1 0 Statement Of Corporate Govern a n c e 1 8 Statement On Internal Control 2 0 Audit Committee Report CONTENTS

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5 5 Corporate Inform a t i o n 6 G roup Financial Inform a t i o n 6 Financial Calendar and S h a re Price Movement 7 D i rectors Pro f i l e 2 Notice Of Annual General Meeting 4 Statement Accompanying Notice Of Annual General Meeting 1 0 Statement Of Corporate Govern a n c e 1 8 Statement On Internal Control 2 0 Audit Committee Report CONTENTS 25 C h a i rm a n s Statement 28 Other Corporate Inform a t i o n 30 Financial Statements 85 List Of Pro p e rt i e s 87 S h a reholdings Statistics P roxy Form annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 1

6 NOTICE OF ANNUAL GENERAL MEETING AGENDA NOTICE IS HEREBY GIVEN THAT the Twenty-Seventh Annual General Meeting of the Members will be held at Matahari 1, Level 5, Cititel Mid Valley, Mid Valley City, Lingkaran Syed Putra, Kuala Lumpur on Monday, 23 December 2002 at a.m. for the following purposes: 1. To receive and consider the Audited Financial Statements for the financial year ended 30 June 2002 together with the Reports of the Directors and Auditors thereon. 2. To declare a first and final dividend of 3.5 sen per share less income tax of 28% for the financial year ended 30 June To approve Directors Fees of RM216,000 for the financial year ended 30 June To re-elect Y.Bhg. Dato Azizi Yom Ahmad who retires as a Director of the Company pursuant to Article 102 of the Company s Articles of Association. 5. To re-elect Mr. Khoo Henn Kuan who retires as a Director of the Company pursuant to Article 102 of the Company s Articles of Association. 6. To re-appoint Messrs. Sekhar & Tan as Auditors of the Company to hold office until the conclusion of the next Annual General Meeting at a remuneration to be determined by the Directors. 7. Special Business: (Resolution No. 1) (Resolution No. 2) (Resolution No. 3) (Resolution No. 4) (Resolution No. 5) (Resolution No. 6) (Resolution No. 7) To consider and if thought fit, to pass the following ordinary resolution: AUTHORITY TO ISSUE SHARES PURSUANT TO SECTION 132D OF THE COMPANIES ACT, 1965 THAT subject always to the approvals of the relevant authorities, the Directors of the Company be and are hereby empowered pursuant to Section 132D of the Companies Act, 1965 to issue shares in the Company at any time and upon such terms and conditions and for such purposes as the Directors of the Company may in their absolute discretion deem fit, provided that the aggregate number of shares issued pursuant to this resolution does not exceed 10% of the issued capital of the Company as at the date of this Annual General Meeting and that the Directors of the Company be and are hereby empowered to obtain the approval for the listing of and quotation for the additional shares so issued on the Kuala Lumpur Stock Exchange and that such authority shall continue to be in force until the conclusion of the next Annual General Meeting of the Company. 8. To transact any other business for which due notice shall have been given. BY ORDER OF THE BOARD LIM BOON SIANG CHEN KEOW CHING Company Secretaries Kuala Lumpur 29 November HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

7 ANNUAL MEETING NOTICE OF GENERAL (CONT D) NOTES 1. A member entitled to attend and vote at the Meeting is not entitled to appoint more than one (1) proxy to attend and vote in his stead. A proxy may but need not be a member of the Company. If a proxy is granted to a non-member of the Company, he need not be any of the person described in Section 149(1)(b) of the Companies Act, Where a member is an authorised nominee as defined under the Securities Industry (Central Depositories) Act, 1991, it may appoint only one proxy in respect of each securities account it holds with ordinary shares of the Company standing to the credit of the said securities account. 2. If the appointor is a corporation, the form of proxy should be executed under its common seal or under the hand of an officer or attorney duly authorised in that behalf. 3. The instrument appointing a proxy must reach the Registered Office of the Company at Lots 59-60, Lorong Kuang Bulan, Taman Kepong, Kuala Lumpur not less than forty-eight (48) hours before the time set for the Meeting or any adjournment thereof. 4. Explanatory note on Special Business Authority to issue shares pursuant to Section 132D of the Companies Act, 1965 The proposed Ordinary Resolution No. 7, if passed, will give the Directors of the Company, from the date of this Annual General Meeting, authority to issue and allot ordinary shares from the unissued share capital of the Company for such purposes as the Directors of the Company may consider to be in the interest of the Company. This authority will, unless revoked or varied by the Company in general meeting, expire at the next Annual General Meeting of the Company. NOTICE OF DIVIDEND ENTITLEMENT NOTICE IS HEREBY GIVEN that the first and final dividend of 3.5 sen per share less income tax of 28%, in respect of the financial year ended 30 June 2002, if so approved by the shareholders at the Twenty-Seventh Annual General Meeting, will be paid on 19 March 2003 to shareholders appearing in the Register of Members or Record of Depositors as at the close of business on 20 February Further notice is given that a Depositor shall qualify for entitlement only in respect of: (1) Shares deposited into the depositor s securities account before pm on 18 February 2003 (in respect of shares which are exempted from mandatory deposit); (2) Shares transferred into the depositor s securities account before pm on 20 February 2003 in respect of ordinary transfers; and (3) Shares bought on the Kuala Lumpur Stock Exchange on a cum entitlement basis according to the Rules of the Kuala Lumpur Stock Exchange. annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 3

8 STATEMENT ACCOMPANYING NOTICE OF ANNUAL GENERAL MEETING (Pursuant to Paragraph 8.28(2) of the Listing Requirements of Kuala Lumpur Stock Exchange) 1. Directors who are standing for re-election at the Twenty-Seventh Annual General Meeting of the Company: Pursuant to Article 102 of the Company s Articles of Association Y.Bhg. Dato Azizi Yom Ahmad Mr. Khoo Henn Kuan Further details of Directors who are standing for re-election are set out in the Directors Profile appearing on pages 7 and 8 of the Annual Report. 2. The place, date and time of the Twenty-Seventh Annual General Meeting is set out in the Notice of Annual General Meeting. 4 HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

9 Board of Directors Dato Azizi Yom Ahmad Chi Oi Meng Khoo Henn Kuan Chi Kin Meng Dato Paduka Dr. Khairuddin bin Mohamed Yusof Ng Teng Seng Audit Committee Dato Paduka Dr. Khairuddin bin Mohamed Yusof Ng Teng Seng Chi Oi Meng (Chairman) (Executive Deputy Chairman) (Chief Executive Officer) (Executive Director) (Independent Non-Executive Director) (Independent Non-Executive Director) (Chairman, Independent Non-Executive Director) (Independent Non-Executive Director) (Non-Independent Executive Director) Secretaries Lim Boon Siang Chen Keow Ching Registered Office Lots 59-60, Lorong Kuang Bulan Taman Kepong Kuala Lumpur Tel : Fax : mail@hingyiap.com CORPORATE INFORMATION Office In Which The Statutory Registers are Kept Secfin Sdn Bhd Suite 9.06, Level 9, Wisma Technip 241, Jalan Tun Razak Kuala Lumpur Tel : Fax : Registrar Lawco Corporate Services Sdn Bhd Suite 9.06, Level 9, Wisma Technip 241, Jalan Tun Razak Kuala Lumpur Tel : Fax : Auditors Sekhar & Tan Suite 8.01, Level 8, Wisma Technip 241, Jalan Tun Razak Kuala Lumpur Solicitors Azhar & Goh Skrine Bankers Malayan Banking Berhad AmBank Berhad United Overseas Bank (Malaysia) Berhad Hong Leong Bank Berhad Stock Exchange Kuala Lumpur Stock Exchange Second Board (21 February 1997) Stock Code and Stock Name 7722 (International Securities Identification Number (ISIN): MYL7722OO001); hingyap annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 5

10 GROUP FINANCIAL INFORMATION RM Revenue 103,280 99,561 96,588 79,748 72,437 68,288 Profit Before Exceptional Items 7,313 7,221 9,651 8,599 8,001 11,008 Profit Before Taxation 8,368 6,560 8,875 3,964 3,977 7,800 Net Profit 5,297 4,592 6,007 4,483 2,530 5,394 Shareholders' Funds 60,580 54,591 50,554 44,678 40,211 37,802 SEN PER SHARE Earnings per Share Basic * 15.24* 11.66* 6.59* 16.58* Fully Diluted * 15.08* 11.59* 6.59* 16.58* Dividends per Share - Gross RM Net Tangible Assets per Share * Adjusted for bonus issue of seven (7) new ordinary shares of RM 1.00 each for every twenty-five (25) existing ordinary shares of RM 1.00 each, which was allotted on 22 February The Company was listed on the Second Board of the Kuala Lumpur Stock Exchange on 21 February 1997 FINANCIAL CALENDAR & SHARE PRICE MOVEMENT Quarterly results announcement First quarter ended November 2001 Second quarter ended February 2002 Third quarter ended May 2002 Fourth quarter ended August 2002 Share Prices on the Kuala Lumpur Stock Exchange 10 months Calender Year Highest - RM Lowest - RM 0.92# 0.90** Closing - RM 1.00# 1.38** ** Ex-bonus issue of one (1) new ordinary share of RM 1.00 each for every two (2) existing ordinary shares of RM 1.00 each. # Ex-bonus issue of seven (7) new ordinary shares of RM 1.00 each for every twenty-five (25) existing ordinary shares of RM 1.00 each. 6 HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

11 DATO AZIZI YOM AHMAD Dato' Azizi Yom Ahmad, aged 53, Malaysian, is the Non-Executive Chairman of the Board of Directors. He was appointed to the Board on 18 August He obtained his Bachelor of Economics degree from Monash University, Australia and is an associate member of the Institute of Chartered Accountants in Australia. Dato' Azizi has had a successful career, where he started off with Bank Nationale de Paris in Australia before returning to Malaysia and served in various organisations such as the Head of the Accounting Department of Malayan Banking Berhad in 1983, Manager of the Accounting Department of Bank Negara Malaysia in 1984, and Secretary of the Capital Issues Committee in 1985, a position he held until Thereafter, he became the Managing Director of RHB Sakura Merchant Bankers Berhad (then known as DCB Sakura Merchant Bankers Berhad). In 1993, he ventured into private business and he now sits on the board of Seacera Tiles Berhad, where he is also the Executive Vice-Chairman and several private companies. Dato Azizi does not have any family relationship with any Director and/or major shareholder nor have any conflict of interest with Hing Yiap Knitting Industries Berhad. He has had no conviction for any offences within the past ten (10) years. Dato Azizi attended four (4) out of the five (5) Board meetings held during the financial year. His shareholding in the Company is disclosed in page 36 of the Directors Report. DIRECTORS PROFILE CHI OI MENG Chi Oi Meng, aged 45, Malaysian, was appointed to the Board on 18 March 1988 and is the Executive Deputy Chairman of the Company. She graduated with a Bachelor of Commerce degree from the University of Melbourne, Australia. She is also a member of the Australian Society of Certified Practising Accountants. Ms. Chi has extensive experience in financial management and accounting having worked as an accountant and bank officer in Australia prior to joining the Company in 1984 as the accountant cum personal assistant to the then Managing Director. Ms. Chi rose through the ranks in the Company and was the Managing Director prior to assuming her present post. Ms. Chi is also a member of the Audit Committee and Employees Share Option Scheme ( ESOS ) Committee. She has had no conviction for any offences in the past. She attended all five (5) Board meetings held during the financial year. She is not a director of other public companies. Ms. Chi is the spouse of Mr. Khoo Henn Kuan and sister to Mr. Chi Kin Meng, and is also a substantial shareholder of the Company. Her shareholdings in the Company and subsidiary companies are disclosed in page 36 of the Directors Report. Save for certain recurrent related party transactions of a revenue nature disclosed in Note 27 to the financial statements, Ms. Chi does not have any conflict of interest with the Company. annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 7

12 KHOO HENN KUAN PROFILE DIRECTORS (CONT D) Khoo Henn Kuan, aged 47, Malaysian, is the Chief Executive Officer and an Executive Director of the Company. He graduated with a Bachelor of Architecture degree from the University of Melbourne in He also holds a Master degree in Town and Country Planning from University of Sydney. He is also a member of the Malaysian Institute of Management and the Malaysian Institute of Architects. Mr. Khoo started his career as an Architect-Town Planner in 1983 in Australia. Upon his return to Malaysia in 1984, he continued his career as an Architect-Town Planner in a professional architecture and town planning firm in Kuala Lumpur before joining the Company as General Manager in He was appointed to the Board on 20 February 1989 and to his present position as Chief Executive Officer in Mr. Khoo is a member of the ESOS Committee. He has had no conviction for any offences in the past. He attended all five (5) of the Board meetings held during the financial year. He is not a director of other public companies. Mr. Khoo is the spouse of Ms. Chi Oi Meng and brother-in-law to Mr. Chi Kin Meng, and is also a substantial shareholder of the Company. His shareholdings in the Company and subsidiary companies are disclosed in page 36 of the Directors Report. Save for certain recurrent related party transactions of a revenue nature disclosed in Note 27 to the financial statements, Mr. Khoo does not have any conflict of interest with the Company. DATO' PADUKA DR. KHAIRUDDIN BIN MOHAMED YUSOF Dato' Paduka Dr. Khairuddin bin Mohamed Yusof, aged 63, Malaysian, is an Independent Non-Executive Director and was appointed to the Board on 5 October He graduated with a MBBS degree from Sydney University, Australia in 1964 and became a Member of the Royal College of Obstetrics and Gynaecology (Sydney) in He was made a Fellow of the Royal College of Obstetrics and Gynaecology (United Kingdom) and a Fellow of the Institute and College of Surgeons (United Kingdom) in He was a senior consultant in clinical obstetrics and gynaecology at Universiti Hospital, while at the same time holding the post of professor of Social Obstetrics and Gynaecology in Universiti Malaya. He was awarded a lifetime achievement award by the Asia Pacific Academic Consortium for Public Health. For a time he was an honorary professor at the School of Public Health, University of Hawaii. Dato Paduka Dr. Khairuddin has had a distinguished career in medicine and tertiary education, having served Universiti Malaya in various capacity, starting as a lecturer and then progressing through the ranks to Dean, Faculty of Medicine in He was also the Deputy Vice-Chancellor (Finance and Development) from 1986 to 1989 and on several occasions served the university in his capacity as the Acting Vice-Chancellor. He is very active in community service, having served at various times as a consultant in his field of expertise to the Malaysian Government and international organisations such as the World Bank, UNICEF, Rand Corporation, Asia-Pacific Academic Consortium for Public Health and the World Health Organisation. He was actively involved as a consultant to SIRIM on artificial intelligence, and is currently a consultant to Perak College of Medicine and a Director of Telemedicine Services, WorldCare Health (Malaysia) Sdn Bhd. He has published textbooks and academic papers during his career. A sports enthusiast, Dato Paduka Dr. Khairuddin actively participates in mountaineering, marathon, running, triathlon and the iron-man challenge. He is the Chairman of the Audit Committee of the Company. He is not a director of other public companies. Dato Paduka Dr. Khairuddin does not have any family relationship with any Director and/or major shareholder nor have any conflict of interest with Hing Yiap Knitting Industries Berhad and does not hold any shares in the Company and subsidiary companies. He has had no conviction for any offences within the past ten (10) years. Dato Paduka Dr. Khairuddin attended all five (5) Board meetings held during the financial year. 8 HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

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14 STATEMENT OF CORPORATE GOVERNANCE The Board of Directors of Hing Yiap Knitting Industries Berhad ( Hing Yiap or the Company ) is pleased to report on the manner in which the Principles set-out in Part 1 of the Malaysian Code on Corporate Governance (the Code ) are applied and the extent of compliance with the Best Practices in Corporate Governance set-out in Part 2 of the said Code, pursuant to paragraph of the Kuala Lumpur Stock Exchange ( KLSE ) Listing Requirements (the Listing Rules ). The Board recognises the importance of adopting a good corporate governance culture in the organisation. The Board takes cognizant of the fact that appropriate standards of corporate governance should be practised throughout the Company, based on the Company s culture and business, as a fundamental part of discharging its responsibilities towards the protection and enhancement of shareholder value and the financial performance of the Company. The Company s operations are neither complex nor sophisticated to warrant formalisation of policies or a comprehensive form of reporting. There is an implicit understanding of duties and responsibilities. The Board recognises that cost competitiveness and management remain a key consideration in the Company s operating environment and has to be balanced with the Principles and Best Practices of the Code. The Best Practices promulgated may not be practical to be implemented in its recommended form. Following the implementation of the KLSE Listing Requirements, the Board appointed an independent external consultant to review the state of Hing Yiap s corporate governance vis-à-vis the Code. The Board has adopted the diagnostic review report and certain practical recommendations were implemented. The Board is considering implementing the other recommendations made in the diagnostic report in the near and medium term. The Principles of the Code applicable to the Company are as follows: Part A: Directors Part B: Directors Remuneration Part C: Shareholders Part D: Accountability and Audit The manner in which the Company has applied the foregoing Principles is described in the following paragraphs. PART A: DIRECTORS The Board The Board of Directors of Hing Yiap provides the leadership and control for the Company. The Board meets at regular intervals and is responsible for the proper management of the Company. All Board members bring an independent judgement to bear on the issues of strategy, performance and resources, including appointments and standards of conduct. The Board meets at least four (4) times a year and additional Board meetings are convened where necessary. Sufficient notices are given to the Board prior to each meeting. During the financial year, the Board has convened five (5) meetings, as follows: Meeting No. Date Time 3/2001 Saturday, 25 August a.m. 4/2001 Monday, 15 October a.m. 5/2001 Thursday, 29 November a.m. 1/2002 Thursday, 28 February a.m. 2/2002 Monday, 20 May a.m. The Board meetings were all held at the registered office at Lots 59-60, Lorong Kuang Bulan, Taman Kepong, Kuala Lumpur. 10 HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

15 STATEMENT OF CORPORATE GOVERNANCE (CONT D) The Company Secretary records minutes of meetings and conclusions by the Board in the discharge of their duties and responsibilities. All the Directors have attended at least 50% of the total Board meetings held. Their attendance are as follows: Director No. of Meetings attended Y.Bhg. Dato Azizi Yom Ahmad 4/5 Chi Oi Meng 5/5 Khoo Henn Kuan 5/5 Y.Bhg. Dato Paduka Dr. Khairuddin bin Mohamed Yusof 5/5 Chi Kin Meng 5/5 Ng Teng Seng 4/5 Best Practices in Corporate Governance as set-out in Part 2 of the Code provides that the Board explicitly assumes six (6) specific responsibilities, which facilitate the discharge of the Board s stewardship responsibilities. The state of the Company s compliance with these specific responsibilities and alternative practices adopted are as follows: 1. Reviewing and adopting strategic plan for the Compan y A business and marketing plan is developed by management to chart the direction of the Company s business at the start of every financial year. Management would brief the Board on the business direction and action plans that will be undertaken. The Company recognises that the fashion industry and retailing environment is dynamic and constantly evolving. Management has to be constantly aware of such challenges and adapt accordingly, even if such modification and change involves a complete different set of action plans. The Board is informed at the Board meetings of the state of the Company s business environment and revised action plans that may have been taken. 2. Overseeing the conduct of the Company s business to e valuate whether the business is being properly managed The Executive Directors are involved in the day-to-day operations of the Company, having the relevant knowledge and experience of the business and industry. They are supported by executives who have the relevant experience in finance, human resource, production, sourcing, merchandising, marketing and operations. The Non-Executive Directors, who have diverse experience, bring a broader view and input to the Company s activities. 3. Identifying principal risks and ensure the implementation of appropriate systems to manage these risks Currently the Company has not formalised a system of risk identification and management. Risk assurances are performed by the internal audit function on business processes. The Executive Directors, based on their intimate knowledge and experience of the business, and the executives that formed the management team are implicitly expected to have a degree of knowledge of the principal risks and to ensure the implementation of a proper system to manage such risk. The Company appointed an independent accounting firm to assess the Company s readiness pursuant to the requirements of paragraph (b) of the Listing Rules and The KLSE Task Force s Guidance for Directors of Public Listed Companies on Internal Control. Following this review, the Company will work with the consultant to determine future state requirements for the Company s system of internal control and to co-develop a prioritised action plan on how the Company can achieve it. Pursuant to the review as mentioned in the preceding paragraph, the Board is considering appointing the external consultant to assess the Company s risk management policy and to assist management to identify and formalise such policy. annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 11

16 STATEMENT OF CORPORATE GOVERNANCE (CONT D) 4. Succession planning, including appointing, training, fixing the compensation of and where appropriate, replacing senior management The Board has not adopted a formalised succession plan for management. It is implied that the daily operations of the Company can be rested among the Executive Directors, and supported by executives of the management in the various discipline. The Executive Directors determines the appointment, training and compensation for all employees. Should a successor be required and no suitable candidate can be found internally, the Company may find candidates from external sources. 5. Developing and implementing an investor relations programme or shareholder communications policy for the Company The Board has not formalised an investor relations programme or shareholder communications policy. Investors and shareholders are informed of the Company s business by way of the quarterly announcement of financial results, and other requisite announcements of corporate developments, and communication with shareholders in the Annual General Meeting. The Company is not adverse to communication with investors and shareholders and has entertained requests for documents and information from such investors and shareholders. 6. Reviewing the adequacy and the integrity of the Company s internal control systems and management information systems, including systems for compliance with applicable laws, regulations, rules, directi ves and guidelines. Management is tasked with ensuring that a proper system of internal control is in place. This task is supplemented by the internal audit function. As described in the explanations on risk management, the Board appointed an external consultant to review the state of the Company s internal control system and its readiness vis-à-vis the KLSE Task Force s Guidance for Directors of Public Listed Companies on the Statement of Internal Control. Board Balance The Articles of Association of Hing Yiap provides that the number of Directors shall not be less than two (2) or more than twenty (20). The current Board comprised six (6) Directors, of which three (3) are Executive Directors, two (2) or one-third are Independent Non-Executive Directors and is chaired by a Non-Executive Director. The Executive Directors, who are jointly deemed to be a significant shareholder, are family members and are involved in the daily management of the Company. The Non-Executive Directors are independent of management and have no relationships that could materially interfere with the exercise of their independent judgement. Together, the Directors have wide ranging experience in business, corporate and financial experience. The Board is free to discuss all matters regarding the affairs of the Company, without any restrictions or limitations being imposed on any Director. Where matters discussed involve the interest of the Executive Directors, they shall state their interest and shall refrain from discussions and decision-making, and in such conflict of situation the decision of the Non-Executive Directors shall prevail. No individual or a Company of individuals dominates the Board s decision making. The roles of the Chairman of the Board and the Chief Executive Officer are not combined. Dato Paduka Dr. Khairuddin bin Mohamed Yusof, an Independent Non-Executive Director, also assumes the role as Senior Independent Non-Executive Director. Based on the nature of the Company s business and the size of its operations, the present Board representation fairly reflects the interest of significant shareholder and minority shareholders. The Board is considering developing a policy to assess the size of the Board to determine the impact of the number upon its effectiveness. 12 HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

17 STATEMENT OF CORPORATE GOVERNANCE (CONT D) Supply of Information Directors are given appropriate information in advance of each Board meeting. These information include, and not limited to the following: Draft quarterly financial report prior to public release. Draft announcements of any corporate proposals prior to public release. A report on current trading and business issues. Draft minutes of meeting of the previous Board meeting. Minutes of meeting of the Audit Committee. Summary of Directors resolutions of the Company that were made since the last Board meeting. Proposals for any corporate exercise, including acquisitions and disposals. Summary of related party transactions. Changes in Directors and substantial shareholders shareholding in Hing Yiap. Reports of the external and internal auditors. Replies to queries from the authorities. The Company Secretary and management normally assist the Chairman in organising the information necessary for the Board to deal with the agenda and providing the information to the Directors on a timely basis. In the furtherance of their duties, the Directors have access to all information within the Company, to seek advise from independent professional advisors at the Company s expense and access to the advice and services of the Company Secretary. The Audit Committee reports to the Board during the Board meeting. The terms of reference, authority and activities of the Audit Committee, which are approved by the Board, are detailed in pages 20 to 24. The Employees Share Option Scheme ( ESOS ) is administered by a committee comprising four (4) senior management, of which Ms. Chi Oi Meng and Mr. Khoo Henn Kuan are members. The responsibility of the ESOS Committee is to administer the ESOS in accordance with the terms of the ESOS bye-laws. The ESOS committee reports to the Board from time to time. The Board will be considering the implementation of the following: Develop a formal schedule of matters specifically reserved to it for decision to ensure that the direction and control of the Company is firmly in its hands. Develop position descriptions for the Board and the Chief Executive Officer, involving definition of the limits to management s responsibilities. Develop corporate objectives which the Chief Executive Officer is responsible for meeting. Appointments to the B o a rd Hing Yiap does not have a nomination committee for the appointment of new Director, due to the relative small size of the Company s business and present Board composition. The full Board shall deliberate and decide on the appointment of new Director if new nominees are proposed. During the financial year there were no nominees proposed for the Board s consideration. The Board is entitled to the services of the Company Secretary who ensures that all appointments are properly made, that all necessary information is obtained from Directors, both for the internal records and for the purposes of meeting statutory obligations, as well as obligations arising from the Listing Rules or other regulatory requirements. The Joint Company Secretaries are appointed by the Board and are persons who are capable of carrying out the duties in which the post entails, providing effective support to the Chairman and Deputy Chairman to ensure the effective functioning of the Board. Removal of Company Secretary is a matter for the Board as a whole to decide. annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 13

18 STATEMENT OF CORPORATE GOVERNANCE (CONT D) During the financial year, all Directors attended the Mandatory Accreditation Programme organised by Research Institute of Investment Analysts, an affiliate company of the KLSE. Mr. Ng Teng Seng, who was appointed to the Board on 1 July 2001, was given a briefing on the Company s business. The Board will be considering the implementation of the following: Develop a formal annual review of the mix of skills and experience and other qualities, including core competencies which Non-Executive Directors should bring to the Board. Develop a policy to assess the effectiveness of the Board as a whole, the committees of the Board and the contribution of each individual Director. Develop a continuing education programme for Directors in the furtherance of their duties. Re-election In accordance with the Articles of Association, all Directors who are appointed by the Board shall hold office only until the next annual general meeting and shall be eligible for re-appointment by the shareholders. In addition, the Articles of Association also provides that at every annual general meeting, one-third of the Directors, including the Managing Director, shall retire from office provided always that all Directors shall retire at least once in every three (3) years. A retiring Director shall be eligible for re-election. PART B: DIRECTORS REMUNERATION The Level and Make-up of Remuneration The Board has adopted the Principle as recommended by the Code. The Board ensures that the level of remuneration is sufficient to attract and retain Directors needed to run the Company successfully. The component part of remuneration have been structured to link rewards to corporate and individual performance for Executive Directors whilst Non-Executive Directors remuneration reflect the experience and level of responsibilities undertaken by individual Non-Executive Directors. Procedure The Board has not appointed a remuneration committee as it is of the opinion that the Board as a whole could determine the remuneration of Directors, with outside advice where necessary. The practices adopted by the Board are as follows: When considering the remuneration of the Executive Directors, decisions are made by the Non-Executive Directors. The Executive Directors refrain from any form of deliberation and play no part in the decision-making process of their own remuneration. The remuneration of the Non-Executive Directors is a matter for the Board as a whole to decide. The individual Director concerned abstains from discussion of his own remuneration. All Directors remuneration are subject to the approval of the shareholders in the Annual General Meeting. 14 HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

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20 STATEMENT OF CORPORATE GOVERNANCE (CONT D) It is Hing Yiap s practice to pay the Directors fees in one lump sum immediately upon the conclusion of the Annual General Meeting where the requisite approval has been obtained from the shareholders. If a Director vacates office prior to the convening of the Annual General Meeting, the Directors fees due to him up to the date of vacation shall be immediately paid to him. The remuneration package of the Executive Directors is set-out in their service contracts with the Company, which are reviewed and approved by the Non-Executive Directors in the Board meeting held on 15 October The service contracts, which take effect on 15 October 2001 for a duration of three (3) years, contain the following elements: Basic salary is reviewed annually and any increment is discretionary and subject to satisfactory performance and contribution to the Company. Annual bonus is discretionary and reviewed annually subject to the performance of the Company. Contribution to the Employees Provident Fund is based on the statutory rate. Benefits-in-kind, includes a company car and leave passage. Compensation for loss of office, which is calculated based on three (3) months of the last drawn salary for each year of service as a Director with Hing Yiap. The Board as a whole determines the remuneration of the Non-Executive Directors, who do not take part in the discussions on their own remuneration. PART C: SHAREHOLDERS Dialogue between Companies and Investors The Board has not formalised an investor relations programme or shareholder communications policy. The Company is not adverse to communication with investors and shareholders and has entertained requests for documents and information from such investors and shareholders. The Board views the Annual General Meeting as an ideal opportunity to communicate with investors. Whilst the Company endeavours to provide as much information as possible to its shareholders, it is also wary of the legal and regulatory framework governing the release of material and price-sensitive information. I nvestors and shareholders are informed of the Company s business development by way of the quarterly announcement of financial results and annual reports, and other requisite announcements of corporate developments. These information may be assessed from the website of the KLSE at In addition, interviews conducted from time to time by local journalists with the management of the Company are reported in the local newspapers. The Annual General Meeting The Annual Report, which contains the Notice of Annual General Meeting, is sent to the shareholders at least twenty-one (21) days prior to the date of the meeting. The Notice of Annual General Meeting, which sets-out the business to be transacted at the Annual General Meeting, is also published in a major local newspaper. In the case of election or re-election of Directors, the Statement Accompanying the Notice of Annual General Meeting will have a brief description of the Directors concerned. Item of special business included in the Notice of Annual General Meeting will be accompanied by an explanation of the proposed resolution. At each meeting, shareholders are able to participate in the question and answer session in respect of the matters listed in the Notice of Annual General Meeting. There is no time limitation for shareholders to raise questions and to solicit reply from the Board. 16 HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

21 STATEMENT OF CORPORATE GOVERNANCE (CONT D) A press conference is held at the end of each Annual General Meeting where the Chairman, Chief Executive Officer and other executives of the management will field questions from the media in respect of the resolutions passed and other matters pertaining to the Company s business. The last Annual General Meeting was held at Bilik Kelantan, Putra World Trade Centre, 41, Jalan Tun Ismail, Kuala Lumpur on Friday, 21 December PART D: ACCOUNTABILITY AND AUDIT Financial Reporting The Company operates, and attaches importance to, clear principles and procedures designed to achieve accountability and control appropriate to its business. In presenting the annual financial statements and quarterly financial reports, the Directors aim to present a balanced and understandable assessment of the Company s position and prospects. Statement of Directors Responsibility for preparing the Annual Audited Financial Statements The Directors are required by the Companies Act, 1965 ( the Act ) to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and the Group at the end of the financial year and of their results and cashflows for the financial year ended on that date. The Act and the Listing Requirements of KLSE require the financial statements to be prepared in accordance with the applicable approved accounting standards in Malaysia and the provisions of the Act. The Directors have considered that, in preparation of the financial statements for the financial year ended 30 June 2002, the Group has used appropriate accounting policies, which are consistently applied and supported by reasonable and prudent judgements and estimates. The Directors are responsible for ensuring that proper accounting records are kept which disclose with reasonable accuracy the financial position of the Company and the Group, which enable them to ensure that the financial statements comply with the Act. The Directors have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group, and to prevent and detect fraud and other irregularities. Internal Control The Board maintains a reasonable sound system of internal control to safeguard shareholders investments and the Company s assets. The Company s Statement on Internal Control is detailed in pages 18 to 19. Relationship with the Auditors The Audit Committee and the Board have established formal and transparent arrangements to maintain an appropriate relationship with the auditors as stated in the Audit Committee Report in pages 20 to 24. This Statement of Corporate Governance is made in accordance with a resolution of the Board dated 31 October annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 17

22 STATEMENT ON INTERNAL CONTROL The Board of Directors ( the Board ) of Hing Yiap Knitting Industries Berhad ( HYKI or the Group ) acknowledges its overall responsibility for the Group s system of internal control and the need to review its adequacy and integrity regularly. In this connection, the Board is pleased to provide the following Statement on Internal Control which outlines the scope of internal control of HYKI during the financial year pursuant to paragraph (b) of the Kuala Lumpur Stock Exchange Listing Requirements. The Board recognises that risks cannot be eliminated completely, and as such, the system of internal control of HYKI is designed to manage rather than eliminate the risk of failure to achieve business objectives and thus can only provide reasonable but not absolute assurance against material misstatement or loss. The following elements of a sound system of internal control are present in HYKI: Strategic Business Direction The Group s business objectives, vision, mission and corporate values are communicated throughout the organisation through its Business Plan, management meetings and interaction between the Executive Directors with management and employees. The Board has reviewed and adopted the Business Plan. Risk Management The Board is fully aware of the principal risks faced by HYKI and has put in place the appropriate controls to manage these risks through the involvement of the Executive Directors in the day-to-day operations of the Group. The performance of HYKI is monitored through strategic, management and operational level meetings. Significant matters identified during these meetings are highlighted to the Board on a timely basis. Audit and Credit Committees The Audit Committee is tasked with responsibilities in relation to the Group s accounting and reporting practices, internal and external auditors, and the adequacy of administrative, operating and accounting controls. In addition, HYKI has in place a Credit Committee to assist the management to review its collection and debtors performance. This Credit Committee has been tasked with the responsibilities to monitor credit collection and implement credit control policies to manage credit risks. Significant developments and matters under their purview will be highlighted to the Board. The Board reviews the minutes of meetings of the Audit Committee. The terms of reference of the Audit Committee is set-out in the Audit Committee Report on pages 20 to 24 of the Annual Report. Internal Audit Function HYKI outsourced its internal audit function to a professional services firm, whose remit is to the Audit Committee. In connection with the internal audit of HYKI, the Audit Committee has approved an internal audit plan, which was co-developed by the outsourced internal audit function and the Audit Committee. Applying a risk-based approach, periodic internal audit visits have been carried out to monitor compliance with the Group s procedures and to provide assurance on the effectiveness of the Group s system of internal control. Policies and Procedures During the financial year, the manufacturing function of HYKI has been awarded with MS ISO 9001:2000 Quality Management Systems Certification. ISO procedures manuals have laid out the policies and procedures to govern various aspects of business operations incorporating necessary controls to mitigate risks. 18 HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

23 STATEMENT ON INTERNAL CONTROL (CONT D) Organisation Structure and Corporate C u l t u re The current organisational structure enables a clear reporting line from lower management level up to the Board. Job functions and areas of responsibilities of certain employees are outlined in job descriptions and authority chart. HYKI also practices an open-door policy that allows matters to be identified and resolved timely and efficiently. Subsequent to the current financial year, a high-level assessment of the Group s system of internal control was undertaken by the internal audit function to assess the Group s readiness to make the Statement on Internal Control, based on the Statement on Internal Control: Guidance for Directors of Public Listed Companies issued by the Kuala Lumpur Stock Exchange s Task Force on Internal Control. This assessment has identified the following key features of HYKI s system of internal control, including those highlighted above: Strategic Business Plan that define HYKI s business objectives and future directions. The Board is aware of the principal risks affecting the Group and has implemented relevant controls to manage these risks. Clear organisation structure with defined reporting lines. ISO policies and procedures which define the expected standard of operations. Internal quality audits to ensure that ISO policies and procedures are being complied with. Meetings involving Executive Directors, senior management and heads of department are regularly held with significant matters escalated to the Board. Adoption of hands-on and open-door management policy by the Executive Directors and management. Employees are given on-the-job training and sent for appropriate training when necessary. Independent assurance on the system of internal control from periodic internal audit visits. Following this assessment, the Board together with management has developed and begin to take measures to further enhance the Group s system of internal control. At this juncture, the Board is of the view that the system of internal control that has been instituted throughout the Group is sound and sufficient to safeguard shareholders investment and the Group s assets. Notwithstanding this, on-going reviews are continuously carried out to ensure the effectiveness of the system. The Board is committed towards operating a sound system of internal control and effective risk management throughout the Group. The Board is also cognisant of the fact that the system of internal control and risk management practices must continuously evolve to support the type of business and size of operations. As such, the Board will, when necessary, put in place appropriate action plans to rectify any potential weaknesses or further enhance the system of internal control. This Statement on Internal Control is made in accordance with a resolution of the Board dated 31 October annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 19

24 AUDIT COMMITTEE REPORT MEMBERS OF THE AUDIT COMMITTEE Dato Paduka Dr. Khairuddin bin Mohamed Yusof Ng Teng Seng Chi Oi Meng Chairman, Independent Non-Executive Director Independent Non-Executive Director Non-Independent Executive Director, member of the Australian Society of Certified Practising Accountants ROLE OF THE AUDIT COMMITTEE 1. Assisting the Board of Directors in the discharge of their statutory duties and responsibilities in the following areas: Preparation of quarterly financial reports and annual financial statements that give a true and fair view of the Group s affairs and results. Manage the Group s affairs in compliance with laws and regulations and proper standards of conduct. Establishment and maintenance of internal controls for areas of risks to provide reasonable and reliable financial information. Review of the quality and performance of the internal and external audit function. 2. Provide, by way of regular meetings, a line of communication between the Board and the internal and external auditors. 3. Enhance the perception held by other interested parties (shareholders, regulators, creditors, etc) of the credibility and objectivity of the financial reports. TERMS OF REFERENCE 1. Membership The Committee shall be appointed by the Board from amongst the Directors of the Company and shall consist of not less than three (3) members with a majority of independent non-executive directors. An independent non-executive member shall not have any family relationship with an executive director of the Company or of any related company or any relationship, which in the opinion of the Board, would interfere with his/her independent judgement. At least one (1) member of the Committee must be a member of the Malaysian Institute of Accountants, or if he/she is not a member of the Malaysian Institute of Accountants, he/she must have at least three (3) years working experience and must be a member of one of the associations of accountants specified in Part II of the 1st Schedule of the Accountants Act, No alternate director can be appointed as a member of the Committee. The Chairman of the Committee shall be elected by the members of the Committee and shall be an independent non-executive member of the Committee. Members of the Committee may relinquish their membership in the Committee with prior written notice to the Secretary. In the event of any vacancy in the Committee, the vacancy should be filled within a period of three (3) months. 20 HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

25 AUDIT COMMITTEE REPORT (CONT D) 2. Attendance at Meetings The majority of members present in order to form a quorum necessary for the transaction of business of the Audit Committee shall be the independent non-executive directors, and in any case shall not be less than two (2) independent non-executive directors. The number of Audit Committee meetings held during the financial year and the attendance of each audit committee member are as follows: Audit Committee Member No. of Meetings attended Dato Paduka Dr. Khairuddin bin Mohamed Yusof 4/4 Ng Teng Seng 4/4 Chi Oi Meng 4/4 The Audit Committee meetings were held on the following dates and time: Meeting No. Date Time 3/2001 Monday, 15 October a.m. 4/2001 Thursday, 29 November a.m. 1/2002 Thursday, 28 February a.m. 2/2002 Monday, 20 May a.m. The Committee meetings were all held at Lots 59-60, Lorong Kuang Bulan, Taman Kepong, Kuala Lumpur. The heads of finance and internal audit and a representative of the external auditors shall attend meetings, only at the invitation of the Committee. The Company Secretary shall be the secretary of the Committee. 3. Notices of Meetings and Minutes of Proceedings The Secretary shall circulate the notice of meeting to the members of the Committee prior to the meeting and shall be responsible for the recording, safekeeping and production of the minutes of proceedings of the Committee. The Secretary shall produce for inspection such minutes of proceedings of meetings of the Committee upon receiving instructions from the Committee or the Board of Directors of the Company. The Secretary shall circulate the minutes of the Committee to all members of the Board. The Chairman of the Committee shall report on each meeting to the Board. 4. Frequency of Meetings The Committee shall meet at least twice during each financial year and hold such additional meetings as the Chairman shall deem necessary in order to fulfill its duties. annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 21

26 AUDIT COMMITTEE REPORT (CONT D) 5. Proceedings of Meetings In the absence of the Chairman, the Committee shall appoint one (1) of the independent non-executive members to chair that meeting. Questions arising at any meeting shall be decided by a majority of votes of the members present. Save that where two (2) members form a quorum or that which only two (2) members are competent to vote on the question in issue, the vote of the independent non-executive director shall be the decision of the Committee. 6. Authority The Committee is authorised by the Board to investigate any matter within its terms of reference, empowered with the authority to seek the necessary resources that it requires to perform its duties. It is authorised to seek and to have full, free and unrestricted access to the Group s records, properties, personnel and other resources, and to seek any information it requires from any employee of the Group or from any other sources pertaining to the affairs of the Company and Group. All employees are directed to cooperate with any request made by the Committee. The Committee is authorised by the Board to obtain outside legal or other independent professional advice and to secure the attendance of outsiders with relevant experience and expertise if it considers this necessary. Other Directors, who are not members of the Committee may attend the Committee s meeting only at the invitation of the Committee and specific to the relevant meeting. It is also authorised to have direct communication channels with the external auditors and internal auditors of the Company and Group. Whenever the Committee deemed necessary, it is authorised to convene meetings with the external auditors without the attendance of the executive members of the Committee. The Committee has no executive powers to implement its recommendations on behalf of the Board but to report its recommendations back to the Board for its consideration and implementation. Where the Committee is of the view that a matter reported by it to the Board of Directors has not been satisfactorily resolved resulting in a breach of the Listing Requirements of Kuala Lumpur Stock Exchange, the Committee has the responsibility of promptly reporting such matter to the Kuala Lumpur Stock Exchange. 7. Duties and functions The duties and functions of the Committee shall be: a) To perform the following and to report the same to the Board of Directors: i) Review the adequacy and integrity of the internal control system, including system for compliance with applicable laws, regulations, rules, directives and guidelines. ii) To discuss with the external auditors on their audit plan before the commencement of the annual audit and ensure coordination where more than one audit firm is involved. iii) To discuss with the external auditors on their evaluation of the system of internal control and to keep under review the effectiveness of internal control systems, and in particular, review the external auditors management letter and management s responses as well as to monitor the implementation of the recommendations of the external auditors. iv) To act as an intermediary between management or other employees, and the external auditors. 22 HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

27 AUDIT COMMITTEE REPORT (CONT D) v) To discuss with the external auditors, the problems and reservations arising from the annual audits, including the state of assistance given by employees of the Company and Group to the external auditors, and any matter that the external auditors wish to discuss (in the absence of management, where necessary). vi) To discuss with the external auditors on their audit report. vii) To review with the internal auditors, the adequacy of the scope, function and resources of the internal audit function and the necessary authority for the internal auditors to carry out their work. viii) To review the internal audit programme and processes, consider major findings of internal audit work, processes or investigations undertaken and to consider management s responses and appropriate actions taken as well as to monitor the implementation of the recommendations of the internal auditors. ix) To review any appraisal or assessment of the performance of members of the internal audit function, including an evaluation of the independence of the internal audit function. x) To review the level of coordination between the internal and external auditors. xi) To review the quarterly financial reports and annual financial statements before submission to the Board. The review shall focus, inter alia, the changes in or implementation of major accounting policies, significant adjustments arising from the annual audit, significant and unusual events, litigation that could affect results materially, the going concern assumption and compliance with accounting standards and other legal requirements. xii) To review related party transactions and conflict of interest situation that may arise within the Group, including any transaction, procedure or course of conduct that may question management integrity, and any other major transactions outside the ordinary course of business of the Group. xiii) To review any letter of resignation from the external auditors and to consider whether there is reason (supported by grounds) to believe that the Group s external auditors is not suitable for re-appointment. b) To recommend to the Board, the nomination and appointment of the external auditors, the audit fee, and any other terms of engagement. c) To consider any other related matters, as defined by the Board from time to time. d) To ensure compliance with the requirements of the Securities Commission, Registrar of Companies and Kuala Lumpur Stock Exchange as well as the requirements of any other regulatory authorities. REVIEW OF THE COMPOSITION OF THE AUDIT COMMITTEE The term of office and performance of the Audit Committee and each of its members shall be reviewed by the Board of Directors at least once in every three (3) years to determine whether the Committee and its members have carried out their duties in accordance with their terms of reference. ACTIVITIES OF THE AUDIT COMMITTEE DURING THE FINANCIAL YEAR In line with the terms of reference of the Committee, the Committee carried out the following activities during the financial year ended 30 June 2002 in the discharge of its duties and functions: a) Review the audit fees of the external auditors in respect of the audit for the financial year ended 30 June annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 23

28 AUDIT COMMITTEE REPORT (CONT D) b) Review of the audit plan prepared by the external auditors in respect of their audit for the financial year ended 30 June c) Review of the quarterly results of the Group for the financial quarters ended 30 September 2001, 31 December 2001, 31 March 2002 and 30 June 2002 prior to submission to the Board of Directors for consideration and approval. d) Quarterly review of the disclosure on related party transactions entered into by the Company and the Group. e) Review of the audit reports prepared by the internal auditors and the consideration of the major findings by the auditors and the management s responses thereto. f) Review of the audit plan prepared by the internal auditors for the internal audit cycle for the financial year ending 30 June INTERNAL AUDIT FUNCTION The internal audit function of the Company and Group is outsourced to a reputable international accounting firm, with the primary objective of obtaining an independent and objective evaluation of the Group s and Company s system of internal control, at a reasonable cost. The appointment took effect from the financial year ended 30 June The internal auditors carried out the following activities: a) Review the efficiency and effectiveness of the internal control system of certain key processes of the Group, with the objective of identifying and addressing business risks and controls of the key processes, testing of controls to assess control effectiveness and that these controls are operating as intended, assessing the adequacy, appropriateness of procedures within processes identified and review adherence to established authority limit. b) Recommending improvements to the internal control system of the key processes that were identified for audit and reporting the findings to the Audit Committee, after obtaining response from management. c) Identifying and developing the internal audit programme for the internal audit cycle for the financial year ending 30 June The internal audit programme was tabled to the Audit Committee for its consideration. This report is made in accordance with a resolution of the Board dated 31 October HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

29 DEAR SHAREHOLDERS, It gives me great pleasure to present the Twenty-Seventh Annual Report of Hing Yiap Knitting Industries Berhad ( Hing Yiap or Company ) for the financial year ended 30 June CHAIRMAN S STATEMENT REVIEW OF PERFORMANCE During the financial year, the textile and garment industry and the retailing market faced challenges and uncertainties from the slowdown in the global economy, especially the United States. D e velopment in the United States also affects the Malaysian e c o n o my, and wh i ch in turn have an impact on consumer confidence and spending behaviour. The ascension of China into the World Trade Organisation poses a new form of challenges as well as opportunities to the industry. Hing Yiap achieved a profit before tax of RM million for the financial year, representing an increase of 27.56% from the pre-tax profit of RM million for the previous financial year. The pre-tax profit of RM million was achieved on the back of revenue of RM million, which was an improvement of 3.74% from the revenue of RM million recorded during the previous financial year. The Company disposed its entire interest in a loss making subsidiary, B.U.M. Marketing (Singapore) Pte Ltd, in May 2002 for RM 400,000. Following this disposal, Hing Yiap realises a gain of RM million. Excluding this exceptional gain, Hing Yiap achieved a pre-tax profit of RM million during the financial year, an improvement of 5.98% over the previous year. The performance of the Group was negated by losses recorded by the Singapore operations, up to the date of disposal, of RM 187,000 (12 months to 30 June 2001: RM 50,000) and the new Vanity Fair lingerie business of RM 574,000. The Singapore operations were affected by the economic recession there whilst the lingerie business is still in its infancy phase, competing in a challenging business environment. The Hing Yiap Group adopted a cautious approach in the management of its business, on the back of an economic slowdown, locally and g l o b a l l y. Emphasis was placed on cost control, cashflow management and inventories management during this trying time. I am pleased to report that the strategy adopted has put the financial position of the Hing Yiap Group in a better position to benefit from the eventual recovery of the economy. annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 25

30 CHAIRMAN S STATEMENT (CONT D) CORPORATE DEVELOPMENT The following transactions were undertaken and completed during the financial year: 1. The disposal of the entire interest in B.U.M. Marketing (Singapore) Pte Ltd for a total cash consideration of RM 400,000. The Hing Yiap Group realises a gain of RM million on this disposal. 2. In February 2002, Hing Yiap completed the bonus issue exercise of seven (7) new ordinary shares of RM 1.00 each for every twenty-five (25) existing ordinary shares. A total of 9,139,199 new ordinary shares were issued. Following this exercise, Hing Yiap has complied with the minimum paid-up share capital of RM 40.0 million for companies listed on the Second Board of the Kuala Lumpur Stock Exchange, as required by the Securities Commission. SPORTS SPONSORSHIP Hing Yiap, through the brand Antioni, is proud to be the official sports attire-wear sponsor of the Malaysian contingent to the recently concluded Commonwealth Games held in Manchester, England and the Busan Asian Games. The Hing Yiap Group will continue to play an active part in the d e velopment of sports in the country through sponsorship arrangements with the Olympic Council of Malaysia and the Malaysian Tenpin Bowling Congress. FAMILIARISATION VISIT BY THE MAN AGEMENT OF THE KUALA LUMPUR STOCK EXCHANGE Hing Yiap has the honour of hosting a visit by the management team of the Kuala Lumpur Stock Exchange in August The purpose of this visit is to enable the management of the stock exchange to gain an understanding of the Company s business and to foster relations between both parties. OUTLOOK FOR 2003 Hing Yiap s business is dependent upon consumer confidence and the state of the economy, locally and globally. The Malaysian economy is expected to improve this year. However, uncertainties in the global economy may pose a threat to this recovery. 26 HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

31 CHAIRMAN S STATEMENT (CONT D) To broaden the revenue source, Hing Yiap targets to open several specialty chain stores in strategic shopping complexes, selling various types of products supplied by third party suppliers on concessionaire basis as well as our own brands of products, the first of which was opened in Genting Highlands. Management believes that the new concept will provide a new source of revenue and added mileage to Hing Yiap s business. Greater efforts will be put into the Vanity Fair brand to increase its penetration in the domestic market and to improve on its performance. Management has put in place a plan to improve the Company s performance. In view of the efforts made by the government and the management s strategy for the new financial year, the Board is reasonably optimistic that the performance of the Company for the financial year ending 30 June 2003 shall be comparable to that achieved during the recently concluded financial year. DIVIDEND The Board recommends a first and final dividend of 3.5 sen per share, less Malaysian income tax, for the approval of the shareholders in the forthcoming Annual General Meeting. APPRECIATION On behalf of the Board, I wish to express my appreciation for the dedication and sacrifices demonstrated by the employees of Hing Yiap. The Company s success is indeed a reflection of the dedication of the employees. May I also congratulate the manufacturing personnel for obtaining the MS ISO 9001:2000 Quality Management Systems Certification in the scope of manufacture of knitted fabric (including dyeing) and manufacture of knitted and woven garments. I hope that this certification will provide the foundation for continuous quality improvement of the Company s products. Finally, I also wish to record my appreciation for the continuous support of suppliers, customers, distributors and financial institutions. Dato Azizi Yom Ahmad Chairman Kuala Lumpur 15 November 2002 annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 27

32 OTHER CORPORATE INFORMATION (Pursuant to Paragraph 9.25 and Appendix 9C of the Listing Requirements of Kuala Lumpur Stock Exchange) 1) Status of utilisation of proceeds raised from any corporate proposal The Company did not undertake any fund raising corporate exercise during the financial year. 2) Share buybacks for the financial year The Company is not authorised by the shareholders to undertake a share buyback programme and accordingly is not involved in any purchase of own shares during the financial year. 3) Amount of options, warrants or convertible securities e xercised during the financial year The amount of options under the Employees Share Option Scheme ( ESOS ), which were exercised into ordinary shares in Hing Yiap Knitting Industries Berhad during the financial year, is disclosed in Note 19 to the financial statements and the Directors Report. The Company does not have any outstanding warrants or convertible securities. 4) American Depository Receipt ( ADR ) and Global Depository Receipt ( GDR ) Hing Yiap Knitting Industries Berhad has not sponsored nor issued any securities under the ADR or GDR programme. 5) Particulars of sanctions and/or penalties imposed on Hing Yiap Knitting Industries Berhad and subsidiar y companies, Directors or management by the rele vant regulatory bodies To the best of the knowledge and belief of the Directors, Hing Yiap Knitting Industries Berhad and its subsidiary companies, Directors and management have not been sanctioned nor penalised by any relevant authorities. 6) Non-audit fees paid to external auditors for the financial year Details of non-audit fees paid to the external auditors during the financial year are as follows: RM Verification of the amount claimed as Deduction for the Promotion of Export 500 Confirmation of the adequacy of retained profits in respect of the Company s bonus issue 500 Verification of the adjustments made to the outstanding ESOS following completion of the Company s bonus issue exercise 1,000 2,000 7) Deviation of actual results from profit forecast, estimate or projection or unaudited results pr eviously made or released by Hing Yiap Knitting Industries Berhad The Company did not issue any profit forecast, estimate or projection in conjunction with any corporate proposal. In addition, the deviation of actual audited results from the unaudited results announced to the Kuala Lumpur Stock Exchange in respect of the financial year ended 30 June 2002 did not deviate by 10% or more. 28 HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

33 OTHER CORPORATE INFORMATION (CONT D) 8) Deviation of profit achie ved in the financial year as compared to the profit guarantee Hing Yiap Knitting Industries Berhad has not undertaken any corporate proposal or activity which involves a profit guarantee. 9) Material contracts entered into by Hing Yiap Knitting Industries Berhad and subsidiary companies with Directors and/or major shareholders Save for the recurrent related party transactions of a revenue or trading nature, as disclosed in Note 27 to the financial statements, neither the Company nor its subsidiary companies has entered into any arrangement or agreement, loan or otherwise, with any Director and/or shareholder. 10) Contracts relating to loan with Directors and/or major shareholders There were no contracts relating to a loan by the Company and its subsidiary companies involving Directors and/or major shareholders. 11) Revaluation policy on landed properties in respect of the financial year Properties that are recognised as investment properties are revalued in accordance with the policy mentioned in Note 2(e) to the financial statements. A firm of independent professional appraisers performed the latest valuation on 27 April 2001 and 11 June 2001 and any differences between the revalued amounts and the corresponding book values were adjusted in the financial statements for the financial year ended 30 June 2001, in accordance with the said policy. Properties that are recognised as property, plant and equipment are stated at cost, adjusted for any depreciation on buildings and amortisation of leases. One of the properties was revalued at RM 3.9 million on 7 October 1995 by a firm of independent professional appraisers, for the purpose of reflecting the fair value of the property concerned as an integral part of the listing and quotation for the entire issued and paid-up share capital of the Company on the Second Board of the Kuala Lumpur Stock Exchange. The valuation of the said property has not been updated nor has the Company commissioned any revaluation for other properties that are recognised as property, plant and equipment since their acquisition dates because the Company adopted the transitional provisions issued by the Malaysian Accounting Standards Board ( MASB ) on adoption of MASB 15, Property, Plant and Equipment whereby the value of the properties are allowed to be stated at its existing carrying amount, less depreciation and impairment losses. This report is made in accordance with a resolution of the Board dated 31 October annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 29

34 31 D i rectors Report 39 Statement By Dire c t o r s 39 S t a t u t o ry Declaration 40 R e p o rt Of The Auditors To The Members 41 Balance Sheets FINANCIAL STATEMENTS 42 Statements Of Changes In Equity 44 Income Statements 45 Cash Flow Statements 50 Notes To The Financial Statements 30 HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

35 DIRECTORS REPORT The Directors have pleasure in submitting their report and the audited financial statements of the Group and of the Company for the financial year ended 30 June PRINCIPAL ACTIVITIES The principal activities of the Company are those of property and investment holding, textile knitting and the manufacture of garments whilst its subsidiary companies are principally engaged in the wholesaling, retailing and distribution of ready-made sports and casual wear and related accessories. During the financial ye a r, a subsidiary company, VFUSA Marketing Sdn. Bhd., commenced operations and is principally engaged in the marketing and distribution of the "VANITY FAIR" brand of women intimate apparel and related accessories. Other than the above, there have been no significant changes in the nature of the Group s and the Company s activities during the financial year. Subsequent to the balance sheet date, a subsidiary company, Bumcity Sdn. Bhd. (formerly known as Netax Work Wear World Sdn. Bhd.) commenced operations as an operator of a speciality store known as "BUMCITY". RESULTS Group Company Profit after taxation RM5,297,183 RM3,992,309 DIVIDENDS Dividends paid, declared or proposed by the Company since the end of the previous financial year were: (i) in respect of the financial year ended 30 June 2001: RM as proposed in the Directors Report for that financial year, a first and final dividend of 3.5% less tax, paid on 20 March ,676 additional first and final dividend of 3.5% less tax, paid on 20 March 2002, in respect of new ordinary shares issued pursuant to the Employees Share Option Scheme, subsequent to 30 June 2001 but before book closure date for dividend entitlement 34,852 (ii) in respect of the financial year ended 30 June 2002: a proposed first and final dividend of 3.5% less tax 1,053,037 annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 31

36 DIRECTORS REPORT (CONT D) RESERVES AND PROVISIONS All material transfers to or from reserves or provisions during the financial year have been disclosed in the statements of changes in equity. BAD AND DOUBTFUL DEBTS Before the financial statements of the Group and of the Company were made out, the Directors took reasonable steps to ascertain that action had been taken in relation to the writing off of bad debts and the making of allowance for doubtful debts, and are satisfied that there were no known bad debts and adequate allowance had been made for doubtful debts. At the date of this report, the Directors are not aware of any circumstances which would render it necessary to write off bad debts or the amount of the allowance for doubtful debts, in the Group and the Company, inadequate to any substantial extent. CURRENT ASSETS Before the financial statements of the Group and of the Company were made out, the Directors took reasonable steps to ensure that any current assets, other than debts, which were unlikely to realise in the ordinary course of business their values as shown in the accounting records of the Company and its subsidiary companies, were written down to an amount that they might be expected to realise. At the date of this report, the Directors are not aware of any circumstances which would render the values attributed to the current assets in the financial statements of the Group and of the Company misleading. VALUATION METHODS At the date of this report, the Directors are not aware of any circumstances which have arisen which render adherence to the existing methods of valuation of assets or liabilities of the Group and the Company misleading or inappropriate. CONTINGENT AND OTHER LIABILITIES At the date of this report, there does not exist: (i) any charge on the assets of the Company or its subsidiary companies which has arisen since the end of the financial year which secures the liabilities of any other person; or (ii) any contingent liability of the Group or of the Company which has arisen since the end of the financial year other than that attributed to the Group disclosed in note 29 to the financial statements. No contingent liability or other liability of the Group or the Company has become enforceable, or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the Directors, will or may substantially affect the ability of the Group or of the Company to meet their obligations as and when they fall due. 32 HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

37 DIRECTORS REPORT (CONT D) CHANGE OF CIRCUMSTANCES At the date of this report, the Directors are not aware of any circumstances, not otherwise dealt with in this report or the financial statements of the Group and of the Company which would render any amount stated in the financial statements of the Group and of the Company misleading. ITEMS OF AN UNUSUAL NATURE In the opinion of the Directors: (i) the results of the operations of the Group and of the Company for the financial year have not been substantially affected by any item, transaction or event of a material and unusual nature other than the exceptional items disclosed in note 24 to the financial statements. (ii) there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature which is likely to affect substantially the results of the operations of the Group and of the Company for the financial year in which this report is made. EMPLOYEES' SHARE OPTION SCHEME The Company's Employees' Share Option Scheme ["Scheme"] which was approved by the Registrar of Companies on 29 January 1999, will be in force for a period of four (4) years from 29 January 1999 ["Option Period"]. The Company may extend the Option Period for a further five (5) years subject to the approval of the relevant authorities. The main features of the Scheme are as follows: (i) the total number of new ordinary shares to be offered under the Scheme shall be subject to a maximum of 10% of the issued and paid-up share capital of the Company at any time during the existence of the Scheme. (ii) eligible employees comprise confirmed full time employees, including Executive Directors, of the Company or its eligible subsidiary companies, subject to the meeting of the following conditions: (a) (b) (c) employees must be Malaysians and must have served for at least one continuous year with the Group; have attained the age of eighteen (18) years on or before the date of offer of the option to subscribe for ordinary shares; and are not participants of any employee share option scheme implemented by any company in the Group. The entitlement of an Executive Director under the Scheme must be approved by the shareholders of the Company in a general meeting. annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 33

38 DIRECTORS REPORT (CONT D) EMPLOYEES' SHARE OPTION SCHEME (Cont d) (iii) the price payable upon the exercise of an option offered shall be the average of the mean market quotation of the ordinary shares as shown in the Daily Official List issued by the Kuala Lumpur Stock Exchange for the five (5) market days immediately preceding the offer date, subject to the proviso that the option price per ordinary share shall in no event be less than its par value or the last transacted market price of the ordinary shares at the time the option is offered. (iv) an option may be exercised in full or in part by notice of writing to the Company on any working day during the Option Period. (v) the new ordinary shares to be allotted upon any exercise of the option will, upon allotment, rank pari passu in all respects with the then existing issued and paid-up share capital of the Company, but will not entitle the holders thereof to receive any dividends, rights, bonus issue and any other distribution declared to the Company's shareholders which entitlement date thereof precedes the relevant exercise date of the option and will be subject to all the provisions of the Articles of Association of the Company. As at 30 June 2002, the total number of options granted pursuant to the Scheme to subscribe for new ordinary shares of RM1 each in the Company was as follows: No. of options o ver ordinar y shares of RM1 eac h Options granted on 30 March ,998,000 Adjustment for bonus issue during the financial year ended 30 June ,000 Options granted on 3 April ,000 Adjustment for bonus issue during the financial year ended 30 June ,000 3,255,000 Of the above total, Executive Directors had been granted options to subscribe for 305,000 ordinary shares of RM1 each. As a consequence of the bonus issue during the financial year, the option prices for the options granted on 30 March 1999 and 3 April 2001 were adjusted from RM1.03 per share and RM1.06 per share respectively to RM1.00 per share. 34 HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

39 DIRECTORS REPORT (CONT D) EMPLOYEES' SHARE OPTION SCHEME (Cont d) The movements in the options to take up the unissued ordinary shares of RM1 each of the Company during the financial year are as follows: No. of options over ordinary shares of RM1 eac h Option Adjustment price At for At Options granted on RM Granted bonus issue Exercised Lapsed March ,543, ,000 (1,104,000) (100,000) 442,000 3 April ,000-61,000 (287,000) (70,000) 293,000 The Company has been granted exemption by the Registrar of Companies from having to disclose the list of option holders and their holdings. SHARE CAPITAL During the financial year, the Company's issued and fully paid ordinary share capital was increased from RM31,257,000 to RM41,787,199 by: (i) the issues of 1,391,000 new ordinary shares of RM1 each pursuant to the Scheme; and (ii) a bonus issue of 9,139,199 new ordinary shares of RM1 each on the basis of seven new ordinary shares for every twenty five existing ordinary shares held by the capitalisation of the Company s retained profits. The above new shares rank pari passu in all respects with the existing shares of the Company. DIRECTORS The Directors who served since the date of the last report are: Y.Bhg. Dato' Azizi Yom Ahmad Chi Oi Meng Khoo Henn Kuan Chi Kin Meng Y.Bhg. Dato' Paduka Dr. Khairuddin bin Mohamed Yusof Ng Teng Seng (Chairman - Non Independent Non Executive Director) (Deputy Chairman - Non Independent Executive Director) (Chief Executive Officer - Non Independent Executive Director) (Executive Director - Non Independent Executive Director) (Independent Non Executive Director) (Independent Non Executive Director) In accordance with Article 102 of the Company's Articles of Association, Y.Bhg. Dato' Azizi Yom Ahmad and Mr. Khoo Henn Kuan retire at the forthcoming Annual General Meeting and, being eligible, offer themselves for re-election. annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 35

40 DIRECTORS REPORT (CONT D) DIRECTORS (Cont d) The Directors holding office at the end of the financial year and their interests in shares and options over shares in the Company as recorded in the register of directors' shareholdings were as follows: No. of ordinary shares of RM1 eac h Shareholdings registered At At in the name of Directors Bought Bonus issue Sold Y.Bhg. Dato' Azizi Yom Ahmad 1,593, ,145-2,039,520 Chi Oi Meng 1,324, , ,260-1,829,760 Khoo Henn Kuan 804,000 63, ,760-1,109,760 Shareholdings in which Directors are deemed to ha ve an interest Chi Oi Meng 10,846,500-3,037,020-13,883,520 Khoo Henn Kuan 10,846, ,000 3,068,100-14,025,600 Chi Kin Meng 10,846,500-3,037,020-13,883,520 No. of options o ver ordinary shares of RM1 eac h Option Adjustment Options granted price At for At to Directors RM Granted bonus issue Exercised Chi Oi Meng , ,000 - Khoo Henn Kuan , ,000 - Chi Kin Meng ,000-23, ,000 Options in which a Director is deemed to have an interest Khoo Henn Kuan , ,000 - Ms. Chi Oi Meng, Mr. Khoo Henn Kuan and Mr. Chi Kin Meng, by virtue of their interests of more than 15% of the share capital of the Company, are deemed to have an interest in the share capitals of the Company's subsidiary companies to the extent the Company has an interest during the financial year. Ms. Chi Oi Meng, Mr. Khoo Henn Kuan and Mr. Chi Kin Meng are immediate family members. They are therefore deemed to have an interest in each other s shareholding in the Company and options over the Company s ordinary shares during the financial year. Other than the above, none of the directors holding office at the end of the financial year had any interest in the share capitals of the Company and its subsidiary companies during the financial year. 36 HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

41 DIRECTORS REPORT (CONT D) DIRECTORS' BENEFITS During the financial year, the Company and its subsidiary companies, in the ordinary course of business, transacted with certain Directors and related parties in which certain Directors have substantial financial interests, the details of which are disclosed in note 27 to the financial statements. Other than the above, since the end of the previous financial year, no Director has received or become entitled to receive any benefit (other than those disclosed in the financial statements) by reason of a contract made by the Company or a subsidiary company with the Director, or with a firm of which the Director is a member, or with a company in which the Director has a substantial financial interest. Neither during nor at the end of the financial year, was the Company a party to any arrangements whose object is to enable the Directors to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate except for options over the Company's ordinary shares granted by the Company to certain Directors, pursuant to the Scheme described in this report. PRINCIPAL PLACE OF BUSINESS The principal place of business of the Company is located at Lots 59-60, Lorong Kuang Bulan, Taman Kepong, Kuala Lumpur. SIGNIFICANT EVENTS During the financial year, the Company: (i) subscribed for an additional 249,998 new ordinary shares of RM1 each in VFUSA Marketing Sdn. Bhd. at par for cash. (ii) subscribed for an additional 1,800,000 and 2,000,000 new ordinary shares of RM1 each in its subsidiary companies, Bontton Sdn. Bhd. and Antioni Sdn. Bhd. respectively at par by the capitalisation of amounts owing by them to the Company. (iii) disposed of its entire equity interest in B.U.M. Marketing (Singapore) Pte. Ltd. for a cash consideration of RM400,000. Subsequent to the balance sheet date: (i) the Company subscribed for an additional 249,998 new ordinary shares of RM1 each in Bumcity Sdn. Bhd. (formerly known as Netax Work Wear World Sdn. Bhd.) at par for cash. (ii) the Directors approved the proposed establishment of a new Employees Share Option Scheme ["Proposed Scheme"] for the eligible employees (including Executive Directors) of the Group. At the date of this report, the Group s adviser is in the midst of preparing the necessary applications to seek the approvals of the relevant authorities for the Proposed Scheme. The Proposed Scheme is subject to the approvals of the Securities Commission, any other relevant authorities and the shareholders of the Company in general meeting. The Proposed Scheme, if approved, will only be implemented upon the expiry of the Scheme on 28 January annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 37

42 DIRECTORS REPORT (CONT D) AUDITORS The auditors, Sekhar & Tan, have indicated their willingness to accept re-appointment. Signed in accordance with a resolution of the Directors, Chi Oi Meng Khoo Henn Kuan Kuala Lumpur Dated: 24 October HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

43 STATEMENT BY DIRECTORS We, Chi Oi Meng and Khoo Henn Kuan, being two of the Directors of HING YIAP KNITTING INDUSTRIES BERHAD do hereby state that in the opinion of the Directors, the accompanying financial statements give a true and fair view of the state of affairs of the Group and the Company at 30 June 2002 and of their results and cash flows for the financial year ended on that date and are properly drawn up in accordance with applicable approved accounting standards in Malaysia. Signed in accordance with a resolution of the Directors, Chi Oi Meng Khoo Henn Kuan Kuala Lumpur Dated: 24 October 2002 STATUTORY DECLARATION I, Chi Oi Meng, the Director primarily responsible for the financial management of HING YIAP KNITTING INDUSTRIES BERHAD do solemnly and sincerely declare that the accompanying financial statements 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 ) Chi Oi Meng at Kuala Lumpur in Wilayah Persekutuan ) on 24 October 2002 )... Chi Oi Meng Before me, Tee Tee Sing PPN No. W193 Commissioner for Oaths Kuala Lumpur annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 39

44 REPORT OF THE AUDITORS TO THE MEMBERS We have audited the financial statements set out on pages 41 to 84. The financial statements are the responsibility of the Company s directors. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved auditing standards in Malaysia. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the directors, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion: (a) the financial statements have been prepared in accordance with the provisions of the Companies Act, 1965 and applicable approved accounting standards in Malaysia and give a true and fair view of: (i) (ii) the state of affairs of the Group and the Company as at 30 June 2002 and of their results and cash flows for the year ended on that date; and the matters required by Section 169 of the Companies Act, 1965 to be dealt with in the financial statements; and (b) the accounting and other records and the registers required by the Companies Act, 1965 to be kept by the Company and its subsidiary companies have been properly kept in accordance with the provisions of the said Act. We are satisfied that the financial statements of the subsidiary companies that have been consolidated with the Company's financial statements are in form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements and we have received satisfactory information and explanations required by us for those purposes. Our audit reports on the financial statements of the subsidiary companies did not contain any qualification or any adverse comment made under subsection (3) of Section 174 of the Act Sekhar & Tan Chung Wai Choong No. AF 0926 No. 1671/12/02 (J/PH) Chartered Accountants Partner of the Firm Dated: 24 October HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

45 BALANCE SHEETS AT 30 JUNE 2002 Group Company Note RM RM RM RM NON CURRENT ASSETS Property, plant and equipment 3 21,502,346 22,369,422 16,913,841 17,560,044 Investment properties 4 3,310,000 3,310,000 3,310,000 3,310,000 Intangible assets 5 3,489,400 3,411, Subsidiary companies ,341,000 1,292,002 28,301,746 29,091,022 25,564,841 22,162,046 CURRENT ASSETS Inventories 7 46,898,763 40,922,703 8,010,068 9,234,581 Trade receivables 8 15,860,669 17,186,120 1,983,540 5,712,008 Other receivables 9 6,128,201 4,158, , ,083 Due from subsidiary companies ,238,486 27,930,491 Short term investment , , , ,000 Bank and cash balances 1,195,407 3,208, ,391 3,239,206 70,249,067 65,641,699 48,173,925 46,760,369 Less: CURRENT LIABILITIES Trade payables 12 9,796,345 9,960,165 8,275,255 8,949,378 Other payables 13 5,220,541 3,449,350 1,404, ,120 Hire purchase payables , , , ,788 Due to subsidiary companies ,267, ,975 Short term borrowings 16 16,776,205 20,350,440 5,360,918 5,191,719 Taxation 52,823-52,823-32,812,263 34,357,003 16,611,439 15,423,980 NET CURRENT ASSETS 37,436,804 31,284,696 31,562,486 31,336,389 Less: NON CURRENT LIABILITIES Hire purchase payables , , , ,563 Term loans 17 3,489,037 4,232,832 3,489,037 4,232,832 Deferred taxation , , , ,000 5,158,437 5,784,943 4,352,666 5,204,395 60,580,113 54,590,775 52,774,661 48,294,040 CAPITAL AND RESERVES Share capital 19 41,787,199 31,257,000 41,787,199 31,257,000 Reserves 18,792,914 23,333,775 10,987,462 17,037,040 Shareholders funds 60,580,113 54,590,775 52,774,661 48,294,040 The notes on pages 50 to 84 form an integral part of these financial statements Auditors' report on page 40 annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 41

46 STATEMENTS OF CHANGES IN EQUITY FINANCIAL YEAR ENDED 30 JUNE 2002 Exchange Share Share Revaluation fluctuation Retained Group capital premium surplus reserve profits Total Note RM RM RM RM RM RM At 30 June 2000 as previously reported 20,795,000 1,494,362 2,190,572 (155,069) 26,717,666 51,042,531 Prior year adjustment (488,581) (488,581) At 30 June 2000 as restated 20,795,000 1,494,362 2,190,572 (155,069) 26,229,085 50,553,950 Deficit on revaluation of investment properties - - (490,000) - - (490,000) Share issue expenses - (80,977) (80,977) Currency translation differences (48,774) - (48,774) Losses not recognised in income statement - (80,977) (490,000) (48,774) - (619,751) Profit after taxation ,591,904 4,591,904 Bonus issue 19 10,419, (10,419,000) - Exercise of options rights 19 43,000 23, ,220 Dividend (1,548) (1,548) At 30 June ,257,000 1,436,605 1,700,572 (203,843) 20,400,441 54,590,775 At 30 June 2001 as previously reported 31,257,000 1,436,605 1,700,572 (203,843) 20,927,713 55,118,047 Prior year adjustment (527,272) (527,272) At 30 June 2001 as restated 31,257,000 1,436,605 1,700,572 (203,843) 20,400,441 54,590,775 Share issue expenses - (130,260) (130,260) Currency translation differences ,803-27,803 Net losses not recognised in income statement - (130,260) - 27,803 - (102,457) Profit after taxation ,297,183 5,297,183 Bonus issue 19 9,139, (9,139,199) - Exercise of options rights 19 1,391,000 50, ,441,100 Dividend (822,528) (822,528) Exchange fluctuation reserve realised on disposal of subsidiary company , ,040 At 30 June ,787,199 1,356,445 1,700,572-15,735,897 60,580,113 [Note A] 42 HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

47 STATEMENTS OF CHANGES IN EQUITY (CONT D) Share Share Revaluation Retained Company capital premium surplus profits Total Note RM RM RM RM RM At 30 June ,795,000 1,494,362 2,190,572 21,796,693 46,276,627 Deficit on revaluation of investment properties - - (490,000) - (490,000) Share issue expenses - (80,977) - - (80,977) Losses not recognised in income statement - (80,977) (490,000) - (570,977) Profit after taxation ,523,718 2,523,718 Bonus issue 19 10,419, (10,419,000) - Exercise of options rights 19 43,000 23, ,220 Dividend (1,548) (1,548) At 30 June ,257,000 1,436,605 1,700,572 13,899,863 48,294,040 Share issue expenses - Loss not recognised in income statement - (130,260) - - (130,260) Profit after taxation ,992,309 3,992,309 Bonus issue 19 9,139, (9,139,199) - Exercise of options rights 19 1,391,000 50, ,441,100 Dividend (822,528) (822,528) At 30 June ,787,199 1,356,445 1,700,572 7,930,445 52,774,661 [Note A] NOTE TO THE STATEMENTS OF CHANGES IN EQUITY A. The share premium, revaluation surplus and exchange fluctuation reserve are not distributable by way of cash dividends. The notes on pages 50 to 84 form an integral part of these financial statements Auditors' report on page 40 annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 43

48 INCOME STATEMENTS FINANCIAL YEAR ENDED 30 JUNE 2002 Group Company Note RM RM RM RM Revenue ,279,873 99,561,335 65,384,445 60,662,783 Other operating income 345, , , ,805 Changes in inventories of finished goods and work-in-progress 7,067, ,360 (1,090,796) (1,458,340) Raw materials and consumables used (10,728,683) (12,465,067) (10,728,683) (11,401,421) Staff costs (21,153,938) (19,876,275) (4,629,856) (4,893,584) Depreciation and amortisation expenses (2,699,371) (2,672,320) (825,568) (872,953) Operating expenses (67,127,928) (56,785,205) (42,950,014) (38,892,193) Profit from operations [Note A] 8,983,146 8,658,989 5,967,159 3,948,097 Finance costs (1,670,280) (1,437,609) (554,175) (371,379) Profit before exceptional items 23 7,312,866 7,221,380 5,412,984 3,576,718 Exceptional items 24 1,055,118 (660,981) 50,132 - Profit before taxation 8,367,984 6,560,399 5,463,116 3,576,718 Taxation 25 (3,070,801) (1,968,495) (1,470,807) (1,053,000) Profit after taxation 5,297,183 4,591,904 3,992,309 2,523,718 Basic earnings per share sen sen Diluted earnings per share sen - Number of employees (including Executive Directors) at the balance sheet date 1,342 1, NOTE TO THE INCOME STATEMENTS A. This is made up of: Group Company RM RM RM RM Continuing operations 9,155,945 8,677,404 5,967,159 3,948,097 Discontinued operations (172,799) (18,415) - - 8,983,146 8,658,989 5,967,159 3,948,097 The notes on pages 50 to 84 form an integral part of these financial statements Auditors' report on page HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

49 CASH FLOW STATEMENTS FINANCIAL YEAR ENDED 30 JUNE 2002 Group Company RM RM RM RM CASH FLOWS FROM OPERATING ACTIVITIES Profit before taxation 8,367,984 6,560,399 5,463,116 3,576,718 Adjustments for: Interest expenses 1,548,880 1,313, , ,181 Interest income (34,221) (30,874) (245,711) (391,456) Dividend income - - (1,495,000) (1,487,500) Depreciation 2,477,171 2,480, , ,953 Amortisation of intangible assets 222, , Profit on disposal of property, plant and equipment (23,195) (23,077) (10,017) (18,692) Profit on disposal of a subsidiary company [Note A] (1,416,055) - (399,000) - Property, plant and equipment written off 91,153 8,813 89,753 5,614 Allowance for doubtful debts ,868 - Inventories write-downs/destroyed 381, , Unrealised gain on foreign exchange (1,594) (1,425) - - Operating profit before working capital changes 11,614,170 11,160,364 5,281,079 3,223,818 (Increase)/decrease in inventories (6,912,027) (136,741) 1,224,513 1,753,503 (Increase)/decrease in receivables (1,277,533) 1,996,869 (9,374,147) 1,107,795 Increase/(decrease) in payables 3,629,835 42, ,601 (2,192,913) Cash generated from/(absorbed by) operations 7,054,445 13,063,201 (1,916,954) 3,892,203 Tax paid (2,606,687) (6,666,876) (583,335) (1,263,739) Net cash from/(used in) operating activities 4,447,758 6,396,325 (2,500,289) 2,628,464 annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 45

50 CASH FLOW STATEMENTS (CONT D) Group Company RM RM RM RM CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment [Note B] (587,152) (2,544,222) (93,338) (505,158) Sub-license fee paid (150,000) Acquisition of subsidiary companies net of cash and cash equivalents acquired [Note C] (4) Purchase of additional equity shares in a subsidiary company - - (249,998) - Interest received 34,221 30, , ,456 Dividends received - - 1,160,400 4,605,500 Proceeds from disposal of property, plant and equipment 46,195 63,807 17,000 59,149 Proceeds from transfers of property, plant and equipment ,000 Disposal of a subsidiary company net of cash and cash equivalents disposed [Note A] 386, ,000 - Net cash (used in)/from investing activities (269,809) (2,449,541) 1,179,775 4,555,943 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issues of shares 1,441,100 66,220 1,441,100 66,220 Share issue expenses paid (130,260) (80,977) (130,260) (80,977) Interest paid (1,528,418) (1,521,467) (700,156) (859,209) Dividends paid (816,964) (748,073) (816,964) (748,073) Proceeds from bankers acceptances 69,714,000 67,517,000 21,791,000 27,622,000 Repayment of bankers acceptances (71,841,000) (67,182,000) (21,665,000) (29,674,000) Repayment of hire purchase obligations (838,710) (541,015) (266,425) (183,077) Repayment of term loans (700,596) (609,837) (700,596) (609,837) Drawdown of term loans - 157, ,579 Net cash used in financing activities (4,700,848) (2,942,570) (1,047,301) (4,309,374) 46 HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

51 CASH FLOW STATEMENTS (CONT D) Group Company RM RM RM RM NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (522,899) 1,004,214 (2,367,815) 2,875,033 CURRENCY TRANSLATION DIFFERENCES - (33,905) - - CASH AND CASH EQUIVALENTS AT BEGINNING OF FINANCIAL YEAR 115,019 (855,290) 3,239, ,173 CASH AND CASH EQUIVALENTS AT END OF FINANCIAL YEAR (407,880) 115, ,391 3,239,206 CASH AND CASH EQUIVALENTS ARE REPRESENTED BY: Bank and cash balances 1,195,407 3,208, ,391 3,239,206 Bank overdrafts (1,603,287) (3,093,721) - - (407,880) 115, ,391 3,239,206 annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 47

52 CASH FLOW STATEMENTS (CONT D) NOTES TO THE CASH FLOW STATEMENTS A. DISPOSAL OF A SUBSIDIARY COMPANY NET OF CASH AND CASH EQUIVALENTS DISPOSED The fair value of assets and liabilities of a subsidiary company disposed of during the financial year was as follows: Group Company RM RM Property, plant and equipment 262,921 - Subsidiary company - 1,000 Inventories 554,120 - Receivables 454,225 - Payables (2,176,434) - Cash and cash equivalents (286,927) - Exchange fluctuation reserve realised 176,040 - Net (liabilities)/asset disposed (1,016,055) 1,000 Disposal consideration (400,000) (400,000) Profit on disposal (1,416,055) (399,000) Disposal consideration 400, ,000 Deferred as other receivables (300,000) (300,000) Cash proceeds from disposal 100, ,000 Cash and cash equivalents disposed 286,927 - Net cash inflow on disposal 386, ,000 There were no disposals by the Group and the Company in the previous financial year. B. PURCHASE OF PROPERTY, PLANT AND EQUIPMENT During the financial year, the Group and the Company respectively purchased property, plant and equipment with an aggregate cost of RM1,984,452 (2001: RM3,834,156) and RM276,101 (2001: RM1,184,119) of which RM1,397,300 (2001: RM1,084,275) and RM182,763 (2001: RM473,302) were financed by means of hire purchase. Cash payments of RM587,152 (2001: RM2,749,881) and RM93,338 (2001: RM710,817) were made by the Group and the Company respectively during the financial year in respect of these property, plant and equipment purchased. Included in these cash payments of the previous financial year were the Group s and the Company s borrowing costs capitalised of RM205, HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

53 CASH FLOW STATEMENTS (CONT D) NOTES TO THE CASH FLOW STATEMENTS (Cont d) C. AC QUISITION OF SUBSIDIARY COMPANIES NET OF CASH AND CASH EQ U I VALENTS AC QU I R E D The fair value of assets acquired in subsidiary companies acquired in the previous financial year was as follows: Group Company RM RM Subsidiary companies - 4 Cash and cash equivalents 4 - Net assets acquired/total purchase consideration 4 4 Cash and cash equivalents acquired (4) - Net cash outflow on acquisitions - 4 The notes on pages 50 to 84 form an integral part of these financial statements Auditors' report on page 40 annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 49

54 NOTES TO THE FINANCIAL STATEMENTS FINANCIAL YEAR ENDED 30 JUNE PRINCIPAL ACTIVITIES AND GENERAL INFORMATION The principal activities of the Company are those of property and investment holding, textile knitting and the manufacture of garments whilst those of its subsidiary companies are disclosed in note 6. During the financial year, a subsidiary company, VFUSA Marketing Sdn. Bhd., commenced operations and is principally engaged in the marketing and distribution of "VANITY FAIR" brand of women intimate apparel and related accesories. Other than the above, there have been no significant changes in the nature of the Group s and the Company s activities during the financial year. Subsequent to the balance sheet date, a subsidiary company, Bumcity Sdn. Bhd. (formerly known as Netax Work Wear World Sdn. Bhd.) commenced operations as an operator of a speciality store known as "BUMCITY". The Company is a public limited liability company, incorporated and domiciled in Malaysia, and is listed on the Second Board of Kuala Lumpur Stock Exchange. The financial statements of the Group and the Company were authorised for issue in accordance with a resolution of the Directors on 24 October SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Accounting The financial statements of the Group and the Company have been prepared under the historical cost convention unless otherwise disclosed in the accounting policies below, and comply with the provisions of the Companies Act, 1965 and applicable approved accounting standards in Malaysia. The promulgated standard MASB 22 "Segment Reporting" has been adopted prior to its effective date. Certain comparative figures have been adjusted or extended to conform with the changes in presentation on the early adoption of this standard. (b) Basis of Consolidation The consolidated financial statements include the financial statements of the Company and its subsidiary companies, made up to the end of the financial year, using the acquisition method of accounting. Subsidiary companies are those companies in which the Group has power to exercise control over the financial and operating policies so as to obtain benefits therefrom. Subsidiary companies acquired or disposed are included in the consolidated financial statements from the date of acquisition or to the date of disposal. 50 HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

55 NOTES TO THE FINANCIAL STATEMENTS (CONT D) 2. SIGNIFICANT ACCOUNTING POLICIES (Cont d) (b) Basis of Consolidation (Cont d) Intragroup transactions, balances and unrealised gains are eliminated on consolidation and the consolidated financial statements reflect external transactions only. Unrealised losses are also eliminated on consolidation unless cost cannot be recovered. The difference between the cost of acquisition over the fair value of the Group s share of the net assets of an acquired subsidiary company at the date of acquisition is included in the consolidated balance sheet as goodwill or reserve arising on consolidation. Goodwill on consolidation is reviewed at each balance sheet date and will be written down for impairment where it is considered necessary. Minority interest is measured at the minorities share of the post acquisition fair values of the identifiable assets and liabilities of the acquiree. The gain or loss on disposal of a subsidiary company is the difference between net disposal proceeds and the Group s share of its net assets together with any unamortised balance of goodwill on consolidation and exchange differences which were not previously recognised in the consolidated income statement. (c) Foreign Currency Conversion and Translation Transactions in foreign currencies are converted into Ringgit Malaysia at the rates of exchange ruling at the transaction dates. Monetary assets and liabilities in foreign currencies at the balance sheet date have been translated into Ringgit Malaysia at the rates of exchange ruling at that date. Gains or losses on exchange are included in the income statement. Income and expense items of foreign subsidiary companies are translated into Ringgit Malaysia at average rates of exchange for the financial year and assets and liabilities, both monetary and non-monetary, at the rates of exchange ruling at the balance sheet date. Exchange differences arising from the translation of income and expense items at average rates and assets and liabilities at the rates prevailing at the balance sheet date, and the restatement at rates prevailing at the balance sheet date of the opening net investment in foreign subsidiary companies are taken to "Exchange Fluctuation Reserve". The exchange rates used during the financial year are as follows: Ringgit Malaysia per unit of foreign currenc y Average rates Closing rates Singapore Dollar United States Dollar annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 51

56 NOTES TO THE FINANCIAL STATEMENTS (CONT D) 2. SIGNIFICANT ACCOUNTING POLICIES (Cont d) (d) Property, Plant and Equipment and Depreciation Property, plant and equipment are stated at cost or valuation less accumulated depreciation and impairment losses. Freehold land is not depreciated as it has an infinite life. Land on long term leases is amortised in equal annual instalments over the remaining term of the respective leases of 97 years. Buildings are depreciated at the rate of 2% per annum on a straight-line basis. On other assets, depreciation is calculated on the following bases and annual rates: Purchased on or subsequent to 1 July straight line basis Purchased prior to 1 July reducing balance basis Display counters, furniture and fixtures 5% to 25% 5% to 20% Electrical fittings 10% 10% Plant and machinery 10% 10% Store equipment 10% and 20% 10% Computer and office equipment 10% to 25% 10% Motor vehicles 20% and 25% 20% Depreciation on assets under construction commences when the assets are ready for their intended use. The carrying values of property, plant and equipment are reviewed for impairment when there is an indication that the assets might be impaired. Impairment is measured by comparing the carrying values of the assets with their recoverable amounts. An impairment loss is charged to the income statement immediately. Subsequent increase in the recoverable amount of an asset is treated as a reversal of the previous impairment loss and is recognised to the extent of the carrying value of the asset concerned that would have been determined (net of amortisation and depreciation) had no impairment loss been recognised. The reversal is recognised as income in the income statement immediately. On disposal of a property, plant and equipment, the difference between the net disposal proceeds and the carrying value is charged or credited to the income statement; any amount in revaluation surplus relating to that asset is transferred to retained profits. 52 HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

57 NOTES TO THE FINANCIAL STATEMENTS (CONT D) 2. SIGNIFICANT ACCOUNTING POLICIES (Cont d) (e) Investment Properties Investment properties consist of investments in land and buildings that are not substantially occupied for use b y, or in the operations of, the Group and the Company. These properties are treated as long term investments and are stated at cost or valuation less impairment losses except for leasehold investment properties with an unexpired lease term of less than 20 years at the balance sheet date. Such investment properties on short term leases are stated at cost or valuation less impairment losses and subject to amortisation in view of their short and finite lives. Other investment properties are not subject to amortisation. I nvestment properties stated at valuation are appraised by independent professional valuers at least once in every five years on a fair market value basis. Additions subsequent to the date of the last valuation are stated at cost. Surpluses arising on revaluation where considered by the Directors to be permanent in nature, are included in the balance sheet as "Revaluation Surplus". A ny decrease in the carrying value of investment properties below their costs or valuation is charged to the income statement and/or the revaluation surplus in the balance sheet. The charging of any decrease in the carrying value to the revaluation surplus in the balance sheet is only applicable if there was an originating surplus and the surplus concerned has not been reversed or utilised. The carrying values of investment properties are reviewed for impairment when there is an indication that the properties might be impaired. Impairment is measured by comparing the carrying values of the properties with their recoverable amounts. An impairment loss is charged to the income statement immediately. Subsequent increase in the recoverable amount of a property is treated as a reversal of the previous impairment loss and is recognised to the extent of the carrying value of the property concerned that would have been determined (net of amortisation) had no impairment loss been recognised. The reversal is recognised as income in the income statement immediately. On disposal of an investment property, the difference between the net disposal proceeds and the carrying value is charged or credited to the income statement; any amount in revaluation surplus relating to that investment property is transferred to retained profits. (f) Intangible Assets The costs of acquiring the rights, interests and benefits to the operations, brands and patents pertaining to the "ANTIONI" and "BONTTON" trademarks, are capitalised as intangible assets and amortised to the consolidated income statement on a straight-line basis over the anticipated period of profitable exploitation, as determined by the Directors, of twenty five years commencing from the date of acquisition. The sub-license fee paid to acquire the rights to manufacture, market and distribute the "VANITY FAIR" brand of women intimate apparel and related accessories in Malaysia, is also capitalised as an intangible asset and amortised to the consolidated income statement on a straight-line basis over the term of the sub-license agreement of ten years. The amortisation period and method are reviewed annually at each balance sheet date. annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 53

58 NOTES TO THE FINANCIAL STATEMENTS (CONT D) 2. SIGNIFICANT ACCOUNTING POLICIES (Cont'd) (g) Investments I nvestments in subsidiary companies and other unquoted equity shares (including those classified as short term investments) are stated at cost less allowance for any permanent diminution in value. Such allowance is made when there is a decline other than temporary in the value of the i nvestments and is recognised as an expense in the period in wh i ch the decline occurred. In the consolidated balance sheet, the short term investment is stated at cost plus share of post acquisition profits. On disposal of an investment, the difference between the net disposal proceeds and the carrying value is charged or credited to the income statement. (h) Inventories Inventories are stated at the lower of cost and net realisable value. In general, cost is determined on a first-in first-out basis and includes all costs in bringing the inventories to their present location and condition. In the case of manufactured products, cost includes all direct expenditure and production overheads based on the normal level of activity. Net realisable value is the price at which the inventories can be realised in the normal course of business after allowing for the costs of realisation and, where appropriate, the cost of conversion from their existing state to a finished condition. (i) Receivables Receivables are carried at anticipated realisable value. Bad debts are written off in the period in which they are identified. An estimate is made for doubtful debts based on a review of all outstanding amounts at the balance sheet date. (j) Hire Purchase Property, plant and equipment acquired under hire purchase are capitalised in the financial statements and are depreciated in accordance with the depreciation policy set out in note 2(d). The corresponding outstanding obligations due under hire purchase after deducting finance expenses are included as liabilities in the financial statements. Finance expenses are charged to the income statement over the periods of the respective agreements. (k) Provision for Liabilities Provision for liabilities are recognised when the Group has a present legal or constructive 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. 54 HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

59 NOTES TO THE FINANCIAL STATEMENTS (CONT D) 2. SIGNIFICANT ACCOUNTING POLICIES (Cont'd) (l) Operating Leases Leases of assets under which all risks and benefits of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which the termination takes place. (m) Deferred Taxation Deferred taxation, calculated by the liability method, is provided on timing differences arising from the different treatments in accounting and taxation of certain items except where it can be d e m o n s t rated with reasonable probability that the tax deferral will continue for the foreseeable future. In accounting for timing differences, deferred tax debits are not accounted for unless there is a reasonable expectation of their realisation. (n) Borrowing Costs Capitalisation Borrowings costs incurred on the purchase of property, plant and equipment are capitalised until the assets concerned are ready for their intended use. (o) Revenue Recognition Revenue is recognised on the following bases: Sales of goods - upon the delivery of goods and customers acceptance, if any, and in the case of consignment sales, when the goods are sold by the consignee to a third party Dividend income - when the right to receive payment is established Interest income - on a time proportion basis that takes into account the effective yield on the asset unless collectability is in doubt Royalty income - on an accrual basis in accordance with the substance of the relevant agreement (p) Cash and Cash Equivalents Cash and cash equivalents include cash on hand and in banks and deposits at call, net of outstanding bank overdrafts. annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 55

60 NOTES TO THE FINANCIAL STATEMENTS (CONT D) 3. PROPERTY, PLANT AND EQUIPMENT Group Freehold Land and Display counters, land and buildings on furnitur e Electrical buildings long term leases and fixtures fittings RM RM RM RM Cost/valuation: At 1 July 2001 Cost 5,271,193 4,780,946 9,328, ,527 Valuation 3,900, ,171,193 4,780,946 9,328, ,527 Additions - - 1,279,086 97,558 Disposals Disposal of a subsidiary company - - (427,895) - Write-offs - - (102,155) (27,705) Reclassification - - (3,190) - Currency translation differences - - 4, ,032 69,853 At 30 June 2002 Cost 5,271,193 4,780,946 10,078, ,380 Valuation 3,900, ,171,193 4,780,946 10,078, ,380 Accumulated depreciation and impairment losses: At 1 July , ,448 5,724, ,669 Charge for the financial year 108,337 58,212 1,236,398 71,242 Disposals Disposal of a subsidiary company - - (186,365) - Write-offs - - (100,860) (16,621) Reclassification - - (78) - Currency translation differences - - 1,702 - At 30 June , ,660 6,675, ,290 Net book value: At 30 June ,697,708 4,575,286 3,402, ,090 Net book value: At 30 June ,806,045 4,633,498 3,603, ,858 Depreciation charge for the financial year ended 30 June ,338 58,211 1,228,412 54, HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

61 Computer Plant and Store and office Motor machinery equipment equipment vehicles Total RM RM RM RM RM 5,968, ,417 1,955,904 2,358,590 30,619, ,900,000 5,968, ,417 1,955,904 2,358,590 34,519, , , ,588 1,984,452 (23,241) - (48,450) (3,150) (74,841) - - (135,608) (72,216) (635,719) (384,518) - (15,770) - (530,148) - - 3, , ,023 (407,759) 106,210 3, , ,767 5,560, ,627 1,959,501 2,586,424 31,368, ,900,000 5,560, ,627 1,959,501 2,586,424 35,268,955 2,988,344 68,984 1,101,333 1,480,846 12,149, ,196 28, , ,943 2,477,171 (16,258) - (32,434) (3,149) (51,841) - - (114,217) (72,216) (372,798) (306,679) - (14,835) - (438,995) ,306 3,072,603 97,702 1,220,042 1,694,036 13,766,609 2,488, , , ,388 21,502,346 2,980, , , ,744 22,369, ,139 19, , ,210 2,480,120 annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 57

62 NOTES TO THE FINANCIAL STATEMENTS (CONT D) 3. PROPERTY, PLANT AND EQUIPMENT (Cont'd) Company Freehold Land and Display counters, land and buildings on furnitur e Electrical buildings long term leases and fixtures fittings RM RM RM RM Cost/valuation: At 1 July 2001 Cost 5,271,193 4,780, , ,775 Valuation 3,900, ,171,193 4,780, , ,775 Additions ,660 Disposals Write-offs (27,705) ,955 At 30 June 2002 Cost 5,271,193 4,780, , ,730 Valuation 3,900, ,171,193 4,780, , ,730 Accumulated depreciation and impairment losses: At 1 July , ,448 67, ,885 Charge for the financial year 108,337 58,212 8,691 35,193 Disposals Write-offs (16,622) At 30 June , ,660 75, ,456 Net book value: At 30 June ,697,708 4,575, , ,274 Net book value: At 30 June ,806,045 4,633, , ,890 Depreciation charge for the financial year ended 30 June ,338 58,211 8,712 34, HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

63 Computer Plant and and office Motor machinery equipment vehicles Total RM RM RM RM 5,968, ,823 1,164,099 18,471, ,900,000 5,968, ,823 1,164,099 22,371,484-17, , ,101 (23,241) - - (23,241) (384,518) (1,980) - (414,203) (407,759) 15, ,588 (161,343) 5,560, ,696 1,377,687 18,310, ,900,000 5,560, ,696 1,377,687 22,210,141 2,988, , ,242 4,811, ,196 61, , ,568 (16,258) - - (16,258) (306,679) (1,149) - (324,450) 3,072, , ,929 5,296,300 2,488, , ,758 16,913,841 2,980, , ,857 17,560, ,139 96, , ,953 annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 59

64 NOTES TO THE FINANCIAL STATEMENTS (CONT D) 3. PROPERTY, PLANT AND EQUIPMENT (Cont'd) The freehold land and building of the Group and the Company stated at valuation of RM3,900,000 (2001: RM3,900,000) were revalued on 7 October 1995 on a fair market value basis by a firm of independent professional appraisers. It is the Group s and Company s policy to state its property, plant and equipment at cost less accumulated depreciation and impairment losses. The above revaluation was carried out primarily for the purpose of reflecting the fair value of the asset concerned as an integral part of the listing of and quotation for the entire issued and fully paid share capital of the Company on the Second Board of the Kuala Lumpur Stock Exchange in The accounting treatment of this revaluation which has not been updated since 7 October 1995 is in accordance with the transitional provisions of MASB 15 "Property, Plant and Equipment". The carrying value of this revalued asset at the balance sheet date, had the asset been accounted for by the Group and the Company in accordance with the benchmark treatment as set out in MASB 15 would be: RM RM Freehold land 30,153 30,153 Building 334, ,570 At the balance sheet date: 364, ,723 (i) the net book value of property, plant and equipment on hire purchase in respect of which instalments are outstanding is as follows: Group Company RM RM RM RM Display counters, furniture and fixtures 1,246, , Electrical fittings 36,854 26, Plant and machinery 263, , , ,826 Store equipment 83, , Computer and office equipment 163,704 70,377 27,692 19,494 Motor vehicles 812, , , ,373 2,607,172 1,861, , , HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

65 3. PROPERTY, PLANT AND EQUIPMENT (Cont'd) ( i i ) the cost of property, plant and equipment wh i ch are fully depreciated but are still in use is as follow s : Group Company RM RM RM RM Display counters, furniture and fixtures 3,918,521 2,775, Computer and office equipment 269, ,833 2,100 2,100 Motor vehicles 1,144, , , ,445 5,332,405 3,984, , ,545 (iii) the cost of the Group s and the Company s property, plant and equipment which have been charged to secure the term loans referred to in note 17 is as follows: RM RM Freehold land and buildings 5,271,193 5,271,193 Land and buildings on long term leases 4,531,946 4,531,946 9,803,139 9,803,139 (iv) the title deeds and strata titles to the land and buildings on long term leases of the Group and the C o m p a ny have not been issued by the relevant authorities or transferred by the developer to the Company. 4. INVESTMENT PROPERTIES Group and Company RM RM At valuation: At 1 July 2001/2000 3,310,000 3,800,000 Deficit on revaluation - (490,000) At 30 June 3,310,000 3,310,000 Analysis of investment properties: Freehold land and building 1,200,000 1,200,000 Land and buildings on long term leases 2,110,000 2,110,000 3,310,000 3,310,000 The investment properties were revalued on a fair market value basis by a firm of independent professional appraisers in the previous financial year. annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 61

66 NOTES TO THE FINANCIAL STATEMENTS (CONT D) 5. INTANGIBLE ASSETS Group Sub- Trademarks license fee Total RM RM RM Cost: At 1 July ,805,000-4,805,000 Addition - 300, ,000 At 30 June ,805, ,000 5,105,000 Accumulated amortisation and impairment losses: At 1 July ,393,400-1,393,400 Charge for the financial year 192,200 30, ,200 At 30 June ,585,600 30,000 1,615,600 Net book value: At 30 June ,219, ,000 3,489,400 Net book value: At 30 June ,411,600-3,411,600 Amortisation charge for the financial year ended 30 June , , SUBSIDIARY COMPANIES RM RM Unquoted equity shares, at cost 5,341,000 1,451,002 Allowance for diminution in value - (159,000) 5,341,000 1,292, HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

67 NOTES TO THE FINANCIAL STATEMENTS (CONT D) 6. SUBSIDIARY COMPANIES (Cont d) The subsidiary companies are: Effective interest Name of company Principal activities % % Incorporated in Malaysia Antioni Sdn. Bhd. Retailing and distribution of the "ANTIONI" brand of ready-made sports and casual wear and related accessories B.U.M. Marketing Retailing and distribution of the "B.U.M (Malaysia) Sdn. Bhd. EQUIPMENT" brand of ready-made casual wear and related accessories Bontton Sdn. Bhd. Retailing and distribution of the "BONTTON" brand of ready-made casual wear and related accessories Bumcity Sdn. Bhd. Commenced operations subsequent to (formerly known as Netax the balance sheet date as an operator of a Work Wear World Sdn. Bhd.) speciality store known as "BUMCITY" Diesel Marketing Sdn. Bhd. Retailing and distribution of the "DIESEL" brand of ready-made casual wear and related accessories Hing Yiap Trading Sdn. Bhd. Wholesaling of ready-made garments and fabrics VFUSA Marketing Sdn. Bhd. Marketing and distribution of the "VANITY FAIR" brand of women intimate apparel and related accessories Incorporated in Singapor e B.U.M. Marketing (Singapore) Retailing and distribution of the "B.U.M Pte. Ltd. * EQUIPMENT" brand of ready-made casual wear and related accessories * This subsidiary corporation is not audited by Sekhar & Tan. annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 63

68 NOTES TO THE FINANCIAL STATEMENTS (CONT D) 6. SUBSIDIARY COMPANIES (Cont d) During the financial year, the Company: (i) subscribed for an additional 249,998 new ordinary shares of RM1 each in VFUSA Marketing Sdn. Bhd. at par for cash. (ii) subscribed for an additional 1,800,000 and 2,000,000 new ordinary shares of RM1 each in Bontton Sdn. Bhd. and Antioni Sdn. Bhd. respectively at par by the capitalisation of amounts owing by them to the Company. (iii) disposed of its entire equity interest in B.U.M. Marketing (Singapore) Pte. Ltd. for a cash consideration of RM400,000. An amount of RM100,000 was received upon the execution of the share sale agreement and the balance sum of RM300,000 is receivable in ten (10) equal monthly instalments of RM30,000 each commencing 10 June Upon the full settlement of the balance sum, the Group shall waive an amount equivalent to RM1,930,412, being the outstanding debts owed by B.U.M. Marketing (Singapore) Pte. Ltd. to the Group as at 30 April Subsequent to the balance sheet date, the Company subscribed for an additional 249,998 new ordinary shares of RM1 each in Bumcity Sdn. Bhd. (formerly known as Netax Work Wear World Sdn. Bhd.) at par for cash. The above subscription has no material financial effects. 7. I N V E N TO R I E S GROUP COMPANY RM RM RM RM R aw materials and consumables 1, 731, 261 1, 864, 978 1, 731, 261 1, 864, 978 Wo r k - i n - p r o g r e s s 5, 598, 514 6, 121, 065 5, 598, 514 6, 121, 065 Finished goods 39, 568, , 936, , 293 1, 248, , 8 9 8, , 9 2 2, , 0 1 0, , 2 3 4, Included in the above carrying values are finished goods wh i ch are stated at their respective net realisable a m o u n t s 2, 512, 532 2, 025, , , HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

69 NOTES TO THE FINANCIAL STATEMENTS (CONT D) 8. TRADE RECEIVABLES GROUP COMPANY RM RM RM RM Trade receivables* 19,381,337 20,880,734 3,124,375 6,852,843 Allowance for doubtful debts (3,520,668) (3,694,614) (1,140,835) (1,140,835) 15,860,669 17,186,120 1,983,540 5,712,008 * This includes amounts owing by companies in which an ex-director is deemed to have substantial financial interests 19,902 1,167,550 19,902 1,167, OTHER RECEIVABLES GROUP COMPANY RM RM RM RM Other receivables* 6,128,201 4,158,109 2,411, ,083 Allowance for doubtful debts - - (1,476,311) - 6,128,201 4,158, , ,083 * Included in this item is tax recoverable 2,150,829 2,634, , DUE FROM SUBSIDIARY COMPANIES RM RM Cash advances: Interest bearing 2,065,972 7,064,412 Interest-free - 1,646,411 2,065,972 8,710,823 Trade transactions 34,172,514 20,347,111 36,238,486 29,057,934 Allowance for doubtful debts - (1,127,443) 36,238,486 27,930,491 The above cash advances are unsecured and have no fixed terms of repayment. The interest bearing cash advances bore interest at rates which varied in accordance with the Company's prevailing applicable borrowing rates during the financial year. annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 65

70 NOTES TO THE FINANCIAL STATEMENTS (CONT D) 11. SHORT TERM INVESTMENT Group Company RM RM RM RM Unquoted equity shares, at cost 135, , , ,000 Group's share of post-acquisition profits 31,027 31, , , , ,000 The above represents the Group's and the Company's effective equity interest of 45% (2001: 45%) in Diesel Trading Sdn. Bhd. (In Liquidation), a company incorporated in Malaysia, which is currently under members' voluntary liquidation. As the Group and the Company had ceased to have a significant influence in this investee company, which was formerly treated as an associated company, this investment is now accounted for as a short term investment. 12. TRADE PAYABLES Group and Company This includes an amount of RM1,197,754 (2001: RM1,054,022) owing to a company in which an ex-director is deemed to have a substantial financial interest. 13. OTHER PAYABLES Group Company RM RM RM RM Included in this item are: Sundry payable owing to the investee company referred to in note , , Dividends payable 13,405 7,841 13,405 7, HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

71 NOTES TO THE FINANCIAL STATEMENTS (CONT D) 14. HIRE PURCHASE PAYABLES Group Company RM RM RM RM Future minimum payments 1,904,749 1,346, , ,351 Portion due within twelve months (included in current liabilities) (966,349) (597,048) (251,060) (242,788) Portion due after twelve months 938, , , ,563 Analysis of hire purchase commitments: Due within one year 1,109, , , ,588 Due between one and five years 999, , , ,740 2,109,550 1,513, , ,328 Finance expenses (204,801) (167,006) (35,208) (50,977) 15. DUE TO SUBSIDIARY COMPANIES 1,904,749 1,346, , ,351 This represents unsecured and interest-free cash advances with no fixed terms of repayment. 16. SHORT TERM BORROWINGS Group Company RM RM RM RM Unsecured: Bank overdrafts 1,603,287 3,093, Bankers' acceptances 14,456,000 16,583,000 4,644,000 4,518,000 16,059,287 19,676,721 4,644,000 4,518,000 Secured: Term loans - repayment due within twelve months (note 17) 716, , , ,719 16,776,205 20,350,440 5,360,918 5,191,719 annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 67

72 NOTES TO THE FINANCIAL STATEMENTS (CONT D) 16. SHORT TERM BORROWINGS (Cont d) The short term borrowings (excluding term loans) of the Group and the Company bore interest during the financial year as follows: Group Company Bank overdrafts Bankers' acceptances 17. TERM LOANS Group and Company 1.5% (2001: 1.5%) per annum a b ove prime lending rate and ra t e s ranging from 1.25% to 2% (2001: 1.25% to 2.5%) per annum above the lenders' base lending ra t e s Rates which varied in accordance with the lenders cost of funds 1.5% (2001: 1.5%) per annum a b ove the lenders base lending ra t e s Rates which varied in accordance with the lenders cost of funds RM RM Term loans 4,205,955 4,906,551 Repayment due within twelve months (included in short term borrowings - note 16) (716,918) (673,719) Repayment due after twelve months 3,489,037 4,232,832 The above term loans which bore interest at the rates of 1.5% and 1.75% (2001: 1.5% and 1.75%) per annum above the lenders base lending rates during the financial year and repayable over periods not exceeding 10 years (2001: 10 years) are secured by way of fixed and legal charges and deeds of assignment cum loan agreements over certain land and buildings on long term leases and certain freehold land and buildings referred to in note HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

73 NOTES TO THE FINANCIAL STATEMENTS (CONT D) 18. DEFERRED TAXATION Group Company RM RM RM RM At 1 July 2001/2000: As previously reported 880, , ,000 1,720,000 Prior year adjustment (note 20) (77,000) (104,000) - - As restated 803, , ,000 1,720,000 Transfer to income statement (note 25) (72,000) (500) (16,000) (988,000) At 30 June 731, , , ,000 Deferred taxation provided for in the financial statements: Timing differences on the excess of capital allowances over the corresponding depreciation 713, , , ,000 Other short term timing differences 18,000 21,000 18,000 21, , , , ,000 Deferred taxation not provided for in the financial statements: Timing differences on the excess of depreciation over the corresponding capital allowances 67,000 78, Other short term timing differences 530, , Unabsorbed capital allowances and tax losses of subsidiary companies available for set off against their future taxable profits (note 25) 154, , Deferred tax debits 751, , Deferred taxation is not provided on the revaluation surplus arising from the revaluation of landed properties as it is not the intention of the Directors to dispose the properties concerned in the foreseeable future. annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 69

74 NOTES TO THE FINANCIAL STATEMENTS (CONT D) 19. SHARE CAPITAL RM RM Ordinary shares of RM1 each: Authorised 100,000, ,000,000 Issued and fully paid: At 1 July 2001/ ,257,000 20,795,000 Bonus issue by the capitalisation of retained profits on the basis of 7 (2001: 1) new shares for every 25 (2001: 2) existing shares held 9,139,199 10,419,000 Issued pursuant to Employees' Share Option Scheme ["Scheme"] at RM1.00, RM1.03 and RM1.06 (2001: RM1.54) per share 1,391,000 43,000 At 30 June 41,787,199 31,257,000 The above new shares rank pari passu in all respects with the existing shares of the Company. The Scheme which was approved by the Registrar of Companies on 29 January 1999, will be in force for a period of four (4) years from 29 January 1999 ["Option Period"]. The Company may extend the Option Period for a further five (5) years subject to the approval of the relevant authorities. The main features of the Scheme are as follows: (i) (ii) the total number of new ordinary shares to be offered under the Scheme shall be subject to a maximum of 10% of the issued and paid-up share capital of the Company at any time during the existence of the Scheme. eligible employees comprise confirmed full time employees, including Executive Directors, of the Company or its eligible subsidiary companies, subject to the meeting of the following conditions: (a) employees must be Malaysians and must have served for at least one continuous year with the Group; (b) have attained the age of eighteen (18) years on or before the date of offer of the option to subscribe for ordinary shares; and (c) are not participants of any employee share option scheme implemented by any company in the Group. The entitlement of an Executive Director under the Scheme must be approved by the shareholders of the Company in a general meeting. 70 HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

75 NOTES TO THE FINANCIAL STATEMENTS (CONT D) 19. SHARE CAPITAL (Cont d) (iii) the price payable upon the exercise of an option offered shall be the average of the mean market quotation of the ordinary shares as shown in the Daily Official List issued by the Kuala Lumpur Stock Exchange for the five (5) market days immediately preceding the offer date, subject to the proviso that the option price per ordinary share shall in no event be less than its par value or the last transacted market price of the ordinary shares at the time the option is offered. (iv) an option may be exercised in full or in part by notice of writing to the Company on any working day during the Option Period. (v) the new ordinary shares to be allotted upon any exercise of the option will, upon allotment, rank pari passu in all respects with the then existing issued and paid-up share capital of the Company, but will not entitle the holders thereof to receive any dividends, rights, bonus issue and any other distribution declared to the Company's shareholders which entitlement date thereof precedes the relevant exercise date of the option and will be subject to all the provisions of the Articles of Association of the Company. At the balance sheet date, the total number of options granted pursuant to the Scheme to subscribe for new ordinary shares of RM1 each in the Company was as follows: No. of options o ver ordinar y shares of RM1 each Options granted on 30 March ,998,000 Adjustment for bonus issue during the financial year ended 30 June ,000 Options granted on 3 April ,000 Adjustment for bonus issue during the financial year ended 30 June ,000 3,255,000 As a consequence of the bonus issue during the financial year, the option prices for the options granted on 30 March 1999 and 3 April 2001 were adjusted from RM1.03 per share and RM1.06 per share respectively to RM1.00 per share. The movements in the options to take up the unissued ordinary shares of RM1 each of the Company during the financial year are as follows: No. of options over ordinary shares of RM1 eac h Option Adjustment Options price At for At granted on RM Granted bonus issue Exercised Lapsed March ,543, ,000 (1,104,000) (100,000) 442,000 3 April ,000-61,000 (287,000) (70,000) 293,000 annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 71

76 NOTES TO THE FINANCIAL STATEMENTS (CONT D) 19. SHARE CAPITAL (Cont d) Subsequent to the balance sheet date, the Directors approved the proposed establishment of a new Employees Share Option Scheme ["Proposed Scheme"] for the eligible employees (including Executive Directors) of the Group. At the date of the Directors Report, the Group s adviser is in the midst of preparing the necessary application to seek the approvals of the relevant authorities for the Proposed Scheme. The Proposed Scheme is subject to the approvals of the Securities Commission, any other relevant authorities and the shareholders of the Company in general meeting. The Proposed Scheme, if approved, will only be implemented upon the expiry of the Scheme on 28 January PRIOR YEAR ADJUSTMENT Group In previous financial years, expenses incurred by the Group on sales advertising and promotional a c t ivities were written off to the income statement evenly over twelve months from the date of incurrence. This accounting policy was changed during the financial year to one which writes off all such expenses to the income statement in the period of incurrence. The Directors consider that this change in accounting policy gives a more appropriate presentation of these expenses in the financial statements of the Group. The debit arising on 1 July 2001 from the above change in accounting policy amounting to RM527,272 has been dealt with retrospectively as follows: RM RM Restatement of Group s: Retained profits at 30 June ,581 Profit before taxation for the financial year ended 30 June ,691 Taxation for the financial year ended 30 June ,000 Profit after taxation for the financial year ended 30 June ,691 Retained profits at 1 July ,272 The above change in accounting policy has no material effect on the current financial year s results of the Group. 72 HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

77 NOTES TO THE FINANCIAL STATEMENTS (CONT D) 20. PRIOR YEAR ADJUSTMENT (Cont d) The other effects of the above change in accounting policy on the Group s comparative figures are as follows: Balance sheet As previously Effects As reported of change restated RM RM RM Other receivables 4,762,381 (604,272) 4,158,109 Deferred taxation 880,000 (77,000) 803,000 Income statement Operating expenses 56,773,514 11,691 56,785,205 Profit from operations 8,670,680 (11,691) 8,658,989 Profit before exceptional items 7,233,071 (11,691) 7,221,380 Cash flow statement Operating profit before working capital changes 11,172,055 (11,691) 11,160,364 Decrease in receivables 1,985,178 11,691 1,996, DIVIDEND RM RM First and final dividend of 3.5% less tax paid 822,528 - Under provision of prior financial year s proposed first and final dividend paid - 1, ,528 1,548 The under provision of the prior financial years proposed first and final dividend was in respect of new ordinary shares issued pursuant to the Employees' Share Option Scheme, subsequent to the financial year end but before the book closure date for dividend entitlement. A first and final dividend in respect of the current financial year of 3.5% less tax amounting to RM1,053,037 will be proposed for the approval of the Company s shareholders at the forthcoming Annual General Meeting of the Company. These financial statements do not reflect this first and final dividend which will be accounted for in shareholders equity as an appropriation of retained profits in the financial year ending 30 June 2003 when approved by the Company s shareholders. annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 73

78 NOTES TO THE FINANCIAL STATEMENTS (CONT D) 22. REVENUE Group Company RM RM RM RM Continuing operations: Sales of goods less returns and discounts 98,894,486 94,677,854 63,889,445 59,175,283 Royalty income 689, , Dividends from unquoted equity shares in subsidiary companies - - 1,495,000 1,487,500 99,583,536 95,146,162 65,384,445 60,662,783 Discontinued operations: Sales of goods less returns and discounts 3,696,337 4,415, PROFIT BEFORE EXCEPTIONAL ITEMS This has been arrived at: 103,279,873 99,561,335 65,384,445 60,662,783 Group Company RM RM RM RM After charging: Amortisation of intangible assets 222, , Auditors' remuneration: Auditors of the Company 76,800 72,600 29,000 29,000 Other auditors of a subsidiary company: Charge for the financial year 7,412 9, Under provision in respect of a prior financial year Depreciation 2,477,171 2,480, , ,953 Directors remuneration* 1,032, , , ,888 Interest expenses: Bank overdrafts 204, ,686 37,712 46,602 Bankers' acceptances 766, , , ,124 Hire purchase 187, ,593 44,614 49,583 Overdue accounts Term loans 372, , , ,560 Trust receipts 18,086 38,764 16,086 26,312 Property, plant and equipment written off 91,153 8,813 89,753 5,614 Realised loss on foreign exchange 10,514 60,722-60, HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

79 NOTES TO THE FINANCIAL STATEMENTS (CONT D) 23. PROFIT BEFORE EXCEPTIONAL ITEMS (Cont d) Group Company RM RM RM RM Rental expenses: Equipment 67,672 2, Land and buildings 2,789,761 2,151,383 88, ,300 Royalty expenses 999, , And crediting: Gain on foreign exchange: Realised 137 8, Unrealised 1,594 1, Interest received from: Cash advances granted to subsidiary companies , ,582 Others 33,000 29,461 33,000 29,461 Short term deposits 1,221 1,413 1,221 1,413 Profit on disposal of property, plant and equipment 23,195 23,077 10,017 18,692 Rental income from: Subsidiary companies: Land and buildings and store equipment , ,000 Third parties: Land and buildings 249, , , ,003 * This is made up of: Fees: Non Executive Directors (1) 108, , , ,000 Executive Directors (2) 108,000 72, ,000 72, , , , ,000 Salaries and other benefits (3) - Executive Directors (2) 816, , , ,888 1,032, , , ,888 (1) The Non Executive Directors were 2002: Y.Bhg. Dato' Azizi Yom Ahmad, Y.Bhg. Dato' Paduka Dr. Khairuddin bin Mohamed Yusof and Mr. Ng Teng Seng : Y. B h g. Dato' Azizi Yom A h m a d, Y. B h g. Dato' Paduka Dr. Khairuddin bin Mohamed Yusof, Madam Sze Tho Pooi Lin and Madam Foo Yak Chu. Madam Sze Tho Pooi Lin and Madam Foo Yak Chu resigned as Directors on 1 July annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 75

80 NOTES TO THE FINANCIAL STATEMENTS (CONT D) 23. PROFIT BEFORE EXCEPTIONAL ITEMS (Cont d) (2) The Executive Directors in 2002 and 2001 were Ms. Chi Oi Meng, Mr. Khoo Henn Kuan and Mr. Chi Kin Meng. (3) Group Company RM RM RM RM The estimated monetary value of other benefits not included in the above received by the Executive Directors 71,015 60,150 47,065 36, EXCEPTIONAL ITEMS Group Company RM RM RM RM Allowance for doubtful debts - - (348,868) - Bad debts recovered 20, Inventories destroyed in a fire - (173,218) - - Inventories write-downs (381,847) (487,763) - - Profit on disposal of a subsidiary company* 1,416, ,000-1,055,118 (660,981) 50,132 - * The effect of the disposal of a subsidiary company, B.U.M. Marketing (Singapore) Pte. Ltd., on 10 May 2002, on the results of the Group for the current financial period to the date of disposal was as follows: 76 HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

81 NOTES TO THE FINANCIAL STATEMENTS (CONT D) 24. EXCEPTIONAL ITEMS (Cont d) Financial period from Financial to year ended RM RM Revenue 3,696,337 4,415,173 Other operating income - 9,177 Changes in inventories of finished goods and work-in-progress (60,515) 27,656 Staff costs (724,535) (796,622) Depreciation (88,000) (91,383) Operating expenses (2,996,086) (3,582,416) Loss from operations (172,799) (18,415) Finance costs (35,423) (31,533) Loss before exceptional items (208,222) (49,948) Exceptional items: Bad debts recovered 20,910 - Profit on disposal of a subsidiary company 1,416,055 - Profit/(loss) before taxation 1,228,743 (49,948) Taxation - - Profit/(loss) after taxation 1,228,743 (49,948) 25. TAXATION Group Company RM RM RM RM Taxation on the profit of the financial year: Malaysian income tax 3,367,400 2,071,000 1,622,000 2,041,000 Transfer from deferred taxation (note 18) (72,000) (500) (16,000) (988,000) 3,295,400 2,070,500 1,606,000 1,053,000 Over provision of Malaysian income tax in respect of prior financial years (224,599) (102,005) (135,193) - 3,070,801 1,968,495 1,470,807 1,053,000 annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 77

82 NOTES TO THE FINANCIAL STATEMENTS (CONT D) 25. TAXATION (Cont d) The actual rate of taxation on the Group's and the Company's profits of the current and previous financial years is more than the standard rate of tax applicable to company profits due to certain expenses being disallowed for tax purposes. At the balance sheet date, a subsidiary company has unabsorbed capital allowances and tax loss amounting to approximately RM551,000 (2001: Nil), wh i ch can, subject to approval by the tax authorities, be carried f o r ward and utilised to offset against its future taxable profits. These unabsorbed capital allowances and tax losses have been taken into consideration in the computation of deferred tax disclosed in note 18. The Company has: (i) tax exempt income for the payment of tax exempt dividends of approximately RM4,350,000 (2001: RM4,050,000); and (ii) sufficient tax credit under Section 108 of the Income Tax Act, 1967, to frank the payment of dividends out of the balance of its retained profits. 26. EARNINGS PER SHARE (a) Basic Earnings Per Share The basic earnings per share of the Group is calculated by dividing the Group's profit after taxation by the weighted average number of ordinary shares of the Company in issue during the financial year, adjusted for the bonus issue of 9,139,199 ordinary shares during the financial year Profit after taxation (RM) 5,297,183 4,591,904 Weighted average number of ordinary shares in issue 41,080,199 40,389,866 Basic earnings per share (sen) (b) Diluted Earning Per Share The diluted earnings per share of the Group is calculated by dividing the Group's profit after taxation by the weighted average number of ordinary shares that would be in issue at the end of the financial year had all the exercisable share options as at the end of the financial year under the Company's Employees' Share Option Scheme been exercised, adjusted for the bonus issue of 9,139,199 ordinary shares during the financial year. 78 HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

83 NOTES TO THE FINANCIAL STATEMENTS (CONT D) 26. EARNINGS PER SHARE (Cont d) Profit after taxation (RM) 5,297,183 4,591,904 Weighted average number of ordinary shares in issue 41,080,199 40,389,866 Adjustment for share options 90,263 (55,673) Weighted average number of ordinary shares for diluted earnings per share 41,170,462 40,334,193 Diluted earnings per share (sen) * * The effect on the basic earnings per share for the previous financial year arising from the assumed full exercise of the share options is anti-dilutive. Accordingly, the diluted earnings per share for the previous financial year has not been presented. The comparative earnings per share information has been restated to take into account the effect on the profit after taxation as a result of the prior year adjustment disclosed in note SIGNIFICANT RELATED PARTY AND OTHER INTRAGROUP TRANSACTIONS (a) During the financial year, the Group and the Company transacted with certain related parties, the transactions of which were carried out in the ordinary course of business, at arm s length, on normal commercial terms which were not more favourable to the related parties than those generally available to third parties which have commercial relationship with the Group and the Company. In addition, the trade related transactions were based on market pricing and/or standard pricing formulae used in the industry. The more significant of such transactions were as follow s : Group Company Nature of Name of Transactions related party RM RM RM RM Purchase of a Chi Kin Meng 200, ,000 - motor vehicle Purchase of garments Goodtex 2,403,547 2,503,010 2,403,547 2,503,010 Marketing Sdn. Bhd. (1) Rental of a house Chi Oi Meng 7,200 6,000 7,200 6,000 Rental of apartments Jenapine 21,600 21,600 16,200 16,200 Sdn. Bhd. (2) Rental of apartments Chi Kuei Yung 152, ,600 21,600 21,600 and an industrial & Sons Realty building Sdn. Bhd. (3) annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 79

84 NOTES TO THE FINANCIAL STATEMENTS (CONT D) 27. SIGNIFICANT RELATED PARTY AND OTHER INTRAGROUP TRANSACTIONS (Cont d) Group Company Nature of Name of Transactions related party RM RM RM RM Sale of yarn and Goodtex 1,292,432 2,374,118 1,292,432 2,374,118 fabrics and Marketing provision of Sdn. Bhd. (1) commission dyeing Sale of fabrics La City Apparel and accessories Sdn. Bhd. (1) - 217, ,354 (1) Companies in which an ex-director, Madam Foo Yak Chu, who had resigned on 1 July 2001, is deemed to have substantial financial interests. ( 2 ) A company in wh i ch Ms. Chi Oi Meng and Mr. Khoo Henn Kuan have substantial financial interests. (3) A company in which Ms. Chi Oi Meng, Mr. Khoo Henn Kuan and Mr. Chi Kin Meng and an e x - D i r e c t o r, Madam Sze Tho Pooi Lin (resigned on 1 July 2001), have substantial financial interests. ( b ) During the financial ye a r, the Company has the following transactions with its subsidiary companies: RM RM Sales of ready-made garments to its subsidiary companies 54,625,565 46,941,557 Transfers of property, plant and equipment to a subsidiary company - 5,000 (c) The options over ordinary shares of the Company granted to the Directors during the financial year are as follows: No. of options over ordinary shares of RM1 eac h Option Granted during the Unexercised options at price financial year financial year end RM Chi Oi Meng ,000 Khoo Henn Kuan ,000 Chi Kin Meng ,000 17, ,000 86,000 The above options were granted on the same terms and conditions as those granted to other employees of the Group, the details of which are summarised in note HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

85 NOTES TO THE FINANCIAL STATEMENTS (CONT D) 28. COMMITMENTS Group At the balance sheet date, the Group has the following commitments in respect of its future minimum lease payments under non cancellable leases of premises: RM RM Expiring within one financial year 1,709,870 2,750,831 Expiring between two and five financial years 1,756,057 2,728, CONTINGENT LIABILITIES (UNSECURED) Group 3,465,927 5,479,413 A subsidiary company, Bontton Sdn. Bhd. (proprietor of the "DIESEL" trademark in relation to articles of clothing in Malaysia) together with another subsidiary company, Diesel Marketing Sdn. Bhd. (the authorised licensee of Bontton Sdn. Bhd. for the said "DIESEL" trademark) commenced a suit during the financial year against APCOTT PP (M) Sdn. Bhd. ["APCOTT"], for an injunction to stop APCOTT from using the "DIESEL" name in relation to bags in Malaysia and to claim for general damages. Subsequent to the balance sheet date, DIESEL S.p.A., a corporation incorporated in Italy, has applied to be joint as a party to the above suit as co-defendant. As at the date of the Directors Report, DIESEL S.p.A. has not filed any defence or reply in respect of the above suit. Although the above subsidiary companies had filed an application to seek an interlocutory injunction against APCOTT and the hearing of this application was fixed for 7 November 2002, these subsidiary companies intend to amend the application concerned to include DIESEL S.p.A. as co-defendant. Despite the fact that DIESEL S.p.A. may counter-claim to restrain Bontton Sdn. Bhd. and Diesel Marketing Sdn. Bhd. from using the "DIESEL" trademark and to claim for general damages for the use of the same by Bontton Sdn. Bhd. and Diesel Marketing Sdn. Bhd., the Group has not made any allowance for possible losses arising thereon as the maximum exposure of liabilities on the Group, if any, will depend on the outcome of the above hearing. Company At the balance sheet date, the Company has contingent liabilities amounting to RM29,578,268 (2001: RM30,038,009) in respect of corporate guarantees granted to third parties for banking and financing facilities of the subsidiary companies. 30. SEGMENT INFORMATION ANALYSIS The Group is organised into two major business segments as follows: Manufacturing - Textile knitting and the manufacture of garments Trading - Wholesaling, retailing and distribution of ready-made sports and casual wear and related accessories annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 81

86 82 HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

87 annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 83

88 84 HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

89 annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 85

90 86 HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

91 SHAREHOLDINGS STATISTICS DIRECTORS INTERESTS IN SHARES IN THE COMPANY AS AT 31 OCTOBER 2002 Shareholdings in which % of Issued Directors % of Issued Directors ar e and Paid-up Direct and Paid-up deemed to Share Name of Directors Shareholdings Share Capital have Interests Capital 1. Y.Bhg. Dato Azizi Yom Ahmad 2,039,520 (1) Chi Oi Meng 1,829, ,993,280 (2) Khoo Henn Kuan 1,109, ,855,360 (3) Chi Kin Meng ,823,040 (4) Y.Bhg. Dato Paduka Dr. Khairuddin bin Mohamed Yusof 6. Ng Teng Seng Ms. Chi Oi Meng, Mr. Khoo Henn Kuan and Mr. Chi Kin Meng, by virtue of their interests of more than 15% of the share capital of the Company, are deemed to have an interest in the entire share capitals of the Company s subsidiary corporations during the financial year. Notes: (1) Direct interest in shares pledged with Southern Nominees (Tempatan) Sdn. Bhd. (2) Deemed interest by virtue of direct and indirect interests in Chi Kuei Yung & Sons Realty Sdn. Bhd. and in the voting shares of spouse, Khoo Henn Kuan. (3) Deemed interest by virtue of direct and indirect interests in Chi Kuei Yung & Sons Realty Sdn. Bhd. and in the voting shares of spouse, Chi Oi Meng and connected persons, Khoo Henn Loi and Khoo Henn Kiew. (4) Deemed interest by virtue of direct and indirect interests in Chi Kuei Yung & Sons Realty Sdn. Bhd. and in the voting shares of connected persons, Chi Oi Meng and Khoo Henn Kuan. annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 87

92 SHAREHOLDINGS STATISTICS (CONT D) 30 LARGEST SHAREHOLDERS AS AT 31 OCTOBER 2002 % of Issued and No. of Ordinar y Paid-up Name of Shareholders Shares of RM1 eac h Share Capital 1. Chi Kuei Yung & Sons Realty Sdn Bhd 13,883, Southern Nominees (Tempatan) Sdn Bhd 2,039, Qualifier Name: Dato Azizi bin Yom Ahmad 3. Choi Choong Hin 1,728, Multi-Purpose Credit Sdn Bhd 1,628, Khoo Henn Kuan 1,109, Chi Oi Meng 960, Chi Oi Meng 869, Tan Eng Lan 695, Khoo Kar Toi 659, Perabut Kupang Sdn Bhd 590, Fong Chan Moi 532, Tang Tan Koon Tiang 510, Kong Choon Thai 387, Kong Choon Thai 364, RHB Nominees ( Tempatan) Sdn Bhd 289, Qualifier Name: Yuen Siew Van 16. Lim Keat Wah 237, Suriakant a/l Babu Vallabh Patel 224, Lembaga Tabung Haji 192, Kenanga Nominees (Tempatan) Sdn Bhd 192, Qualifier Name: Chan Wai Pun 20. Tay Teck Ho 173, Choi Yu Loong 168, Mayban Nominees (Tempatan) Sdn Bhd 166, Qualifier Name: Joo Moi Hoon 23. Lim Keat Pheng 160, Hong Leong Finance Berhad 150, Qualifier Name: Chan Wai Pun 25. Lim Keat Pheng 137, TA Nominees (Tempatan) Sdn Bhd 126, Qualifier Name: Francis Chia Mong Tet 27. Alliancegroup Nominees (Tempatan ) Sdn Bhd 120, Qualifier Name: Tan Sew Ching 28. Teh Kim Seng 110, Gan Tee Kian 99, Foo You Woo You Chin 96, HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

93 SHAREHOLDINGS STATISTICS (CONT D) SHARE DISTRIBUTION AS AT 31 OCTOBER 2002 % of Issued Size of No. Of % Of No. Of and Paid-up Shareholdings Shareholders Shareholders Shares Held Share Capital , ,000 10,000 1, ,950, , , ,380, ,001 to less than ,522, % of issued shares 5% and above of issued shares ,883, Total 2, ,787, Authorised Share Capital : RM100,000,000 Issued and Fully Paid-up Share Capital : RM41,787,199 Class of Shares : Ordinary shares of RM1.00 per share No. of Ordinary Shareholders : 2,145 VOTING RIGHT OF SHAREHOLDERS On a show of hands, every member personally present or by attorney or proxy, shall have one vote and in the case of a poll, shall have one vote for every share held by him. No person, other than a member duly registered and who shall have paid everything for the time being due from him and payable to the Company in respect of his shares, shall be entitled to vote on any question either personally or by proxy or as proxy for another member. annual report V - HING YIAP KNITTING INDUSTRIES BERHAD 89

94 SHAREHOLDINGS STATISTICS (CONT D) SUBSTANTIAL SHAREHOLDERS AS AT 31 OCTOBER 2002 Shareholdings in which Shareholdings Substantial in Substantial % of Issued Shareholders % of Issued Name of Shareholders and Paid-up are deemed to and Paid-up Substantial Shareholders Name Share Capital have Interests Share Capital 1. Chi Kuei Yung & 13,883, Sons Realty Sdn. Bhd. 2. Chi Oi Meng 1,829, ,993,280 (1) Khoo Henn Kuan 1,109, ,855,360 (2) Chi Kin Meng ,823,040 (3) Sze Tho Pooi Lin ,823,040 (3) Notes: (1) Deemed interest by virtue of direct and indirect interests in Chi Kuei Yung & Sons Realty Sdn. Bhd. and in the voting shares of spouse, Khoo Henn Kuan. (2) Deemed interest by virtue of direct and indirect interests in Chi Kuei Yung & Sons Realty Sdn. Bhd. and in the voting shares of spouse, Chi Oi Meng and connected persons, Khoo Henn Loi and Khoo Henn Kiew. (3) Deemed interest by virtue of direct and indirect interests in Chi Kuei Yung & Sons Realty Sdn. Bhd. and in the voting shares of connected persons, Chi Oi Meng and Khoo Henn Kuan. 90 HING YIAP KNITTING INDUSTRIES BERHAD V annual report 2002

95 PROXY FORM HING YIAP KNITTING INDUSTRIES BERHAD (22414-V) (Incorporated in Malaysia) FORM OF PROXY (Please refer to the notes below before completing this form) Number of shares held I/We (FULL NAME IN BLOCK LETTERS) of (FULL ADDRESS) being a member of HING YIAP KNITTING INDUSTRIES BERHAD hereby appoints (FULL NAME IN BLOCK LETTERS) of (FULL ADDRESS) as my/our proxy to attend and vote for me/us on my/our behalf at the Twenty-Seventh Annual General Meeting of the Company to be held at Matahari 1, Level 5, Cititel Mid Valley, Mid Valley City, Lingkaran Syed Putra, Kuala Lumpur on Monday, 23 December 2002 at a.m. or any adjournment thereof. RESOLUTIONS For Against (Please indicate with an X in the appropriate boxes above how you wish your vote to be cast. If you do not do so, your proxy shall vote as he thinks fit, or at his/their discretion.) Dated this day of 2002 Signature of Shareholder Notes: 1. A member entitled to attend and vote at the Meeting is not entitled to appoint more than one (1) proxy to attend and vote in his stead.a proxy may but need not be a member of the Company. If a proxy is granted to a non-member of the Company, he need not be any of the person described in Section 149(1)(b) of the Companies Act, Where a member is an authorised nominee as defined under the Securities Industry (Central Depositories) Act,1991,it may appoint only one proxy in respect of each securities account it holds with ordinary shares of the Company standing to the credit of the said securities account. 3. If the appointor is a corporation, the form of pr oxy should be executed under its common seal or under the hand of an officer or attorney duly authorised in that behalf. 4. The instrument appointing a proxy must reach the registered office of the Company at Lots 59-60, Lorong Kuang Bulan, Taman Kepong,52100 Kuala Lumpur not less than forty-eight (48) hours before the time set for the meeting or any adjournment thereof.

96 Please fold here Stamp/Setem HING YIAP KNITTING INDUSTRIES BERHAD (22414-V) Lots 59-60, Lorong Kuang Bulan Taman Kepong Kuala Lumpur Please fold here

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