an additional 3,800,000,000 ordinary shares 

of RM0.25 each. 

Amendment to the Memorandum and Articles of Association. 

30.2 KNM Group Berhad had in February 2008 announced that the Company is proposing to undertake the 

issuance of up to United States of America Dollar (“USD”) 350 million (or its Euro or Malaysia Ringgit 

equivalent) Bonds, exchangeable into new KNM Shares (“Exchangeable Bonds”) which has been put 

on hold due to the market situation. The Securities Commission (“SC”) has granted the Company an 

extension of time up to 29 November 2009 to implement the proposal. 

30.3 In February 2008, the Company’s wholly-owned subsidiary, KNM Process Systems Sdn. Bhd. 

(“KNMPS”) entered into a Memorandum of Agreement (MOA) with David K Stevens (DSK), to joint 

venture and set up a company in the United State of America known as KPS Technology & Engineering 

LLC to undertake and provide services to clients in the oil, gas and energy/power industries in relation 

to sulphur removal and recovery technology. The Company was incorporated during the year. 

30.4 KNM Corporation (“KNM Corp”), an indirect wholly-owned subsidiary of the Company had in February 

2008 incorporated KPS Inc in Canada as a wholly-owned subsidiary of KNM Corp with an authorised, 

issued and paid-up share capital of 100 Class A shares of Canadian Dollars (CAD) 0.10 each. 

30.5 KNMPS had in February 2008 entered into Sale and Purchase Agreement with the Vendors to acquire 

100% equity interest in Borsig, comprising 12 fully paid-up ordinary shares for a total cash consideration 

of Euro 350,000,000. The acquisition was completed in June 2008. 

30.6 In March 2008, the Company had incorporated KNM Capital Labuan Limited in Labuan as its whollyowned 

subsidiary with an authorised share capital of USD10,000 of which its issued and paid-up share 

capital comprises of 1 ordinary share of USD1.00 each. 

30.7 KNM Group Berhad had in March 2008 procured a mandate from its shareholders to purchase and/or 

hold up to ten per centum (10%) of its issued and paid-up ordinary share of RM0.25 each (“Shares”) 

for the time being listed on Bursa Malaysia. 

30.8 KNM Group Berhad had in March 2008 obtained its shareholders approval to allocate 300,000 ESOS 

options to Dato’ Mohamad Idris bin Mansor, the Independent Non-Executive Chairman of KNM pursuant 

to its existing ESOS scheme in accordance with the by-laws of the ESOS. 

30.9 In April 2008, the Company’s wholly owned subsidiary, KNM International Sdn. Bhd. (“KNMI”), had 

incorporated KNM Saudi Limited Co. with Themar Aqaria Ltd. Co. on 51:49 equity basis with a total 

issued and paid-up share capital of (Saudi Riyals) SR1,000,000 divided into 100,000 shares of SR10.00 

each. 


106 


NOTES TO THE 


30. Significant events during the year (CONT’D) 

30.10 In May 2008, KNMPS had incorporated the entire issued and paid-up shares in Deutsche KNM GmbH 

(formerly known as Hauptstadtsee 746 V V GmbH) with a registered capital of Euro 25,000, for a cash 

consideration of Euro 27,500. 

30.11 In October 2008, KNMPS had formed a joint venture company on 50:50 equity basis with Prosernat 

SA (Prosernat), a company based in Paris, France to provide process technologies, engineering, 

procurement, construction, commissioning, start up, operation and maintenance for field gas separation 

and gas treatment facilities, including desalting, gas dehydration, gas sweetening, natural gas liquids 

recovery, sulphur recovery and modular units. KPN Gas Technology Sdn. Bhd. was incorporated by 

KNMPS for this purpose. 

30.12 In October 2008, KNMPS and KNMI had completed their acquisition of 80% equity interest in HZM 

Industrial Ltda, HZM Servicos de Manutencao E Montagens Ltda and HZM S.A. Industria e Comercio 

de Equipamentos (HZM Companies) for a total consideration of Brazilian Real 27.0 million. 

30.13 KNM Group Berhad had in December 2008, mutually agreed with Ellimetal International N.V. (Vendor) 

to terminate the proposed acquisition of 100% equity interest in its wholly-owned subsidiary Ellimetal 

N.V. for cash consideration of EUR20,000,000. 

31. Subsidiaries 

The principal activities of the subsidiaries, their places of incorporation and the interests of KNM Group Berhad 


Effective 

Country of Ownership 

Name of Company Principal Activities Incorporation Interest 


Subsidiaries of the Company 

KNM Process Systems Design, manufacture, assembly Malaysia 100% 100% 


and commissioning of process 

equipment, pressure vessels, 

heat exchangers, skid mounted 

assemblies, process pipe systems, 

storage tanks, specialised structural 

assemblies and module assemblies 

for the oil, gas and petrochemical 

industries. 

KNM International Provision of management, Malaysia 100% 100% 


technical advisory, licence and 

trademark services to international 

related companies and related 

international investments. 

KNM Capital Sdn. Bhd. Provision of funding and treasury Malaysia 100% 100% 

services and all related functions. 


107 


NOTES TO THE 


31. Subsidiaries (CONT’D) 

Effective 




Subsidiaries of the Company 

(Cont’d) 

KNM Management Provision of qualifying services Malaysia 100% 100% 

Services Sdn. Bhd. 

under the overseas head quarters 

(OHQ) concept which includes 

management, treasury, financial 

advisory, technical support, 

marketing, business development 

and procurement and all related 

functions. 

KNM Renewable Dormant. Malaysia 100% 100% 

Energy Sdn. Bhd. 

KNM Capital Labuan Provision of funding and treasury Labuan 100% – 

Limited 

services and all related functions. 

Subsidiaries of KNM 

Process Systems Sdn. Bhd. 

KNM OGPET (East Design, manufacture, assembly Malaysia 100% 100% 

Coast) Sdn. Bhd. 





storage tanks, specialised structural 

assemblies and module assemblies 

for the oil, gas and petrochemical 

industries. 

Duraton Engineering Provision of project manpower, Malaysia 100% 100% 


engineering, non-destructive 

testing and technical consultancy 

services. 

Perwira Awan Sdn. Bhd. Property investment. Malaysia 100% 100% 

KNM Plant (Bintulu) Dormant. Malaysia 100% 100% 


KNM Plant (Gebeng) Dormant. Malaysia 100% 100% 


KNM Plant (Melaka) Dormant. Malaysia 100% 100% 



108 


NOTES TO THE 



Effective 





Process Systems Sdn. Bhd. 

(Cont’d) 

KNM Technical Services Provision of technical services Malaysia 100% 100% 


and other associated services 

related to the oil, gas and 

petrochemical industries. 

Sumber Amantech Provision of project management Malaysia 100% 100% 


and technical services. 

KNM Exotic Equipment Design, manufacture, assembly Malaysia 100% 100% 






storage tanks, specialised 

structural assemblies and module 

assemblies for the oil, gas and 

petrochemical industries. 

KNM Europa BV Investment holding. Netherlands 100% 100% 

(formerly known 

as FBM Hudson 

Italiana BV) * @ 

KNM Pty Ltd * @ Design, manufacture, sale and Australia 100% 100% 

service of heat exchange systems. 

KNM Industrial Boilers Dormant. Malaysia 100% 100% 


KPN Gas Technology Dormant. Malaysia 100% – 

Sdn. Bhd. ^ 

Deutsche KNM GmbH * Investment holding. Germany 100% – 

KNM Sistemas De Design, manufacture, assembly Brazil 100% 100% 

Processamento Do 


Brazil Ltda ^ 

equipment, including without 

limitation pressure vessels, air 

finned cooler process gas waste 

and heat exchangers for the oil, 

gas, petrochemicals and minerals 

processing industries. 


109 


NOTES TO THE 



Effective 





Europa BV (formerly 

known as FBM Hudson 

Italiana BV) 

FBM Hudson Italiana Design and manufacture of Italian 100% 100% 

SpA * air-cooled heat exchangers, Republic 

specialty shell and tube heat 

exchangers and process gas 

waste heat boilers for the oil, 

gas, petrochemical and 

desalination industries. 

FBM ICOSS s.r.l * Design and construction of fully Italian 100% 100% 

welded plate type heat exchanger Republic 

plates bundle exchangers and 

jacketed pressure vessels for 

different fields such as chemical, 

petrochemical, textile 

pharmaceutical, food industry, 

aerospace and research industries. 

KNM Corporation * Investment holding. Canada 100% 100% 

Subsidiaries of 

KNM Corporation 

KNM Process Equipment Design, manufacture, procurement Canada 100% 100% 

Inc * 

and manufacturing of process 

equipment, including without 

limitation pressure vessels, 

reactors, column and towers, 

drums, heat exchangers, air finned 

coolers, process gas waste heat 

boilers and specialised shell and 

tube heat exchangers, condensers, 

spheres, process tanks, mounded 

bullets, process skid packages and 

turnkey storage facilities for the oil, 

gas, petrochemicals and mineral 

processing industries in Canada 

and the North America region. 


110 


NOTES TO THE 



Effective 





KNM Corporation 

(Cont’d) 

KNM Industries Inc * An asset holding company and Canada 100% 100% 

shall own the land, manufacturing 

plant and machinery in relation to 

the Group’s manufacturing facility 

in Edmonton, Alberta, Canada. 

KPS Inc * Investment holding. Canada 100% – 

Subsidiaries of KPS Inc 

KPS Technology & Sulphur removal and recovery United 60% – 

Engineering LLC * and provide services to client in States of 

oil, gas and energy/power 

America 

industries relation to sulphur 

removal and recovery technology. 


KNM Pty Ltd 

W E Smith Engineering Thermal and mechanical design, Commonwealth 100% 100% 

Pty Ltd * @ drafting, manufacture of of Australia 

shell and tube heat exchangers 

vessels, columns and feed water 

heaters. 

HEA Pty Ltd * @ Manufacture of air-cooled, Commonwealth 100% 100% 

shell and tube, and plate heat of Australia 

exchangers, vessels and columns. 

PT Heat Exchangers Manufacture of air-cooled, and Republic 100% 100% 

Indonesia * @ shell and tube plate and of Indonesia 

frame heat exchangers, vessels 

columns. 


KNM Exotic Equipment 


Pancaran Ribu (M) Dormant. Malaysia 100% 100% 


Hasil Wira Sdn. Bhd. Dormant. Malaysia 100% 100% 

KMK Power Sdn. Bhd. Dormant. Malaysia 100% 100% 


111 


NOTES TO THE 



Effective 




Subsidiaries of Deutsche 

KNM GmbH 

BORSIG Beteiligun Investment holding Germany 100% – 

gsverwaltungsgesellschaft 

mbH * 

Subsidiaries of BORSIG 

Beteiligungsverwaltungsgesllschaft 

mbH 

BORSIG GmbH * Advisory and administration Germany 100% – 

services as well as acquisition 

of and shareholding in other 

companies on its behalf and 

for its own account, in 

particular for and to companies 

of the Borsig Group. 


GmbH 

BORSIG Process Processing, planning, fabrication Germany 100% – 

Heat Exchanger 

and distribution of and the trading 

GmbH * 

with machines, assets, apparatuses 

and miscellaneous components, 

particularly for generating 

plant industry, petrochemical 

and chemical industry. 

BORSIG ZM System engineering, industrial Germany 100% – 

Compression GmbH* fabrication, assembly services as 

well as the sale of machines and 

constructions of every type, in 

particular compressors, container 

construction, silo and conveyor 

technique. 

BORSIG Membrane Processing, planning, fabrication Germany 100% – 

Technology GmbH* 

and distribution of and the trading 

with machines, construction, 

apparatuses and miscellaneous 

components in the field of 

membrane technics. 


112 


NOTES TO THE 



Effective 





GmbH (Cont’d) 

BORSIG Service Provides installation, maintenance Germany 100% – 

GmbH * 

and other industrial services, in 

particular on machines, construction, 

apparatuses and other components 

of every type. 

BORSIG Boiler Planning, delivery, installation, Germany 100% – 

Systems GmbH * 

and, implementation of 

constructions for generating 

plants as well as services and 

maintenance for such constructions. 


Membrane Technology GmbH 

GMT Membrantechnik Development, processing and Germany 51% – 

GmbH * 

distribution of membranes, 

membrane modules and 

membrane components. 

Subsidiaries of KNM Sistemas 

Processamento Do Brazil 

Ltda 

KNM Metalmec Industrial Design, fabrication, assembly Brazil 80% – 

Ltda (formerly known as and erection of tanks, spheres, 

HZM Industrial Ltda) ^ storage systems, structural 

systems, piping and ducting 

systems for oil, gas and 

industrial plants. 

KNM Metalmec Servicos Provision of construction Brazil 80% – 

Ltda (formerly known as management services, 

HZM Servicos de 

mechanical assembly and 

Manutencao e 

erection works, electrical 

Montagens Ltda) ^ 

and instrumentation works 

and maintenance services 

for oil, gas and industrial plants. 

KNM Metalmec Design, manufacture and Brazil 80% – 

Equipamentos SA 

commissioning of process 

(formerly known as 

equipment, boilers, transport, 

HZM S.A. Industril E and other industrial equipment 

Comercio de 

for oil, gas and industrial plants. 

Equipamentos) ^ 


113 


NOTES TO THE 



Effective 





International Sdn. Bhd. 

KNM Overseas Investment holding. Malaysia 100% 100% 

(China) Sdn. Bhd. 

KNM Global Ltd. Provision of management, British Virgin 100% 100% 

procurement services, 

Islands 

business development, 

technical advisory and 

marketing services. 

KNM Oil & Gas (B) Design, manufacture and Brunei 100% 100% 

Sdn. Bhd.* distribution of process Darussalam 

equipment for the oil and 

gas industry. 

KNM Engineering Design, engineering, technical Republic 100% 100% 

Services Pty Ltd ** and project management services of India 

in relation to process equipment, 

plant facilities and general 

facilities for the oil, gas, 

petrochemicals, minerals 

processing and general industries. 

The Company has not commenced 

operations. 

PT KPE Industries * An asset holding company Republic of 100% 100% 

and shall own the land, 

Indonesia 

manufacturing plant and 

machinery in relation to the 

Group’s intended manufacturing 

facility at the Kabil Industrial 

Estate in Batam, Indonesia. 

KNM Saudi Ltd. ^ Production of platforms, Kingdom of 51% – 

towers, columns pressure 

Saudi Arabia 

pipe, large barrels, boilers, 

thermal transformers, large 

tanks and cooling fans. 


114 


NOTES TO THE 



Effective 




Subsidiary of KNM 

Overseas (China) Sdn. Bhd. 

KNM Special Process Design, manufacture, assembly, People’s 100% 100% 

Equipment commissioning and maintenance Republic of 

(Changshu) Co. Ltd. ** of process equipment, pressure China 

vessels, heat exchanges, skid 

mounted assemblies, process 

pipe systems, storage tanks, 

specialised structural assemblies 

and module assemblies for the 

oil, gas and petrochemical 

industries within the China market. 

Subsidiary of FBM Hudson 

Italiana SpA and KNM 

International Sdn. Bhd. 

FBM - KNM FZCO * Design and manufacture of United Arab 100% 100% 

air-cooled heat exchangers, 

Emirates 

specialty shell and tube heat 

exchangers and process gas 

waste heat boilers for the oil, 

gas, petrochemical and desalination 

industries. 

Subsidiary of KNM Renewable 

Energy Sdn. Bhd. 

KNM-CIW Sdn. Bhd. Dormant. Malaysia 100% 60% 

* Audited by a member firm of KPMG. 

** Audited by another firm of accountants. 

@ Auditor’s report that is not qualified and the financial statements are prepared on a going concern basis 

as its holding company will provide the necessary financial support, if required. 

^ Consolidated using management accounts as at 31 December 2008. 


115 


NOTES TO THE 


32. Acquisition of subsidiaries and minority interest 

32.1 Business combination 

During the financial year, the Group completed the acquisition of the following companies: 

i) BORSIG Beteiligungsverwaltungsgesllschaft mbH and its subsidiaries in June 2008, for a cash 

consideration of RM1,772,872,000 (EUR 351,921,000). 

ii) 

HZM Group of companies in October 2008, for a cash consideration of RM45,531,000 

(BRL27,241,000). 

The principles activities of the subsidiaries acquired are shown in Note 31 of the financial statements. 

During the year ended 31 December 2008, these subsidiaries contributed profit of RM249,373,000. If the 

acquisition had occurred on 1 January 2008, management estimates that consolidated revenue would 

have been RM3,362,729,000 and consolidated profit for the year would have been RM404,658,000. 

The acquisition had the following effect on the Group’s assets and liabilities on acquisition date: 

Pre-acquisition Fair value Recognised values 

carrying amounts adjustments on acquisitions 

Note 2008 2007 2008 2007 2008 2007 

RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 

Property, plant 

and equipment 3 114,854 – 42,820 – 157,674 – 

Intangible asset 4 2,191 – 892,177 – 894,368 – 

Investment in associates 7 1,969 – – – 1,969 – 

Other investments 8 130 – – – 130 – 

Deferred tax assets 9 12,945 – – – 12,945 – 

Inventories 33,426 – – – 33,426 – 

Receivables, deposits 

and prepayments 294,764 – 1,239 – 296,003 – 

Cash and cash equivalents 209,494 – – – 209,494 – 

Loans and borrowings (101,047) – – – (101,047) – 

Long term payables (7,802) – – – (7,802) – 

Deferred tax liabilities 9 (70,696) – (280,499) – (351,195) – 

Payables and accruals (236,046) – – – (236,046) – 

Current tax liabilities (32,074) – – – (32,074) – 

Net identifiable 

assets and liabilities 222,108 – 655,737 – 877,845 – 

Minority interest (6,117) – 

Goodwill on acquisition 4 946,675 – 

Consideration paid, 

satisfied in cash 1,818,403 – 

Cash acquired (209,494) – 

Net cash outflow 1,608,909 – 


116 


NOTES TO THE 


32. Acquisition of subsidiaries and minority interest (CONT’D) 

32.1 Business combination (Cont’d) 

Pre-acquisition carrying amounts were determined based on applicable FRSs immediately before the 

acquisition. The values of assets and liabilities recognised on acquisition are their estimated fair values. 

In determining the fair value of intangible assets acquired (comprise mainly technology including patents, 

customers related intangibles including customer contracts and supply agreement and marketing related 

intangibles including tradenames), the Group applied the discount rate of 7.6% to 10.1% to the relevant 

discounted cash flow. 

The goodwill recognised on the acquisition is attributable mainly to the skills and technical talent of the 

acquired business’ work force and the synergies expected to be achieved from integrating the companies 

into the Group’s existing oil, gas and petrochemical industry. 

32.2 Acquisition of minority interest 

In March 2008, the Group acquired an additional 40% interest in KNM Renewable Energy Sdn. Bhd. 

for RM199,000 in cash, increasing its ownership from 60% interest to 100%. The carrying amount of 

KNM Renewable Energy Sdn. Bhd.’s net assets in the consolidated financial statements on the date of 

acquisition was RM467,500. The Group recognised a decrease in minority interest of RM199,000. 

In April 2007, the Group acquired an additional 49% (less 1 share) interest in KNM Pty Ltd for 

RM15,924,000 in cash, increasing its ownership from 51% (plus 1 share) interest to 100%. The carrying 

amount of KNM Pty Ltd’s net assets in the consolidated financial statements on the date of the acquisition 

was RM27,520,000. The Group recognised a decrease in minority interest of RM13,485,000 and goodwill 

of RM2,439,000. 


117 


STATEMENT BY 

DIRECTORS PURSUANT TO SECTION 169(15) OF THE COMPANIES ACT, 1965 

In the opinion of the Directors, the financial statements set out on pages 51 to 117 are drawn up in accordance with 

Financial Reporting Standards and the Companies Act, 1965 in Malaysia so as to give a true and fair view of the 

financial position of the Group and of the Company at 31 December 2008 and of their financial performance and 

cash flows for the year then ended. 

Signed on behalf of the Board of Directors in accordance with a resolution of the Directors: 


Lee Swee Eng 

Kuala Lumpur, 


STATUTORY 

DECLARATION PURSUANT TO SECTION 169(16) OF THE COMPANIES ACT, 1965 

I, Ho Guan Ming, the officer primarily responsible for the financial management of KNM Group Berhad, do solemnly 

and sincerely declare that the financial statements set out on pages 51 to 117 are, to the best of my knowledge and 

belief, correct and I make this solemn declaration conscientiously believing the same to be true, and by virtue of the 

provisions of the Statutory Declarations Act, 1960. 

Subscribed and solemnly declared by the above named in Kuala Lumpur in the Federal Territory on 28 April 2009 

Ho Guan Ming 

Before me: 


118 


INDEPENDENT 

AUDITORS’ REPORT TO THE MEMBERS OF KNM GROUP BERHAD 

Report on the Financial Statements 

We have audited the financial statements of KNM Group Berhad, which comprise the balance sheets as at 31 

December 2008 of the Group and of the Company, and the income statements, statements of changes in equity 

and cash flow statements of the Group and of the Company for the year then ended, and a summary of significant 

accounting policies and other explanatory notes, as set out on pages 51 to 117. 

Directors’ Responsibility for the Financial Statements 

The Directors of the Company are responsible for the preparation and fair presentation of these financial statements 

in accordance with Financial Reporting Standards and the Companies Act, 1965 in Malaysia. This responsibility 

includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation 

of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying 

appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. 

Auditors’ Responsibility 

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 

in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical 

requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are 

free from material misstatement. 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial 

statements. The procedures selected depend on our judgment, including the assessment of risks of material 

misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we 

consider internal control relevant to the Company’s preparation and fair presentation of the financial statements in 

order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an 

opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness 

of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as 

evaluating the overall presentation of the financial statements. 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit 

opinion. 

Opinion 

In our opinion, the financial statements have been properly drawn up in accordance with Financial Reporting 

Standards and the Companies Act, 1965 in Malaysia so as to give a true and fair view of the financial position of 

the Group and of the Company as of 31 December 2008 and of their financial performance and cash flows for the 

year then ended. 


119 


INDEPENDENT 

AUDITORS’ REPORT (CONT’D) 

Report on Other Legal and Regulatory Requirements 

In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report the following: 

a) In our opinion, the accounting and other records and the registers required by the Act to be kept by the 

Company and its subsidiaries of which we have acted as auditors have been properly kept in accordance with 

the provisions of the Act. 

b) We have considered the accounts and the auditors’ reports of all the subsidiaries of which we have not acted 

as auditors, which are indicated in note 31 to the financial statements. 

c) We are satisfied that the accounts of the subsidiaries that have been consolidated with the Company’s financial 

statements are in form and content appropriate and proper for the purposes of the preparation of the financial 

statements of the Group and we have received satisfactory information and explanations required by us for 

those purposes. 

d) The audit reports on the accounts of the subsidiaries did not contain any qualification or any adverse comment 

made under Section 174(3) of the Act. 

Other Matters 

This report is made solely to the members of the Company, as a body, in accordance with Section 174 of the 

Companies Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person 

for the content of this report. 

KPMG 

Firm Number: AF 0758 

Chartered Accountants 

Ow Peng Li 

Approval Number: 2666/09/09(J) 

Chartered Accountant 

Petaling Jaya, 



120 


NOTICE OF 

ANNUAL GENERAL MEETING 

NOTICE IS HEREBY GIVEN THAT the 7th Annual General Meeting of KNM Group Berhad will be held at Putrajaya 

Ballroom I, Level III, Putrajaya Marriott Hotel, IOI Resort, 62502 Putrajaya, Malaysia on Wednesday, 24 June 2009 

at 10.00 a.m. for the following purposes: 

As Ordinary Business: 

1. To receive the Audited Financial Statements of the Company for the financial year 

ended 31 December 2008 and the Reports of the Directors and Auditors (Please 

refer to note (a)). 

2. To re-elect the following Directors who retire pursuant to Article 127 of the 

Company’s Articles of Association: 

(a) 

(b) 

(c) 

Dato’ Ab Halim bin Mohyiddin 

Lee Hui Leong 

Chew Fook Sin 

Ordinary Resolution 1 



3. To approve the Directors’ fees of RM613,000 for the financial year ended 31 

December 2008. 

4. To re-appoint Messrs KPMG as Auditors of the Company and to authorise the 

Directors to fix their remuneration. 



As Special Business: 

To consider and if thought fit, to pass with or without modifications, the following 

Resolutions: 

5. Authority to allot shares pursuant to Section 132D of the Companies Act, 

1965: 


“THAT subject to the Companies Act, 1965 and the Articles of Association of the 

Company, the Directors be and are hereby empowered, pursuant to Section 132D 

of the Companies Act, 1965, to allot and issue shares in the Company at any time 

and upon such terms and conditions and for such purposes as the Directors may, 

in their absolute discretion deem fit, provided that the aggregate number of shares 

to be issued does not exceed ten percent (10%) of the issued and paid-up share 

capital of the Company for the time being and that the Directors be and are also 

empowered to obtain the approval for the listing of and quotation for the additional 

shares so issued on Bursa Malaysia Securities Berhad AND THAT such authority 

shall continue to be in force until the conclusion of the next annual general meeting 

of the Company.” 

6. Proposed renewal of shareholders’ mandate for share buy-back: 


“THAT subject to the Company’s compliance with all the applicable rules, regulations, 

orders and guidelines made pursuant to the Companies Act, 1965 (“the Act”), the 

Company’s Memorandum and Articles of Association and the Listing Requirements 

of Bursa Malaysia Securities Berhad (“Bursa Securities”), approval be and is 

hereby given to the Company to purchase at any time such amount of ordinary 

shares of RM0.25 each in the Company as may be determined by the Directors 

of the Company from time to time through Bursa Securities upon such terms and 

conditions as the Directors in their absolute discretion deem fit and expedient in the 

interest of the Company (“Proposed Share Buy-Back Mandate”) provided that: 


121 


NOTICE OF 

ANNUAL GENERAL MEETING (CONT’D) 

(i) 

(ii) 

(iii) 

the aggregate number of ordinary shares which may be purchased by the 

Company at any point of time pursuant to the Proposed Share Buy-Back 

Mandate shall not exceed ten percent (10%) of the total issued and paid-up 

share capital of the Company; 

the amount of funds to be allocated by the Company pursuant to the Proposed 

Share Buy-Back Mandate shall not exceed the retained earnings and share 

premium of the Company as at 31 December 2008; and 

the shares so purchased by the Company pursuant to the Proposed Share 

Buy-Back Mandate may at the discretion of the Directors be: 

(a) 

(b) 

(c) 

cancelled; or 

retained as treasury shares and/or retained for distribution as dividends 

to the shareholders or be resold on the market of Bursa Securities; 

or 

partially retained as treasury shares with the remainder being cancelled; 

or 

in any other manner as prescribed by the Act, rules, regulations and orders 

made pursuant to the Act and the Listing Requirements of Bursa Securities 

and any other relevant authority for the time being in force; 

AND THAT such authority conferred by the shareholders of the Company upon 

passing of this resolution pertaining to the Proposed Share Buy-Back Mandate shall 

continue to be in force until the conclusion of the next annual general meeting of 

the Company, or the expiration of the period within which the next annual general 

meeting is required to be held pursuant to Section 143(1) of the Act (but shall not 

extend to such extensions as may be allowed pursuant to Section 143(2) of the Act), 

or until the authority is revoked or varied by a resolution passed by the shareholders 

in a general meeting, whichever occurs first; 

AND THAT the Directors of the Company be and are hereby authorised to complete 

and do all such acts and things as they may consider expedient or necessary to 

implement and give effect to the Proposed Share Buy-Back Mandate.” 

7. Proposed shareholders’ mandate for recurrent related party transactions of 

a revenue or trading nature: 


“THAT approval be and is hereby given to the Company and/or its subsidiaries (“KNM 

Group”) to enter into all arrangements and/or transactions involving the interests 

of Directors, major shareholders or persons connected with the Directors and/or 

major shareholders of KNM Group (“Related Parties”) as specified in section 2.4 

of the Statement/Circular to Shareholders dated 2 June 2009 provided that such 

arrangements and/or transactions are: 

(i) 

(ii) 

(iii) 

(iv) 

recurrent transactions of a revenue or trading nature; 

necessary for the day-to-day operations; 

carried out in the ordinary course of business on normal commercial terms 

which are not more favourable to Related Parties than those generally 

available to the public; and 

are not to the detriment of the minority shareholders, 

(“Proposed Recurrent RPT Mandate); 


122 


NOTICE OF 


AND THAT such authority conferred by the shareholders of the Company upon 

passing of this resolution pertaining to the Proposed Recurrent RPT Mandate shall 

continue to be in force until the conclusion of the next annual general meeting of 

the Company, or the expiration of the period within which the next annual general 

meeting is required to be held pursuant to Section 143(1) of the Act (but shall not 

extend to such extensions as may be allowed pursuant to Section 143(2) of the Act), 

or until the authority is revoked or varied by a resolution passed by the shareholders 

in a general meeting, whichever is the earlier; 

AND THAT the Directors of the Company be and are hereby empowered to complete 

and to do all such acts and things (including executing all such documents as may 

be required) as they may consider expedient or necessary to give effect to the 

Proposed Recurrent RPT Mandate.” 

8. Proposed amendments to the Articles of Association of the Company: 

Special Resolution 1 

“THAT the alterations, modifications or additions to the Articles of Association of 

the Company as set out in Appendix II of the Statement/Circular to Shareholders 

dated 2 June 2009 be and are hereby approved.” 

9. To transact any other business of which due notice shall have been given. 

By Order of the Board 

Lau Bee Gee (MAICSA 0817743) 

Chia Kwok Why (MAICSA 7005833) 

Company Secretaries 

Putrajaya 

2 June 2009 

Notes: 

a. This Agenda item is meant for discussion only as the provision of Section 169(1) of the Companies Act, 1965 

does not require a formal approval of the shareholders and hence, is not put forward for voting. 

b. A proxy may but need not be a member of the Company and the provisions of Section 149(1)(b) of the Act 

shall not apply to the Company. 

c. A member shall be entitled to appoint up to two (2) proxies to attend and vote at the same meeting. 

d. Where a member appoints two (2) proxies, the appointment shall be invalid unless he/she specifies the 

proportions of his/her holdings to be represented by each proxy. 

e. To be valid this form duly completed must be deposited at the registered office of the Company at 15 Jalan 

Dagang SB 4/1, Taman Sungai Besi Indah, 43300 Seri Kembangan, Selangor Darul Ehsan, Malaysia not less 

than forty-eight (48) hours before the time for holding the meeting or any adjournment thereof. 

f. The instrument appointing a proxy shall be in writing under the hand of the appointer or of his/her attorney 

duly authorised in writing or if the appointer is a corporation, either under its common seal or under the hand 

of a duly authorised officer or attorney. 


123 


NOTICE OF 


Explanatory Notes on Special Business 

1. The proposed Ordinary Resolution 6, if passed, will give flexibility of the Directors of the Company to allot and 

issue up to ten percent (10%) of the issued share capital of the Company for the time being for such purposes 

as the Directors deem fit and in the interest of the Company. This authority, unless revoked at a general meeting, 

will expire at the conclusion of the next annual general meeting of the Company. 

2. The proposed Ordinary Resolution 7, if passed, will renew the shareholders’ mandate for share buy-back 

obtained at the last annual general meeting and empower the Company to purchase the Company’s shares 

up to ten percent (10%) of the issued and paid-up share capital of the Company. 

3. The proposed Ordinary Resolution 8, if passed, will allow the Group to enter into recurrent transactions involving 

the interests of Related Parties, which are of a revenue or trading nature and necessary for the Group’s dayto-day 

operations. 

4. The proposed Special Resolution 1, if passed, will allow amendments to be made to the Articles of Association 

of the Company (“Articles”) to bring the Articles in line with the amendments to the Listing Requirements of 

Bursa Malaysia Securities Berhad for clarity and enhancements and, where relevant, to render consistency 

throughout the Articles. 

Further information on the Proposed Share Buy-Back Mandate, the Proposed Recurrent RPT Mandate and the 

Proposed Amendments to the Articles of Association of the Company are set out in the Statement/Circular to 

Shareholders dated 2 June 2009 which is despatched together with the Company’s Annual Report 2008. 

STATEMENT ACCOMPANYING NOTICE OF ANNUAL GENERAL MEETING 

The particulars of all Directors including those standing for re-election as Directors at the 7th Annual General Meeting 

(Resolutions 1, 2 and 3) are set out in their respective Profiles of Directors and information relating to the Directors’ 

interests in shares in the Company and its related corporations are presented in the Analysis of Shareholdings in 

the Annual Report 2008. 


124 



(Company No. 521348-H) 

FORM OF PROXY 

Number of Ordinary Shares held 

I/We (full name and in block capitals) _________________________________________________________________ 

NRIC no. (new)/Company no. ______________________________ CDS account no. _______________________ 

of (full address) _________________________________________________________________________________ 

____________________________________________________________________________________________ 

being a member/members of KNM GROUP BERHAD hereby appoint (full name as per NRIC and in block capitals) 

_______________________________________________________ NRIC no. (new): _______________________ 

of (full address) _________________________________________________________________________________ 

____________________________________________________________________________________________ 

or failing him/her, the Chairman of the meeting, as my/our proxy to vote for me/us on my/our behalf at the 7th Annual 

General Meeting of the Company to be held at Putrajaya Ballroom I, Level III, Putrajaya Marriott Hotel, IOI Resort, 

62502 Putrajaya, Malaysia on Wednesday, 24 June 2009 at 10.00 a.m. or at any adjournment thereof, in the manner 

indicated below: 

No. Resolutions For Against 

1. Re-election of Dato’ Ab Halim bin Mohyiddin 

2. Re-election of Lee Hui Leong 

3. Re-election of Chew Fook Sin 

4. Approval of Directors’ fees 

5. Re-appointment of Messrs KPMG as Auditors 

6. Authorisation for Directors to issue shares 

7. Proposed Renewal of Share Buy-Back Mandate 

8. Proposed Shareholders’ Mandate for Recurrent Related Party Transactions 

9. Proposed Amendments to the Articles of Association of the Company 

Please indicate with an “x” in the space provided above how you wish to cast your vote. If no specific direction as 

to voting is given, the proxy will vote or abstain at his/her discretion. 

———————————————————— ———————————————————— 

Signature of Shareholder 

Common Seal to be affixed here if 

Shareholder is a Corporate Member 

Dated this __________ day of__________________ , 2009 

Notes: 

1. A proxy may but need not be a member of the Company and the provisions of Section 149(1)(b) of the Act shall not apply 

to the Company. 

2. A member shall be entitled to appoint up to two (2) proxies to attend and vote at the same meeting. 

3. Where a member appoints two (2) proxies, the appointment shall be invalid unless he/she specifies the proportions of his/her 

holdings to be represented by each proxy. 

4. To be valid this form duly completed must be deposited at the registered office of the Company at 15 Jalan Dagang SB 4/1, 

Taman Sungai Besi Indah, 43300 Seri Kembangan, Selangor Darul Ehsan, Malaysia not less than forty-eight (48) hours 

before the time for holding the meeting or any adjournment thereof. 

5. The instrument appointing a proxy shall be in writing under the hand of the appointer or of his/her attorney duly authorised 

in writing or if the appointer is a corporation, either under its common seal or under the hand of a duly authorised officer or 

attorney. 

✄

Fold this flap for sealing 

Then fold here 

AFFIX 

STAMP 

THE COMPANY SECRETARY 


15 Jalan Dagang SB 4/1 



Selangor Darul Ehsan 

Malaysia 

(521348-H) 

1st fold here

(521348-H)

ANNUAL REPORT 2008 - KNM Steel Sdn Bhd

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