SILK Holdings Berhad ( V)

Transcription

1 SILK Holdings Berhad annual report 2010 SILK Holdings Berhad ( V) a n n u a l r e p o r t 2010

2 OPERATING ORERATING SUBSIDIARIES Sistem Lingkaran-Lebuhraya Kajang Sdn Bhd is the concession owner of Kajang Traffic Dispersal Ring Road, better known as Kajang SILK Highway. The concession runs for a period of 33 years, ending in Kajang SILK Highways stretches around 37 km and is a primary urban road serving south eastern corridor of Klang Valley, linking Balakong, Sg. Long, Kajang, Bangi, Serdang & Putrajaya as well as these townships to Plus North South Expressway, Cheras Kajang Highway, Lekas Highway, South Klang Valley expressway, and in the future, to KL Outer Ring Road. Jasa Merin (Malaysia) Sdn Bhd, ( Jasa Merin ) commenced operation in For over 25 years, Jasa Merin has been providing offshore marine support services to oil majors such as PETRONAS Carigali Sdn Bhd and ExxonMobil Exploration and Production Malaysia Inc. Presently, Jasa Merin s fleet consists of 10 vessels comprising of 3 Straight Supply Vessels and 7 Anchor Handling Tug Supply Vessels. In addition, JM has 6 vessels under various stages of construction.

3 Corporate Information Profile Of Board Of Directors Chairman s Statement Five-Year Group Financial Summary Corporate Governance Statement Terms Of Reference Of Risk Management Committee Terms Of Reference Of Nomination And Remuneration Committee Audit Committee Report Statement On Internal Control Statement Of Corporate Social Responsibility Financial Statements Additional Information Additional Compliance Information Substantial Shareholders Directors Interests In Shares And Loan Stocks Analysis Of Shareholdings contents

4 Corporate Information BOARD OF DIRECTORS Executive Chairman, Non-Independent Executive Director Dato Mohammed Azlan Hashim Deputy Chairman, Non-Independent Non-Executive Director Datuk Razman M Hashim Non-Independent Non-Executive Director Johan Zainuddin bin Dzulkifli Independent Non-Executive Directors Dato Harun bin Md Idris Tai Keat Chai Abdul Hamid bin Sh. Mohamed Nik Abdul Malik Nik Mohd Amin Dato Seri Syed Zainol Rashid Jamalullail (retired on 30 October 2009) Dato Ir. Hj. Ibrahim bin Hj. Yakub (retired on 30 October 2009) AUDIT COMMITTEE Tai Keat Chai (Chairman) Dato Harun bin Md Idris Abdul Hamid bin Sh. Mohamed Dato Seri Syed Zainol Rashid Jamalullail (retired on 30 October 2009) Dato Ir. Hj. Ibrahim bin Hj Yakub (retired on 30 October 2009) RISK MANAGEMENT COMMITTEE Johan Zainuddin bin Dzulkifli (Chairman) Nik Abdul Malik bin Nik Mohd Amin Jamaludin Mohd Nor Dato Seri Syed Zainol Rashid Jamalullail (retired on 30 October 2009) NOMINATION AND REMUNERATION COMMITTEE Dato Mohammed Azlan Hashim (Chairman) Datuk Razman M Hashim Dato Harun bin Md Idris SPECIAL REGULARISATION PLAN AND INVESTMENT COMMITTEE Dissolved upon successful completion of the regularisation scheme COMPANY SECRETARIES Kwan Wai Kein (MAICSA ) Sothirajen a/l S.Paranjothi (LS ) Wan Rohayah Wan Hassan (MAICSA ) REGISTERED OFFICE D2-3-2, Solaris Dutamas 1, Jalan Dutamas Kuala Lumpur Tel No. : (603) Fax No. : (603) PRINCIPAL PLACE OF BUSINESS Infrastructure Division: Sistem Lingkaran-Lebuhraya Kajang Sdn Bhd Plaza Tol Sungai Balak KM28.3A, Lebuhraya KAJANG SILK Kajang Selangor Darul Ehsan Malaysia Tel No : (03) Fax No : (03) Oil & Gas Support Services Division: Jasa Merin (Malaysia) Sdn Bhd No Jalan Kubang Kurus Kemaman Terengganu Darul Iman Malaysia Tel : (609) Fax : (609) SHARE REGISTRAR Symphony Share Registrars Sdn Bhd Level 6, Symphony House Pusat Dagangan Dana 1 Jalan PJU 1A/ Petaling Jaya Tel No : (603) Fax No : (603) / AUDITORS Ernst & Young Chartered Accountants SOLICITORS Lee Ong & Kandiah PRINCIPAL BANKERS Affin Bank Berhad Affin Islamic Bank Berhad Bank Pembangunan Malaysia Berhad Malayan Banking Berhad Maybank Islamic Berhad STOCK EXCHANGE LISTING Main Market of Bursa Malaysia Securities Berhad WEBSITE ADDRESS SILK HOLDING BERHAD 2 annual report 2010

5 Profile Of Board Of Directors Dato Mohammed Azlan Hashim Malaysian, aged 53 Executive Chairman (Non-Independent) Chairman, Nomination and Remuneration Committee Dato Mohammed Azlan Hashim was appointed to the Board of SILK as Non-Executive Director on 4 June 2008 and was subsequently appointed as Executive Chairman on 24 June A Chartered Accountant by profession, he graduated with a Bachelor of Economics from Monash University, Australia. He is a Fellow Member of the Institute of Chartered Accountants, Australia, member of Malaysian Institute of Accountants, Fellow Member of Malaysian Institute of Directors, Fellow Member of the Institute of Chartered Secretaries and Administrators and Honorary Member of The Institute of Internal Auditors, Malaysia. He has extensive experience in the corporate sector including financial services and investments. Among others, he has served as Chief Executive of Bumiputra Merchant Bankers Berhad, Group Managing Director of Amanah Capital Malaysia Berhad and Executive Chairman of Bursa Malaysia Berhad Group. Current directorships in public companies and other organisations include Khazanah Nasional Berhad, Labuan Financial Services Authority, D&O Green Technologies Berhad and Scomi Group Bhd. He is also a member of Employees Provident Fund and the Government Retirement Fund Inc. Investment Panels. He has attended all of the 5 Board Meetings held in the financial year. Datuk Razman M Hashim Malaysian, aged 71 Non-Executive Deputy Chairman (Non-Independent) Chairman, Special Regularisation Plan and Investment Committee Member, Nomination and Remuneration Committee Datuk Razman M Hashim was appointed to the Board of SILK as Non-Executive Deputy Chairman on 10 June A Member of Australian Institute of Bankers with more than 34 years of experience in the banking industry. Joined Standard Chartered Bank Malaysia Berhad in 1964 and served in various capacities including secondments to the Bank s branches in London, Europe, Hong Kong and Singapore. In 1994, was appointed as Executive Director / Deputy Chief Executive of Standard Chartered Bank Malaysia Berhad until his retirement in June In the same month in 1999, was appointed as Chairman of MBf Finance Berhad by Bank Negara Malaysia as its nominee until January 2002 when the finance company was sold to Arab-Malaysian Group. Current directorships in other public companies include Sunway City Berhad, Ranhill Berhad, Multi-Purpose Holdings Berhad, MAA Holdings Berhad and Berjaya Land Berhad. He has attended 4 out of the 5 Board Meetings held in the financial year. SILK HOLDING BERHAD 3 annual report 2010

6 Profile Of Board Of Directors (cont d) Johan Zainuddin Bin Dzulkifli Malaysian, aged 48 Non-Executive Director (Non-Independent) Chairman, Risk Management Committee Johan Zainuddin Bin Dzulkifli was appointed to the Board of SILK as Non-Executive Director on 4 June He is a Fellow of the Association of Chartered Certified Accountants and attained a Post Graduate Diploma in Islamic Banking and Finance from the International Islamic University, Malaysia. He began his career as a Financial Accountant with a multinational company in 1986 after his graduation. In 1989, he joined a merchant bank as an Assistant Manager in the Corporate Advisory department. He subsequently left and joined a public listed company as Vice President of Corporate and Business Development in 1992 and, in 1997 he joined another public listed company as the Head of Corporate Services until He is well versed in areas of corporate advisory and business development. He has no directorship in other public companies He has attended 4 out of the 5 Board Meetings held in the financial year. Tai Keat Chai Malaysian, aged 56 Independent Non-Executive Director Chairman, Audit Committee Member, Special Regularisation Plan and Investment Committee Tai Keat Chai was appointed to the Board of SILK as Independent Non-Executive Director on 18 August He is a member of the Institute of Chartered Accountants in England & Wales and the Malaysian Institute of Accountants. He began his career with KPMG in London in 1977 and a year later joined Price Waterhouse (now known as PricewaterhouseCoopers) in Kuala Lumpur. In 1981, he joined Amanah Merchant Bank Berhad (now known as Alliance Investment Bank Berhad) where he worked for seven years. In 1990, he ventured into the stockbroking industry and has worked in SJ Securities Sdn Bhd, JB Securities Sdn Bhd (now known as A.A.Anthony Securities Sdn Bhd) and BBMB Securities Sdn Bhd (now known as ECM Libra Investment Bank Berhad) as General Manager, Director and dealer s representative respectively. Currently he is a Director of Fiscal Corporate Services Sdn Bhd. Current directorships in other public listed companies include Chuan Huat Resources Berhad, Disccomp Berhad, Cuscapi Berhad, Imaspro Corporation Berhad and Opensys (M) Berhad. He has attended all of the 5 Board Meetings held in the financial year. SILK HOLDING BERHAD 4 annual report 2010

7 Profile Of Board Of Directors (cont d) Abdul Hamid Bin Sheikh Mohamed Malaysian, aged 45 Independent Non-Executive Director Member, Special Regularisation Plan and Investment Committee Member, Audit Committee Abdul Hamid Bin Sheikh Mohamed was appointed to the Board of SILK as Independent Non-Executive Director on 18 August He is a Fellow of the Association of Chartered Certified Accountants. A graduate of the Emile Woolf School of Accountancy, London he began his career as Officer in the Corporate Banking department in Bumiputra Merchant Bankers Berhad in1989 and rose to the position of Manager. In 1994, he joined Amanah Capital Malaysia Berhad (formerly known as Komplek Kewangan Malaysia Berhad) as Senior Manager Corporate Planning, heading the newly created Corporate Planning department under the Corporate Services division and promoted to Assistant General Manager, Corporate Planning in 1997 and to Head of Corporate Services division in January He joined Kuala Lumpur Stock Exchange (now known as Bursa Malaysia) in May 1998 as Senior Vice President in charge of Strategic Planning & International Affairs division and was promoted to Deputy President (Strategy & Development) in He was redesignated as Chief Financial Officer in Currently he serves as the Executive Director of Symphony House Berhad. Current directorships in other public companies include Symphony House Berhad, Pos Malaysia Berhad, Hartalega Holdings Berhad, MMC Corporation Berhad and Scomi Engineering Berhad. He has attended all of the 5 Board Meetings held in the financial year. Nik Abdul Malik bin Nik Mohd Amin Malaysian, aged 52 Independent Non-Executive Director Member, Risk Management Committee Nik Abdul Malik bin Nik Mohd Amin was appointed to the Board of SILK as Independent Non-Executive Director on 24 February He graduated from the University of Leeds, United Kingdom with Bachelor of Science (Honours) in Civil Engineering. He is a graduate member of The Institute of Engineers Malaysia and Board of Engineers Malaysia. He started his career as Project Engineer with FAO/United Nations Development Programme in 1981 in a pilot project collaboration with the Drainage and Irrigation Department of Terengganu Darul Iman ( DID Terengganu ). He subsequently joined DID Terengganu in 1983 as District Engineer, and was subsequently promoted to Planning and Design Engineer in Between 1986 and 1989, he served as Project Engineer and Executive Director in two private construction companies, before assuming his current position as Managing Director of ND Group of companies, an established property developer and Class A contractor. He has no directorship in other public companies. He has attended all of the 5 Board Meetings held in the financial year. SILK HOLDING BERHAD 5 annual report 2010

8 Profile Of Board Of Directors (cont d) Dato Harun bin Md Idris Malaysian, aged 59 Independent Non-Executive Director Member, Audit Committee Member, Nomination and Remuneration Committee Dato Harun bin Md Idris was appointed to the Board of SILK as Independent Non-Executive Director on 12 August He graduated from the University Kebangsaan Malaysia with Diploma of Police Science. Dato Harun joined the Royal Malaysian Police (RMP) on 1 June 1970 as a Probationary Inspector. He served the RMP for 39 years and retired on 9 April 2009 with the rank of Deputy Commissioner of Police (DCP). His last post was as the Deputy Director 1, Special Branch. In his long and distinguished career with the RMP, Dato Harun had served in various capacity including as the head of Special Branch of Perak, Kedah and Sarawak. He has no directorship in other public companies. He has attended all of the 5 Board Meetings held in the financial year. NOTES: 1. Family Relationship with Director and/or Major Shareholder None of the Directors has any family relationship with any director and/or major shareholder of SILK. 2. Conflict of Interest None of the Directors has any conflict of interest with SILK Group. 3. Conviction for Offences None of the Directors has been convicted for offences within the past 10 years other than traffic offences, if any. SILK HOLDING BERHAD 6 annual report 2010

9 Chairman s Statement ON BEHALF OF THE BOARD OF DIRECTORS, I AM PLEASED TO PRESENT THE ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS OF SILK HOLDINGS BERHAD FOR THE PERIOD ENDED 31 JULY FINANCIAL PERFORMANCE For the year ended 31 July 2010, SILK Holdings Berhad ( SILK or the Group ) recorded a profit after tax (before minority interest) of RM30.9 million. This performance is a marginal improvement over the RM30.6 million recorded by the Group for the 19-months ended 31 July 2009, as adjusted to meet the requirements of FRS 3 (see Explanatory Note at the end for clarification), following the acquisition of AQL Aman Sdn Bhd. Comparative revenue for the financial year, as adjusted by FRS 3, also improved 8% to RM223.9 million from RM206.7 million recorded in the previous financial period The Group has closed the financial year on a strong note. Bearing in mind that the comparative results reported have been adjusted to meet the requirements of accounting standards to reflect the acquisition of AQL Aman as part of the restructuring undertaken, the overall improvement for the financial year appears to be modest. If however, the performance is compared to the actual unadjusted performance of SILK, as reported to shareholders previously, the improvement in performance for the financial year 2010 is even more significant. The current year results clearly indicate a successful turnaround of the Group. SILK reported an audited after-tax loss of RM37.4 million and a turnover of RM40.9 million for the year ended July 31, 2009 Comparative Financial Performance - Group FYE 31 Jul 2010 (12-months) RM Million FPE 31 Jul 2009 (Adjusted for FRS3)(19-months) FPE 31 Jul 2009 (As Reported in Annual Report 2009)(13-months) 0.00 Revenue PBT PBT The Highway Division continues to make improvements in its financial performance. Revenue for the Division improved to RM 50.9 million compared to RM 40.9 million recorded for period ended 31 July The improvement in revenue has translated into significantly reduced after-tax losses, where the Division recorded an after-tax loss of RM 26.2 million, which is a significant reduction from the RM 35.7 million after-tax loss it recorded in the previous period end. Comparative Financial Performance Highway Division RM Million FYE 31 Jul 2010 (12-months) Revenue PBT PBT FPE 31 Jul 2009 (13-months) SILK HOLDING BERHAD 7 annual report

10 Chairman s Statement (cont d) The newly acquired Oil & Gas Support Services Division recorded a higher profit after-tax of RM38.7 million for the financial year ended 31 July 2010, compared with RM30.6 million in the previous corresponding period. This represents a 26% jump in profitability. The Oil & Gas Support Services Division made a major contribution to the Group s overall financial performance. The RM27.1 million profit after-tax and minority interest recorded by the Oil & Gas Support Services Division enabled the Group to nullify the RM26.2 million after-tax loss of the Highway Division. The impact that the Oil & Gas Division has had on overall performance is clear testament to the decision taken by the Board of Directors and shareholders to acquire AQL Aman Sdn Bhd. Comparative Financial Performance Oil & Gas Support services Division RM Million FYE 31 Jul 2010 (12-months) FPE 31 Jul 2009 (19-months) Revenue PBT PBT The positive results have enabled the Group to meet its debt obligations during the period. Sistem Lingkaran Lebuhraya Kajang Sdn Bhd, the Group s principal operating company under its Highway Infrastructure Division, paid the annual minimum Ijarah Rental obligation of RM 26.1 million together with a small Excess Funds payment to its Sukuk Mudharabah lenders. OPERATING CONDITIONS Highway Infrastructure Division A steady increase in traffic flow during the period under review enabled the Highway Infrastructure Division to improve operational performance. The concession operated by Sistem Lingkaran Lebuhraya Kajang Sdn Bhd recorded total traffic volume of 38.8 million vehicles for the period January until December 2009, a 16% increase over the total traffic volume of 33.5 million recorded a year earlier. Average Daily Traffic Volume ( ADTV ) for January until December 2009 improved to 106,241 vehicles per day, which is a 16% improvement over the ADTV of 91,624 vehicles per day recorded in the previous calendar year Total traffic volume for the financial year under review also improved over 16% to 42.3 million vehicles from 36.5 million vehicles recorded in the previous financial period. ADTV for the financial year ended 31 July 2010 improved to 115,987 vehicles per day, which is a 16.9% improvement over the ADTV of 99,170 vehicles per day recorded in the previous 12-month period. In the first 7 months of the calendar year 2010, there has been further marked increase in traffic performance. The ADTV for the period January to July 2010 stands at 120,462 vehicles per day. Average Daily Traffic Volume (ADTV) 140, , ,000 80,000 60,000 40,000 20,000 0 Jul-Dec 2004 Jul-Dec 2005 SILK HOLDING BERHAD Jul-Dec Jul-Dec 2007 Jul-Dec 2008 Jul-Dec 2009 Jul-Dec 2010 annual report

11 Chairman s Statement (cont d) SILK s efforts to raise public awareness of the highway, particularly that it serves as a time-saving and convenient linkage to existing highway networks, including PLUS, BESRAYA, Grand Saga, LEKAS and SKVE, has contributed significantly to improve traffic performance. After excluding the non-recurrent items, this improvement in traffic volume and hence revenue, consequently resulted in an increased earnings before interest, taxation, depreciation and amortisation ( EBITDA ) of RM 38.9 million in the financial year under review, compared to RM 30.7 million recorded in the previous financial period. Operationally, the Kajang-SILK highway ( the Highway ) also continues to make a positive impression amongst road users. A recent triennial independent survey of road users commissioned by Lembaga Lebuhraya Malaysia ( LLM ) ranked the Highway in the top half out of 24 tolled highways. Among comparable peers, the Highway was deemed the most improved since the last survey. In fact, the Highway was ranked in the top 2 by road users in terms of image and toll-plaza management. The Board is pleased with the improvements and will continue to ensure the improvements made are maintained. Oil & Gas Support Services Division The Group s Oil & Gas Support Services Division continues to remain market competitive. Since its incorporation into the Group, this Division has managed to secure 2 new medium to long-term charters during the financial year under review. After excluding the non-recurrent items, the Oil & Gas Support Services Division recorded an increased EBITDA of RM 90.7 million in the financial year under review compared to RM 89.9 million recorded in the previous financial year. The performance of the Oil & Gas Support Services Division reflects the growing opportunities in the domestic oil & gas sector as envisaged by the Board. This Division is expected to continue to contribute positively to the Group. It now represents an important additional business driver going forward. CORPORATE DEVELOPMENTS SILK has during the course of the period under review, carried out various strategic and tactical initiatives aimed at strengthening the foundation for future growth. Completion of the Regularisation Scheme SILK had announced on 24 November 2008, a proposal to undertake a Regularisation Scheme to address its status under Amended Practice Note 17/2005 of the Listing Requirements of Bursa Securities ( PN17 ). The Regularisation Scheme was subsequently approved by the Group s shareholders at its reconvened Extraordinary General Meeting held on 20 July On 2 October 2009, SILK received the signed and sealed Order of the High Court of Malaya, dated 29 August 2009, confirming the par value reduction pursuant to Section 64 of the Companies Act 1965, which forms part of the Group s Regularisation Scheme. The Regularisation Scheme was formally completed on 14 October 2009, with the lifting of the PN-17 status on the Group by Bursa Malaysia. Institution of a fleet renewal programme In line with the Group s strategic objectives and to ensure the Oil & Gas Support Services Division is able to continue to meet customer expectations, Jasa Merin (Malaysia) Sdn Bhd (Jasa Merin), continued with its renewal and replacement programme for its Offshore Support Vessels ( OSVs ). During the financial year under review, Jasa Merin launched three new vessels, with an additional vessel launched in August 2010, just after the financial year end. These vessels are expected to be fully operational and contributing to the company in the current financial year. In addition to the four vessels launched recently, Jasa Merin is expected to take delivery of four additional vessels to be delivered progressively in 2011 and SILK HOLDING BERHAD 9 annual report 2010

12 Chairman s Statement (cont d) PROSPECTS SILK s improved financial performance for the period ended 31 July 2010 is a clear reflection of the initiatives put into place by the Group over the previous 18-months. Moving ahead, SILK will continue to identify additional initiatives to drive the Group forward. Highway Infrastructure Division The Highway Infrastructure Division is now operationally profitable and cashflow positive. However, it is expected to continue to incur accounting losses in the immediate to medium term. Irrespective of the accounting losses, the Division continues to have good growth prospects with increased awareness of the connectivity it provides to the adjacent network of highways. Given this, efforts are currently underway to further improve the highway s traffic flow via better signage at critical intersections and enhancing cooperation with other highway operators. At the operating level, efforts are on-going to continue to contain and manage operational costs, including detailed identification of critical and non-critical costs and optimising of highway maintenance works. Moving forward, the Highway Infrastructure Division is expected to show improved profitability as the traffic volume increases and its borrowing cost is further trimmed down. Oil & Gas Support Services Division The on-going fleet renewal and replacement programme at Jasa Merin is expected to be the impetus for the constant improvement, which is a necessity in the offshore marine support services business. The programme will allow the Division to keep up with changing maritime requirements and the increasing need for higher specifications that are required by charterers. The vessels that are to be included into the fleet over the next two years are built to the latest specifications to meet charterers requirements. In addition, two of these vessels are 120 metric tonne bollard pull, 10,800 brake horsepower with Dynamic Positioning System II ( DP2 ), to cater for the increasing demand for deepwater operations. With the new OSVs coming on stream and the company s established track record, Jasa Merin is expected to remain competitive and be able to provide a compelling value proposition to current and prospective customers. DIVIDENDS To ensure that the Group is viably strengthened and able to achieve long-term and sustainable growth, the Board of Directors is not able to recommend the declaration of any dividend for the financial year ended 31 July With improved operating and financial performance in the future, and sustainable growth arising from the successful implementation of the Regularisation Scheme, the Board will revisit and review this position for the benefit of its shareholders. SILK HOLDING BERHAD 10 annual report 2010

13 Chairman s Statement (cont d) ACKNOWLEDGEMENT On behalf of the Board of Directors, I wish to extend our sincere appreciation to the Group s management, staff and employees, at all levels and across the various functions. The Board is indeed appreciative of the efforts shown by the Group staff throughout the financial year. It is my hope that the entire SILK family will sustain this level of effort to propel the Group further forward. My sincerest appreciation also goes out to our Board of Directors for their vision and counsel in guiding SILK forward. The contribution of the Board to SILK s transformation is also deeply appreciated. It is hoped that the Board will continue to be committed to the Group as it charts its way forward. Lastly, on behalf of the Board, I would also like to convey our gratitude to all our shareholders, who collectively have played a significant role in enabling the Group to complete its turnaround from the difficulties faced in previous years. I sincerely thank you all for the support and hope that you will continue to support the Board in its objective to take the Group forward. Thank you. DATO MOHD AZLAN HASHIM Executive Chairman Explanatory Note: The acquisition of AQL Aman Sdn Bhd ( AQL ) was completed on 14 October Pursuant to Appendix B of FRS 3 Business Combinations, this acquisition was deemed a reverse acquisition arrangement. Due to the application of FRS 3 rules relating to reverse acquisition, AQL, the legal subsidiary, became the acquirer of the Group for accounting purposes. Accordingly, the consolidated financial statements for the current period and the comparative amounts in the corresponding period of the preceding year have been prepared as a continuation of the financial statements of AQL, but under the name of SILK Holdings Berhad, the legal parent. SILK HOLDING BERHAD 11 annual report 2010

14 Five-Year Group Financial Summary RESULT 2010 * **2006 RM 000 RM 000 RM 000 RM 000 RM 000 REVENUE 223,939 40,926 33,127 28,952 37,635 Profit/(loss) before taxation 43,716 (37,323) 178,029 (82,870) (114,101) Taxation (12,861) (95) (13) (13) (9) Profit/(loss) after taxation 30,855 (37,418) 178,016 (82,883) (114,110) Less minority interests (11,604) PROFIT/(LOSS) ATTRIBUTABLE TO SHAREHOLDERS 19,251 (37,418) 178,016 (82,883) (114,110) EARNINGS/(LOSS) PER SHARE (SEN) 6.0 (20.8) 98.9 (46.0) (63.4) BALANCE SHEET Goodwill 647 Other investment Property, vessels and equipment 684,765 2,797 2,637 3,234 3,805 Expressway development expenditure and heavy repairs*** 916, , , , ,296 Current assets 118,916 5,893 26, , ,759 TOTAL ASSETS 1,721, , ,527 1,049,690 1,038,877 Current Liabilities 296,225 60,931 37,572 1,066,988 24,100 Long-term borrowings 1,233, , ,237 20, ,192 TOTAL LIABILITIES 1,529, , ,809 1,086, ,292 TOTAL NET ASSETS/(LIABILITIES) 192, , ,718 (37,298) 45,585 SHARE CAPITAL 96,959 90,000 90,000 90,000 90,000 SHAREHOLDERS FUNDS 146, , ,718 (37,298) 45,585 NET TANGIBLE ASSETS/ (LIABILITIES) PER SHARE (SEN) (20.7) 25.3 * The Company changed its financial year end from 30 June to 31 July with effect from the financial period ended 31 July 2009 and accordingly, the results for that financial period are for 13 months. ** The Company changed its financial year end from 31 December to 30 June with effect from the financial period ended 30 June 2006 and accordingly, the results for that financial period are for 18 months. *** The comparative figures of Expressway Development Expenditure have been retrospectively adjusted to conform with current year s presentation. SILK HOLDING BERHAD 12 annual report 2010

15 Corporate Governance Statement The Board is committed to implementing the Malaysian Code on Corporate Governance ( the Code ) wherever applicable in the best interest of the shareholders of the Company. A. DIRECTORS THE BOARD AND ITS RESPONSIBILITIES The Board leads and controls the Group. It regularly meets to perform its main functions, amongst others, as follows:- Setting the objectives, goals and strategic plans for the Group with a view to maximising shareholders value. Adopting and monitoring progress of the Company s strategies, budgets, plans and policies. Overseeing the conduct of the Group s businesses to evaluate whether the businesses are properly managed. Identifying principal risks of the Group and ensuring the implementation of appropriate systems to mitigate and manage these risks. The Board through the Audit Committee, sets, where appropriate, objectives, performance targets and policies to manage the key risks faced by the Group. Considering Management s recommendations on key issues including acquisitions, divestments, restructuring, funding and significant capital expenditure. Human resources planning and development. Reviewing the adequacy and integrity of the Company s internal control systems and management information systems, including systems for compliance with applicable laws, regulations, rules, directives and guidelines. The Board delegates certain responsibilities to the Board Committees, all of which operate within defined terms of reference. BOARD COMPOSITION The current Board consists of 7 members, 4 of whom are Independent Non-Executive Directors. The composition reflects a balance of Executive and Non-Executive Directors with a mix of suitably qualified and experienced professionals in the fields of construction, civil engineering, accountancy, finance, and banking. This combination of different professions and skills working together enables the Board to effectively lead and control the Company. The Board composition also fairly reflects the investment in the Company by shareholders other than the significant shareholders. A brief profile of each Director is presented on pages 3 to 6 of the Annual Report. MEETINGS AND SUPPLY OF INFORMATION The Board meets at least once every quarter to review the Group s financial, operational and business performances. Notices and agenda of meetings duly endorsed by the Executive Chairman together with relevant board papers are normally given at least 1 week prior to the meetings, for the Directors to study and evaluate. The board papers provided include inter alia, financial results, business plans and budgets, progress report on the Group s developments, minutes of meetings of Board Committees, regulatory/statutory updates and other operational and financial issues for the Board s information and/or approval. All Directors are entitled to information pertaining to the Company. In addition, all Directors have direct access to all members of the Management should there be a need for clarification of any operational issue, and the advice and services of the Company Secretaries. They are also permitted to seek independent advice whenever deemed necessary, at the Company s expense. There is a formal procedure approved by the Board for all Directors, whether as a full Board or in their individual capacity, to obtain independent professional advice, when necessary, at the Company s expense. SILK HOLDING BERHAD 13 annual report 2010

16 Corporate Governance Statement (cont d) The Board met 5 times during the financial year ended 31 July 2010 and the attendance of the respective Directors was as follows:- Number of Percentage of Meetings Attendance Name of Directors Attended (%) Dato Mohammed Azlan Hashim 5/5 100 Datuk Razman Md Hashim bin Che Din Md Hashim 4/5 80 Dato Harun bin Md Idris 5/5 100 Johan Zainuddin bin Dzulkifli 4/5 80 Tai Keat Chai 5/5 100 Abdul Hamid bin Sheikh Mohamed 5/5 100 Nik Abdul Malik bin Nik Mohd Amin 5/5 100 Dato Seri Syed Zainol Rashid Jamalullail* 2/2 100 Dato Ir Hj Ibrahim bin Hj Yakub* 2/2 100 * retired on 30 October 2009 DIRECTORS TRAINING During the financial year, the Directors had attended various training programmes and seminars organised by the relevant regulatory authorities and professional bodies to broaden their knowledge and to keep abreast with the relevant changes in law, regulations and the business environment. The training programmes, seminars and workshops attended by the Directors during the financial year are, inter-alia, on areas relating to corporate governance, capital markets, and financial reporting. Training Programmes, Seminars and Workshops Attended by Directors Course Title / Organiser Date World Capital Market Symposium Global Financial Crisis the way ahead (Securities Commission) 10 August 2009 Global Financial Crisis & Impact on Regional Economies, with reference to Malaysia (Financial Planning Association of Malaysia) 5 September 2009 Wealth Destruction and Rehabilitation Helping Malaysian Retirements Clients Thrive (Financial Planning Association of Malaysia) 3 October 2009 Briefing on FRS 4, FRS 7 & FRS 8 PricewaterhouseCoopers 10 October 2009 Asian Capital Markets Navigating Challenging Times (The Institute for the Advancement in Business Training) 19 October 2009 Financial Industry Conference Bank Negara Malaysia 17 and 18 November 2009 Corporate Governance Guide Towards Excellence (Malaysian Institute of Accountants) 9 December 2009 Stock Market Review & Economic Outlook 2010 (Continuous Bull Run? What s Ahead?) (The Institute for the Advancement in Business Training) 24 March 2010 SILK HOLDING BERHAD 14 annual report 2010

17 Corporate Governance Statement (cont d) Training Programmes, Seminars and Workshops Attended by Directors Course Title / Organiser Date Financial Institutions Directors Education Programme (FIDE) Developing High Impact Boards 5 and 6 April 2010 Bank Negara Malaysia and Perbadanan Insurans Deposit Malaysia 3 and 4 May and 15 June and 6 July 2010 Government Transformation Plan London School of Economics 3 May 2010 Tax Seminar Lee Hishamuddin 9 July 2010 The Offshore Investment Conference (Offshore Investment, UK) 9 and 10 June 2010 International Seminar on Social Security (Employees Provident Fund Malaysia) 13 July 2010 Financial Essentials for Non-Financial Professionals (Malaysian Institute of Accountants) 14 and 15 June 2010 Building High Performance Directors Programme (Malaysian Directors Academy [MINDA]) 18 to 23 July 2010 Dinner Talk on the Economic Crisis by Prof. Nabil Haque Harvard Business Club 28 July 2010 All Directors were also regularly updated by the Company Secretary on changes to the relevant guidelines on the regulatory and statutory requirements. RETIREMENT BY ROTATION AND RE-ELECTION The Company s Articles of Association provides that 1/3 of the Board are subject to retirement by rotation at each Annual General Meeting. Each Director shall retire at least once every 3 years but shall be eligible for re-election. The Directors to retire in each year are those who have been longest in office since their last election or appointment. To assist the shareholders in their decision, sufficient information such as personal profile, attendance of meetings and the shareholdings of each Director standing for re-election are disclosed in the Statement Accompanying Notice of Annual General Meeting. BOARD COMMITTEES The Board has set up the following Committees and will periodically review their terms of reference and operating procedures. The Committees are required to report to the Board on all their deliberations and recommendations and such reports are incorporated in the minutes of the Board Meetings. 1. Audit Committee The Audit Committee comprises Tai Keat Chai as Chairman, Dato Harun bin Md Idris and Abdul Hamid bin Sh. Mohamed. The Audit Committee is set up to play an active role in assisting the Board in discharging its governance responsibilities. The composition of the Audit Committee, its terms of reference, attendance of meetings and a summary of its activities are set out on pages 22 to 26 of the Annual Report. SILK HOLDING BERHAD 15 annual report 2010

18 Corporate Governance Statement (cont d) 2. Risk Management Committee The Risk Management Committee comprises Johan Zainuddin bin Dzulkifli as Chairman, Nik Abdul Malik bin Nik Mohd Amin and Jamaludin bin Mohd Nor. The Risk Management Committee is tasked with the responsibility to oversee the investment activities of the Group, approving appropriate investment appraisal as well as identification of strategic investment opportunities for the Group. The terms of reference of the Risk Management Committee are set out on page 19 of the Annual Report. 3. Nomination and Remuneration Committee The Nomination and Remuneration Committee comprises Dato Mohammed Azlan Hashim as Chairman, Datuk Razman M Hashim and Dato Harun bin Md Idris. The terms of reference of the Nomination and Remuneration Committee are set out on pages 20 and 21 of the Annual Report. 4. Special Regularisation Plan and Investment Committee The Special Regularisation Plan and Investment Committee ( Special Committee ) was formed on 23 September 2008 and comprised Datuk Razman M Hashim as Chairman, Tai Keat Chai and Abdul Hamid bin Sh. Mohamed. The Special Committee was established to evaluate and recommend to the Board the proposed Regularisation Plan of SILK Holdings Berhad for submission to Bursa Securities and Securities Commission. In addition, the Special Committee was also expected to evaluate and recommend to the Board the Regularisation Plan taking into consideration the need to uplift SILK Holdings from its PN17 status and strengthening the financial position of SILK Holdings moving forward. The Committee ceased to exist upon successful completion of the Regularisation Scheme during the year. B. DIRECTORS REMUNERATION The remuneration of the Executive Directors is structured on the basis of linking rewards to corporate and individual performance. For Non-Executive Directors, the level of remuneration reflects the experience and level of responsibilities. The Board as a whole recommends on the fees for the Directors with individual Directors abstaining from decisions in respect of their individual remuneration. The fees payable to the Non-Executive Directors are subject to the approval of shareholders. The breakdown of the remuneration for the Directors of the Company during the financial year is as follows:- Executive Non-Executive Directors Directors Total RM RM RM Fees 10,000 81,000 91,000* Other emoluments 104,000 57, ,000 Salaries and other remunerations 787, ,000 Bonus 202, ,000 Benefits-in-kind 66,000 66,000 Total 1,169, ,000 1,307,000 * Total directors fees of which approval of the shareholders is being sought 112,000 Less fees relating to pre-acquisition period (21,000) As disclosed above and in Note 28(b) to the financial statements 91,000 SILK HOLDING BERHAD 16 annual report 2010

19 Corporate Governance Statement (cont d) The number of directors whose remunerations falls under the following bands:- Executive Non-Executive Directors Directors Total Range of remuneration Below RM50, RM450,001 to RM500, RM800,001 to RM850, Total C. SHAREHOLDERS DIALOGUE BETWEEN THE COMPANY AND INVESTORS The Board values constant dialogue and is committed to clear communication with its shareholders and investors. In this respect, as part of the Group s active investor relations programme, discussions and dialogues are held with fund managers, financial analysts and shareholders to convey information about the Group s performance, corporate strategy and other matters affecting shareholders interests. In addition to published Annual Reports and Quarterly Reports announced to Bursa Securities, the Group has established a website at from which investors and shareholders can access for information. While 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 of material and price-sensitive information. To achieve this, the Board had approved and adopted a Corporate Disclosure Policy which outlines the Company s approach toward the determination and dissemination of material information, the circumstances under which the confidentiality of information will be maintained, response to market rumours and restrictions on insider trading. This Policy also provides guidance and structure in disseminating corporate information to, and in dealing with, investors, analysts, media and the investing public. ANNUAL GENERAL MEETING The annual general meeting of the Company provides the principal forum for dialogue and interaction between the Board and the shareholders. The participation of shareholders, both individuals and institutional at general meetings on clarifications of pertinent and relevant information is encouraged. D. ACCOUNTABILITY AND AUDIT FINANCIAL REPORTING In presenting the annual financial statements, annual report and quarterly announcement of results to shareholders, the Board aims to provide a balanced and understandable assessment of the Group s financial position, performance and prospects. The Board is assisted by the Audit Committee to oversee the Group s financial reporting processes and the quality of its financial reporting. INTERNAL CONTROL The Statement on Internal Control set out on pages 27 to 28 of the Annual Report provides an overview of the state of internal controls within the Group. RELATIONSHIP WITH THE AUDITORS The Board maintains, via the Audit Committee, an active, transparent and professional relationship with its Auditors. The role of the Audit Committee in relation to the Independent Auditors is disclosed in the Audit Committee Report set out on pages 22 to 26 of the Annual Report. SILK HOLDING BERHAD 17 annual report 2010

20 Corporate Governance Statement (cont d) E. DIRECTORS RESPONSIBILITY STATEMENT ON ANNUAL AUDITED FINANCIAL STATEMENTS The Directors are responsible in the preparation of the Annual Audited Financial Statements to give a true and fair view of the state of affairs, results and cash flows of the Company and of the Group at the end of the financial period. In preparing the financial statements, the Directors will ensure that suitable accounting policies have been applied consistently, and that reasonable and prudent judgments and estimates have been made. All applicable approved accounting standards and provisions of the Companies Act, 1965 have been complied with. The Directors are also responsible for ensuring that proper accounting and other records are kept which disclose with reasonable accuracy, the financial position of the Company and of the Group and which enables them to ensure that the financial statements comply with the relevant statutory requirements. F. COMPLIANCE WITH THE CODE The Group has complied substantially with the principles and best practices outlined in the Code except for the following:- 1. Appointment of Senior Independent Non-Executive Director The Board has not found it necessary to identify a Senior Independent Non-Executive Director to whom concerns relating to the affairs of the Group may be conveyed, as there are a number of experienced and competent senior independent directors on the Board. In addition, the Executive Chairman encourages full deliberation of issues affecting the Group by all members of the Board. This Corporate Governance Statement was approved by the Board of Directors on 29 October Dato Mohammed Azlan Hashim Executive Chairman SILK HOLDING BERHAD 18 annual report 2010

21 Terms Of Reference Of Risk Management Committee 1. MEMBERSHIP (a) (b) (c) (d) The Risk Management Committee ( RMC ) shall be appointed by the Board and shall comprise not fewer than 3 in number. The members of the RMC shall elect a Chairman from among their number. In the event of any vacancy in the RMC resulting in the number of members being reduced to below 3, the Board shall, within 3 months fill the vacancy. The Board shall have the discretion as it deems fit to rescind and/or revoke the appointment of any person(s) in the RMC. 2. ROLES AND FUNCTIONS The RMC has the overall responsibility for overseeing the investment activities of the Group, approving appropriate investment appraisal procedures as well as identification of strategic investment opportunities of the Group. Its primary roles include the following:- a) To review and recommend to the Board of Directors all acquisitions and divestments of companies (excluding dormant companies) and setting up of new business; b) To review and recommend to the Board of Directors major acquisition and disposal of company s assets and properties within the Group; c) To consider other matters as referred to the Committee by the Board. 3. MEETINGS (a) (b) The RMC shall meet at any time at the RMC Chairman s discretion. The quorum for the meeting shall be 2 members. 4. REPORTING The Chairman of the RMC shall report the proceedings of each Committee Meeting to the Board. 5. SECRETARY The Secretary to the RMC shall be the Company Secretary. SILK HOLDING BERHAD 19 annual report 2010

22 Terms Of Reference Of Nomination And Remuneration Committee 1. MEMBERSHIP (a) The Nomination and Remuneration Committee shall be appointed by the Board from among their number and shall comprise not fewer than three (3) in number. (b) The majority of the members of the Committee shall be: - (i) (ii) non-executive Directors; or any person not having a relationship which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the functions of the Remuneration Committee (c) The members of the Committee shall elect a Chairman from among their number. (d) In the event of any vacancy in the Committee resulting in the number of members being reduced to below three (3), the Board shall, within three (3) months fill the vacancy. 2. AUTHORITY (a) (b) The Nomination and Remuneration Committee is entrusted with the task of proposing new nominees for the Board and for assessing existing Directors on an on-going basis. The ultimate decision as to who shall be nominated should be the responsibility of the full Board after considering the recommendation of such a Committee. 3. FUNCTIONS (a) (b) (c) (d) (e) (f) (g) (h) (i) To determine the core competencies and skills required of Board members to best serve the business and operations of the Group as a whole and the optimum size of the Board to reflect the desired skills and competencies. To review the size of Non-Executive participation, Board balance and determine if additional Board members are required and also to ensure that at least one-third (1/3) of the Board is independent. To recommend to the Board on the appropriate number of Directors to comprise the Board which should fairly reflect the investments of the minority shareholders in the Company, and whether the current Board representation satisfies this requirement. To consider in making its recommendations, candidates for directorships proposed, within the bounds of practicability, by any Director or shareholder. To recommend to the Board, Directors or officers of the Company to fill the seats on Board Committees. To undertake an annual review of the required mix of skills and experience and other qualities of Directors, including core competencies which Non- Executive Directors should bring to the Board and to disclose this in the Annual Report. To assist the Board to implement a procedure to be carried out by the Nomination and Remuneration Committee annually for assessing the effectiveness of the Board as a whole, the Committees of the Board and for assessing the contributions and performance of Directors and Board of Committee members. To introduce such regulations or guidelines, procedures to function effectively and fulfill the Committee s objective. To ensure that the Group s Executive Directors are fairly rewarded for their individual contributions to the Group s overall performance and the levels of remuneration should be sufficient to attract and retain Directors to run the Group successfully. SILK HOLDING BERHAD 20 annual report 2010

23 Terms Of Reference Of Nomination And Remuneration Committee (cont d) (j) (k) (l) To demonstrate to all stakeholders in the business that the remuneration of the Executive Directors of the Group is set by a Committee of Board members who have no personal interest in the outcome of their decisions and who will give due regard to the interests of the stakeholders and to the financial and commercial health of the Group. To recommend to the Board the remuneration of the Executive Chairman and Executive Directors. To assume responsibility for all elements of Executive Directors remuneration eg: (i) (ii) (iii) (iv) (v) Basic salary Profit sharing schemes (if any) Share Options Any other benefits Compensation for early termination (m) (n) (o) (p) (q) (r) (s) (t) To ensure that a fair differential between the remuneration of Board members and other levels of management is maintained. To conduct continued assessment of individual Executive Directors to ensure that remuneration is directly related to corporate and individual performance. To obtain the advice and information from external sources, if necessary, to compare the remuneration currently earned by the Executive Directors and those paid to Executive Directors of other companies of a similar size in a comparable industry sector. To ensure that the base salary element is competitive but fair. To advise on and monitor, a suitable performance related formula ie. whether the formula is based on individual performance, company profit performance, earnings per share etc. To provide an objective and independent assessment of the benefits granted to Executive Directors. To introduce any policy or guidelines which would enable the smooth administration and effective discharge of the Committee s duties and responsibilities. To furnish a report to the Board of any findings of the Committee. 4. MEETINGS (a) (b) The Committee shall meet at least once a year. However, additional meetings may be called at any time at the Nomination and Remuneration Committee Chairman s discretion. The quorum for the meeting shall be two (2) members. 5. REPORTING The Chairman of the Committee shall report on each meeting to the Board. 6. SECRETARY The Secretary to the Committee shall be the Company Secretary. SILK HOLDING BERHAD 21 annual report 2010

24 Audit Committee Report FORMATION The Audit Committee was formed by the Board of Directors at its meeting on 16 August The objective of the Audit Committee is to assist the Board of Directors in fulfilling its fiduciary responsibilities relating to internal controls, financial and accounting records and policies as well as financial reporting practices of the Company and its subsidiaries ( the Group). COMPOSITION The members of the Audit Committee during the year were as follows: 1. Tai Keat Chai Chairman (Independent Non-Executive Director) 2. Dato Harun bin Md Idris (Independent Non-Executive Director) 3. Abdul Hamid bin Sh. Mohamed (Independent Non-Executive Director) 4. Dato Seri Syed Zainol Rashid Jamalullail (retired on 30 October 2009) (Independent Non-Executive Director) 5. Dato Ir. Hj. Ibrahim bin Hj. Yakub (retired on 30 October 2009) (Independent Non-Executive Director) MEETING AND ATTENDANCE The Audit Committee held 4 meetings during the financial year and the attendance of the Committee Members was as follows: Name of Committee Member Number of Meetings Attended Tai Keat Chai 4/4 Dato Harun bin Md Idris 4/4 Abdul Hamid bin Sh. Mohamed 3/3 Dato Seri Syed Zainol Rashid Jamalullail 1/1 Dato Ir. Hj. Ibrahim Bin Hj. Yakub 1/1 The Company Secretaries, the Internal Auditors and the Chief Financial Officer were present at all meetings. At 3 of the meetings, the Independent Auditors were present. TERMS OF REFERENCE 1. Membership 1.1 The Committee shall be appointed by the Board of Directors from amongst the Directors of the Company and shall consist of not less than 3 members. 1.2 The majority of the members including the Chairman of the Committee shall be Independent Directors as defined in Chapter 15 of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad ( Bursa Securities ). SILK HOLDING BERHAD 22 annual report 2010

25 Audit Committee Report (cont d) 1.3 The Committee shall include at least 1 person: (a) (b) who is a member of the Malaysian Institute of Accountants; or who must have at least 3 years working experience and:- (i) have passed the examinations specified in Part I of the 1st Schedule of the Accountants Act, 1967; or (ii) is a member of 1 of the Associations specified in Part II of the 1st Schedule of the Accountants Act, 1967; or (c) who must have at least 3 years post qualification experience in accounting or finance and:- (i) (ii) has a degree/masters/doctorate in accounting or finance; or is a member of 1 of the professional accountancy organisations which has been admitted as a full member of the International Federation of Accountants; or (d) who must have at least 7 years experience being a chief financial officer of a corporation or having the function of being primarily responsible for the management of the financial affairs of a corporation. 1.4 No Alternate Director shall be appointed as a member of the Committee. 1.5 The members of the Committee shall elect a Chairman from amongst their number. 1.6 If a member of the Committee resigns, dies or for any reason ceases to be a member with the result that the number of members is reduced below 3, the Board shall, within 3 months appoint such number of new members as may be required to make up the minimum of 3 members. 1.7 The terms of office and performance of the Committee and each of its members shall be reviewed by the Board no less than once every 3 years. However, the appointment terminates when a member ceases to be a Director. 2. Meetings 2.1 The quorum for a Committee Meeting shall be a least 2 members, the majority of whom must be Independent Directors. 2.2 The Committee shall meet at least 4 times a year and such additional meetings as the Chairman shall decide. 2.3 Notwithstanding paragraph 2.2 above, upon the request of any member of the Committee, non-member Directors, the Internal or Independent Auditors, the Chairman shall convene a meeting of the Committee to consider the matters brought to its attention. 2.4 The Independent Auditors have the right to appear and be heard at any meeting of the Committee and shall appear before the Committee when required to do so. 2.5 The non-member Directors and employees of the Company and of the Group shall normally attend the meetings to assist in its deliberations and resolutions of matters raised. However, at least twice a year, the Committee shall meet with the Independent Auditors without the presence of the executive members of the Committee. 2.6 The Internal Auditors shall be in attendance at all meetings to present and discuss the audit reports and other related matters as well as the recommendations relating thereto and to follow-up on all relevant decisions made. 2.7 The Company Secretary shall act as Secretary of the Committee and shall be responsible, with the concurrence of the Chairman, for drawing up and circulating the agenda and the notice of meetings together with the supporting explanatory documentation to members prior to each meeting. 2.8 The Secretary of the Committee shall be entrusted to record all proceedings and minutes of all meetings of the Committee. 2.9 In addition to the availability of detailed minutes of the Committee Meetings to all Board members, the Committee at each Board Meeting, will report a summary of significant matters and resolutions. SILK HOLDING BERHAD 23 annual report 2010

26 Audit Committee Report (cont d) 3. Right and Authority The Committee is authorized to:- 3.1 Investigate any matter within its terms of reference. 3.2 Have adequate resources required to perform its duties. 3.3 Have full and unrestricted access to information, records and documents relevant to its activities. 3.4 Have direct communication channels with the Independent and Internal Auditors. 3.5 Engage, consult and obtain outside legal or other independent professional advise and to secure the attendance of outsiders with relevant experience and expertise it considers necessary. 4. Functions and Duties 4.1 To review and recommend for the Board s approval, the Internal Audit Charter which defines the independent purpose, authority, scope and responsibility of the internal audit function in the Company and the Group. 4.2 To review the following and report to the Board:- (a) With the Independent Auditors;- (i) (ii) (iii) the audit plan and audit report and the extent of assistance rendered by employees of the Group. their evaluation of the system of internal controls; the audit fees and on matters concerning their suitability for nomination, appointment and re-appointment and the underlying reasons for resignation or dismissal as Auditors; (iv) the management letter and management s response; and (v) issues and reservations arising form audits. (b) With the Internal Auditors:- (i) (ii) the adequacy and relevance of the scope, functions and resources of the Internal Auditors and the necessary authority to carry out its work; the audit plan and work programme and results of internal audit processes including recommendations and actions taken; (iii) the extent of cooperation and assistance rendered by employees of the Group; and (iv) the appraisal of the performance of the internal audit including that of the senior staff and any matter concerning their appointment and termination. (c) The quarterly results and year end financial statements prior to the approval by the Board, focusing particularly on:- (i) (ii) changes and implementation of major accounting polices and practices; significant and unusual issues; (iii) going concern assumption; and (iv) compliance with accounting standards, regulatory and other legal requirements. SILK HOLDING BERHAD 24 annual report 2010

27 Audit Committee Report (cont d) (d) (e) The major findings of investigations and management response. The propriety of any related party transaction and conflict of interest situation that may arise within the Company or the Group including any transaction, procedure or course of conduct that raises questions of management integrity. 4.3 To report any breaches of the Main Market Listing Requirements which have not been satisfactorily resolved, to Bursa Securities. 4.4 To prepare the Audit Committee Report for inclusion in the Company s Annual Report covering:- (a) (b) (c) (d) (e) the composition of the Committee including the name, designation and directorship of the members; the terms of reference of the Committee; the number of meetings held and details of attendance of each members; a summary of the activities of the Committee in the discharge of its functions and duties; and a summary of the activities of the internal audit function. 4.5 To review the following for publication in the Company s Annual Report;- (a) the disclosure statement of the Board on;- (i) (ii) the Company s applications of the principles set out in Part I of the Malaysian Code on Corporate Governance; and the extent of compliance with the best practices set out in Part II of the Malaysian Code on Corporate Governance, specifying reasons for any area of non-compliance and the alternative measures adopted in such areas. (b) (c) (d) (e) the statement on the Board s responsibility for the preparation of the annual audited financial statements. the disclosure statement on the state of the internal controls system of the Company and of the Group. the statement by the Audit Committee on the verification of allocation of share options to the Group s eligible employees in compliance with the criteria set out in the Bye-Laws of the Company s Employees Share Option Scheme, at the end of each financial year. other disclosure forming the contents of annual report spelt out in Part A of Appendix 9C of the Main Market Listing Requirements of Bursa Securities. The above functions and duties are in addition to such other functions as may be agreed to from time to time by the Committee and the Board. 5. Internal Audit Functions 5.1 The Company had appointed Messrs. Columbus Advisory Sdn Bhd as the Internal Auditor to undertake the Group s internal audit function. 5.2 The Internal Auditor shall have unrestricted access to the Committee Members and report to the Committee whose scope of responsibility includes overseeing the development and the establishment of the internal audit function. 5.3 In respect of routine administrative matters, the Internal Auditor shall report to the Executive Chairman or his designate. 5.4 The total costs incurred for the internal audit function of the Group for the financial period ended 31 July 2010 was RM50,000. SILK HOLDING BERHAD 25 annual report 2010

28 Audit Committee Report (cont d) ACTIVITIES OF THE COMMITTEE FOR THE FINANCIAL YEAR ENDED 31 JULY 2010 The summary of activities of the Committee in the discharge of its duties and responsibilities is as follows:- (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) Reviewed the adequacy and relevance of the scope, functions, resources, risk based internal audit plan and results of the internal audit processes with the Internal Auditor. Reviewed the audit activities carried out by the Internal Auditor and the audit reports to ensure corrective actions were taken in addressing the risk issues reported. Reviewed with the Independent Auditors, the audit plan of the Company and of the Group for the year (inclusive of risk and audit approach, system evaluation, audit fees, issues and management responses) prior to the commencement of the annual statutory audit. Reviewed the financial statements, the audit report, issues and reservations arising from statutory audit with the Independent Auditors. Reviewed and discussed the management accounts with Management. Reviewed the quarterly results and financial statements for the financial year ended 31 July 2010 with management and the Independent Auditors for recommendation to the Board of Directors for approval and release to Bursa Securities. Reviewed all recurrent related party transactions entered into by the Company and the Group at the Committee s quarterly meetings to ensure that the transactions entered into were at arm s length basis and on normal commercial terms. Reviewed and approved the Circular to Shareholders and the statements by the Audit Committee in respect of the Proposed Shareholders Mandate for Recurrent Related Party Transactions. Discussed the implications of any latest changes and pronouncements on the Company and the Group issued by the statutory and regulatory bodies. Reported to the Board on significant issues and concerns discussed during the Committee s meetings together with applicable recommendations. Minutes of meetings were tabled, discussed and noted by all Board members. INTERNAL AUDIT ACTIVITIES REPORT FOR THE FINANCIAL YEAR ENDED 31 JULY 2010 The summary of activities of the Internal Auditor is as follows:- (a) (b) (c) (d) (e) Prepared the annual audit plan for approval by the Audit Committee. Performed risk based audits on strategic business units of the Company and of the Group, which covered assessment on adequacy and integrity of the internal control systems for the management and key operating processes. Performed follow-up on status of management s implementation on internal audit recommendations. Issued audit reports to the Committee and management by identifying weaknesses and improvement opportunities as well as highlighting recommendations for improvements. Acted on suggestions made by the Committee and/or senior management on concerns over operations or controls and significant issues pertinent to the Company and of the Group. (f ) Reported to the Committee on results of audit assessment on the adequacy and appropriateness of internal controls (including compliance with the procedures established) on the management and key operating processes of strategic management, toll operations, highway maintenance, traffic safety & security, vessel health, safety & environmental management and human capital development. (g) (h) Reviewed on the appropriateness of the disclosure statements in regard to compliance with the Malaysian Code on Corporate Governance and the state on internal controls as well as the Audit Committee Report. Attended Committee s meetings to table and discuss the audit reports and followed up on matters raised. SILK HOLDING BERHAD 26 annual report 2010

29 Statement On Internal Control INTRODUCTION The Malaysian Code on Corporate Governance stipulates that the Board of Directors of listed companies should maintain a sound system of internal control to safeguard shareholders investment and Group assets. Set out below is the Group Statement on Internal Control ( Statement ), made in compliance with Paragraph 15.26(b) of the Main Market Listing Requirements of Bursa Securities and the Statement on Internal Control: Guidance for Directors of Public Listed Companies. THE BOARD S RESPONSIBILITY The Board places importance on, and is committed to maintaining a sound system of internal control and effective risk management practices in the Group to ensure good corporate governance. The Board affirms its responsibility for reviewing the adequacy and integrity of the Group s system of internal control and management information systems, including systems for compliance with applicable laws, rules, directives, guidelines and risk management practices. Notwithstanding this, as with any internal control system, the Group s system of internal control is designed to manage rather than eliminate the risk of failure to achieve business objectives. It follows, therefore, that the system of internal control can only provide reasonable but not absolute assurance against material misstatement or loss. The Group has in place an on-going process of identifying, evaluating, monitoring and managing the key risks affecting the achievement of its business objectives throughout the period. The Board reviews this process on a quarterly basis. THE GROUP S SYSTEM OF INTERNAL CONTROL Monitoring Mechanisms and Management Style Scheduled periodic meetings of the Board, Board Committees and Management represent the main platform by which the Group s performance and conduct is monitored. The daily running of the business is entrusted to the respective General Managers/ Operational Heads and their management team. Under the purview of the General Managers/ Operational Heads, the heads of department are empowered with the responsibility of managing their respective operations. The General Managers/ Operational Heads actively communicate the Board s expectations to management at management meetings as well as through attendance at various operations meetings. At these meetings, operational and financial risks are discussed and dealt with. The Board is responsible for setting the business direction and for overseeing the conduct of the Group s operations through various management reporting mechanisms. Through these mechanisms the Board is informed of all major control issues pertaining to internal controls, regulatory compliance and risk taking. Enterprise Risk Management Framework In dealing with its stewardship responsibilities, the Board recognises that effective risk management is part of good business management practice. The Board acknowledges that all areas of the Group s activities involve some degree of risk, and is committed to ensuring that the Group has an effective risk management framework which will allow the Group to be able to identify, evaluate and manage risks that affect the achievement of the Group s business objectives within defined risk parameters in a timely and effective manner. The risk management framework has been embedded in the Company s management systems. The Management assists the Board in implementing the process of identifying, evaluating and managing significant risks applicable to their respective areas of business and in formulating suitable internal controls to mitigate and control these risks. The key elements of the Enterprise Risk Management (ERM) activities include: Establishing ERM framework Risk assessment process Risk action implementation process Risk action monitoring process Continuous ERM monitoring and communication The Group has completed a comprehensive risk assessment process whereby significant risks are summarised into a risk map and presented to the Audit Committee for its consideration. Detailed risk registers have been developed for each of the risk identified. Having identified those risks that can significantly affect the business and operations, dedicated risk owners are appointed (from SILK HOLDING BERHAD 27 annual report 2010

30 Statement On Internal Control (cont d) the management team) to work on the development of key risk action plans required (as well as the implementation of such action plans) together with a group of risk co-owners across the various departments. New developments in business and operations are subject to the risk assessment process as the risk profile of the business changes. Key Elements of the Group s System of Internal Control The current system of internal control in the Group has within it, the following key elements: Clear Group vision, mission and corporate philosophy and strategic direction, which is communicated to employees at all level. An effective Board which retains control over the Group with appropriate management reporting mechanisms which enable the Board to review the Group s progress. Board approved annual budgets and management plans. Management meetings involving discussions on operational issues at subsidiary level. Comprehensive and clearly documented standard operating policies and procedures manuals that provide guidelines on, and authority limits over various operating, financial and human resource matters, which are subject to regular review for improvement. The use of the intranet as an effective means of communication and knowledge sharing. Communication of policies and guidelines in relation to human resource matters to all employees through a staff handbook which is also available on the intranet. A systematic performance appraisal system for all levels of staff. Relevant training provided to personnel across all functions to maintain a high level of competency and capability. An internal audit function that carries out internal audits based on an annual risk-based audit plan approved by the Audit Committee (see also Assurance Mechanisms below). Assurance Mechanisms The Audit Committee ( AC ) is tasked by the Board with the duty of reviewing and monitoring the effectiveness of the Group s system of internal control. In carrying out its responsibilities, the Company had appointed Messrs. Columbus Advisory Sdn Bhd ( CASB ) to carry out enterprise risk management and internal audits based on a risk-based audit plan approved by the AC. Based on these audits, the AC is provided by CASB with periodic reports highlighting observations, recommendations and management action plans to improve the system of internal control. In addition, the AC also reviews and deliberates on any matters relating to internal control highlighted by the external auditors in the course of their statutory audit of the financial statements of the Group. There were no major internal control weaknesses identified during the financial year. The Report of the AC is set out on pages 22 to 26 of the Annual Report. THE BOARD S COMMITMENT The Board recognises that the Group operates in a dynamic business environment in which the internal control system must be responsive in order to be able to support its business objectives. To this end, the Board remains committed towards maintaining a sound system of internal control and believes that a balanced achievement of its business objectives and operational efficiency can be attained. REVIEW OF THE STATEMENT BY independent AUDITORS Pursuant to paragraph of Bursa Malaysia Securities Berhad s Listing Requirements, the Independent Auditors have reviewed the Statement on Internal Control and reported: Based on our review, nothing has come to our attention that causes us to believe that the Statement on Internal Control intended to be included in the annual report is inconsistent with our understanding of the process the Board of Directors has adopted in the review of the adequacy and integrity of internal control of the Group. This Statement on Internal Control was approved by the Board of Directors on 29 October Dato Mohammed Azlan Hashim Executive Chairman SILK HOLDING BERHAD 28 annual report 2010

31 Statement Of Corporate Social Responsibility The SILK Group is committed to meeting its aspirations of improving the long-term shareholder value of the company. In meeting this objective, it will do so via policies and arrangements that recognise its social, economic and environmental responsibilities. In giving effect to this, the Group is committed to: Setting high standards and expectations for its employees to act ethically, professionally and with integrity whenever dealing with external stakeholders; Support collaborations with stakeholders, particularly those that are most affected by the Group s business activities, where it is feasible to do so; and Pursuing a culture of delivering value for the funds invested in its activities whilst effectively managing risks to the organisation and its stakeholders. The Group is also committed to providing high standards of safety in the working conditions for its employees and to the continual improvement of its safety performance. During the period under review, the Group s Oil & Gas Support Services Division, via Jasa Merin, was awarded a Safety Recognition Gold Award from ExxonMobil, adding to a long list of safety awards it has earned over the years. The well-being of external stakeholders is another area of concern to the Group. Hence, during the financial year under review, the Group s Highway Division participated in Safety Campaigns for the 2009 Aidilfitri celebration as well as the 2010 Chinese New Year celebration to ensure its road users are able to get to their destination safely and in relative comfort. In addition to the Safety Campaigns mentioned, the Highway Division also provided discounts to travellers using its highway during the two festive periods and for the recent 2010 Aidilfitri celebrations, as a way to thank road users. The well-being of the communities in which the Group operates is also important to its long-term development and success. It is with this in mind that during the period under review, the Group, undertook the distribution of Zakat to orphans in Kemaman, its primary base of operations for the Oil & Gas Support Services Division. The Highway Division also took an active step to strengthen ties with its immediate community by contributing to various local community activities. It is SILK s aspiration for initiatives such as these to continue well into the future. SILK HOLDING BERHAD 29 annual report 2010

32 Directors Report Statement By Directors 35 Statutory Declaration 35 Independent Auditors Report Balance Sheets Income Statements 40 Statement Of Changes In Equity 41 Consolidated Cash Flow Statement Cash Flow Statement Notes To The Financial Statements financial statements

33 Directors Report The directors hereby present their report together with the audited financial statements of the Group and of the Company for the financial year ended 31 July Principal activities and affected listed issuer status The principal activity of the Company is investment holding. The principal activities of the subsidiaries are tolled highway concessionaire and the provision of offshore marine support services. There have been no significant changes in the nature of the principal activities during the financial year except for the acquisition of an offshore marine support services business as disclosed in note 6 to the financial statements. The Company had announced on 24 November 2008, that it intended to undertake a Regularisation Scheme, as disclosed in Note 36(a), to address its status under Amended Practice Note 17/2005 of the Listing Requirements of Bursa Securities ( PN17 ). The Regularisation Scheme was subsequently approved by the Group s shareholders at its reconvened Extraordinary General Meeting held on 20 July The High Court of Malaya issued the signed and sealed Order on 28 August 2009, confirming the par value reduction pursuant to Section 64 of the Companies Act 1965, which formed part of the Group s Regularisation Scheme. The Regularisation Scheme was formally completed on 14 October 2009 with the lifting of the PN-17 status on the Group by Bursa Malaysia Securities Berhad as mentioned in Note 1. Results Group Company RM RM Profit/(loss) for the year 30,855 (1,405) Attributable to: Equity holders of the Company 19,251 (1,405) Minority interests 11,604 30,855 (1,405) Except for RM92.79 million reverse acquisition deficit arising from acquisition of AQL Aman Sdn. Bhd. ( AQL ) and RM36.3 million capital reserve arising from par value reduction of issued and fully paid-up ordinary shares of the Company as disclosed in the Statement of Changes in Equity, there were no other material transfers to or from reserves or provisions during the financial year. In the opinion of the directors, the results of the operations of the Group and of the Company during the financial year were not substantially affected by any other item, transaction or event of a material and unusual nature, other than RM11.9 million negative goodwill recognised in the income statement arising on reverse acquisition as disclosed in Note 6 to the financial statements. SILK HOLDING BERHAD 31 annual report 2010

34 Directors Report (cont d) Directors The names of the directors of the Company in office since the date of the last report and at the date of this report are: Dato Mohammed Azlan Hashim Datuk Razman M Hashim Dato Harun bin Md Idris Tai Keat Chai Johan Zainuddin bin Dzulkifli Abdul Hamid bin Sh Mohamed Nik Abdul Malik bin Nik Mohd Amin Dato Seri Syed Zainol Rashid Jamalullail (retired on 30 October 2009) Dato Ir Hj Ibrahim bin Hj Yakub (retired on 30 October 2009) Directors benefits Neither at the end of the financial year, nor at any time during that year, did there subsist any arrangement to which the Company was a party, whereby the directors might acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate. Since the end of the previous financial period, no director has received or become entitled to receive a benefit (other than benefits included in the aggregate amount of emoluments received or due and receivable by the directors or the fixed salary of a full time employee of the Company as shown in Note 28 to the financial statements) by reason of a contract made by the Company or a related corporation with any director or with a firm of which he is a member, or with a company in which he has a substantial financial interest, except as disclosed in Note 33 to the financial statements. Directors interest According to the register of directors shareholdings, the interests of directors in office at the end of the financial year in shares in the Company during the financial year were as follows: Number of Ordinary Shares of RM0.25 Each # Acquired Sold Direct interest Johan Zainuddin bin Dzulkifli 28,200,000 28,200,000 Abdul Hamid bin Sh Mohamed 1,000,000 1,000,000 Deemed interest Dato Mohammed Azlan Hashim 65,090,802 14,464,624 79,555,426 Johan Zainuddin bin Dzulkifli 65,090,802 52,064, ,155,426 Tai Keat Chai 1,000,000 1,000,000 Number of preference shares of RM0.10 each Acquired Sold Deemed interest Datuk Razman M Hashim 4,503,333 4,503,333 SILK HOLDING BERHAD 32 annual report 2010

35 Directors Report (cont d) Directors interest (cont d) number of loan stocks of RM1.00 each Acquired sold Direct interest Johan Zainuddin bin Dzulkifli 7,155,460 7,155,460 Deemed interest Johan Zainuddin bin Dzulkifli 9,540,613 9,540,613 By virtue of their interests in the shares of the Company, Dato Mohammed Azlan Hashim and Johan Zainuddin bin Dzulkifli are also deemed to have interests in the shares of the subsidiaries of the Company to the extent that the Company has an interest. # The par value of ordinary shares was RM0.50 prior to the par value reduction on 28 August Issue of shares During the financial year, the Company increased its: (a) (b) authorised ordinary share capital of 1,996,000,000 ordinary shares of RM0.50 each to 3,992,000,000 ordinary shares of RM0.25 each; and issued and paid-up ordinary share capital from RM90,000,002 to RM96,958,845 by way of: (i) (ii) the subscription and conversion of Redeemable Convertible Unsecured Loan Stock-A ( RCULS-A ) to 19,835,556 ordinary shares of RM0.25 each, at the conversion rate of RM1 nominal value RCULS-A for 4 new ordinary shares of the Company; the issuance of 175,000,000 ordinary shares of RM0.25 each as partial discharge of purchase consideration for the acquisition of AQL; and (iii) the conversion of Cumulative Convertible Redeemable Preference Shares ( CC-RPS ) and dividends payable to 12,999,819 ordinary shares at RM0.25 each. The new ordinary shares rank pari passu in all respects with the existing ordinary shares of the Company. Redeemable Convertible Unsecured Loan Stocks (a) (b) (c) A total of RM4,958,889 nominal value Redeemable Convertible Unsecured Loan Stock-A ( RCULS-A ) was issued on 1 October 2009 from its renounceable Rights Issue. The RCULS-A were subsequently converted on 13 October 2009 into 19,835,556 new ordinary shares of RM0.25 each at the conversion rate of RM1.00 nominal value of RCULS-A for four (4) new ordinary shares. On 14 October 2009, the Company issued 175,000,000 of 5-year Redeemable Convertible Unsecured Loan Stock-B ( RCULS-B ) at a nominal amount of RM1 each as partial discharge of purchase consideration for the acquisition of AQL Aman Sdn. Bhd. On 14 April 2010, the Company issued 654,449 of 5-year Redeemable Convertible Unsecured Loan Stock (CR) ( RCULS (CR) ) at a nominal amount of RM1 each to satisfy the coupon payment of RCULS-B. The terms of the RCULS-B and RCULS (CR) is disclosed in Note 23 to the financial statements. Employee trust shares Employee trust shares relate to shares of the Company held by Jasa Merin Employee Trust, a trust set up by the subsidiary, Jasa Merin (Malaysia) Sdn Bhd ( Jasa Merin ). Employee trust shares of RM6,688,000 represents 15,200,000 shares issued to Jasa Merin Employee Trust pursuant to the acquisition of AQL, as mentioned in Note 1. SILK HOLDING BERHAD 33 annual report 2010

36 Directors Report (cont d) Other statutory information (a) Before the balance sheets and income statements of the Group and of the Company were made out, the directors took reasonable steps: (i) (ii) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of provision for doubtful debts and satisfied themselves that all known bad debts had been written off and that no provision for doubtful debts was necessary; and to ensure that any current assets which were unlikely to realise their values as shown in the accounting records in the ordinary course of business had been written down to an amount which they might be expected so to realise. (b) At the date of this report, the directors are not aware of any circumstances which would render: (i) (ii) the amount written off for bad debts inadequate to any substantial extent or it necessary to make any provision for doubtful debts in respect of the financial statements of the Group and of the Company; and the values attributed to the current assets in the financial statements of the Group and of the Company misleading. (c) (d) (e) At the date of this report, the directors are not aware of any circumstances which have arisen which would render adherence to the existing method of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate. At the date of this report, the directors are not aware of any circumstances not otherwise dealt with in this report or financial statements of the Group and of the Company which would render any amount stated in the financial statements 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 which has arisen since the end of the financial year which secures the liabilities of any other person; or any contingent liability of the Group or of the Company which has arisen since the end of the financial year, except as disclosed in Note 32 to the financial statements. (f) In the opinion of the directors: (i) (ii) no contingent or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the financial year which will or may affect the ability of the Group or of the Company to meet their obligations when they fall due; and no item, transaction or event of a material and unusual nature has arisen in the interval between the end of the financial year and the date of this report which is likely to affect substantially the results of the operations of the Group or of the Company for the financial year in which this report is made. Significant events Details of significant events are disclosed in Note 36 to the financial statements. Subsequent events Details of subsequent events are disclosed in Note 37 to the financial statements. Auditors The auditors, Ernst & Young, have expressed their willingness to continue in office. Signed on behalf of the Board in accordance with resolution of the directors dated 29 October DATO MOHAMMED AZLAN HASHIM JOHAN ZAINUDDIN BIN DZULKIFLI SILK HOLDING BERHAD 34 annual report 2010

37 Statement By Directors Pursuant to Section 169(15) of the Companies Act, 1965 We, DATO MOHAMMED AZLAN HASHIM and JOHAN ZAINUDDIN BIN DZULKIFLI, being two of the directors of SILK HOLDINGS BERHAD, do hereby state that, in the opinion of the directors, the accompanying financial statements set out on pages 38 to 97 are drawn up in accordance with the provisions of the Companies Act, 1965 and Financial Reporting Standards in Malaysia so as to give a true and fair view of the financial position of the Group and of the Company as at 31 July 2010 and of the results and the cash flows of the Group and of the Company for the year then ended. Signed on behalf of the Board in accordance with a resolution of the directors dated 29 October DATO MOHAMMED AZLAN HASHIM JOHAN ZAINUDDIN BIN DZULKIFLI Statutory Declaration Pursuant to Section 169(16) of the Companies Act, 1965 I, JAMALUDIN MOHD NOR, being the Officer primarily responsible for the financial management of SILK HOLDINGS BERHAD, do solemnly and sincerely declare that the accompanying financial statements set out on pages 38 to 97 are in my opinion 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, Subscribed and solemnly declared by the abovenamed JAMALUDIN MOHD NOR at Kuala Lumpur in the Federal Territory on 29 October Before me, JAMALUDIN MOHD NOR Commissioner for Oaths SILK HOLDING BERHAD 35 annual report 2010

38 Independent Auditors Report to the members of SILK Holdings Berhad (Incorporated in Malaysia) Report on the financial statements We have audited the financial statements of SILK Holdings Berhad, which comprise the balance sheets as at 31 July 2010 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 38 to 97. 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 entity 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 entity s internal control. An audit also includes evaluating the appropriateness of the 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 at 31 July 2010 and of their financial performance and cash flows for the year then ended. 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) (b) (c) In our opinion, the accounting and other records and the registers required by the Act to be kept by the Company and its subsidiaries have been properly kept in accordance with the provisions of the Act. We are satisfied that the accounts of the subsidiaries that have been consolidated with the financial statements of the Company are in form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements and we have received satisfactory information and explanations required by us for those purposes. The auditors reports on the accounts of the subsidiaries were not subject to any qualification and did not include any comment required to be made under Section 174(3) of the Act. SILK HOLDING BERHAD 36 annual report 2010

39 Independent Auditors Report to the members of SILK Holdings Berhad (Incorporated in Malaysia) (cont d) 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. Ernst & Young AF: 0039 Chartered Accountants Ismed Darwis Bahatiar No. 2921/04/12(J) Chartered Accountant Kuala Lumpur, Malaysia 29 October 2010 SILK HOLDING BERHAD 37 annual report 2010

40 balance sheets as at 31 July 2010 Group Company Note RM 000 RM 000 RM 000 RM 000 Assets Non-current assets Property, vessels and equipment 3 684, ,470 Expressway development expenditure 4 915,238 Expressway heavy repairs 5 1,521 Investment in subsidiaries 6 247, ,000 Other investments Goodwill on consolidation ,602, , , ,000 Current assets Inventories Trade receivables 9 57,169 45,757 Other receivables 10 32,067 7, Amount due from a subsidiary Tax recoverable 1,677 1,312 Marketable securities Deposits with licensed financial institutions 12 15,300 3,657 2,000 Cash and bank balances 12,538 3, ,916 61,538 3, Total assets 1,721, , , ,079 Equity and liabilities Equity attributable to equity holders of the Company Share capital 13 96,959 4,706 96,959 90,000 Share premium 15 53,649 5,824 53,649 53,633 Equity component of convertible preference shares 22 2,157 2,157 Equity component of convertible loan stocks 23 37,271 37,271 Reverse acquisition deficit 15 (92,791) Capital reserves 15 36,297 Retained earnings/(accumulated losses) 55,989 36,738 (446) (7,744) 153,234 47, , ,889 Employee trust shares 14 (6,688) (6,688) 146,546 47, , ,889 Minority interests 45,825 36,621 Total equity 192,371 83, , ,889 SILK HOLDING BERHAD 38 annual report 2010

41 balance sheets as at 31 July 2010 (cont d) Group Company Note RM 000 RM 000 RM 000 RM 000 Non-current liabilities Borrowings 16 1,172, ,359 Cumulative Non-convertible Redeemable preference shares 22 20,000 Liability component of convertible preference shares 22 14,483 14,483 Liability component of convertible loan stocks 23 4,741 4,741 Deferred tax liabilities 25 39,615 24,977 1,965 Retirement benefits obligation 17 2,176 1,803 1,233, ,139 21,189 20,000 Current liabilities Borrowings 16 44,444 44,453 Trade payables 18 39,310 27,097 Other payables ,618 40,678 2,986 3,264 Provision for taxation Amount due to a subsidiary 20 7, , ,228 10,286 4,190 Total liabilities 1,529, ,367 31,475 24,190 Total equity and liabilities 1,721, , , ,079 The accompanying notes form an integral part of the financial statements. SILK HOLDING BERHAD 39 annual report 2010

42 income statements for the year ended 31 July 2010 Group Company 12 months 19 months 12 months 13 months to to to to Note RM 000 RM 000 RM 000 RM 000 Revenue , , Direct costs (138,314) (146,045) Gross profit 85,625 60, Other income 24,905 16, Goodwill gain on reverse acquisition 6 11,869 Administrative expenses (13,433) (15,092) (1,278) (1,951) Operating profit/(loss) 108,966 61,676 (468) (1,180) Finance costs 27 (65,250) (19,663) (1,305) (433) Profit/(loss) before tax 28 43,716 42,013 (1,773) (1,613) Income tax expense 29 (12,861) (11,379) 368 (95) Profit/(loss) for the year/period 30,855 30,634 (1,405) (1,708) Attributable to: Equity holders of the Company 19,251 20,826 Minority interest 11,604 9,808 30,855 30,634 Earnings per share (sen) - basic diluted The accompanying notes form an integral part of the financial statements. SILK HOLDING BERHAD 40 annual report 2010

43 statement of Changes In Equity for the year ended 31 July 2010 Equity Equity Retained component component Reverse earnings/ Share Share Employee of preference of loan acquisition Capital (accumulated Minority capital premium trust shares shares stocks deficit reserve losses) interests Total Note RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Group At 1 January ,706 5,824 15,912 20,129 46,571 Incorporation of subsidiaries 11,484 11,484 Profit for the period 20,826 9,808 30,634 Dividends (4,800) (4,800) At 31 July ,706 5,824 36,738 36,621 83,889 Profit for the year 19,251 11,604 30,855 Dividends (2,400) (2,400) Transaction with Owners: Reverse acquisition of AQL 6 89,003 47,809 (6,688) 36,722 (92,791) 74,055 Variation of CN-RPS to CC-RPS 22 2,519 2,519 Issuance of loan stocks Conversion of CC-RPS 22 3, (362) 2,904 92,253 47,825 (6,688) 2,157 37,271 (92,791) 80,027 At 31 July ,959 53,649 (6,688) 2,157 37,271 (92,791) 55,989 45, ,371 Company At 1 July ,000 53,633 (6,036) 137,597 Loss for the year (1,708) (1,708) At 31 July ,000 53,633 (7,744) 135,889 Shares issued for acquisition of subsidiaries 13 48,709 36,722 85,431 Par Value Reduction 13 (45,000) 36,297 8,703 Shares held by employee trust (6,688) (6,688) Variation of CN-RPS to CC-RPS 22 2,519 2,519 Issuance of loan stocks Conversion of CC-RPS 22 3, (362) 2,904 Loss for the year (1,405) (1,405) At 31 July ,959 53,649 (6,688) 2,157 37,271 36,297 (446) 219,199 The accompanying notes form an integral part of the financial statements. SILK HOLDING BERHAD 41 annual report 2010

44 Consolidated Cash Flow statement for the year ended 31 July months 19 months to to Note RM 000 RM 000 Cash flows from operating activities Collection of revenue 212, ,753 Collection of other income 7,191 1, , ,074 Payment of operating expenses (93,296) (109,682) Tax (paid)/ refunded (249) 759 Net cash generated from operating activities 126,173 79,151 Cash flows from investing activities Proceeds from sale of property, vessels and equipment 30,100 18,179 Proceeds from sale of marketable securities 256 Acquisition of subsidiaries 6 14,770 Minority shareholders investment in subsidiaries 11,484 Payments for purchase of property, vessels and equipment (232,396) (242,802) Payments for expressway heavy repairs (940) Payment of incidental expenses on acquisition of subsidiaries (315) Payments for purchase of investments (600) Net cash used in investing activities (188,525) (213,739) Cash flows from financing activities Proceeds from Rights Issue 4,959 Payment of incidental expenses on variation of CN-RPS to CC-RPS (60) Drawdown of borrowings 181, ,258 Repayment of borrowings (50,010) (33,934) Payment of finance costs (51,458) (19,547) Dividends paid by a subsidiary to minority shareholders (3,000) (4,201) Net cash used in financing activities 81, ,576 Net increase/(decrease) in cash and cash equivalents 19,169 (11,012) Cash and cash equivalents at beginning of the year/period 6,761 17,773 Cash and cash equivalents at end of the year/period (a) 25,930 6,761 SILK HOLDING BERHAD 42 annual report 2010

45 Consolidated Cash Flow statement for the year ended 31 July 2010 (cont d) Note (a) Cash and cash equivalents comprise the following balance sheet amounts: RM 000 RM 000 Deposits with licensed financial institutions 15,300 3,657 Cash and bank balances 12,538 3,104 27,838 6,761 Less: Bank overdrafts (1,908) 25,930 6,761 The accompanying notes form an integral part of the financial statements. SILK HOLDING BERHAD 43 annual report 2010

46 Cash Flow statement for the year ended 31 July months 13 months to to Note RM 000 RM 000 Cash flows from operating activities Payment of expenses (2,046) (16) Tax (paid)/recovered (139) 22 Net cash (used in)/generated from operating activities (2,185) 6 Cash flows from investing activities Interest received 35 Payment of incidental expenses on acquisition of subsidiaries (315) Net cash used in investing activities (280) Cash flows from financing activities Proceeds from Right Issue 4,959 Payment of incidental expenses on variation of CN-RPS to CC-RPS (60) Net cash generated from financing activities 4,899 Net increase in cash and cash equivalents 2,434 6 Cash and cash equivalents at beginning of the year/period Cash and cash equivalents at end of the year/period (a) 2, Note (a) Cash and cash equivalents comprise the following balance sheet amounts: RM 000 RM 000 Deposits with licensed financial institutions 2,000 Cash and bank balances , The accompanying notes form an integral part of the financial statements. SILK HOLDING BERHAD 44 annual report 2010

47 Notes To The Financial statements 31 July Corporate information The Company is a public limited liability company, incorporated and domiciled in Malaysia, and is listed on the Main Market of Bursa Malaysia Securities Berhad. The registered office of the Company is located at D2-3-2 Solaris Dutamas, 1, Jalan Dutamas 1, Kuala Lumpur, Wilayah Persekutuan. The principal activity of the Company is investment holding. The principal activities of the subsidiaries are tolled highway concessionaire and the provision of offshore marine support services. There have been no significant changes in the nature of the principal activities during the financial period, except for the acquisition of an offshore marine support services as further disclosed in Note 6. The Company announced on 24 November 2008, that it intended to undertake a Regularisation Scheme, as disclosed in Note 36(a), to address its status under Amended Practice Note 17/2005 of the Listing Requirements of Bursa Securities ( PN17 ). The Regularisation Scheme was subsequently approved by the Group s shareholders at its reconvened Extraordinary General Meeting held on 20 July On 2 October 2009, the Company received the signed and sealed Order of the High Court of Malaya, dated 29 August 2009, confirming the par value reduction pursuant to Section 64 of the Companies Act 1965, which formed part of the Group s Regularisation Scheme. The Regularisation Scheme was formally completed on 14 October 2009 with the lifting of the PN-17 status on the Group by Bursa Malaysia Securities Berhad. Pursuant to the Regularisation Scheme on 14 October 2009: a total of RM4,958,889 nominal value Redeemable Convertible Unsecured Loan Stock-A ( RCULS-A ) was issued on 1 October 2009 from its renounceable Rights Issue. The RCULS-A were subsequently converted on 13 October 2009 into 19,835,556 new ordinary shares of RM0.25 each at the conversion rate of RM1.00 nominal value of RCULS-A for four (4) new ordinary shares; a total of 175 million ordinary shares of RM0.25 each ( AQL Consideration Shares ) and RM43.75 million nominal value 3% Redeemable Convertible Unsecured Loan Stock-B ( RCULS-B ) were issued on 13 October 2009 and 14 October 2009 respectively as consideration for the 100% equity interest in AQL Aman Sdn. Bhd.. The AQL Consideration Shares were subsequently listed and quoted with effect from 14 October 2009; and the issued and paid-up share capital upon the completion of the Regularisation Scheme on 14 October 2009 stood at 374,835,560 ordinary shares of RM0.25 each totaling RM93,708,890. The financial statements were authorised for issue by the Board of Directors in accordance with a resolution of the directors on 29 October Significant accounting policies 2.1 Basis of preparation The financial statements of the Group and of the Company have been prepared in accordance with Financial Reporting Standards ( FRS ) and the Companies Act, 1965 in Malaysia. At the beginning of the current financial year, the Group and the Company adopted new and revised FRSs which are mandatory for financial periods beginning on or after 1 July 2009 as described fully in Note 2.3(a). The financial statements of the Group and of the Company have also been prepared on historical cost basis except as disclosed in the accounting policies below. The financial statements are presented in Ringgit Malaysia (RM) and all values are rounded to the nearest thousand (RM 000), except otherwise indicated. SILK HOLDING BERHAD 45 annual report 2010

48 Notes To The Financial statements 31 July 2010 (cont d) 2. Significant accounting policies (cont d) 2.2 Summary of significant accounting policies (a) Subsidiaries and basis of consolidation (i) Subsidiaries Subsidiaries are entities over which the Group has the ability to control the financial and operating policies so as to obtain benefits from their activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group has such power over another entity. In the Company s separate financial statements, investments in subsidiaries are stated at cost less impairment losses. On disposal of such investments, the difference between net disposal proceeds and their carrying amounts is included in profit or loss. (ii) Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at the balance sheet date. The financial statements of the subsidiaries are prepared for the same reporting date as the Company. Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. In preparing the consolidated financial statements, intragroup balances, transactions and unrealised gains or losses are eliminated in full. Uniform accounting policies are adopted in the consolidated financial statements for like transactions and events in similar circumstances. Acquisitions of subsidiaries are accounted for using the purchase method. The purchase method of accounting involves allocating the cost of the acquisition to the fair value of the assets acquired and liabilities and contingent liabilities assumed at the date of the acquisition. The cost of an acquisition is measured as the aggregate of the fair values, at the date of exchange, of the assets given, liabilities incurred or assumed, and equity instruments issued, plus any costs directly attributable to the acquisition. Any 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 represents goodwill. Any excess of the Group s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition is recognised immediately in profit or loss. The acquisition of AQL Aman Sdn Bhd ( AQL ) was completed on 14 October Pursuant to Appendix B of FRS 3 Business Combinations, this acquisition was deemed a reverse acquisition arrangement. Due to the application of FRS 3 rules relating to reverse acquisition, AQL, the legal subsidiary, became the acquirer of the Group for accounting purposes. Accordingly, the consolidated financial statements for the current year and the comparative amounts have been prepared as a continuation of the financial statements of AQL, but under the name of SILK Holdings Berhad ( SILK ), the legal parent. (b) Goodwill Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of business combination over the Group s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following the initial recognition, goodwill is measured at cost less accumulated impairment losses. Goodwill is not amortised but instead, it is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Gains or losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. SILK HOLDING BERHAD 46 annual report 2010

49 Notes To The Financial statements 31 July 2010 (cont d) 2. Significant accounting policies (cont d) 2.2 Summary of significant accounting policies (Cont d) (c) Property, vessels and equipment, and depreciation All items of property, vessels and equipment are initially recorded at cost. Subsequent costs are included in the asset s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Subsequent to recognition, property, vessels and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Vessels under construction are not depreciated as these assets are not available for use. Depreciation of other property, vessels, plant and equipment is provided for on a straight-line basis to write off the cost of each asset to its residual value over the estimated useful life, at the following annual rates: Buildings 2% Vessels 6.67% Vessels equipment 2% Drydocking expenditure 40% Motor vehicles 20% - 25% Furniture, fittings, computer system and office equipment 10% - 60% Renovation 8% - 10% Boat 10% The residual values, useful life and depreciation method are reviewed at each financial year-end to ensure that the amount, method and period of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items of property, vessels and equipment. An item of property, vessels or equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. The difference between the net disposal proceeds, if any and the net carrying amount is recognised in profit or loss. The drydocking expenditure is capitalised and depreciated over a period of 30 months or over the period until the next drydocking date, whichever is shorter. SILK HOLDING BERHAD 47 annual report 2010

50 Notes To The Financial statements 31 July 2010 (cont d) 2. Significant accounting policies (cont d) 2.2 Summary of significant accounting policies (Cont d) (d) Impairment of non-financial assets The carrying amounts of assets, other than inventories, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset s recoverable amount is estimated to determine the amount of impairment loss. For the purpose of impairment testing of these assets, recoverable amount is determined on an individual asset basis unless the asset does not generate cash flows that are largely independent of those from other assets. If this is the case, recoverable amount is determined for the cash-generating unit ( CGU ) to which the asset belongs to. Goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group s CGUs, or groups of CGUs, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. An asset s recoverable amount is the higher of an asset s or CGU s fair value less costs to sell and its value in use. 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. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Impairment losses recognised in respect of a CGU or groups of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to those units or groups of units on a pro-rata basis. An impairment loss is recognised in the income statement in the period in which it arises. Impairment loss on goodwill is not reversed in subsequent period. An impairment loss for an asset other than goodwill is reversed if, and only if, there has been a change in the estimates used to determine the asset s recoverable amount since the last impairment loss was recognised. The carrying amount of an asset other than goodwill is increased to its revised recoverable amount, provided that this amount does not exceed the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised for the asset in prior years. A reversal of impairment loss for an asset other than goodwill is recognised in profit or loss. (e) Provisions Provisions are recognised when the Group has a present obligation as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount can be made. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as finance cost. (f) Expressway heavy repairs Expressway heavy repairs relate to costs incurred to repair bridges, slopes, embankments, rectification of settlements and pavement rehabilitation of medium and high traffic sections along the Expressway. The costs of heavy repairs are amortised on a straight line basis over 7 years commencing from the date of incurrence, this being the anticipated economic life of such works. SILK HOLDING BERHAD 48 annual report 2010

51 Notes To The Financial statements 31 July 2010 (cont d) 2. Significant accounting policies (cont d) 2.2 Summary of significant accounting policies (Cont d) (g) Expressway development expenditure ( EDE ) EDE comprises development expenditure (including borrowing costs during the period of construction, net of interest income) incurred in connection with the Concession, net of Government grants. EDE is stated at cost less accumulated amortisation and impairment loss. Upon commencement of tolling operations, at each balance sheet date, the cumulative actual expenditure on EDE incurred is amortised to the income statement based on the following formula: (Cumulative actual toll revenue to date ) (Projected total toll revenue of the concession) X Cumulative actual EDE Less Accumulated amortisation at beginning of the financial period The projected total toll revenue of the Concession is based on the Base Case traffic volumes projected by the management, taking into account the minimum toll rates as provided for in the Concession Agreement. The toll revenue projection is updated from time to time to reflect latest available information. In the application of these accounting policies, the effects of any change in estimates in a financial period will be included in the amortisation for that period. (h) Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first in, first out method. Cost comprises all direct and indirect costs incurred to bring the inventories to their present location. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale. (i) Income tax Income tax on the profit or loss for the period comprises current and deferred tax. Current tax is the expected amount of income taxes payable in respect of taxable profit for the year and is measured using tax rates that have been enacted at the balance sheet date. Deferred tax is provided for, using the liability method. In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised for all deductible temporary differences, unused tax losses and unused tax credits to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, unused tax losses and unused tax credits can be utilised. Deferred tax is not recognised if the temporary difference arises from goodwill or negative goodwill or from the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction, affects neither accounting profit nor taxable profit. Deferred tax is measured at the tax rates that are expected to apply in the period when the asset is realised or the liability is to be settled, based on tax rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax is recognised as income or an expense and included in the profit and loss for the period, except when it arises from a transaction which is recognised directly in equity, in which case the deferred tax is also recognised directly in equity. SILK HOLDING BERHAD 49 annual report 2010

52 Notes To The Financial statements 31 July 2010 (cont d) 2. Significant accounting policies (cont d) 2.2 Summary of significant accounting policies (Cont d) (j) Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of these assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in the income statement in the period in which they are incurred. (k) Employee benefits (i) Short term benefits Wages, salaries, bonuses and social security contributions are recognised as expenses in the period in which the associated services are rendered by employees. Short term accumulating compensated absences such as paid annual leave are recognised when services are rendered by employees that increase their entitlement to future compensated absences, and short term non-accumulating compensated absences such as sick leave are recognised when the absences occur. (ii) Defined contribution plans Defined contribution plans are post-employment benefit plans under which the Group pays fixed contributions into separate entities or funds and will have no legal or constructive obligation to pay further contributions if any of the funds do not hold sufficient assets to pay all employee benefits relating to the employee services in the current and preceding financial years. Such contributions are recognised as an expense in the income statement as incurred. As required by law, companies in Malaysia make contributions to the Employees Provident Fund ( EPF ). (iii) Defined benefits plan An acquired subsidiary operates an unfunded, defined retirement benefits plan ( the Plan ) for its eligible employees. The Group s obligation under the Plan is determined based on management computation, through which the amount of benefits that employees have earned in return for their service in the current and prior years is estimated. (l) Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: (i) Vessel services Revenue from vessel services is recognised on billings upon performance of services less discounts. (ii) Toll revenue Toll revenue is accounted for as and when toll is chargeable for the usage of the Expressway. (iii) Interest income Interest income is recognised on an accrual basis using the effective interest method. SILK HOLDING BERHAD 50 annual report 2010

53 Notes To The Financial statements 31 July 2010 (cont d) 2. Significant accounting policies (cont d) 2.2 Summary of significant accounting policies (Cont d) (l) Revenue recognition (Cont d) (iv) Dividend income Dividend income is recognised when the right to receive payment is established. (v) License fees License fees are recognised based on contract value upon transfer of the significant risks and rewards of ownership of the rights. (vi) Advertising income and highway access fees Advertising income and highway access fees are recognised when the services are rendered. (vii) Rental income Rental income is recognised on a straight-line basis over the term of the lease. (viii) Management fees Management fees are recognised when services are rendered. (m) Financial instruments Financial instruments are recognised in the balance sheet when the Group has become a party to the contractual provisions of the instrument. Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement. Interest, dividends and gains and losses relating to a financial instrument classified as a liability, are reported as expense or income. Distributions to holders of financial instruments classified as equity are recognised directly in equity. Financial instruments are offset when the Group has a legally enforceable right to offset and intends to settle either on a net basis or to realise the asset and settle the liability simultaneously. (i) Cash and cash equivalents For the purposes of the cash flow statements, cash and cash equivalents include cash on hand and at bank and deposits at call which have an insignificant risk of changes in value, net of outstanding bank overdrafts. (ii) Other non-current investments Non-current investments other than investments in subsidiaries are stated at cost less impairment losses. On disposal of an investment, the difference between the disposal proceeds and its carrying amount is recognised in profit or loss. (iii) Marketable securities Marketable securities are carried at the lower of cost and market value, determined on an aggregate basis. Cost is determined on the weighted average basis while market value is determined based on quoted market values. Increases or decreases in the carrying amount of marketable securities are recognised in profit or loss. On disposal of marketable securities, the difference between net disposal proceeds and the carrying amount is recognised in profit or loss. SILK HOLDING BERHAD 51 annual report 2010

54 Notes To The Financial statements 31 July 2010 (cont d) 2. Significant accounting policies (cont d) 2.2 Summary of significant accounting policies (Cont d) (m) Financial instruments (Cont d) (iv) Receivables Receivables are carried at anticipated realisable values. Bad debts are written off when identified. An estimate is made for doubtful debts based on a review of all outstanding amounts as at the balance sheet date. (v) Payables Payables are stated at the fair value of the consideration to be paid in the future for goods and services received. (vi) Interest-bearing borrowings Interest-bearing borrowings are initially recorded at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest bearing borrowings are subsequently measured at amortised cost using the effective interest method. (vii) Sukuk Mudharabah Sukuk Mudharabah is an Islamic financing arrangement issued under the Islamic contract of Mudharabah. Under the Mudharabah, the Group as a Mudharib or an enterpreneur who solely manages the project entered into an Islamic contract with a Rabbul Mal or an investor who solely provides the capital. If the venture is profitable, the profit will be distributed based on a pre-agreed ratio. In the event of a business loss, the loss shall be borne solely by the provider of the capital. Sukuk Mudharabah is initially recognised at cost, being the fair value of the consideration received. After initial recognition, Sukuk Mudharabah is subsequently measured at amortised cost using the effective interest method. Further details of the Sukuk Mudharabah in issue are disclosed in Note 21. (viii) Cumulative Convertible Redeemable Preference Shares ( CC-RPS ) CC-RPS are regarded as compound instruments, consisting of a liability component and an equity component. At the date of issue, the fair value of the liability component is estimated using the prevailing market rate for a similar preference share. The difference between the proceeds of issue of the CC-RPS and the fair value assigned to the liability component, representing the conversion option is included in equity. The liability component is subsequently stated at amortised cost using the effective interest method until extinguished on conversion or redemption, whilst the value of the equity component is not adjusted in subsequent periods. Attributable transaction costs are apportioned and deducted directly from the liability and equity component based on their carrying amounts at the date of issue. Under the effective interest method, the interest expense on the liability component is calculated by applying the prevailing market interest rate for a similar preference share to the instrument at the date of issue. SILK HOLDING BERHAD 52 annual report 2010

55 Notes To The Financial statements 31 July 2010 (cont d) 2. Significant accounting policies (cont d) 2.2 Summary of significant accounting policies (Cont d) (m) Financial instruments (Cont d) (ix) Redeemable Convertible Unsecured Loan Stocks ( RCULS ) RCULS are regarded as compound instruments, consisting of a liability component and an equity component. At the date of issue, the fair value of the liability component is estimated using the prevailing market rate for a similar loan stock. The difference between the proceeds of issue of the RCULS and the fair value assigned to the liability component, representing the conversion option is included in equity. The liability component is subsequently stated at amortised cost using the effective interest method until extinguished on conversion or redemption, whilst the value of the equity component is not adjusted in subsequent periods. Attributable transaction costs are apportioned and deducted directly from the liability and equity component based on their carrying amounts at the date of issue. Under the effective interest method, the interest expense on the liability component is calculated by applying the prevailing market interest rate for a similar loan stock to the instrument at the date of issue. (x) Equity instruments Ordinary shares are classified as equity. Dividends on ordinary shares are recognised in equity in the period in which they are declared. The transaction costs of an equity transaction are accounted for as a deduction from equity, net of tax. Equity transaction costs comprise only those incremental external costs directly attributable to the equity transaction which would otherwise have been avoided. (n) Leases (i) Classification A lease is recognised as a finance lease if it transfers substantially to the Group all the risks and rewards incidental to ownership. Leases of land and buildings are classified as operating or finance leases in the same way as leases of other assets and the land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification. All leases that do not transfer substantially all the risks and rewards are classified as operating leases. (ii) Finance leases - the Group as lessee Assets acquired by way of hire purchase or finance leases are stated at an amount equal to the lower of their fair values and the present value of the minimum lease payments at the inception of the leases, less accumulated depreciation and impairment losses. The corresponding liability is included in the balance sheet as borrowings. In calculating the present value of the minimum lease payments, the discount factor used is the interest rate implicit in the lease, when it is practicable to determine; otherwise, the Group s incremental borrowing rate is used. Any initial direct costs are also added to the carrying amount of such assets. Lease payments are apportioned between the finance costs and the reduction of the outstanding liability. Finance costs, which represent the difference between the total leasing commitments and the fair value of the assets acquired, are recognised in the profit or loss over the term of the relevant lease so as to produce a constant periodic rate of charge on the remaining balance of the obligations for each accounting period. The depreciation policy for leased assets is in accordance with that for depreciable property, vessels and equipment as described in Note 2.2 (c). SILK HOLDING BERHAD 53 annual report 2010

56 Notes To The Financial statements 31 July 2010 (cont d) 2. Significant accounting policies (cont d) 2.2 Summary of significant accounting policies (Cont d) (n) Leases (Cont d) (iii) Operating Leases - the Group as lessee Operating lease payments are recognised as an expense on a straight-line basis over the term of the relevant lease. The aggregate benefit of incentives provided by the lessor is recognised as a reduction of rental expense over the lease term on a straight-line basis. In the case of a lease of land and buildings, the minimum lease payments or the up-front payments made are allocated, whenever necessary, between the land and the buildings elements in proportion to the relative fair values for leasehold interests in the land element and buildings element of the lease at the inception of the lease. The up-front payment represents prepaid lease payments and are amortised on a straight-line basis over the lease term. (iv) Operating Leases - the Group as lessor Assets leased out under operating leases are presented on the balance sheet according to the nature of the assets. Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term. (o) Foreign currencies (i) Functional and presentation currency The individual financial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The consolidated financial statements are presented in Ringgit Malaysia (RM), which is also the Company s functional currency. (ii) Foreign currency transactions In preparing the financial statements of the individual entities, transactions in currencies other than the entity s functional currency (foreign currencies) are recorded in the functional currencies using the exchange rate prevailing at the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are translated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not translated. Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are included in profit or loss for the period. Exchange differences arising on the translation of non-monetary items carried at fair value are included in profit or loss for the period except for the differences arising on the translation of non-monetary items in respect of which gains and losses are recognised directly in equity. Exchange differences arising from such non-monetary items are also recognised directly in equity. SILK HOLDING BERHAD 54 annual report 2010

57 Notes To The Financial statements 31 July 2010 (cont d) 2. Significant accounting policies (cont d) 2.3 Changes in accounting policies and future accounting standards (a) New FRS adopted during the current financial year The accounting policies adopted are consistent with those of the previous financial period except that on 1 August 2009, the Group and the Company adopted FRS 8 Operating Segments, which is mandatory for financial periods beginning on or after 1 July FRS 8 sets out the requirements for the disclosure of information on an entity s operating segments, products and services, the geographical areas in which it operates and its major customers. The requirements of this Standard are based on the information about the components of the entity that management uses to make decisions about operating matters. This Standard requires the identification of operating segments on the basis of internal reports that are regularly reviewed by the entity s chief operating decision maker in order to allocate resources to the segment and assess its performance. This Standard also requires the amount reported for each operating segment item to be the measure reported to the chief operating decision maker for the purposes of allocating resources to the segment and assessing its performance. (b) Standards, Amendments to FRS and Interpretations issued but not yet effective At the date of authorization of these financial statements, the following new FRSs, Amendments to FRS and Interpretations were issued but not yet effective and have not been applied by the Group and the Company. Effective for financial period beginning on or after 1 January 2010: FRS 4 Insurance Contracts FRS 7 Financial Instruments: Disclosures FRS 101 Presentation of Financial Statements (as revised in 2009) FRS 123 Borrowing Costs FRS 139 Financial Instruments: Recognition and Measurement Amendments to FRS 1 First-time Adoption of Financial Reporting Standards and Consolidated and and FRS 127 Separate Financial Statements: Cost of an Investment in a Subsidiary Amendments to FRS 2 Share-based Payment: Vesting Conditions and Cancellation Amendments to FRS 132 Financial Instruments: Presentation Amendments to FRS 139, Financial Instruments: Recognition and Measurement, Disclosures and FRS 7 and IC Interpretation 9 Reassessment of Embedded Derivatives Amendments to FRSs Improvements to FRSs (2009) IC Interpretation 9 Reassessment of Embedded Derivatives IC Interpretation 10 Interim Financial Reporting and Impairment IC Interpretation 11 FRS 2 Group and Treasury Share Transactions IC Interpretation 13 Customer Loyalty Programmes IC Interpretation 14 FRS 119 The Limit of a Defined Benefit Assets, Minimum Funding Requirements and their Interaction TR I - 3 Presentation of Financial Statements of Islamic Financial Institutions Effective for financial period beginning on or after 1 March 2010: Amendments to FRS 132 Financial Instruments: Classification of Right Issues SILK HOLDING BERHAD 55 annual report 2010

58 Notes To The Financial statements 31 July 2010 (cont d) 2. Significant accounting policies (cont d) 2.3 Changes in accounting policies and future accounting standards (Cont d) (b) Standards, Amendments to FRS and Interpretations issued but not yet effective (Cont d) Effective for financial period beginning on or after 1 July 2010: FRS 1 FRS 3 FRS 127 Amendments to FRS 2 Amendments to FRS 5 Amendments to FRS 138 Amendments to IC Interpretation 9 IC Interpretation 12 IC Interpretation 15 IC Interpretation 16 IC Interpretation 17 First-time Adoption of Financial Reporting Standard Business Combinations Consolidated and Separate Financial Statements Share-based Payments Non-current Assets Held for Sale and Discontinued Operations Intangible Assets Reassessment of Embedded Derivatives Service Concession Arrangements Agreements for the Construction of Real Estate Hedges of a Net Investment in a Foreign Operation Distribution of Non-cash Assets to Owners Effective for financial period beginning on or after 1 January 2011: Amendments to FRS 1 Amendments to FRS 1 Amendments to FRS 2 Amendments to FRS 7 IC Interpretation 4 IC Interpretation 18 Limited Exemption from Comparative FRS 7 Disclosure for First-time Adopters Additional Exemptions for First-time Adopters Group Cash-settled Share-based Payment Transactions Improving Disclosure about Financial Instruments Determining whether an Arrangement contains a Lease Transfers of Assets from Customers The Group and the Company plan to adopt the above pronouncements when they become effective in the respective financial period. Unless otherwise described below, these pronouncements are expected to have no significant impact to the financial statements of the Group and the Company upon their initial application. FRS 3: Business Combinations (revised) and FRS 127: Consolidated and Separate Financial Statements (amended) FRS 3 (revised) introduces a number of changes to the accounting for business combinations occurring on or after 1 July These include changes that affect the valuation of non-controlling interest, the accounting for transaction costs, the initial recognition and subsequent measurement of a contingent consideration and business combinations achieved in stages. These changes will impact the amount of goodwill recognised, the reported results in the period that an acquisition occurs and future reported results. FRS 127 (amended) requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as a transaction with owners in their capacity as owners and to be recorded in equity. Therefore, such transaction will no longer give rise to goodwill, nor will it give rise to a gain or loss. Furthermore, the amended Standard changes the accounting for losses incurred by the subsidiary as well as loss of control of a subsidiary. The changes by FRS 3 (revised) and FRS127 (amended) will be applied prospectively and only affect future acquisition or loss of control of subsidiaries and transactions with non-controlling interests. SILK HOLDING BERHAD 56 annual report 2010

59 Notes To The Financial statements 31 July 2010 (cont d) 2. Significant accounting policies (cont d) 2.3 Changes in accounting policies and future accounting standards (Cont d) (b) Standards, Amendments to FRS and Interpretations issued but not yet effective (Cont d) FRS 101: Presentation of Financial Statements (revised) The revised FRS 101 separates owner and non-owner changes in equity. Therefore, the consolidated statement of changes in equity will now include only details of transactions with owners. All non-owner changes in equity are presented as a single line labelled as total comprehensive income. The Standard also introduces the statement of comprehensive income: presenting all items of income and expense recognised in the income statement, together with all other items of recognised income and expense, either in one single statement, or in two linked statements. The Group is currently evaluating the format to adopt. In addition, a statement of financial position is required at the beginning of the earliest comparative period following a change in accounting policy, the correction of an error or the reclassification of items in the financial statements. This revised FRS does not have any impact on the financial position and results of the Group and the Company. FRS 123: Borrowing Costs This Standard supersedes FRS : Borrowing Costs that removes the option of expensing borrowing costs and requires capitalisation of such costs that are directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. Other borrowing costs are recognised as an expense. In accordance with the transitional provisions of the Standard, the Group will apply the change in accounting policy prospectively for which the commencement date for capitalisation of borrowing cost on qualifying assets is on or after the financial period 1 January FRS 139: Financial Instruments: Recognition and Measurement, FRS 7: Financial Instruments: Disclosures and Amendments to FRS 139: Financial Instruments: Recognition and Measurement, FRS 7: Financial Instruments: Disclosures The new Standard on FRS 139: Financial Instruments: Recognition and Measurement establishes principles for recognising and measuring financial assets, financial liabilities and some contracts to buy and sell non-financial items. Requirements for presenting information about financial instruments are in FRS 132: Financial Instruments: Presentation and the requirements for disclosing information about financial instruments are in FRS 7: Financial Instruments: Disclosures. FRS 7: Financial Instruments: Disclosures is a new Standard that requires new disclosures in relation to financial instruments. The Standard is considered to result in increased disclosures, both quantitative and qualitative of the Group s and Company s exposure to risks, enhanced disclosure regarding components of the Group s and Company s financial position and performance, and possible changes to the way of presenting certain items in the financial statements. In accordance with the respective transitional provisions, the Group and the Company are exempted from disclosing the possible impact to the financial statements upon the initial application. SILK HOLDING BERHAD 57 annual report 2010

60 Notes To The Financial statements 31 July 2010 (cont d) 2. Significant accounting policies (cont d) 2.3 Changes in accounting policies and future accounting standards (Cont d) (b) Standards, Amendments to FRS and Interpretations issued but not yet effective (Cont d) Amendments to FRS 1: First-time Adoption of Financial Reporting Standards and FRS 127: Consolidated and Separate Financial Statements: Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate The amendment to FRS 1 allow first-time adopters to use costs, determined in accordance with FRS 127, or deemed cost of either fair value (in accordance with FRS 139) or the carrying amount under previous accounting practice to measure the initial cost of investments in subsidiaries, jointly controlled entities and associates in the separate opening FRS balance sheet. In the amendment to FRS 127, there is no longer a distinction between pre-acquisition and post-acquisition dividends. The amendment also requires the cost of the investment of a new parent in a group (in a reorganisation meeting certain criteria) to be measured at the carrying amount of its share of equity as shown in the separate financial statements of the previous parent. The amendments also remove the definition of the cost method from FRS 127 and will be applied prospectively that affect only the financial statements of the Company and do not have an impact on the financial statements of the Group. Amendments to FRS 2: Share-based Payment: Vesting Conditions and Cancellations The amendments restrict the definition of vesting condition to a condition that includes an explicit or implicit requirement to provide services. Any other conditions are non-vesting conditions which have to be taken into account when estimating the fair value of the equity instrument granted. In the case that an award does not vest as a result of failure to meet a non-vesting condition that is within the control of either the entity or the counterparty, this must be accounted for as a cancellation. The change in accounting policy is to be applied retrospectively. Amendments to FRSs Improvements to FRSs (2009) FRS 5 Non-current Assets Held for Sale and Discontinued Operations: Clarifies that the disclosures required in respect of non-current assets and disposal groups classified as held for sale or discontinued operations are only those described by the Standard. The disclosures requirements from other FRSs only apply if specifically required for such non-current assets held for sale and disposal group or discontinued operations. FRS 7 Financial Instruments: Disclosures: Clarifies on the presentation of finance costs whereby interest income is not a component of finance costs. FRS 8 Operating Segments: Clarifies that segment information with respect to total asset is required only if they are included in measures of segment profit or loss that are used by the chief operating decision maker. FRS 101 Presentation of Financial Statements: Clarifies that financial instruments classified as held for trading in accordance with FRS 139 Financial Instruments: Recognition and Measurement are not automatically presented as current in the balance sheet. The amendment further clarifies that the classification of the liability component of a convertible instrument as current or non-current is not affected by the terms that could, at the option of the holder, result in settlement of the liability by the issue of equity instruments. FRS 107 Statement of Cash Flows (formerly known as Cash Flow Statements): Clarifies that only expenditures that result in a recognised asset in the statement of financial position can be classified as investing activities in the statement of cash flows. FRS 108 Accounting Policies, Changes in Accounting Estimates and Errors: Clarifies that only implementation guidance that is an integral part of an FRS is mandatory when selecting accounting policies. FRS 110 Events after the Reporting Period (formerly known as Events After the Balance Sheet Date): Clarifies that dividends declared after the end of the reporting period are not liabilities as at the balance sheet date. SILK HOLDING BERHAD 58 annual report 2010

61 Notes To The Financial statements 31 July 2010 (cont d) 2. Significant accounting policies (cont d) 2.3 Changes in accounting policies and future accounting standards (Cont d) (b) Standards, Amendments to FRS and Interpretations issued but not yet effective (Cont d) Amendments to FRSs Improvements to FRSs (2009) (Cont d) FRS 116 Property, Plant and Equipment: The amendment replaces the term net selling price with fair value less costs to sell. It also clarifies that items of property, plant and equipment held for rental that are routinely sold in the ordinary course of business after rental, are transferred to inventory when rental ceases and they are held for sale. FRS 118 Revenue: The amendment provides additional guidance on whether an entity is acting as a principal or an agent. It also aligns the definition of costs incurred in originating a financial asset that should be deferred and recognised as an adjustment to the effective interest by replacing the term direct costs with transaction costs as defined in FRS 139. FRS 119 Employee Benefits: The amendment revises the definition of past service costs, return on plan assets and short term and other long-term employee benefits. It clarifies that the costs of administering the plan may be either recognised in the rate of return on plan assets or included in the actuarial assumptions used to measure the defined benefit obligation. The amendment further clarifies that amendment to plans that result in a reduction in benefits related to future services are curtailments. It also deleted the reference to the recognition of contingent liabilities to ensure consistency with FRS 137 Provisions, Contingent Liabilities and Contingent Assets. FRS 123 Borrowing Costs: The definition of borrowing costs is aligned with FRS 139 by referring to the use of effective interest rate as a component of borrowing cost. FRS 127 Consolidated and Separate Financial Statements: The amendment clarifies that when a parent entity accounts for a subsidiary at fair value in accordance with FRS 139 in its separate financial statements, this treatment continues when the subsidiary is subsequently classified as held for sale. FRS 134 Interim Financial Reporting: Clarifies that earnings per share is to be disclosed in interim financial reports if an entity is within the scope of FRS 133: Earnings per Share. FRS 136 Impairment of Assets: Clarifies that when discounted cash flows are used to estimate fair value less cost to sell additional disclosure is required about the discount rate, consistent with disclosures required when the discounted cash flows are used to estimate value in use. The amendment further clarifies that the largest cashgenerating unit for group of units to which goodwill should be allocated for purposes of impairment testing is an operating segment as defined in FRS 8. FRS 138 Intangible Assets: Clarifies that expenditure on advertising and promotional activities is recognised as an expense when the Group either has the right to access the goods or has received the service. The amendments also provide guidance regarding valuation techniques to measure the fair value of an intangible asset acquired in a business combination when there is no active market for the asset. In addition, the reference to there being rarely, if ever, persuasive evidence to support an amortisation method of intangible assets other than a straightline method has been removed. FRS 139 Financial Instruments: Recognition and Measurement: Clarifies that changes in circumstances relating to derivatives are not reclassifications and therefore may be either removed from, or included in, the fair value through profit or loss classification after initial recognition. It also clarifies on the scope exemption for business combination contracts. The amendments remove the reference in FRS 139 to a segment when determining whether an instrument qualifies as a hedge and requires the use of the revised effective interest rate when remeasuring a debt instrument on the cessation of fair value hedge accounting. It also provides additional guidance on determining whether loan prepayment penalties result in an embedded derivates that needs to be separated. In addition, the amendments state that the gains or losses on a hedged instrument should be reclassified from equity to profit or loss during the period that the hedged forecast cash flows impact profit or loss. SILK HOLDING BERHAD 59 annual report 2010

62 Notes To The Financial statements 31 July 2010 (cont d) 2. Significant accounting policies (cont d) 2.3 Changes in accounting policies and future accounting standards (Cont d) (b) Standards, Amendments to FRS and Interpretations issued but not yet effective (Cont d) IC Interpretation 10: Interim Financial Reporting and Impairment This IC prohibits impairment losses recognised in an interim period on goodwill or investments in equity instruments or financial assets carried at cost to be reversed at a subsequent balance sheet date. IC Interpretation 11: FRS 2 - Group and Treasury Share Transactions This IC provides guidance on arrangements whereby an employee is granted rights to an entity s equity instruments to be accounted for as an equity-based scheme, even if the entity buys the instruments from another party, or the shareholders provide the equity instruments needed. The IC also addresses how the subsidiaries, in their separate financial instruments, should account for schemes when their employees receive equity instruments of the parent. IC Interpretation 14: FRS The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction This IC provides guidance on how to assess the limit, under FRS 119 Employee Benefits, on the amount of surplus in a defined benefit scheme that can be recognised as an asset and explains how the minimum funding requirements will affect the defined benefit asset and addresses when minimum funding requirements may give rise to a liability. FRS 1: First-time Adoption of Financial Reporting Standards This FRS supersedes FRS 1 (issued in 2005 and amended in May 2009). The Standard sets out the procedures that an entity must follow when it adopts FRSs for the first time as the basis for preparing its financial statements. Amendments to FRS 2: Share-based Payment This amendment clarifies that an entity shall not apply this FRS to transactions in which the entity acquires goods as part of the net assets acquired in a business combination, in a combination of entities or business under common control, or the contribution of a business on the formation of a joint venture as defined by FRS 131 Interests in Joint Ventures. Amendments to FRS 5: Non-current Assets Held for Sale and Discontinued Operations FRS 5 also applies to non-current assets (or disposal group) that is classified as held for distribution to owners acting in their capacity as owners (held for distribution to owners). The amendment further clarifies that all assets and liabilities of a subsidiary shall be classified as held for sale if an entity has a sale plan involving loss of control of the subsidiary, regardless of whether the entity will retain non-controlling interest (e.g., an interest in an associate) in its former subsidiary after the sale. Amendments to FRS138: Intangible Assets The amendments clarify that an intangible asset must be recognised separately from goodwill even if it is separable only together with a related contract, identifiable asset, or liability. Also, if an intangible asset is separable only together with another intangible asset, those assets can be recognised together as a single asset, and if the individual assets in a group of complementary intangible assets have similar useful lives, those assets can be recognised together as a single asset. SILK HOLDING BERHAD 60 annual report 2010

63 Notes To The Financial statements 31 July 2010 (cont d) 2. Significant accounting policies (cont d) 2.3 Changes in accounting policies and future accounting standards (Cont d) (b) Standards, Amendments to FRS and Interpretations issued but not yet effective (Cont d) IC Interpretation I2: Service Concession Arrangements This IC applies to service concession operators and explains how to account for the obligations undertaken and rights received in service concession arrangements. The transitional provision exempts the disclosure of the possible impact to the financial statements upon the initial application of the IC. Amendments to FRS 1: Limited Exemption from Comparative FRS 7 Disclosures for First-time Adopters The Improving Disclosures about Financial Instruments reinforces existing principles for disclosures about liquidity risk. Also, the amendments require enhanced disclosures about fair value measurements in which a three-level fair value hierarchy is introduced. An entity is required to classify fair value measurements using this hierarchy which aims to reflect the inputs used in making the measurement. At the same time, the Limited Exemption from Comparative FRS 7 Disclosures for First-time Adopters relieves first-time adopters of Financial Reporting Standards (FRSs) from providing the additional disclosures required from the amendments to FRS 7 as noted in the previous paragraph. Amendments to FRS 132: Classification of Rights Issues The amendments addressing the Classification of Rights Issues is virtually identical to that Classification of Rights Issues (Amendments to IAS 32) issued by IASB in October The amendments deals with accounting for rights issues (rights, options or warrants) which are denominated in a currency other than the functional currency of the issuer. Previously such rights issues were accounted for as derivative liabilities. However, the amendments require that, provided certain conditions are met, such rights issues are classified as equity regardless of the currency in which the exercise price is denominated. As for the amendments relating to compound instruments, the transitional provision that exempted entities from applying the split accounting for compound instruments issued before reporting periods of 1 January 2003 is removed. This amendment is necessary in view that FRS 139 Financial Instruments: Recognition and Measurement, which came into effect on 1 January 2010, requires that any derivatives features embedded in the compound financial instrument are to be separated from the host contract. Amendments to FRS 1: Additional Exemptions for First-time Adopters Oil and gas entities using the full cost method are exempted from retrospective application of FRSs for its oil and gas assets. Entities with existing leasing contracts are exempted from reassessing the classification of those contracts in accordance with IC Interpretation 4 when application of the previous accounting practice produces the same result. SILK HOLDING BERHAD 61 annual report 2010

64 Notes To The Financial statements 31 July 2010 (cont d) 2. Significant accounting policies (cont d) 2.3 Changes in accounting policies and future accounting standards (Cont d) (b) Standards, Amendments to FRS and Interpretations issued but not yet effective (Cont d) Amendments to FRS 2: Group Cash-settled Share-based Payment Transactions The amendments clarify that an entity that receives goods or services in a share-based payment arrangement must account for those goods or services no matter which entity in the group settles the transaction, and no matter whether the transaction is settled in shares or cash. In other words, regardless of how group transactions are structured at the subsidiary level, FRS 2 is applicable for group consolidated financial statements unless the transaction is clearly for a purpose outside the scope of FRS 2. The amendments also incorporate guidance previously included in IC Interpretation 8 Scope of FRS 2 and IC Interpretation 11 FRS 2 Group and Treasury Share Transactions. As a result, both these Interpretations shall be withdrawn on application of Amendments to FRS 2. IC Interpretation 4: Determining whether an Arrangement contains a Lease The Interpretation provides guidance for determining whether certain arrangements are, or contain, leases that should be accounted for in accordance with FRS 117 Leases; it does not provide guidance whether such a lease should be classified as a finance lease or an operating lease. It clarifies that an arrangement, although does not take the legal form of a lease, is a lease when the fulfilment of the arrangement is dependent on the use of a specific asset and the arrangement conveys a right to use the asset. This is the case if the purchaser has the right to operate or direct others to operate or control physical access to the asset. Another condition is that it is remote parties other than the purchaser will take more than an insignificant amount of the asset s output and the price is neither fixed nor at current market price. IC Interpretation 18: Transfers of Assets from Customers This Interpretation applies where entities receive items of property, plant and equipment (PPE) from their customers, or where the entity receives cash from the customer that must be used to construct or acquire a PPE which then must be used by the entity to supply its customers with ongoing access to a supply of goods or services. The transferor, in some cases, may or may not be the recipient of the goods or services. The Interpretation clarifies that if such PPE meet the definition of an asset, it shall recognise it in accordance with FRS 116 Property, Plant and Equipment. The asset shall be measured initially at fair value and corresponding revenue shall be recognised in accordance with FRS 118 Revenue. 2.4 Significant accounting estimates and judgements (a) Critical judgements made in applying accounting policies There are no critical judgements made by management in the process of applying the Group s accounting policies that have significant effect on the amounts recognised in the financial statements. (b) Key sources of estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. SILK HOLDING BERHAD 62 annual report 2010

65 Notes To The Financial statements 31 July 2010 (cont d) 2. Significant accounting policies (cont d) 2.4 Significant accounting estimates and judgements (Cont d) (b) Key sources of estimation uncertainty (Cont d) (i) Amortisation of Expressway Heavy Repairs The cost of heavy repairs are armotised on a straight line basis over their useful lives of 7-10 years. These are common life expectancies applied in the industry. Changes in the expected level of usage and technological developments could impact the economic useful lives and the residual values of the assets, therefore future depreciation changes could be revised. (ii) Amortisation of EDE The cost of EDE and Government grant received is amortised over the Concession Period by applying the formula in Notes 2.2(g). The denominator of the formula includes projected total toll revenue for subsequent years to year 2037 and is based on the latest traffic volume projections prepared using the base case assumptions on traffic volume growth rate multiplied by the toll rates in accordance with the Concession Agreement. The toll revenue projection is updated from time to time to reflect latest available information. Changes in the expected traffic volume would impact future amortisation charges. The management has revised the toll revenue projections during the period and the changes in the expected traffic volume have resulted in an increase in current year s amortisation. (iii) Impairment of investment in subsidiaries and EDE The Company determines whether investment in subsidiary and EDE are impaired at least on an annual basis. This requires an estimation of the value-in-use of investment in subsidiaries and EDE. Estimating value-in-use amounts requires management to make an estimate of the expected future cash flows from investment in subsidiaries and EDE and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The carrying amounts of investment in subsidiaries of the Company and EDE of the Group as at 31 July 2010 was RM247,658,000 and RM915,237,000 (31 July 2009: RM160,000,000 and nil) respectively. Further details are disclosed in Notes 5 and 6. (iv) Deferred tax assets Deferred tax assets are only recognised for all unused tax losses and unabsorbed capital allowances to the extent that it is probable that taxable profit will be available against which the losses and capital allowances can be utilised. Significant judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. The total carrying value of recognised tax losses and capital allowances of the Group was RM157,240,000 (2009: RM16,002,000) and the unrecognised tax losses of the Group as at 31 July 2010 amounted to RM347,252,000 (2009: Nil). (v) Depreciation of vessels and equipment on vessels The cost of vessels and equipment on vessel are depreciated on a straight-line basis to their residual value over the assets useful lives. Management estimates the useful lives of the Group s vessels to be 15 years. These are in line with the general assumptions by major charterers of the vessels. Changes in the expected level of usage could impact the economic useful lives and residual values of these assets, therefore future depreciation charges could be revised. SILK HOLDING BERHAD 63 annual report 2010

66 Notes To The Financial statements 31 July 2010 (cont d) 3. Property, vessels and equipment Group At 31 July 2010 Computer system, furniture, Vessels Motor fittings under Vessels Drydocking vehicles and other Buildings Vessels construction equipment expenditure and boat Renovation equipment Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Cost At 1 August , ,512 1,417 7,602 2, , ,823 Acquired pursuant to the reverse acquisition 1, ,719 Additions 306,374 2, ,445 Disposals (57,838) (7,062) (253) (65,153) Adjustment (2,500) (2,500) At 31 July , , ,386 1,417 3,276 2,462 1,517 2, ,334 Accumulated depreciation and amortisation At 1 August ,439 1,417 3,492 1, ,419 57,353 Charge for the year 39 21,503 1, ,251 Disposals (24,854) (4,928) (253) (30,035) At 31 July ,088 1, , ,582 51,569 Net carrying amount 1, , ,386 2,809 1,123 1, ,765 At 31 July 2009 Cost At 1 January ,634 55,685 1,417 10,445 1, , ,708 Additions ,502 4, ,103 Disposals (19,031) (168) (19,199) Write-offs (7,789) (7,789) Reclassification 174,675 (174,675) At 31 July , ,512 1,417 7,602 2, , ,823 Accumulated depreciation and amortisation At 1 January ,527 1,417 5, ,223 49,880 Charge for the period 30 27,943 2, ,923 Disposals (19,031) (168) (19,199) Write-offs (4,251) (4,251) At 31 July ,439 1,417 3,492 1, ,419 57,353 Net carrying amount , ,512 4, ,470 SILK HOLDING BERHAD 64 annual report 2010

67 Notes To The Financial statements 31 July 2010 (cont d) 3. Property, vessels and equipment (cont d) (a) Net carrying amounts of property, vessels and equipment held under hire purchase arrangements are as follows: Group RM 000 RM 000 Motor vehicles Details of the terms and conditions of the hire purchase are disclosed in Note 24. (b) All the property, vessels and equipment of the Group are pledged as securities for borrowings as disclosed in Note 16 and 21. (c) Interest expense capitalised in relation to vessels under construction of the Group during the financial year amounted to RM8,612,000 (2009 : RM3,283,000). 4. Expressway development expenditure Group RM 000 RM 000 Cost Acquired pursuant to the reverse acquisition (Note 6) 919,559 Less Accumulated amortisation Amortisation during the year 4,321 Net carrying amount 915, Expressway heavy repairs Group RM 000 RM 000 Cost Acquired pursuant to the reverse acquisition 764 Addition during the year 940 1,704 Less Accumulated amortisation Amortisation during the year 183 Net carrying amount 1,521 SILK HOLDING BERHAD 65 annual report 2010

68 Notes To The Financial statements 31 July 2010 (cont d) 6. Investment in SUBSIDIARIES Company RM 000 RM 000 Unquoted shares at cost 247, ,000 Details of the subsidiaries which are incorporated in Malaysia, and audited by Ernst & Young, Malaysia are as follows: Proportion of Name of subsidiaries Principal activities ownership interest % % Held by the Company: (i) Sistem Lingkaran-Lebuhraya Tolled highway concessionaire Kajang Sdn. Bhd. ( SILK ) (ii) AQL Aman Sdn Bhd ( AQL ) Investment holding 100 Held through subsidiaries: Held through SILK: Special Purpose Vehicle to (i) Manfaat Tetap Sdn Bhd ( MTSB ) facilitate the issuance of Sukuk Mudharabah (Note 21) Held through AQL: (ii) Jasa Merin (Malaysia) Sdn. Bhd. 70 ( Jasa Merin ) (iv) JM Global 1 (Labuan) Plc 51 (v) JM Global 2 (Labuan) Plc Provision of offshore marine support services 51 (vi) JM Global 3 (Labuan) Plc 100 (vii) JM Global 4 (Labuan) Plc 100 (iii) Jasa Merin (Labuan) Plc Dormant 100 SILK HOLDING BERHAD 66 annual report 2010

69 Notes To The Financial statements 31 July 2010 (cont d) 6. Investment in subsidiaries (cont d) On 8 October 1997, SILK signed a Concession Agreement with the Government of Malaysia pertaining to the privatisation of the Kajang Traffic Dispersal Ring Road (the Expressway ). By virtue of the Concession Agreement, SILK is responsible for the construction of the Expressway which involves the upgrading and widening of existing roads, and the design and construction of a new alignment and thereafter its operation, including deriving toll revenue and maintenance, for 33 years. On 1 August 2001, SILK entered into a Supplemental Concession Agreement with the Government of Malaysia whereby the concession period was extended from 33 years to 36 years. The Concession Agreement may be terminated by either the Government or SILK if either party fails to remedy its default within the period specified in the Concession Agreement. The Government may terminate the Concession Agreement by expropriation of the Concession or SILK by giving not less than three months notice to that effect to SILK if it considers that such expropriation is in the national interest. On expiry of the Concession Period, SILK is to hand over the Concession Area to the Government in a well-maintained condition and make good any defects at SILK s own expense within one year after the date of hand over. The Concession is pledged for a financing facility as disclosed in Note 21. Acquisition of subsidiaries On 14 October 2009, the Company completed its regularisation scheme which included the acquisition of the entire equity interest in AQL, the holding company of the 70% owned Jasa Merin, an offshore marine support services company. Pursuant to Appendix B of FRS 3 Business Combinations, this acquisition was deemed a reverse acquisition arrangement. Due to the application of FRS 3 rules relating to reverse acquisition, AQL, the legal subsidiary, became the acquirer of the Group for accounting purposes. Accordingly, the consolidated financial statements for the current year and the comparative amounts in the corresponding period of the preceding year have been prepared as a continuation of the financial statements of AQL, but under the name of the Company, the legal parent. The cost of business combination for the acquirer (AQL) is RM87.9 million, being its cost to acquire the entire issued and paid up capital of the Company (represented by the fair value of the entire issued and paid up capital of the Company) at the date of acquisition. The acquired subsidiaries have contributed the following results to the Group: 2010 RM 000 Revenue 42,621 Loss for the year (7,317) Had the acquisition occured on 1 August 2009, the Group s revenue and profit for the year would have been RM232,269,000 and RM10,527,000 (excluding the effect of negative goodwill had the acquisition occurred on that date) respectively. SILK HOLDING BERHAD 67 annual report 2010

70 Notes To The Financial statements 31 July 2010 (cont d) 6. Investment in subsidiaries (cont d) Acquisition of subsidiaries (Cont d) The assets and liabilities arising from the reverse acquisition are as follows: Fair Value Acquiree s recognised on carrying acquisition amount RM 000 RM 000 Property, plant and equipment 2,719 2,719 Expressway heavy repairs Expressway development expenditure 919, ,559 Receivables Deposits with financial institutions 14,071 14,071 Cash and bank balances , ,411 Borrowings 764, ,722 Payables 73,773 73,773 Tax payable Fair value of net assets 99,796 Less: Minority interests Group s share of net assets 99,796 Negative goodwill on acquisition (11,869) Total cost of business combination 87, , ,615 The cash outflow on acquisition is as follows: 2010 RM 000 Purchase consideration satisfied by cash Cash and cash equivalents of subsidiaries acquired 14,770 Net cash inflow of the Group 14,770 There were no acquisitions in the financial period ended 31 July 2009 and subsequent to 31 July SILK HOLDING BERHAD 68 annual report 2010

71 Notes To The Financial statements 31 July 2010 (cont d) 7. Other INVESTMENTS Group RM 000 RM 000 Investments at cost Market value The long term investments for the Group relate to principal-guaranteed deposits with licensed banks. The principal amounts are guaranteed upon investment maturity. Investment amounting to RM500,000 (2009: RM 500,000) is pledged against a facility granted by a licenced bank. 8. Goodwill on consolidation Group RM 000 RM 000 Goodwill arising from acquisition of subsidiary The goodwill relates to the offshore marine support services business. Management has performed impairment assessment on goodwill based on value in use calculations using cashflow projections based on financial budgets estimated by management covering a 5 year period, with cashflows beyond the 5 year period extrapolated using growth rate based on management s estimation. The other key assumption used are:- budgeted gross margin has been based on margin achieved in the year immediately before the budgeted year, adjusted for expected growth; discount rate used is pre-tax and reflects specific risks relating to the offshore marine support services business. 9. Trade RECEIVABLES Group RM 000 RM 000 Trade receivables 57,348 45,936 Less: Provision for doubtful debts (179) (179) 57,169 45,757 The normal trade credit term ranges from 30 to 90 days. Other credit terms are assessed and approved on case-to-case basis. The Group has no significant concentration of credit risk that may arise from exposures to a single debtor or to groups of debtors other than toll compensation receivable of RM6,784,000 (2009: Nil) representing 12% (2009: Nil) of total trade receivables. SILK HOLDING BERHAD 69 annual report 2010

72 Notes To The Financial statements 31 July 2010 (cont d) 10. Other receivables Group Company RM 000 RM 000 RM 000 RM 000 Advances to staff Vessel sale receivable 29,900 Sundry receivables 1,547 7,154 Interest receivable 25 9 Prepayments 205 Deposits ,067 7, The Group has no significant concentration of credit risks that may arise from exposures to a single debtor or to groups of debtors other than sale consideration of RM29,900,000 (2009: Nil) receivable from a vessel purchaser representing 93% (2009: Nil) of total other receivables. Included in sundry receivables of the Group in 2009 was RM6,531,000 being advance given to Jasa Merin Employee Trust. The amount was unsecured, interest-free and the terms of repayment was subject to agreement by both parties. 11. Marketable SECURITIES Group RM 000 RM 000 Shares quoted in Malaysia, at cost 285 Provision for diminution in value (155) 130 Market value of quoted shares Deposits with licensed financial INSTITUTIONS Group Company Weighted average effective profit/interest rate of deposit at the balance sheet date 2.58% 3.51% 2.36% Average maturity of deposits at the balance sheet date (days) Included in the deposits with licensed financial institutions is RM1.5 million deposit charged to a performance bond in favour of Lembaga Lebuhraya Malaysia. Deposits with licensed financial institutions of the Group amounting to RM11,572,000 (2009: RM1,285,000) are pledged as securities for borrowings as disclosed in Note 16 and 21. SILK HOLDING BERHAD 70 annual report 2010

73 Notes To The Financial statements 31 July 2010 (cont d) 13. Share capital As mentioned in Note 1, the acquisition of AQL was completed on 14 October 2009 and pursuant to Appendix B of FRS 3 Business Combinations, the acquisition was deemed a reverse acquisition arrangement. Due to the application of FRS 3 rules relating to reverse acquisition, AQL, the legal subsidiary, became the acquirer of the Group for accounting purposes. Accordingly, the consolidated financial statements for the current period and the comparative amounts in the corresponding period of the preceding year have been prepared as a continuation of the financial statements of AQL, but under the name of SILK Holdings Berhad, the legal parent. Following from this, the Group s share capital as at 31 July 2009 of RM4,706,000 represented the share capital of AQL. Number of ordinary shares Amount RM 000 RM 000 Authorised At beginning of the year/period - ordinary shares of RM0.50 each 1,996,000 1,996, , ,000 Par Value Reduction (499,000) Consequential amendments arising from the Par Value Reduction 1,996, ,000 At end of the year/period - ordinary shares of RM0.25/RM0.50 each 3,992,000 1,996, , ,000 Issued and fully paid-up At beginning of the year/period - ordinary shares of RM0.50 each 180, ,000 90,000 90,000 Par Value Reduction (45,000) Issued upon conversion of loan stock 19,836 4,959 Issued for acquisition of subsidiaries 175,000 43,750 Issued upon conversion of preference shares 13,000 3,250 At end of the year/period - ordinary shares of RM0.25/RM0.50 each 387, ,000 96,959 90,000 The holders of ordinary shares are entitled to receive dividends as and when declared by the Company. All ordinary shares carry one vote per share without restrictions and rank equally with regard to the Company s residual assets. (a) Par Value Reduction As part of its Regularisation Scheme as mentioned in Note 1, the Company reduced the par value of its ordinary shares. The High Court of Malaya issued the signed and sealed Order on 28 August 2009 confirming the reduction in the existing issued and paid-up share capital in the Company via cancellation of RM0.25 of the par value of each existing ordinary shares. Consequent upon the Par Value Reduction, the par value of ordinary shares of the Company was reduced from RM0.50 to RM0.25 per share. (b) Ordinary shares issued for acquisition of subsidiaries As part of its Regularisation Scheme as mentioned in Note 1, the Company issued 175,000,000 new ordinary shares of RM0.25 each amounting to RM43,750,000 as partial discharge of purchase consideration for the acquisition of AQL and its subsidiaries. The new ordinary shares rank pari passu in all respects with the existing ordinary shares of the Company. SILK HOLDING BERHAD 71 annual report 2010

74 Notes To The Financial statements 31 July 2010 (cont d) 13. Share capital (cont d) (c) Ordinary shares issued upon conversion of loan stocks As part of its Regularisation Scheme, as mentioned in Note 1, the Company undertook a renounceable rights issue of up to RM10.0 million nominal value 3.00% Redeemable Convertible Unsecured Loan Stocks-A ( RCULS-A ) at 100% of its nominal value of RM1.00 each on the basis of one RCULS-A for every eighteen existing ordinary shares of RM0.50 each in the Company held prior to the proposed par value reduction undertaken based on a minimum subscription level ( Rights Issue ). Pursuant to the Rights Issue, the Company issued a total of RM4,958,889 nominal value RCULS-A on 1 October On 6 October 2009, the Board of Directors of the Company allotted the RCULS-A to all the applicants, including the excess applications. Pursuant to the Par Value Reduction becoming effective prior to the listing date of RCULS-A, the RCULS-A were automatically converted into 19,835,556 new ordinary shares of RM0.25 each in the Company at the conversion rate of RM1.00 nominal value RCULS-A for four (4) new ordinary shares. The new ordinary shares rank pari passu in all respects with the existing ordinary shares of the Company. (d) Ordinary shares issued upon conversion of preference shares On 14 June 2010 the Company converted 2,871,680 CC-RPS, together with its attendant accrued dividends, into 12,999,819 new ordinary shares of RM0.25 each. The new ordinary shares were granted listing and quotation with effect from 22 June The new ordinary shares rank pari passu in all respects with the existing ordinary shares of the Company. 14. Employee trust shares Employee trust shares relate to shares of the Company held by Jasa Merin Employee Trust, a trust set up by the subsidiary Jasa Merin (Malaysia) Sdn Bhd. Employee trust shares of RM6,688,000 represents 15,200,000 shares issued to Jasa Merin Employee Trust pursuant to the acquisition of AQL, as mentioned in Note 1. The main features of the trust include: all confirmed fulltime permanent employees of Jasa Merin at the time of the grant date shall be eligible to participate to the trust; the award to the participants is through the realisation of any gains arising from the disposal of the shares held by the trust in accordance with formula described by the trust rules and by laws; the trust shall continue to be in force at the discretion of the committee set up to administer the trust, for a maximum period of 12 months commencing from the date the trust purchase the shares or 6 months after the listing of the shares purchased, whichever is later; the trust may be terminated at any time by the committee or, at the discretion of the committee by resolution of Jasa Merin in general meeting, subject to all relevant approvals which may be required. 15. Share premium, reverse aquisition deficit and capital reserves Share premium arose from the issuance of ordinary shares and conversion of preference shares. Reverse acquisition deficit arose from the reverse acquisition of the Company by AQL. Capital reserves arose from the par value reduction. SILK HOLDING BERHAD 72 annual report 2010

75 Notes To The Financial statements 31 July 2010 (cont d) 16. Borrowings Group RM 000 RM 000 Short term borrowings Secured: Bank Overdrafts 203 Term loans: - fixed rate 26,693 23,058 - floating rate 15,682 21,306 Hire purchase payables (Note 24) ,739 44,453 Unsecured: Bank overdraft 1,705 44,444 44,453 Long term borrowings Secured: Sukuk Mudharabah (Note 21) 744,421 Term loans: - fixed rate 336, ,975 - floating rate 90,831 36,129 Hire purchase payables (Note 24) ,172, ,359 Total borrowings Sukuk Mudharabah (Note 21) 744,421 Bank overdrafts 1,908 Term loans: - fixed rate 363, ,033 - floating rate 106,513 57,435 Hire purchase payables (Note 24) ,216, ,812 Maturity of borrowings (excluding hire purchase): Within one year 44,284 44,364 More than 1 year but less than 2 years 39,560 61,902 More than 2 years but less than 5 years 224, ,576 More than 5 years 907,735 69,626 1,216, ,468 SILK HOLDING BERHAD 73 annual report 2010

76 Notes To The Financial statements 31 July 2010 (cont d) 16. Borrowings (cont d) The weighted average effective interest rates per annum at the balance sheet date for borrowings were as follows: Group % % Bank overdraft 7.68 Term loans: - fixed rate floating rate Sukuk (Note 21) 8.00 Hire Purchase (Note 24) The term loans of the Group are secured by the following: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) debentures created over fixed and floating assets of a subsidiary, Jasa Merin, up to RM34,533,896; facilities agreements; first legal/mortgage charge over the vessels; corporate guarantee from the Company for RM85,520,000; corporate guarantee from a subsidiary, AQL, for RM383,986,378; corporate guarantee from a corporate shareholder of subsidiaries for RM199,530,000; an irrevocable joint and several guarantee by AQL, certain directors of AQL and third parties for certain term loans; assignment of charter proceeds in respect of the vessels to the collection accounts; assignment of all benefit, interest, rights and property over or in respect of the vessels construction contracts; assignment of insurance policy for all vessels in favour of the banks; and 1,715,000 shares of Jasa Merin. The secured bank overdrafts of the Group are secured by the following: (a) (b) (c) existing Master Facility Agreement, Asset Purchase Agreement and Asset Sale Agreement; existing corporate guarantee issued by AQL; and existing legal mortgage on vessel for RM1,500, Retirement benefits obligation A subsidiary, Jasa Merin, operates an unfunded, defined retirement benefits plan ( the Plan ) for its eligible employees. Under the Plan, the eligible employees are entitled to retirement benefits on attainment of the retirement age of 55 for male and 50 for female. The Plan is limited to those employees who were in employment with Jasa Merin at 14 October SILK HOLDING BERHAD 74 annual report 2010

77 Notes To The Financial statements 31 July 2010 (cont d) 17. Retirement benefits obligation (cont d) Movements in the net liability in the current year were as follows: Group RM 000 RM 000 At beginning of year/period 1,803 1,304 Recognised in income statement (Note 28 (a)) At end of year/period 2,176 1, Trade payables The normal trade credit term granted to the Group ranges from 30 days to 90 days (2009 : 30 days to 90 days). 19. Other PAYABLES Group Company RM 000 RM 000 RM 000 RM 000 Amount payable for new shipbuildings 108,502 33,953 Ijarah rental payable to Sukuk holders 80,443 Loan stock coupon payable Advance licence fees 9,400 Preference shares dividends payable 2,308 2,308 2,295 Ordinary shares dividends payable 600 Accruals 9,587 4, Sundry payables Deposits received 8 1, ,618 40,678 2,986 3,264 Included in amount payable for the new shipbuildings is RM61.29 million which shall be financed by the RM220 million Bai Istisna Syariah financing arrangements which were secured subsequent to the year end as disclosed in Note 37(a) to the financial statements. Ijarah rental payable to Sukuk holders relates to the Periodic Ijarah Rental A at 8% per annum payable semi-annually under the required payment terms as disclosed in Note 21(b). Non-payment of the Ijarah Rental A does not constitute an event of default of the Sukuk Mudharabah from the Issue Date until the 7th anniversary. Preference shares dividends payable relate to the accumulated dividends accrued in respect of 20% 10-year Cumulative Convertible Redeemable Preference Shares ( CC-RPS ) as disclosed in Note 22. Such dividends payable are convertible into new ordinary shares together with the CC-RPS. Advance licence fees relate to fees charged for the transfer of all the rights to the licensees to enter upon and occupy the designated land area for permitted use for the entire duration of the concession period, subject to the terms and conditions specified in the licence agreement ( Agreement ). The licence fees, after setting off associated costs, will be recognised in the income statement over the remaining concession period upon completion of the relevant terms in the Agreement. All payables are non-interest bearing, repayable on demand, unsecured and are to be settled in cash. SILK HOLDING BERHAD 75 annual report 2010

78 Notes To The Financial statements 31 July 2010 (cont d) 20. Amount due from/to subsidiaries Amount due from/to subsidiaries is unsecured, interest-free and has no fixed terms of repayment. 21. Sukuk Mudharabah Sukuk Mudharabah of RM752,236,660 was issued by MTSB on 25 January 2008, and is constituted by a Trust Deed dated 25 January 2008 entered into by MTSB, SILK and the Trustee for all the Sukuk holders. The Sukuk Mudharabah, which is issued at par, has a tenure of up to twenty-one (21) years from the date of issuance. The Sukuk Mudharabah is structured to be paid progressively. It is: a) non-transferable; b) not listed; c) not underwritten; d) not rated; and e) non-tradable. (a) Capital repayment terms under Mudharabah contract The Issuer (MTSB) shall refund the capital, subject to availability of funds at the ratio of 1:99 for Issuer: Investor, provided at the outset of the venture in full to the Investors (Sukuk holders). However, a minimum RM2.0 million per annum shall be paid annually commencing from 3rd anniversary from the date of issuance (to be known as Periodic Ijarah Rental B ). The Periodic Ijarah Rental B is: i. for the amount of RM2 million per annum; ii. payable annually in arrears; iii. payable commencing on the 3rd year from the Issue Date; iv. RM38 million for the whole period of the Ijarah; v. not constitute an Event of Default for any non-payment of Periodic Ijarah Rental B from the Issue Date until the 7th anniversary and continue to accrue notwithstanding the same; and vi. constitute a default under the Ijarah Agreement for any non-payment of accrued and current Periodic Ijarah Rental B from the 8th anniversary from the Issue Date. (b) Profit payment is by way of Periodic Ijarah ( lease ) Rental A as follows: The Periodic Ijarah Rental A is: i. the amount calculated at 8.0% per annum on the outstanding Sukuk Mudharabah; ii. payable semi-annually in arrears; iii. payable commencing on the 1st year from the Issue Date; iv. up to RM1.49 billion for the period of the Ijarah; v. subject to payment of minimum rental of 3.5% per annum calculated on the outstanding of the Sukuk Mudharabah ( Minimum Ijarah Rental A ) that is payable commencing from the 1st anniversary from the Issue Date; vi. not constitute an Event of Default for non-payment of Minimum Ijarah Rental A from the Issue Date until the 7th anniversary and continue to accrue notwithstanding the same; vii. not constitute an Event of Default for non-payment of Periodic Ijarah Rental A throughout the Sukuk Tenure; and viii. constitute a default under the Ijarah Agreement for any non-payment of accrued and current Minimum Ijarah Rental A from the 8th anniversary from the Issue Date. SILK HOLDING BERHAD 76 annual report 2010

79 Notes To The Financial statements 31 July 2010 (cont d) 21. Sukuk Mudharabah (cont d) (c) Securities The Sukuk Mudharabah is secured by: i. fixed and floating charge over all the assets and undertaking of SILK; ii. fixed and floating charge over all the assets and undertaking of MTSB; iii. corporate guarantee given by SILK; and iv. limited guarantee given by the Company. Under the limited guarantee given by the Company: i. the total amount recoverable from the Company shall not exceed the amount actually realised from the sale of its shares in SILK or the sale by SILK of the Ijarah Asset (the Concession) (the Maximum Sum ); ii. iii. if the Company fails to make payment of the outstanding amount under the Sukuk Mudharabah on demand, then the Company shall transfer its shares in SILK to the Security Agent (Affin Investment Bank Berhad) in full settlement of its obligations under the limited guarantee; and if upon a sale thereafter by the Security Agent of the shares in SILK, the proceeds of sale shall exceed the outstanding amount under the Sukuk Mudharabah, then the Security Agent shall refund to the Company an amount equivalent to such excess. 22. Preference shares Preference shares consist of 20% 10-Year Cumulative Convertible Redeemable Preference Shares ( CC-RPS ) and 20% 10-Year Cumulative Non-Convertible Redeemable Preference Shares ( CN-RPS ). Number of preference shares of RM0.10 each Amount RM 000 RM 000 Authorised: At beginning and end of the year/period 20,000 20,000 2,000 2,000 Issued and fully paid: Group Nominal value of RM0.10 each At beginning of the year/period Acquired pursuant to reverse acquisition 20,000 2,000 Converted into ordinary shares (2,872) (287) At end of the year/period 17,128 1,713 CN-RPS/CC-RPS premium At beginning of the year/period Acquired pursuant to reverse acquisition 18,000 Converted into ordinary shares (2,585) At end of the year/period 15,415 17,128 SILK HOLDING BERHAD 77 annual report 2010

80 Notes To The Financial statements 31 July 2010 (cont d) 22. Preference shares (cont d) Number of preference shares of RM0.10 each Amount RM 000 RM 000 Company Nominal value of RM0.10 each At beginning of the year/period 20,000 20,000 2,000 2,000 Converted into ordinary shares (2,872) (287) At end of the year/period 17,128 20,000 1,713 2,000 CN-RPS/CC-RPS premium As at beginning of the year/period 18,000 18,000 Converted into ordinary shares (2,585) At end of the year/period 15,415 18,000 17,128 20,000 The CC-RPS was initially issued on 6 November 2003 as CN-RPS. The CN-RPS has been varied to CC-RPS upon approval by the holders of the CN-RPS on 30 October The salient Terms of the 20% CC-RPS are as follows: (a) the 20% CC-RPS shall be redeemable at the option of the Company for cash at RM1 per share at any time from the date commencing from the 5th anniversary of the issue date of 6 November 2003; (b) the 20% CC-RPS are transferable and are convertible at the holders option at the rate of one (1) CC-RPS for four (4) fully paid-up new ordinary shares of RM0.25 each in the Company. Unless earlier redeemed or converted, each CC-RPS shall be redeemed on the Maturity Date; (c) (d) the 20% CC-RPS shall rank in priority to the ordinary shares of the Company in a return of capital in the event of winding-up/liquidation of the Company and payment of dividends. The 20% 10-year CC-RPS shall not have any right to participate further in the distribution of the surplus in assets and profits of the Company; and The holders of 20% CC-RPS shall be entitled to vote at any general meeting of the Company at which a resolution is relating to: (i) (ii) (iii) (iv) the reduction of capital of the Company; the winding up of the Company; any abrogation or variation of the special rights and privileges attaching to the 20% CC-RPS; the creation or issue of any further shares ranking in priority to or pari passu with the 20% CC-RPS (unless consented in writing by 75% of the 20% 5-year CC-RPS holders). Fair value of CC-RPS at initial recognition is as follows: 2010 RM 000 CN-RPS acquired on reverse acquisition 20,000 Less: Gain on extinguishment of CN-RPS (Note 28) (272) Incidental CC-RPS issuance cost (60) Fair value of CC-RPS issued to extinguish CN-RPS 19,668 SILK HOLDING BERHAD 78 annual report 2010

81 Notes To The Financial statements 31 July 2010 (cont d) 22. Preference shares (cont d) Upon variation of CN-RPS to CC-RPS, the fair value of CC-RPS has been split between the liability component and the equity component, representing the fair value of the conversion option. CC-RPS is accounted for in the balance sheets of the Group and of the Company as follows: 2010 RM 000 Nominal value of CC-RPS 19,668 Less: Unamortised discount (5,185) Liability component at 31 July 14,483 The amounts recognised in the balance sheets of the Group and of the Company may be analysed as follows: 2010 RM 000 Equity component at date of issue 2,519 CC-RPS converted during the year (362) Equity component at 31 July ,157 Liability component at date of issue: Norminal value of CC-RPS 19,668 Equity component, net of deferred tax (2,519) Deferred tax liability (Note 25) (839) 16,310 Interest expense recognised in profit or loss: At 1 August 2009 Recognised during the year (Note 27) 876 At 31 July Interest payable and included in other payable: At 1 August 2009 Payable during the year (286) At 31 July 2010 (286) CC-RPS converted during the year (2,417) Liability component at 31 July ,483 Interest expense on the CC-RPS is calculated on the effective yield basis by applying the coupon interest rate of 7.51% per annum for an equivalent preference share to the liability component of the CC-RPS. SILK HOLDING BERHAD 79 annual report 2010

82 Notes To The Financial statements 31 July 2010 (cont d) 23. Loan Stocks Group and Company 2010 RM 000 Liability component of convertible loan stocks: 3% Redeemable Convertible Unsecured Loan Stocks 2009/2013 (B) ( RCULS-B ) 4,665 3% Redeemable Convertible Unsecured Loan Stocks 2009/2013 (CR) ( RCULS (CR) ) 76 4,741 The salient terms of RCULS are as follows: (a) RCULS-B RCULS-B were issued at nominal value of RM1.00 each ( Issue Price ) on 14 October 2009 ( Issue Date ) with a maturity period of 5 years to 13 October 2014 ( Maturity Date ) and were constituted by a Trust Deed dated 7 October 2009 made between the Company and the Trustee for the holders of the RCULS-B. The main features of RCULS-B are as follows: a. RCULS-B are redeemable at the option of the Company, in whole or in part at the Issue Price at anytime from the Issue Date up to the Maturity Date of 13 October b. RCULS-B are convertible into new ordinary shares in the Company at the option of RCULS-B holders from the third anniversary to the maturity date of 13 October 2014 ( Conversion Period ) at the rate of one RM1.00 nominal value RCULS-B for four new ordinary shares of RM0.25 each of the company. RCULS-B which are not converted into the new ordinary shares in the Company during the Conversion Period shall automatically be converted into new ordinary shares in the Company at the Conversion Rate on the Maturity Date. c. Upon conversion of RCULS-B into new ordinary shares, such shares shall rank pari passu in all respects with the existing ordinary shares of the Company in issue at the time of conversion except that they shall not be entitled to any dividend or other distribution declared in respect of a financial period prior to the financial period in which RCULS-B are converted or any interim dividend declared prior to the date of conversion of the RCULS-B. d. The coupon rate of 3% per annum is payable semi-annually in arrears on 14 April and 14 October. The coupon payment shall be satisfied by the issuance of RCULS (CR). RCULS-B were issued pursuant to the Company s Regularisation Scheme as disclosed in Note 1 which was completed on 14 October (b) RCULS (CR) RCULS (CR) represents the coupon payment towards RCULS-B which were not redeemed nor converted up to the maturity date on 13 October RCULS (CR) are issued at nominal value of RM1.00 each and were constituted by a Trust Deed dated 7 October 2009 made between the Company and the Trustee for the holders of the RCULS-B. The main features of RCULS (CR) are similar to that of the RCULS-B, except that RCULS (CR) were issued on 14 April 2010 but will also mature on 13 October SILK HOLDING BERHAD 80 annual report 2010

83 Notes To The Financial statements 31 July 2010 (cont d) 23. Loan Stocks (cont d) The fair values of RCULSs have been split between the liability component and the equity component, representing the fair value of the conversion option. RCULS is accounted for in the balance sheets of the Group and of the Company as follows: RCULS-B RCULS(CR) Total RM 000 RM 000 RM 000 Nominal value of RCULS 43, ,404 Less: Unamortised discount (39,085) (578) (39,663) Liability component at 31 July , ,741 The amounts recognised in the balance sheets of the Group and of the Company may be analysed as follows: RCULS-B RCULS (CR) Total RM 000 RM 000 RM 000 Liability component at date of issue: Norminal value of RCULS 43, ,404 Equity component, net of deferred tax (36,722) (549) (37,271) Deferred tax liability (Note 25) (1,640) (25) (1,665) 5, ,468 Interest expense recognised in profit or loss: At 1 August 2009 Recognised during the year (Note 28) At 31 July Interest paid: At 1 August 2009 Paid during the year (1,046) (6) (1,052) At 31 July 2010 (1,046) (6) (1,052) Liability component at 31 July , ,741 Interest expenses on RCULS-B and RCULS (CR) are calculated on the effective yield basis by applying the coupon interest rates of 7.51% and 7.76% respectively per annum for equivalent loan stocks to the liability component of the RCULS. SILK HOLDING BERHAD 81 annual report 2010

84 Notes To The Financial statements 31 July 2010 (cont d) 24. Hire purchase payables Group RM 000 RM 000 Future minimum hire purchase payments: Not later than 1 year Later than 1 year and not later than 2 years Later than 2 years and not later than 5 years Total future minimum hire purchase payments Less: Future finance charges (40) (34) Present value of hire purchase liabilities Analysis of present value of hire purchase liabilities: Not later than 1 year Later than 1 year and not later than 2 years Later than 2 years and not later than 5 years Amount due within 12 months (161) (89) Amount due after 12 months Deferred tax Group Company RM 000 RM 000 RM 000 RM 000 At beginning of the year/period 24,977 13,130 Recognised in income statement (Note29) 12,244 11,847 (429) Recognised in equity 2,504 2,504 Reversal upon conversion to ordinary shares (110) (110) At end of the year/period 39,615 24,977 1,965 Presented after appropriate offsetting as follows: Deferred tax liabilities 199,827 41,466 1,965 Deferred tax assets (160,212) (16,489) 39,615 24,977 1,965 SILK HOLDING BERHAD 82 annual report 2010

85 Notes To The Financial statements 31 July 2010 (cont d) 25. Deferred tax (cont d) The components and movements of deferred tax liabilities and assets during the financial year/period prior to offsetting are as follows: Deferred tax liabilities of the Group: Expressway Convertible development loan stocks Property, expenditure and preference vessels and and heavy shares equipment repairs Total RM 000 RM 000 RM 000 RM 000 At 1 August ,466 41,466 Acquired pursuant to reverse acquisition , ,034 Recognised in income statement (429) (3,158) 6,520 2,933 Recognised in equity 2,504 2,504 Reversal upon conversion to ordinary shares (110) (110) At 31 July ,965 38, , ,827 At 1 January ,732 20,732 Recognised in income statement 20,734 20,734 At 31 July ,466 41,466 Deferred tax assets of the Group: Unused business losses and Advance unabsorbed license Provisions capital fees and others allowances Total RM 000 RM 000 RM 000 RM 000 At 1 August 2009 (487) (16,002) (16,489) Acquired pursuant to reverse acquisition (1,990) (30) (151,014) (153,034) Recognised in income statement (359) (106) 9,776 9,311 At 31 July 2010 (2,349) (623) (157,240) (160,212) At 1 January 2008 (334) (7,268) (7,602) Recognised in income statement (153) (8,734) (8,887) At 31 July 2009 (487) (16,002) (16,489) SILK HOLDING BERHAD 83 annual report 2010

86 Notes To The Financial statements 31 July 2010 (cont d) 25. Deferred tax (cont d) Deferred tax liabilities of the Company: Preference Loan stocks shares Total RM 000 RM 000 RM 000 At 1 August 2009 Recognised in equity 1, ,504 Recognised in income statement (329) (100) (429) Reversal upon conversion to ordinary shares (110) (110) At 31 July , ,965 Deferred tax assets have not been recognised in respect of the following items: Group RM 000 RM 000 Unused tax losses 347,252 Deferred tax assets have not been recognised due to uncertainty of recoverability. 26. Revenue Group Company 12 months 19 months 12 months 13 months to to to to RM 000 RM 000 RM 000 RM 000 Supply vessel services 181, ,676 Toll collection 42,621 Management fees , , SILK HOLDING BERHAD 84 annual report 2010

87 Notes To The Financial statements 31 July 2010 (cont d) 27. Finance costs Group Company 12 months 19 months 12 months 13 months to to to to RM 000 RM 000 RM 000 RM 000 Finance costs on: Term loans and overdrafts 16,713 19,641 Sukuk Mudharabah 47,301 Non-convertible Preference shares Convertible Preference shares (Note 22) Hire purchase Loan stocks (Note 23) ,250 19,663 1, Profit/(loss) before tax The following amounts have been included in arriving at profit/(loss) before tax: Group Company 12 months 19 months 12 months 13 months to to to to RM 000 RM 000 RM 000 RM 000 Auditors remuneration: Statutory audit - current year Other services Bad debt written off (other receivable) 18 Depreciation of property, vessels and equipment (Note 3) 24,251 30,923 Employee benefits expense (Note a) 26,137 25, Non-executive directors remuneration (Note b) Amortisation of EDE and heavy repairs (Notes 4 and 5) 4,504 Gain on disposal of marketable securities (126) Gain on disposal of property, vessels and equipment (21,942) (14,642) Gain on extinguishment of CN-RPS (272) (272) Interest income (291) (622) (44) Rental of office and warehouse Provision for diminution in value of marketable securities 155 Dividend income (6) (68) SILK HOLDING BERHAD 85 annual report 2010

88 Notes To The Financial statements 31 July 2010 (cont d) 28. Profit/(loss) before tax (cont d) (a) Employee benefits expense Group Company 12 months 19 months 12 months 13 months to to to to RM 000 RM 000 RM 000 RM 000 Wages and salaries 23,794 21, Defined contribution plan 1,062 1,864 Social security costs Short term accumulating compensated absence Retirement benefits Other staff related expenses Provision for unutilised leave 60 26,137 25, Included in employee benefits expense of the Group and of the Company are executive directors remuneration amounting to RM1,809,000 (2009: RM864,000) and RM90,000 (2009: Nil) respectively as further disclosed in Note b. (b) Directors remuneration Group Company 12 months 19 months 12 months 13 months to to to to RM 000 RM 000 RM 000 RM 000 Executive directors remuneration (Note a): Fees Other emoluments 1, , Non-executive directors remuneration: Fees Other emoluments Total directors remuneration (Note 33(b)) 2,103 1, Estimated money value of benefits-in-kind 168 Total directors remuneration including benefits-in-kind 2,271 1, SILK HOLDING BERHAD 86 annual report 2010

89 Notes To The Financial statements 31 July 2010 (cont d) 28. Profit/(loss) before tax (cont d) (b) Directors remuneration (Cont d) The details of remuneration receivable by directors of the Company during the year are as follows: Group Company 12 months 19 months 12 months 13 months to to to to RM 000 RM 000 RM 000 RM 000 Executive directors - salaries defined contribution plan fees allowances and other emoluments bonus benefits-in-kind 66 1, Non-executive directors - fees allowances and other emoluments Total Directors remuneration 1,307 1, The number of directors of the Company whose total remuneration during the financial year/period fell within the following bands is analysed below: Number of Directors 12 months 13 months to to Executive directors: RM200,001 - RM250,000 2 RM450,001 - RM500,000 1 RM800,001 - RM850,000 1 Non-executive directors: Below RM50, SILK HOLDING BERHAD 87 annual report 2010

90 Notes To The Financial statements 31 July 2010 (cont d) 29. Income tax expense Group Company 12 months 19 months 12 months 13 months to to to to RM 000 RM 000 RM 000 RM 000 Income tax: Malaysian income tax 287 (486) Under/(over)provision in prior years (27) 617 (468) Deferred tax (Note 25): Relating to origination and reversal of temporary differences 6,624 11,614 (429) Relating to changes in tax rates (321) Underprovision in prior years 5, ,244 11,847 (429) 12,861 11,379 (368) 95 Domestic current income tax is calculated at the statutory tax rate of 25% (2009: 25%) of the estimated assessable profit for the year/period. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. Subsidiaries of the Company being Malaysian tax residents incorporated in Labuan under the Offshore Companies Act,1990 are taxed at 3% of profit before taxation in accordance with the Labuan Offshore Business Activity Tax Act, A reconciliation of income tax expense applicable to profit/(loss) before tax at the statutory income tax rate to income tax expense at the effective income tax rate of the Group and of the Company are as follows: Group Company 12 months 19 months 12 months 13 months to to to to RM 000 RM 000 RM 000 RM 000 Profit/(loss) before tax 43,716 42,013 (1,773) (1,613) Taxation at Malaysian statutory tax rate of 25% 10,929 10,503 (443) (403) Effect of changes in tax rates 308 Effect of changes in period of assesment for income tax of subsidiaries (6,236) Expenses not deductible for tax purposes 1, Income not subject to tax (5,445) (122) (68) Deferred tax assets not recognised 6,586 Realisation of deferred tax liabilities on convertibel loan stocks and preference shares (429) (429) Underprovision of deferred tax in prior years 5, Underprovision of tax expense in prior years (27) Income tax expense for the year/period 12,861 11,379 (368) 95 SILK HOLDING BERHAD 88 annual report 2010

91 Notes To The Financial statements 31 July 2010 (cont d) 30. Earnings per share (a) Basic Basic earnings per share amounts are calculated by dividing profit for the financial year/period attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares in issue during the financial year/ period, excluding employee trust shares held by the Company. With reverse acquisition, the weighted average number of ordinary shares outstanding (the denominator) during the year are calculated as follows: (a) (b) the number of ordinary shares outstanding from the beginning of that period to the acquisition date is deemed to be the number of ordinary shares issued by the legal parent to the owners of the legal subsidiary; and the number of ordinary shares outstanding from the acquisition date to the end of that period is the actual number of ordinary shares of the legal parent outstanding during that period. The basic earnings per share disclosed for comparative period before the acquisition date that is presented in the consolidated financial statements following a reverse acquisition is calculated by dividing the profit or loss of the legal subsidiary attributable to ordinary shareholders in each of that period by the number of ordinary shares issued by the legal parent to the owners of the legal subsidiary in the reverse acquisition. Group 12 months 19 months to to Profit attributable to ordinary equity holders of the Company (RM 000) 19,251 20,826 Weighted average number of ordinary shares in issue ( 000) 323, ,800 Basic earnings per share (sen) (b) Diluted For the purpose of calculating diluted earnings per share, the profit for the year/period attributable to ordinary equity holders of the Company and the weighted average number of ordinary shares in issue during the financial year/period have been adjusted for the dilutive effects of all potential ordinary shares, i.e. convertible loan stocks, convertible preference shares and its dividends payable. Group 12 months 19 months to to Profit attributable to ordinary equity holders of the Company (RM 000) 19,251 20,826 After-tax effect of interest on convertible loan stocks and convertible preference shares (RM 000) 901 Profit attributable to ordinary equity holders of the Company including assumed conversion (RM 000) 20,151 20,826 Weighted average number of ordinary shares in issue ( 000) 323, ,800 Effect of dilution: Convertible loan stocks ( 000) 175, ,000 Convertible preference shares and its dividends payable ( 000) 57,450 Adjusted weighted average number of ordinary shares in issue and issuable ( 000) 556, ,800 SILK HOLDING BERHAD 89 annual report 2010

92 Notes To The Financial statements 31 July 2010 (cont d) 30. Earnings per share (cont d) (b) Diluted (Cont d) Group sen sen Diluted earnings per share (sen) Capital COMMITMENTS Group RM 000 RM 000 Capital expenditure Approved and contracted for: Property, vessels and equipment 276, ,345 Included in the capital expenditure is RM million which shall be financed by the RM220 million Bai Istisna Syariah financing arrangements which were secured subsequent to the year as disclosed in Note 37(a) to the financial statements. 32. Contingent liabilities Group Company RM 000 RM 000 RM 000 RM 000 Bank guarantee for Expressway maintenance cost 1,500 Bank guarantees to charterers and suppliers 8,203 7,626 Corporate guarantees to subsidiaries 85, Related party disclosures (a) Significant related party transactions In addition to the transactions detailed elsewhere in the financial statements, the Group and the Company had the following significant transactions with related parties during the financial year/period: Group 12 months 19 months to to Name of companies Nature of transactions RM 000 RM 000 Dekon Tajul Nursery & Rountine highway maintenance and Landscaping Sdn. Bhd. landscaping (Note i) 1,263 SILK HOLDING BERHAD 90 annual report 2010

93 Notes To The Financial statements 31 July 2010 (cont d) 33. Related party disclosures (cont d) (a) Significant related party transactions (Cont d) Company 12 months 13 months to to Name of companies Nature of transactions RM 000 RM 000 SILK Management fees 771 Payment on behalf by SILK (729) (1,061) Jasa Merin Management fees 285 Corporate guarantee fees 209 (i) Dekon Tajul Nursery & Landscaping Sdn Bhd ( Dekon ) is a 100% subsidiary of Dekon Holdings Sdn. Bhd. ( DHSB ). Dekon is deemed related to the Group by virtue of Datuk Razman M Hashim s mutual interest and directorship in DHSB and the Group. The directors of the Company are of the opinion that the above transactions have been entered into in the normal course of business and have been established under negotiated terms. (b) Compensation of key management personnel The remuneration of directors and other members of key management during the year/period was as follows: Group Company 12 months 19 months 12 months 13 months to to to to RM 000 RM 000 RM 000 RM 000 Wages and salaries 1,238 Bonus 506 Fees Allowance and other emoluments Defined contribution plan 200 Other benefits ,460 1, Included in the total key management personnel are: Group Company 12 months 19 months 12 months 13 months to to to to RM 000 RM 000 RM 000 RM 000 Directors remuneration(note 28(b)) 2,103 1, SILK HOLDING BERHAD 91 annual report 2010

94 Notes To The Financial statements 31 July 2010 (cont d) 34. Material Litigations Following the compulsory acquisition of land falling under the Expressway, which was undertaken by SILK pursuant to the Concession Agreement, certain land owners whose land have been acquired, have filed their objection in Court against the Land Administrator s award of compensation. In SILK funded stretch, there are 230 cases comprising 201 cases with claims amounting to RM million while the land owners claim for 29 cases are yet to be determined. Out of the 230 cases, 131 cases have been settled while other cases are still pending Court hearing. Pursuant to the Turnkey Contract dated 31 July 2001 between SILK and Sunway Construction Sdn. Bhd. ( SCSB ), the amount payable by SILK to SCSB for the land use payments (including expenses and charges incurred by SCSB for the acquisition of land and for removal or resettling of squatters or other occupants on the Expressway) has been contracted at a ceiling amount of RM215 million. Any further amounts that may be awarded by the courts beyond RM215 million will therefore be borne by SCSB. 35. Segmental Reporting For management purposes, the group is organised into business units based on their services, and has two reportable operating segments as follows: - offshore marine support services - tolled highway concessionnaire Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss which, in certain respects as explained in the table below, is measured differently from operating profit or loss in the consolidated financial statements. Transfer prices between operating segments are on an arm s length basis in a manner similar to transactions with third parties. 31 July 2010 Tolled Offshore Adjustments highway marine support and concessionnaire services Others eliminations Total Note RM 000 RM 000 RM 000 RM 000 RM 000 Revenue External 50, ,318 (8,330) 223,939 Inter-segment revenues (a) 494 (494) Total revenue 50, , (8,824) 223,939 Segment Results: Interest income (104) 291 Other non-cash expenses (b) Depreciation (394) (23,938) 82 (24,251) Amortisation (5,222) 718 (4,504) Finance costs (59,572) (16,921) (1,307) 12,550 (65,250) Negative Goodwill 11,869 11,869 Profit/(Loss) before tax (26,242) 51,403 (1,775) 20,330 43,716 Income tax expense (13,230) 369 (12,861) Profit/(Loss) for the year (26,242) 38,173 (1,406) 30,855 Assets and liabilities Segment assets (c) 938, , ,199 (255,412) 1,721,687 Segment liabilities (c) 836, ,689 31,476 (7,754) 1,529,316 Other information Capital expenditure 1, , ,385 SILK HOLDING BERHAD 92 annual report 2010

95 Notes To The Financial statements 31 July 2010 (cont d) 35. Segmental Reporting (cont d) Note: Nature of adjustments and eliminations to arrive at amounts reported in the consolidated financial statements: (a) (b) (c) Inter-segment revenues are eliminated on consolidation. Other material non-cash expenses consist of provision for retirement benefit of RM373,000. Inter-company balances have been eliminated to arrive at total assets and liabilities reported in the consolidated balance sheet: RM 000 Elimination of investment in subsidiaries 247,658 Elimination of intercompany balances 7, ,412 As stated in Note 39, comparative amounts are the continuation of the financial statements of AQL. Accordingly, for the segment reporting, the comparative disclosure would only represent the offshore marine support services and no further detailed comparative segment reporting is disclosed. 36. Significant events (a) Regularisation Scheme On 2 October 2009, the Company received the signed and sealed Order of the High Court of Malaya, dated 29 August 2009, confirming the par value reduction pursuant to Section 64 of the Companies Act 1965, which forms part of the Group s Regularisation Scheme. The Regularisation Scheme was formally completed on 14 October 2009 with the lifting of the PN-17 status on the Group by Bursa Malaysia Securities Berhad. Pursuant to the Regularisation Scheme on 14 October 2009: a total of RM4,958,889 nominal value Redeemable Convertible Unsecured Loan Stock-A ( RCULS-A ) was issued on 1 October 2009 from its renounceable Rights Issue. The RCULS-A were subsequently converted on 13 October 2009 into 19,835,556 new ordinary shares of RM0.25 each at the conversion rate of RM1.00 nominal value of RCULS-A for four new ordinary shares; a total of 175 million ordinary shares of RM0.25 each ( AQL consideration shares ) and RM43.75 million nominal value 3% Redeemable Convertible Unsecured Loan Stock-B ( RCULS-B ) were issued on 13 October 2009 and 14 October 2009 respectively as consideration for the 100% equity interest in AQL. The AQL Consideration Shares were subsequently listed and quoted with effect from 14 October 2009; and the issued and paid-up share capital upon the completion of the Regularisation Scheme on 14 October 2009 stood at 374,835,560 ordinary shares of RM0.25 each totaling RM93,708,890. (b) Proposed ESOS On 29 September 2009 the Company announced the proposed establishment of an employees share option scheme ( Proposed ESOS ) to eligible staff and directors of the Group. The Proposed ESOS and the consequent amendments to the articles of association of the Company to allow the Company to extend ESOS options to its non-executive directors were approved by the shareholders at the Extraordinary General Meeting held on 30 October 2009 while listing of additional new ordinary shares representing up to 15% of the issued and paid-up ordinary share capital of SHB, to be issued pursuant to the exercise of options under the Proposed ESOS was approved by Bursa Malaysia Securities Berhad ( Bursa ) on 3 December As at 31 July 2010, the Company has not allocated any options over ordinary shares pursuant to the Proposed ESOS. SILK HOLDING BERHAD 93 annual report 2010

96 Notes To The Financial statements 31 July 2010 (cont d) 36. Significant events (cont d) (c) Proposed variation to the terms of CN-RPS On 29 September 2009, the Company announced the proposed variations to the terms of CN-RPS ( Proposed Variation ) and the consequent amendments to the memorandum and articles of association of the Company to grant rights to the preference shareholders to convert their preference shares and the attending accrued dividends into new ordinary shares ( Proposed Amendments ) as dislcosed in Note 22 to the financial statements. The Proposed Variation and the Proposed Amendments were approved by the ordinary shareholders at the Extraordinary General Meeting and by the CN-RPS holders at the CN-RPS holders Extraordinary General Meeting held on 30 October Listing of up to 96,144,652 new ordinary shares to be issued pursuant to the Proposed Variation was approved by Bursa on 3 December (d) New contract awarded A subsidiary, Jasa Merin, had on 11 January 2010 received a letter of award dated 6 January 2010 from Carigali Hess Operating Company Sdn. Bhd. for the provision of one Anchor Handling Tug Supply Vessel No. 2 commencing in February The contract is for a primary term of one year with two extension options of one year each. The estimated contract sum is RM12,400,000. (e) Disposal of vessels Jasa Merin had on 29 January 2010 and 31 March 2010 entered into Sale and Purchase Agreements to dispose its vessels, MV JM Gagah and MV JM Perkasa, for a total consideration of RM30 million each to be satisfied entirely in cash. The disposals were completed on 30 July 2010 and 17 June 2010 respectively. Gains arising from the disposals were disclosed in Note 28. (g) Musharakah Mutanaqisah Term Financing ( MMTF ) facility Jasa Merin had on 4 May 2010 accepted a MMTF facility for the aggregate sum of RM85.52 million from Maybank Islamic Berhad. The facility has a tenure of 8 years and is to part finance the construction of two units Anchor Handling Tug Supply Vessels. (h) Conversion of CC-RPS into ordinary shares On 14 June 2010 the Company converted 2,871,680 CC-RPS, together with its attendant accrued dividends, into 12,999,819 new ordinary shares of RM0.25 each. The new ordinary shares were granted listing and quotation with effect from 22 June The new ordinary shares rank pari passu in all respects with the existing ordinary shares of the Company. 37. Subsequent events (a) (b) On 3 August 2010, JM Global 3 (Labuan) Plc ( JMG3 ) and JM Global 4 (Labuan) Plc ( JMG4 ), subsidiaries of the Grobup entered into two borrowing arrangements with Bank Pembangunan Malaysia Berhad ( Bank Pembangunan ) for facilities under Bai Istisna Syariah financing, for RM110,000,000 each. The facilities totaling RM220,000,000 and with tenure of 12 years, were to part finance the construction of 2 new vessels. The facilities are secured by proportionate Corporate Guarantees by the shareholders of JMG3 and JMG4 to be provided in favour of Bank Pembangunan. The facilities are to part finance the construction of two new vessels, of which RM61.29 million had been accrued for as at the year end, and a further RM million capital commitments as disclosed respectively in Note 19 and Note 31 to the financial statements. On 23 August 2010 the company converted 2,028,320 CC-RPS, together with its attendant accrued dividends, into 9,214,018 new ordinary shares RM0.25 each. The new ordinary shares were granted listing and quotation with effect from 26 August SILK HOLDING BERHAD 94 annual report 2010

97 Notes To The Financial statements 31 July 2010 (cont d) 38. Financial instruments (a) Financial risk management objectives and policies The Group s financial risk management policy seek to ensure that adequate financial resources are available for the development of the Group s business whilst managing its interest rate risks (both fair value and cash flow), foreign currency risk, liquidity risk and credit risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below. It is, and has been throughout the period under review, the Group s policy that no trading in derivative financial instruments shall be undertaken. (b) Interest rate risk Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates. The Group s significant interest-bearing financial assets are mainly short term in nature and have been mostly placed in fixed deposits. The Group s external financing comprises primarily the Sukuk Mudharabah, CC-RPS, RCULS, term loans, bank overdrafts and hire purchase. The information relating to the effective interest rate, maturity dates and profit element of short term deposits, Sukuk Mudharabah, CC-RPS, RCULS, term loans, bank overdrafts and hire purchase are as disclosed in their respective notes. (c) Foreign currency risk There were no foreign currency financing facilities obtained by the Group and the Company for the financial year ended 31 July 2010 and there is no anticipation of significant foreign currency risk exposure for future transactions. (d) Credit risk The carrying amount of receivables, including related company receivables, represents the Group s and the Company s maximum exposure to credit risk. The information pertaining to the concentration of credit risk related to the financial instruments is disclosed in Note 9, 10 and 20. (e) Liquidity risk The Group actively manages its debt maturity profile, operating cash flows and the availability of funding so as to maintain a balance between meeting debt service obligations and covenants, Expressway capital and operating expenditure, vessel construction and maintenance costs, and meeting shareholder distribution expectations. SILK HOLDING BERHAD 95 annual report 2010

98 Notes To The Financial statements 31 July 2010 (cont d) 38. Financial instruments (cont d) (f) Fair values The carrying amounts of financial assets and financial liabilities of the Group and of the Company at the balance sheet date approximated their fair values except for the followings: Group Carrying Fair Carrying Fair Note Amount Value Amount Value RM 000 RM 000 RM 000 RM Financial Assets: Other investments Marketable securities Financial Liabilities: Sukuk Mudharabah , ,579 Term loans , , , ,552 Convertible preference shares 22 14,483 14,131 Convertible loan stocks 23 4,741 4,648 Hire purchase Company Financial Liabilities: Convertible preference shares 22 14,483 14,131 Convertible loan stocks 23 4,741 4,648 The following methods and assumptions are used to estimate the fair values of the following classes of financial instruments: (i) Cash and cash equivalents, trade and other receivables/payables and short term borrowings The carrying amounts approximate fair values due to the relatively short term maturity of these financial instruments. (ii) Borrowings The fair value of borrowings is estimated by discounting the expected future cash flows using the current interest rates for liabilities with similar risk profiles. (iii) Marketable Securities The fair value of quoted shares is determined by reference to stock exchange quoted market bid prices at the close of the business on the balance sheet date. (iv) Amounts due from/to subsidiaries It is not practical to estimate the fair values of amounts due from/to subsidiaries due principally to no fixed repayment terms entered into by the parties involved and without incurring excessive costs. However, the Company does not anticipate the carrying amounts recorded at balance sheet date to be significantly different from the values that would eventually be received or settled. SILK HOLDING BERHAD 96 annual report 2010

99 Notes To The Financial statements 31 July 2010 (cont d) 39. Comparatives As mentioned in Note 1, the acquisition of AQL was completed on 14 October 2009 and pursuant to Appendix B of FRS 3 Business Combinations, the acquisition was deemed a reverse acquisition arrangement. Due to the application of FRS 3 rules relating to reverse acquisition, AQL, the legal subsidiary, became the acquirer of the Group for accounting purposes. Accordingly, the consolidated financial statements for the current period and the comparative amounts have been prepared as a continuation of the financial statements of AQL, but under the name of SILK Holdings Berhad, the legal parent. Following from this, the Group comparatives represents those of AQL whose previous audited financial statements was for a 19-month period from 1 January 2008 to 31 July Company comparatives cover a 13-month period from 1 July 2008 to 31 July 2009 following the change of the Group s financial year end from 30 June to 31 July during the previous financial period. SILK HOLDING BERHAD 97 annual report 2010

100 Additional information PROFORMA GROUP COMPARATIVE FIGURES 1. The audited Group consolidated balance sheet as at 31 July 2010 compared to the reported audited financial statements as at 31 July 2009 is as follows; RM 000 RM 000 Assets Non-current assets Property, vessels and equipment 684,765 2,797 Expressway development expenditure 915, ,277 Expressway heavy repairs 1,521 Other investments 600 Goodwill on consolidation 647 1,602, ,074 Current assets Inventories 165 Trade receivables 57,169 Other receivables 32,067 1,234 Tax recoverables 1,677 Deposits with financial institutions 15,300 1,571 Cash and bank balances 12,538 3, ,916 5,893 Total assets 1,721, ,967 Equity and liabilities Equity attributable to equity holders of the Company Share capital 96,959 90,000 Share premium 53,649 53,633 Equity component of convertible preference shares 2,157 Equity component of convertible loan stocks 37,271 Reverse acquisition deficit (92,791) Merger reserves 60,000 Retained earnings/(loss) 55,989 (100,333) 153, ,300 Employee trust shares (6,688) 146, ,300 Minority interest 45,825 Total equity 192, ,300 SILK HOLDING BERHAD 98 annual report 2010

101 Additional information (cont d) RM 000 RM 000 Non-current liabilities Borrowings 1,172, ,736 Liability component of preference shares 14,483 Liability component of loan stocks 4,741 Deferred tax liabilities 39,615 Retirement benefits obligations 2,176 1,233, ,736 Current liabilities Borrowings 44, Trade payables 39,310 Other payables 211,618 60,756 Provision for taxation ,225 60,931 Total liabilities 1,529, ,667 Total equity and liabilities 1,721, ,967 Explanatory Notes: 1. The audited consolidated balance sheet as at 31 July 2010 represents the financial position of the new group after the acquisition of AQL Aman Sdn Bhd ( AQL ). 2. The audited consolidated balance sheet as at 31 July 2009 represents the financial position of the Group prior to the acquisition of AQL as announced to Bursa on 29 September 2009 and accordingly, does not include the accounts of AQL. SILK HOLDING BERHAD 99 annual report 2010

102 Additional information (cont d) 2. The audited Group consolidated income statement for the year ended 31 July 2010 compared to the reported audited financial statements for the period ended 31 July 2009 is as follows; 12 months to 13 months to RM 000 RM 000 Revenue 223,939 40,926 Direct costs (138,314) (11,872) Gross profit 85,625 29,054 Other income 24,905 1,970 Goodwill gain on reverse acquisition 11,869 Gain on sale of shares pledged by a former guarantor of BaIDS 3,136 Administrative expenses (13,433) (5,926) Operating profit 108,966 28,234 Finance costs (65,250) (65,557) Profit/(loss) before tax 43,716 (37,323) Income tax expense (12,861) (95) Profit/(loss) after tax 30,855 (37,418) Attributable to: Equity holders of the Company 19,251 (37,418) Minority interests 11,604 30,855 (37,418) Earnings/(loss) per share (sen) - basic 6.0 (20.8) - diluted 3.6 (20.8) Explanatory notes: i. The audited consolidated income statement for the year ended 31 July 2010 represents the results of the new group after the acquisition of AQL Aman Sdn Bhd ( AQL ). ii. iii. iv. As the acquisition was deemed a reverse acquisition arrangement, AQL was deemed the acquirer for accounting purposes. Accordingly the financial statements for the year ended 31 July 2010 was prepared as a continuation of the financial statements of AQL. The audited consolidated income statement for the period ended 31 July 2009 represents the results of the Group prior to the acquisition of AQL as announced to Bursa on 29 September 2009, and accordingly, does not include the results of AQL. For the period ended 31 July 2009 the holding company was SILK Holdings Bhd ( SHB ) and the financial statements was prepared as a continuation of the financial statements of SHB. SILK HOLDING BERHAD 100 annual report 2010

103 Additional Compliance information The information set out below is disclosed in compliance with the Main Market Listing Requirements of Bursa Securities:- 1. STATUS OF UTILISATION OF PROCEEDS RAISED FROM CORPORATE PROPOSAL During the year, the Company held a Renounceable Rights Issue of up to RM10.0 million nominal value 3.00% Redeemable Convertible Unsecured Loan Stocks A ( RCULS-A ) at 100% of its nominal value of RM1.00 each on the basis of one (1) RCULS-A for every eighteen (18) existing ordinary shares of RM0.50 each in SILK Holdings Berhad ( SHB and SHB shares ) held prior to the Par Value Reduction exercise as disclosed in Note 36 to the financial statements in the Annual Report. Utilisation of the proceeds raised from the Rights Issue is as follows; Proposed Actual Intended Purpose Utilisation Utilisation Balance Timeframe for RM 000 RM 000 RM 000 Utilisation (i) Working capital 3, ,550 Up to 31 July 2010 (ii) Regularisation Scheme expenses 1,700 2,443 Fully paid The actual utilisation for the Regularisation Scheme expenses are higher than initially budgeted, therefore, the deficit was funded out of the portion allocated for working capital. The unutilised proceeds as at 31 July 2010 shall be made available to meet future working capital requirements. Besides the above, the Company did not undertake any corporate proposal to raise proceeds during the financial year ended 31 July SHARE BUY-BACK The Company does not have a scheme to buy-back its own shares. 3. OPTIONS OVER ORDINARY SHARES, WARRANTS OR CONVERTIBLE SECURITIES EXERCISED During the financial year ended 31 July 2010, the Company; i. issued 43,750,000 3% Redeemable Convertible Unsecured Loan Stocks B ( RCULS-B) at nominal value of RM1.00 each as part of the considerations for the acquisition of AQL Aman Sdn Bhd. ii. iii. issued 654,449 3% Redeemable Convertible Unsecured Loan Stocks (CR) ( RCULS CR) at nominal value of RM1.00 each to the holders of RCULS-B in lieu of cash payment of the first RCULS-B semi-annual dividends. and varied 20% 10-Year Cumulative Non-Convertible Redeemable Preference Shares ( CN-RPS ) into 20% 10-Year Cumulative Convertible Redeemable Preference Shares ( CCRPS ) upon approval of the holders of CN-RPS and the ordinary shareholders of the Company. Both RCULS-B and RCULS (CR) confer their holders the right to convert the loan stocks into ordinary shares beginning from the third anniversary of RCULS-B until their maturity date of 13 October 2014, at the rate of one (1) RM1.00 nominal value RCULS-B and/or RCULS (CR) for four (4) new ordinary shares of RM0.25 each of the Company. The CCRPS confers its holders the right to convert part or the whole of the CCRPS held together with the sum equal to any arrears and accruals of the dividend in respect of such CCRPS into ordinary shares, at any time on or before its maturity date (5 November 2013), at the rate of four (4) ordinary shares of RM0.25 each of the Company for every RM1.00 paid (inclusive of premium and accrued dividends). During the financial year, RM2,871,320 CCRPS and RM378,275 accrued dividends have been converted into 12,999,819 new ordinary shares. SILK HOLDING BERHAD 101 annual report 2010

104 Additional Compliance information (cont d) 4. AMERICAN DEPOSITORY RECEIPT ( ADR ) OR GLOBAL DEPOSITORY RECEIPT ( GDR ) PROGRAMME The Company did not sponsor any ADR or GDR programme during the financial year ended 31 July SANCTIONS AND/OR PENALTIES There were no public sanctions and/or penalties imposed on the Company and its subsidiaries, Directors or Management by the relevant regulatory bodies during the financial year ended 31 July NON-AUDIT FEES The non-audit fees paid/payable to the independent auditors of the Company and its subsidiaries for the financial year ended 31 July 2010 amounted to RM118, VARIATION IN RESULTS There was no variance of 10% or more between the audited results for the financial year ended 31 July 2010 and the unaudited results previously announced by the Company. 8. PROFIT GUARANTEE There was no profit guarantee given by the Company during the financial year ended 31 July MATERIAL CONTRACTS INVOLVING DIRECTORS AND MAJOR SHAREHOLDERS INTERESTS There were no material contracts (not being contracts entered into in the ordinary course of business) entered into by the Company and/or its subsidiaries involving directors and major shareholders interests during the financial year ended 31 July REVALUATION POLICY ON LANDED PROPERTIES The Company does not have a revaluation policy on landed properties. 11. STATEMENT BY AUDIT COMMITTEE IN RELATION TO THE ALLOCATION OF OPTIONS OVER ORDINARY SHARES PURSUANT TO THE EMPLOYEES SHARE OPTION SCHEME As at 31 July 2010, the Company has not allocated any options over ordinary shares pursuant to Employees Share Option Scheme. 12. RECURRENT RELATED PARTY TRANSACTIONS Pursuant to Chapter 10, Paragraph of the Main Market Listing Requirements of Bursa Securities, the Recurrent Related Party Transaction of a revenue or trading nature of the Group with value equals to or exceeding RM1 million, conducted pursuant to the Shareholders Mandate during the financial year ended 31 July 2010 is as follows; Value of Transacting party Nature of the transaction Interested Director transaction in RM 000 Dekon Tajul Nursery Highway routine Datuk Razman M Hashim 1,263 & Landscaping Sdn Bhd maintenance and landscaping Dekon Tajul Nursery & Landscaping Sdn Bhd ( Dekon ) is a 100% subsidiary of Dekon Holdings Sdn Bhd. Dekon is deemed related to the Group by virtue of the mutual interest and directorship Datuk Razman M Hashim has in Dekon Holdings Sdn Bhd and the Group. SILK HOLDING BERHAD 102 annual report 2010

105 substantial shareholders as at 30 September 2010 No. of Shares % 1. Johan Zainuddin bin Dzulkifli* 145,355, % 2. Abdul Rahman bin Ali** 94,000, % 3. Dato Mohammed Azlan Hashim*** 79,555, % 4. Infra Bumitek Sdn Bhd 79,555, % 5. Bijak Permai Sdn Bhd 37,600, % 6. Tey Chee Thong 20,572, % Notes: * Direct and deemed interest through Infra Bumitek Sdn Bhd and Bijak Permai Sdn Bhd ** Direct and deemed interest through Temuras Jaya Sdn Bhd *** Deemed interest through Infra Bumitek Sdn Bhd SILK HOLDING BERHAD 103 annual report 2010

106 Directors interests in shares and loan stocks as at 30 September 2010 Ordinary Shares of RM0.25 each No. of Shares % 1. Johan Zainuddin bin Dzulkifli - direct interest 28,200, % - deemed interest* 117,155, % 145,355, % 2. Dato Mohammed Azlan Hashim - deemed interest** 79,555, % 3. Tai Keat Chai - deemed interest*** 1,000, % 4. Abdul Hamid bin Sh. Mohamed - direct interest 1,000, % Preference Shares of RM0.10 each No. of Shares % 1. Datuk Razman M Hashim - deemed interest**** 3,377, % Loan Stocks of RM1.00 each No. of Shares % 1. Johan Zainuddin bin Dzulkifli - direct interest 7,155, % - deemed interest 9,540, % Notes: * Deemed interest through Infra Bumitek Sdn Bhd and Bijak Permai Sdn Bhd ** Deemed interest through Infra Bumitek Sdn Bhd *** Deemed interest through the shares held by his spouse **** Deemed interest through Petroforce (M) Sdn Bhd SILK HOLDING BERHAD 104 annual report 2010

107 analysis of shareholdings as at 30 September 2010 Cumulative Convertible Redeemable Preference Ordinary Shares Shares ( CC-RPS ) Total (RM) Authorised share capital 3,992,000,000 20,000,000 1,000,000,000 Issued and paid up share capital 397,049,397 15,100,000 99,262,349 Class of shares Ordinary Shares of CCRPS of RM0.10 each RM0.25 each Voting rights One vote One vote per CCRPS per ordinary share Note: Each holder of CC-RPS shall have one vote per CC-RPS only if the business of the general meeting includes the reduction of capital of the Company, winding up of the Company, and abrogation or variation of the special rights and priviledges attacghed to the CC-RPS and the creation or issue of any further shares ranking in priority to or pari passu with the CC-RPS but shall otherwise have no right to vote at general meetings of the Company (A) ORDINARY SHARES Distribution of shareholdings No. of % of No. of % of Size of Shareholdings Shareholders Shareholders Shares Held Shareholdings % % 100-1, % 604, % 1,001-10, % 4,906, % 10, , % 25,115, % 100,001-19,852,468* % 130,358, % 19,852,469 and above** % 236,063, % 2, % 397,049, % * Less than 5% of issued shares ** 5% and above of the issued shares SILK HOLDING BERHAD 105 annual report 2010