operations review Financial Overview Palm Oil Plantation & Palm Products Processing

Transcription

1 annual report operations review Financial Overview As a transnational company with offices in Lahad Datu, Kota Kinabalu, Guangzhou, Shanghai, Zhangjiagang and Hong Kong, Kwantas Corporation Berhad (KCB) s overall performance and profitability is a result of the Group s synergistic consolidation of its businesses as an integrated palm oil producer. Its core business segments include plantation, biomass energy, diesel and lubricants, rental of leasehold land, stone and gravel quarry, soap noodle and oleochemical plants, trading and bulking facilities and palm products processing. The latter comprises manufacturing activities such as milling, kernel crushing and refining. The stability of palm product prices has contributed to KCB s continued sterling performance in The oil palm plantation and palm products processing activities continued to be the major contributor to the company s revenue and profit. The revenue of the Group has increased by RM16,139,000 (1.40%) from RM 1,190,410,000 in year 2004 to RM 1,206,549,000 for the current financial year ended 30 June This was mainly attributable to the increase of palm products processing production as a result of improved yield from oil palm plantations as compared to the previous financial period. The oil palm plantation and palm products processing divisions generated a total revenue of RM1,262,009,000 and profit from operations of RM61,849,000 in Trading of industrial products such as diesel and lubricants resulted in revenues of RM7,046,000. The fully operational 9.8 MW biomass power plant produced revenues of RM6,895,000. Palm Oil Plantation & Palm Products Processing KCB is moving towards progressively building oil palm acreage. As a major player in the industry, the Group is sourcing more lands suitable for the development of oil palm plantations, in line with its strategic expansion programme to increase the source of its oil supplies. The acquisition of the entire equity interests in Kwantas Land Development Sdn. Bhd. (KLDSB) and Kwantas Oleo Sdn. Bhd. (KOLEO) has significantly increased the Group s plantation holdings from 10, hectares to 17, hectares - a 7, hectare build up or 73.3% increase in land bank. With these acquisitions, the Group expects higher yields from the land already planted with fruit-bearing trees which would expand its business operations and enhance future earnings. By steadily increasing its acreage to ensure that Fresh Bruit Bunches (FFB) are constantly available for processing, the Group is able to achieve its production targets. These FFB are sent promptly to its palm oil mills, to optimise oil quality and extraction rate. The acquisitions were also aimed at strategically streamlining operations that would bring about cost savings from the synergised pooling of assets resulting to a more efficient allocation of resources.

2 22 kwantas corporation berhad W operations review (cont d) Business Development in China Aside from Malaysia, China is KCB s one other main geographical area of business. From its initial presence in that country which began with a sales and marketing office in Guangzhou in the year 2000, KCB has expanded its operations there since 2002, in recognition of China s growing demand for palm oil products. Guangzhou Operations Bulking facilities in Guangzhou continue to be in operation, bringing in revenue from the rental of storage facilities and handling of palm oil products for customers who wish to store quantities of palm oil within a Free Trade Zone. The tanks are close to the port and palm oil can be piped directly from tankers to the storage facility. The refinery plant in Guangzhou began operation in 2005 with a total production capacity of 700MT per day. The refinery not only processes palm oil but also soya bean oil to meet the demands of mainly the local buyers. KCB also recently completed its shortening and margarine plant in Guangzhou in mid The plant, with a capacity of 144MT per day, manufactures products used in the confectionery and bakery industries. Meanwhile the oleochemical and soap noodle plants in Guangzhou are still under construction and are expected to undergo tests and commissioning by April These plants will be processing palm stearin and palm kernel oil to produce soap noodles, a semi-finished product used as the base ingredient in the manufacture of household soaps. Zhangjiagang Operations Similar bulking installation facilities have been completed in the 3rd quarter of 2004 in Zhangjiagang Free Trade Zone and have commenced operation. The facility has a storage capacity of up to 42,000 MT of oil and fat products. Currently in the works are the oleochemical and soap noodle plants in Zhangjiagang which are expected to be commissioned by mid Greater integration and diversification is expected from the Group with the initiation of these downstream activities in China, thus, generating positive revenue for the company in the future. Producing Environment-Friendly Biofuels Biodiesel has become the new buzzword in the palm oil industry as countries seek vegetable oils to produce environmentally friendly biofuels. Palm oil is one of the world s cheapest vegetable oils and analysts believe that palm oil producers stand to benefit the most being the cheapest and the easiest oil to work with when transforming into fuels.

3 annual report operations review (cont d) Producing Environment-Friendly Biofuels (Cont d) Analysts believe that biodiesel usage has the potential to become the biggest component of growth in vegetable oils, particularly palm oil. European governments are promoting the use of biodiesel derived from vegetable oils and ethanol to cut greenhouse gas emissions from fossil fuels. The European Union imports about 3.5 million tonnes of refined and crude palm oil every year, mainly from Malaysia and Indonesia. Analysts further predict that rising biodiesel usage will mean demand for edible oils that will outstrip production by at least 6 million tonnes a year. Recognising the greater potential of palm oil in the production of biodiesel, Kwantas Group is looking to penetrate into that market in the future. The Group is poised for ventures that would supply biodiesel demand in countries not just in Europe, but including other crude oil importing countries as well. IT Development In today's world where timely information is crucial for any business organisation, Kwantas recognises the need to keep up to date with the latest technologies and changes in the IT industry. Whether it is training courses for computer software or workshops for setting up networking infrastructure, the staff are regularly trained and updated to ensure the Kwantas Group achieves maximum efficiency and information flow within the Group is current. The physical geographical barriers no longer exist when the Head Office in Sabah is able to communicate directly with the factories in Guangzhou and Zhangjiagang via the Internet utilising the latest software which allows voice as well as video communication at minimal cost. Documents are transmitted between Group offices through an online SharePointPortal Server system to allow easy and secure access of files and information. This has resulted in substantial telecommunication cost savings as well as increasing productivity for the Group. Human Resource Development Kwantas has always recognised the need to provide the staff with the appropriate training in order for them to perform at their optimum level, whether they are in production, management, IT, administration or HR. In the past year, the staff have been sent on a number of training courses including: NIOSH Safety Training Workshop for Mill Personnel Recruitment Procedures & Policies on Foreign Workers in Sabah Motivation & Professional Development Law of Constructive Dismissal & Resignation Taklimat Khas/Kounter Penerimaan Borang Tuntutan Gerakan Latihan Certificate Programme for Safety & Health Officers Seminar on Ganoderma Disease of Oil Palm and its Management Computer Course - MS Word & MS Excel MEF Workshop on Mediation Theory & Practice

4 24 kwantas corporation berhad W operations review (cont d) Human Resource Development (Cont d) Business Acceleration Course 5th ISP National Seminar 2005 Plan & Maintain a MS Windows Server 2003 Network Infrastructure Management Techniques & Practices Effective Debt Collection Techniques (Chinese Version) 2005 National Conference on Internal Auditing PSMB 2005 Conference - Directors Perspective on Efficient and Alternative Financing Sources - Value Creation & Corporate Gov Growth & Bottom Line Financial Strategies in Today's Markets Introduction to the Clean Development Mechanism (CDM) and the CDM Project Cycle Another 50 Contractual Problems relevant to Malaysia & Their Solution Dialogue on HRD Policies and Procedures Sabah International Expo (SIE) 2004 Kwantas being the Silver Sponsor, also participated in the Sabah International Expo 2004 which was held in Kota Kinabalu on 8th to 12th September Jointly organised by the Malaysian International Chamber of Commerce (MICCI) of Sabah and Federation of Sabah Manufacturers (FSM), the Expo is a multi-sector trade and investment exhibition which focuses on the development of business, trade and investment opportunities in Sabah as well as the rest of Malaysia. The Expo, which attracted 387 delegates and more than 36,000 visitors, showcased the latest technologies for manufacturing and resource-based industries to companies throughout the region. In participating in this Expo, Kwantas was able not only to showcase the Kwantas Group to trade visitors from other ASEAN countries but also made key business contacts and develop future trade opportunities for the Group.

5 annual report Recognition Received Year Publication Ranking 2005 The Edge Companies that gave the best returns (5 years) Top 100 companies - Kwantas Corporation Berhad 9 Plantation Sector - Kwantas Corporation Berhad The Edge Companies that gave the best returns (5 years) Top 100 companies - Kwantas Corporation Berhad 86 Plantation Sector - Kwantas Corporation Berhad The Edge Top 100 Companies that gave the best returns (3 years) Kwantas Corporation Berhad Malaysian Malaysia s Top Companies Business Ranking of Top 100 Companies Kwantas Corporation Berhad 70 Ranked by Highest Increase in Turnover Kwantas Corporation Berhad 9 Ranked by Biggest Change in Profit Kwantas Corporation Berhad 4 Ranked by Highest Return on Assets Kwantas Corporation Berhad Smart Investor Malaysia s Top 100 ROE Companies (Return on Equity) Ranking of Top 100 ROE Companies Kwantas Corporation Berhad 35 Ranked by Sales Kwantas Corporation Berhad 39 Ranked by Growth Net Profit Kwantas Corporation Berhad Malaysia 1000 Top 1000 Companies Ranked by Turnover / Sales Kwantas Corporation Berhad 197 Kwantas Oil Sdn Bhd Malaysia 1000 Top 500 Companies Ranked by Profit Before Taxation Kwantas Corporation Berhad 386 Kwantas Oil Sdn Bhd 437 Ranked by Total Tangible Assets Kwantas Corporation Berhad 375 Kwantas Oil Sdn Bhd 405 Ranked by Shareholders Funds Kwantas Corporation Berhad 335 Kwantas Oil Sdn Bhd 392 Ranked by Capital Employed Kwantas Corporation Berhad Malaysia 1000 Top 300 most Improved Companies Ranked by Absolute Increase in Turnover Kwantas Corporation Berhad 251 Kwantas Oil Sdn Bhd Malaysia 1000 Ranked by Industry Agriculture / Plantation Kwantas Corporation Berhad 8 of 22 Manufacturing / Consumer Products / Food & Beverage Kwantas Oil Sdn Bhd 11 of 69

6 26 kwantas corporation berhad W corporate governance The Board of Directors ( the Board ) of Kwantas Corporation Berhad ( KCB or the Company ) is committed to direct and manage the Company in ensuring that the Company practices good Corporate Governance. A. DIRECTORS Composition and Responsibilities The Board of Directors currently consists of eight members, of whom three are Independent Non-Executive Directors. The profile of each director is presented in this Annual Report on pages 14 to 16. The Board brings a wide range of business, industrial and financial experience to lead the company. There is a clear division of responsibility between the Chairman and the Managing Director to ensure there is balance of power and authority. The Chairman is responsible for ensuring Board effectiveness and conduct whilst the Managing Director has overall responsibility for the Group s overall operating units, organisational effectiveness and implementation of Board decisions. There is also balance in the Board because of the presence of Independent Non-Executive Directors of the calibre necessary to carry sufficient weight in Board decisions. The role of Independent Non-Executive Directors is not only deliberating on the Groups financial results but is also particularly important in ensuring that the strategies proposed by the Executive Directors are fully discussed and examined. The Board is of the view that the interests of shareholders of the Company are fairly represented through the current composition. The Company has corporate objectives and position descriptions including the limits to management s responsibilities, which the Executive Directors are aware and are responsible for meeting, even though these are not documented. The Board will look into the process of formalising the documentation. The Board will also formalise the schedule of matters which specifically reverts to it for decision. The Board has delegated its Remuneration Committee and Nomination Committee with specific powers and responsibilities which operate under approved terms of reference in cognisance to the recommendation of the Code. Board Meetings The Board met four times during the financial year ended 30 June The attendance record of each Director is as follows: Directors Number of Board Meeting Attended 1. Dato Mohd Sarit Bin Haji Yusoh 2/4 2. Kwan Ngen Chung 4/4 3. Kwan Ngen Wah 3/4 4. Kwan Jin Nget 3/4 5. Kwan Min Nyet 3/4 6. Chong Kan Hiung 4/4 7. Datuk Jaswant Singh Kler 4/4 8. Ooi Jit Huat 3/4

7 annual report corporate governance (cont d) A. DIRECTORS (Cont d) Re-election of Directors In accordance with the provisions of the Company s amended Articles of Association, all the Directors shall retire and be eligible for re-election by rotation at each Annual General Meeting at least once in three years. Appointments to the Board The Nomination Committee was established on 15 November 2001, comprising of the following Independent Non-Executive Directors: 1. Dato Mohd Sarit Bin Haji Yusoh Chairman 2. Datuk Jaswant Singh Kler Member 3. Ooi Jit Huat Member The Nomination Committee is responsible for making recommendations for any appointments to the Board. The Committee empowered to assess the required mix of skills and experience which the Directors should bring to the Board. Any new nomination is then put to the full Board for assessment and endorsement. Directors Training All the Directors have attended the Mandatory Accreditation Programme (MAP) prescribed by Bursa Malaysia Securities Berhad. The Directors will continue to attend other relevent training programmes to further enhance their skills and knowledge and to keep abreast with new regulatory and corporate governance developments. Todate, majority of the Directors have complied with the requirements of the Continuous Education Programme ( CEP ) B. DIRECTORS REMUNERATION Remuneration Committee The Remuneration Committee was established on 15 November 2001, comprising of the following Directors: 1. Datuk Jaswant Singh Kler Chairman 2. Kwan Ngen Chung Member 3. Ooi Jit Huat Member Procedure The objective of the Committee is to recommend to the Board the remuneration of all Directors. The Committee shall ensure that the Company attracts and retains the Directors needed to run the Group successfully. The Committee will examine the existing remuneration scheme with the performance, experience and scope of responsibility of the Directors. Presently the remuneration of Directors, including Non-Executive Directors, is endorsed by the Board for approval by the shareholders of the company at the Annual General Meeting.

8 28 kwantas corporation berhad W corporate governance (cont d) B. DIRECTORS REMUNERATION (Cont d) Disclosure The details of the remunerations for the Directors of KCB during the year are as follows: 1. Aggregated remuneration of the Directors categorised by components Directors Executive Non-Executive Remuneration Directors Directors RM RM Fees - 82,000 Salaries and other emoluments 1,194,000 - Bonuses 590,000 - Total 1,784,000 82, The number of Directors with total remuneration analysed by bands Directors Executive Non-Executive Remuneration Directors Directors RM 000 Number of Directors Number of Directors Below to to to to to to to C. RELATIONSHIP WITH SHAREHOLDERS AND INVESTORS The Board believes in clear and regular communication with its shareholders and institutional investors. Besides the various announcements made during the financial year, the Annual Report and release of financial results on a quarterly basis provide shareholders with an overview of the Group s performance and its business activities. All enquiries made are normally dealt with as promptly as practicable. In addition, the Board plans to conduct regular dialogues with institutional investors, fund managers and analysts with the aim of fostering mutual understanding of the Group s objectives. The Company has over the years used the Annual General Meeting as a forum of communication with its shareholders. The Board encourages participation from shareholders by having a question and answer session during the Annual General Meeting whereby the Directors are available to discuss aspects of the Group s performance and its business activities.

9 annual report corporate governance (cont d) C. RELATIONSHIP WITH SHAREHOLDERS AND INVESTORS (Cont d) Each item of special business included in the notice of the meeting will be accompanied by a full explanation of the effects of a proposed resolution. Separate resolutions are proposed for substantially separate issues at the meeting and the Chairman declares the number of proxy votes received both for and against each separate resolution when appropriate. For re-election of Directors, the Board ensures that full information is disclosed through the notice of meetings regarding Directors who are retiring and who are willing to serve if re-elected. D. ACCOUNTABILITY AND AUDIT Financial Reporting In preparing the annual financial statements and quarterly announcements to shareholders, the Directors aim to present a balanced and understandable assessment of the Group s position and prospects. The Audit Committee assists the Board in ensuring accuracy and adequacy of information by reviewing and recommending for adoption information for disclosure. Internal Control The Board maintains a system of internal controls to safeguard shareholders investments and the Group s assets. The Statement on Internal Control furnished on page 30 of the Annual Report provides an overview of the state of internal controls within the Group.

10 30 kwantas corporation berhad W statement on internal control The Board recognises that it is responsible for the Group s system of internal controls and for reviewing its adequacy and integrity. As with any internal control system, the system can only provide reasonable but not absolute assurance against material misstatement or loss, as controls are designed to manage rather than eliminate the risk of failure to achieve business objectives. The Board has reviewed and approved the Group s budget for the year. The budgeting process incorporates the internal and external risk factors of each division of the Group. Detailed analysis is periodically undertaken to assess the Group s historical performance, competitors, customers requirements and customers business trends, production capacity and other internal sources. At Board meetings, actual performance and results are monitored against budgets, with reasons for significant variances identified and highlighted to the Board for appropriate corrective measures. The Group s organisation structure embeds strong control features throughout the Group. The structure identifies the heads of each department and their subordinates which facilitates a clear reporting line. Currently, the monitoring and managing of the Group as a whole is delegated to the five Executive Directors who are actively involved in the day-to-day operations of the Group. The Executive Directors attend scheduled meetings held at operational and management levels to identify, discuss and resolve business and operational issues. The Executive Directors will in-turn inform the Board of any significant unresolved matters which require Board intervention or Board-level decision making. During the current financial year, the Group outsourced its Internal Audit function to a professional services firm, whose remit is to the Audit Committee. The Internal Audit function carried out a high-level risk assessment of the Group s business processes that are key to the achievement of its business objectives in order to determine the focus areas of internal audit which will be carried out during the next financial year. As part of the exercise, the management assessed the current controls in place to manage strategic risks. Where deficiencies/weaknesses were noted, management has identified action plans to rectify those weaknesses. The Board has reviewed and endorsed the assessment. During the financial year, the Group also engaged a professional services firm to conduct an assessment of the Group s system of internal control based on the requirements outlined in the Statement on Internal Control: Guidance for Directors of Public Listed Companies issued by Bursa Malaysia Securities Berhad s Task Force. The Board has reviewed the key findings and recommendations of this assessment and has begun to put in place certain measures to enhance the controls in some of the areas highlighted. The Board is pleased to report that there were no significant material internal control weaknesses noted during the year under review and to the date of approval of the annual report and accounts.

11 annual report compliance statements and additional compliance information As at the financial year ended of 30 June 2005, the Group has complied with all of the Best Practises in Corporate Governance as set out in part 2 of the Malaysia Code on Corporate Governance. Additional Compliance Information 1. Share Buyback During the financial year, there was no share buyback by the Company. 2. Options, Warrants or Convertible Securities During the financial year, there were no options, warrants or convertible securities issued. 3. American Deposit Receipt (ADR) or Global Deposit Receipt (GDR) Programme The Company has not sponsored any ADR or GDR programme in the financial year. 4. Imposition of Sanctions and/or Penalties There were no sanctions and/or penalties imposed on the Company and its subsidiaries, Directors or management by the relevant authorities. 5. Non-audit Fees The amount of non-audit fees paid to external auditors of the Group for the financial year for taxation, consultancy and other fees was approximately RM181, Profit Estimate, Forecast or Projection The Company did not release any profit estimate, forecast or projection for the financial year. No significant variance arose between the results for the financial year and the unaudited results previously announced. 7. Profit Guarantee No profit guarantee was given by the Company in respect of the financial year. 8. Material Contracts Save as disclosed below, there are no material contracts (not being contracts entered into in the ordinary course of business) entered into by the Company or its subsidiary companies during the two (2) years immediately preceding the date of this Circular: (i) Conditional share sale agreement dated 29 November 2004 entered into between the Company and Kwan Ngen Chung and Kwan Ngen Wah for the acquisition of 250,000 ordinary shares of RM1.00 each representing the entire equity interest in Kwantas Land Development Sdn Bhd ( KLDSB ) for a total purchase consideration of RM86,936,588 to be fully satisfied by the issue of 16,718,574 new Kwantas Shares at an issue price of RM5.20 per share; (ii) Conditional share sale agreement dated 29 November 2004 entered into between the Company and Kwan Ngen Chung and Kwan Ngen Wah for the acquisition of 2 ordinary shares of RM1.00 each representing the entire equity interest in Kwantas Oleo Sdn Bhd ( KOLEO ) for a total purchase consideration of RM3,713,368 to be fully satisfied by the issue of 714,108 new Kwantas Shares at an issue price of RM5.20 per share;

12 32 kwantas corporation berhad W compliance statements and additional compliance information (cont d) 8. Material Contracts (cont d) (iii) Supplemental conditional share sale agreement dated 5 January 2005 entered into between the Company and Kwan Ngen Chung and Kwan Ngen Wah for the acquisition of 250,000 ordinary shares of RM1.00 each representing the entire equity interest in KLDSB for a revised total purchase consideration of RM63,352,702 to be fully satisfied by the issue of 12,183,210 new Kwantas Shares at an issue price of RM5.20 per share; and (iv) Supplement conditional share sale agreement dated 5 January 2005 entered into between the Company and Kwan Ngen Chung and Kwan Ngen Wah for the acquisition of 2 ordinary shares of RM1.00 each representing the entire equity interest in KOLEO for a revised total purchase consideration of RM2,628,196 to be fully satisfied by the issue of 505,422 new Kwantas Shares at an issue price of RM5.20 per share. 9. Recurrent Related Party Transactions The details of related party transactions are set out in note 29 to the financial statements. An Annual General Meeting will be held on 14 December 2005 to pass ordinary resolution to seek shareholders mandate for the renewal of recurrent related party transactions of a revenue or trading nature. 10. Revaluation of Landed Properties There were no revaluation of landed properties during the financial year. 11. Utilisation of Proceeds This is not applicable during the financial year. 12. Analysis of Shareholdings The analysis of shareholdings can be found on pages 102 to List of properties The list of properties for the Group can be found on pages 98 to 101.

13 annual report statement of directors responsibilities in audited financial statement (Pursuant to paragraph 15.27(a) of The Listing Requirements of Bursa Malaysia Securities Berhad) Pursuant to Section 169 (15) of the Companies Act, 1965 that Directors are required to prepare financial statements which give a true and fair view of the financial position of the Group and of the Company for each financial year, as set out on page 45 of this Annual Report. In addition, pursuant to paragraph 15.27(a) of The Listing Requirements of Bursa Malaysia Securities Berhad, when preparing those financial statements, the Board of Directors has: adopted appropriate accounting policies and applied them consistently; ensured that applicable approved accounting standards had been followed; made judgements and estimates that are prudent and reasonable; and disclosed and explained when necessary in the financial statements. The Directors have a general responsibility for taking such reasonable steps: i) to safeguard the assets of the Group and the Company; and ii) to prevent and detect fraud and other irregularities.

14 34 kwantas corporation berhad W audit committee The members of the Audit Committee are as follows: Chairman Datuk Jaswant Singh Kler (Independent Non-Executive Director) Committee Members Kwan Ngen Chung (Non-Independent Executive Director) Ooi Jit Huat (Independent Non-Executive Director) TERMS OF REFERENCE The Audit Committee ( AC ) shall be governed by the following terms of reference. CONSTITUTION A Committee of the Board known as the AC is established in accordance with the Listing Requirements of Bursa Malaysia Securities Berhad. MEMBERSHIP The Committee shall be appointed by the Board from among its members and shall consist of not less than three (3) members of whom a majority shall not: (a) (b) (c) be Executive Directors of the Company or any related corporation. comprise a spouse, parent, brother, sister, son or adopted son, daughter or adopted daughter of an Executive Director of the Company or of any related corporation; or comprise persons having a relationship which, in the opinion of the Board, would interfere with the exercise of independent judgement in carrying out the functions of the committee. The Committee shall elect a chairperson from among its members who is not an Executive Director or employee of the Company or any related corporation. In the event that a member of the Committee resigns, dies or for any other reason ceases to be a member with the result that the number of members is reduced below three (3), the Board of Directors shall, within three (3) months of that event, appoint such number of new members as may be required to make up the minimum number of three (3) members.

15 annual report audit committee (cont d) TERM OF MEMBERSHIP Members of Committee shall be appointed for an initial term of three (3) years after which they will be eligible for re-appointment. MEETINGS The Committee shall meet at least two (2) times a year. In addition, the chairperson shall convene a meeting of the Committee if requested to do so by any member, the management or internal or external auditors to consider any matter within the scope and responsibilities of the Committee. ATTENDANCE AT MEETINGS The Executive Director, the Group Financial Controller, the head of internal audit, and representative of the external auditors shall normally attend meetings. However, the Committee may invite any person to be in attendance to assist in its deliberations. The Company Secretary shall be the Secretary of the Committee. QUORUM The presence of two (2) committee members shall be a quorum. AUTHORITY The Committee is authorised by the Board to investigate any activity within its terms of reference. It has free access to all information and documents it requires for the purpose of discharging its functions and responsibilities. The Audit Committee is also authorised to obtain outside legal or other independent professional advice as it considers necessary. FUNCTIONS The functions of the Committee shall be: to review the Group s and Company s quarterly and annual financial statements before submission to the Board

16 36 kwantas corporation berhad W audit committee (cont d) FUNCTIONS (cont d) to review with the external auditors their audit plan, scope and nature of audit for the Group and the Company. to assess the adequacy and effectiveness of the system of internal control and accounting control procedures of the Group and Company by reviewing the external auditors management s response. to discuss with the external auditors on problems and reservations arising from their interim and final audits. to review any related party transactions that may arise within the Group or the Company. to consider the appointment of the external auditors, the terms of reference of their appointment, and any question of resignation or dismissal. to undertake such responsibilities as may be agreed to by the Committee and the Board. to report to the Board its activities, significant results and findings. REPORTING PROCEDURES The Secretary shall circulate the minutes of meetings of the Committee to all members of the Board. ACTIVITIES The summary of the activities of the Audit Committee in the discharge of its duties and responsibilities for the financial year includes the following: (i) (ii) (iii) review of the external auditors scope of work and their audit plan. reviewing with the external auditors on the results of their audit, the audit report and internal control recommendations in respect of control weaknesses noted in the course of their audit. reviewing the audited financial statements before recommending for the Board of Directors approval.

17 annual report audit committee (cont d) ACTIVITIES (con td) (iv) (v) (vi) (vii) reviewing the Company s compliance with the Revamped Listing Requirements of the Bursa Malaysia Securities Berhad and the applicable approved accounting standards issued by the Malaysian Accounting Standards Board. review of the quarterly unaudited financial results announcements and recommending for the Board of Directors approval. review of the Internal Audit Department s staffing needs, programmes and plans for the financial year under review and annual assessment of the Internal Audit Department s performance. review of the audit reports presented by Internal Audit Department on findings and recommendations with regard to system and controls weaknesses noted in the course of their audit and management s responses thereto and ensuring material findings are adequately addressed by management. NUMBER OF MEETINGS & DETAILS OF ATTENDANCE Four (4) Audit Committee meetings were held during the financial year ended 30 June The attendance record of each member is as follows: Audit Committee Members Total number of meetings Number of meetings attended Datuk Jaswant Singh Kler 4 4 Kwan Ngen Chung 4 4 Ooi Jit Huat 4 3

18 38 kwantas corporation berhad W

19 annual report financial statements 40 Directors Report 45 Statement By Directors 45 Statutory Declaration 46 Report of the Auditors 47 Income Statements 48 Balance Sheets 50 Consolidated Statement of Changes in Equity 51 Company Statement of Changes in Equity 52 Cash Flow Statements 54 Notes to the Financial Statements

20 40 kwantas corporation berhad W directors report The directors have pleasure in presenting their report together with the audited financial statements of the Group and of the Company for the financial year ended 30 June PRINCIPAL ACTIVITIES The principal activity of the Company is investment holding. The principal activities of the subsidiaries are disclosed in Note 13 to the financial statements. There have been no significant changes in the nature of these activities during the financial year. RESULTS Group RM 000 Company RM 000 Profit after taxation 35,312 34,513 Minority interests 2,307 - Net profit for the year 37,619 34,513 There were no material transfers to or from reserves or provisions during the financial year other than as disclosed in the statements of changes in equity. In the opinion of the directors, the results of the operations of the Group and of the Company during the financial year were not substantially affected by any item, transaction or event of a material and unusual nature. DIVIDENDS The amount of dividends paid by the Company since 30 June 2004 were as follows: RM 000 In respect of the financial year ended 30 June 2004 as reported in the directors report of that year: Final tax exempt dividend of 10%, on 141,860,000 ordinary shares, declared on 15 December 2004 and paid on 15 March ,186 At the forthcoming Annual General Meeting, a final tax exempt dividend in respect of the financial year ended 30 June 2005, of 10% on 154,548,632 ordinary shares, amounting to a dividend payable of RM15,454,863 (10 sen per ordinary share) will be proposed for shareholders approval. The financial statements for the current financial year do not reflect this proposed dividend. Such dividend, if approved by the shareholders, will be accounted for in equity as an appropriation of retained profits in the financial year ending 30 June 2006.

21 annual report directors report (Cont d) DIRECTORS The names of the directors of the Company in office since the date of the last report and at the date of this report are: Dato Mohd Sarit Bin Hj Yusoh Kwan Ngen Chung Kwan Ngen Wah Datuk Jaswant Singh Kler Ooi Jit Huat Kwan Jin Nget Kwan Min Nyet Chong Kan Hiung DIRECTORS BENEFITS Neither at the end of the financial year, nor at any time during that year, did there subsist any arrangement to which the Company was a party, whereby the directors might acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate, other than those arising from the share options granted under the Employee Share Options Scheme. Since the end of the previous financial year, no director has received or become entitled to receive a benefit (other than benefits included in the aggregate amount of emoluments received or due and receivable by the directors as shown in Note 6 to the financial statements or the fixed salary of a fulltime employee of the Company) by reason of a contract made by the Company or a related corporation with any 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, except as disclosed in Note 29 to the financial statements. DIRECTORS INTERESTS According to the register of directors shareholdings, the interests of directors in office at the end of the financial year in shares and options over shares in the Company and its related corporations during the financial year were as follows: Number of Ordinary Shares of RM1 Each 1 July 30 June The Company 2004 Acquired Sold 2005 Direct Interest: Kwan Ngen Chung 40,750,000 6,344,316-47,094,316 Kwan Ngen Wah 40,250,000 6,344,316-46,594,316 Kwan Jin Nget 90, ,000 Kwan Min Nyet 119, ,000 Chong Kan Hiung 300, ,000 Indirect Interest: Ooi Jit Huat 25,600 - (25,600) -

22 42 kwantas corporation berhad W directors report (Cont d) DIRECTORS INTERESTS (Cont d) Number of Options Over Ordinary Shares of RM1 Each 1 July 30 June The Company 2004 Granted Exercised Lapsed 2005 Kwan Ngen Chung 500, ,000 Kwan Ngen Wah 1,000, ,000,000 Kwan Jin Nget 790, ,000 Kwan Min Nyet 829, ,000 Chong Kan Hiung 1,000, ,000,000 Kwan Ngen Chung and Kwan Ngen Wah by virtue of their interests in shares in the Company are also deemed interested in shares of all the Company s subsidiaries to the extent the Company has an interest. None of the other directors in office at the end of the financial year had any interest in shares in the Company or its related corporations during the financial year. ISSUE OF SHARES During the financial year, the Company increased its issued and paid-up ordinary share capital from RM141,794,000 to RM154,548,632 by way of: (a) (b) (c) the issuance of 12,183,210 ordinary shares of RM1 each at an issue price of RM5.20 per ordinary shares as full discharge of purchase consideration for the acquisition of Kwantas Land Development Sdn. Bhd.; the issuance of 505,422 ordinary shares of RM1 each at an issue price of RM5.20 per ordinary shares as full discharge of purchase consideration for the acquisition of Kwantas Oleo Sdn. Bhd.; and the issuance of 66,000 ordinary shares of RM1 each for cash pursuant to the Company s Employee Share Options Scheme at an exercise price of RM1.03 per ordinary share. The new ordinary shares issued during the financial year rank pari passu in all respects with the existing ordinary shares of the Company. EMPLOYEE SHARE OPTIONS SCHEME The Kwantas Corporation Berhad Employee Share Options Scheme ( ESOS ) is governed by the bylaws approved by the shareholders at an Extraordinary General Meeting held on 18 December Subsequently, certain amendments to the by-laws of the ESOS were approved by the shareholders at an Extraordinary General Meeting held on 28 May The ESOS was implemented on 10 April 2001 and is to be in force for a period of 5 years from the date of implementation. The revised salient features and other terms of the ESOS are disclosed in Note 22 to the financial statements. Details of options granted to directors are disclosed in the section on Directors Interests in this report.

23 annual report directors report (Cont d) OTHER STATUTORY INFORMATION (a) Before the income statements and balance sheets of the Group and of the Company were made out, the directors took reasonable steps: (i) (ii) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of provision for doubtful debts and satisfied themselves that there were no known bad debts and that adequate provision had been made for doubtful debts; and to ensure that any current assets which were unlikely to realise their value as shown in the accounting records in the ordinary course of business had been written down to an amount which they might be expected so to realise. (b) At the date of this report, the directors are not aware of any circumstances which would render: (i) (ii) it necessary to write off any bad debts or the amount of the provision for doubtful debts inadequate to any substantial extent; and the values attributed to the current assets in the financial statements of the Group and of the Company misleading. (c) (d) (e) At the date of this report, the directors are not aware of any circumstances which have arisen which would render adherence to the existing method of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate. At the date of this report, the directors are not aware of any circumstances not otherwise dealt with in this report or financial statements of the Group and of the Company which would render any amount stated in the financial statements misleading. As at the date of this report, there does not exist: (i) (ii) any charge on the assets of the Group or of the Company which has arisen since the end of the financial year which secures the liabilities of any other person; or any contingent liability of the Group or of the Company which has arisen since the end of the financial year. (f) In the opinion of the directors: (i) (ii) no contingent or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the financial year which will or may affect the ability of the Group or of the Company to meet their obligations when they fall due; and no item, transaction or event of a material and unusual nature has arisen in the interval between the end of the financial year and the date of this report which is likely to affect substantially the results of the operations of the Group or of the Company for the financial year in which this report is made.

24 44 kwantas corporation berhad W directors report (Cont d) OTHER SIGNIFICANT EVENTS (a) (b) (c) On 22 June 2005, the Company acquired 100% equity interest in Dong Ma Palm Industries (Zhangjiagang) Co. Ltd., a company incorporated in The People s Republic of China, for a total consideration of USD2,559,166 (RM9,724,986). On 22 June 2005, the Company acquired 51% equity interest in Dong Ma (Guangzhou Free Trade Zone) Oleochemicals Co. Ltd., a company incorporated in The People s Republic of China, for a total consideration of USD1,800,000 (RM6,840,000). On 30 June 2005, the Company acquired 250,000 ordinary shares of RM1 each, representing 100% equity interest in Kwantas Land Development Sdn. Bhd., a company incorporated in Malaysia, for a total consideration of RM63,352,702. (d) On 30 June 2005, the Company acquired 2 ordinary shares of RM1 each, representing 100% equity interest in Kwantas Oleo Sdn. Bhd., a company incorporated in Malaysia, for a total consideration of RM2,628,196. AUDITORS The auditors, Ernst & Young, have expressed their willingness to continue in office. Signed on behalf of the Board in accordance with a resolution of the directors. KWAN NGEN CHUNG CHONG KAN HIUNG Kota Kinabalu, Sabah Malaysia 21 October 2005

25 annual report statement by directors Pursuant to Section 169(15) of the Companies Act, 1965 We, KWAN NGEN CHUNG and CHONG KAN HIUNG, being two of the directors of KWANTAS CORPORATION BERHAD, do hereby state that, in the opinion of the directors, the accompanying financial statements set out on pages 47 to 97 are drawn up in accordance with applicable MASB Approved Accounting Standards in Malaysia and the provisions of the Companies Act, 1965 so as to give a true and fair view of the financial position of the Group and of the Company as at 30 June 2005 and of the results and the cash flows of the Group and of the Company for the year then ended. Signed on behalf of the Board in accordance with a resolution of the directors. KWAN NGEN CHUNG CHONG KAN HIUNG Kota Kinabalu, Sabah Malaysia 21 October 2005 statutory declaration Pursuant to Section 169(16) of the Companies Act, 1965 I, CHONG KAN HIUNG, being the Director primarily responsible for the financial management of KWANTAS CORPORATION BERHAD, do solemnly and sincerely declare that the accompanying financial statements set out on pages 47 to 97 are in my opinion correct, and I make this solemn declaration conscientiously believing the same to be true and by virtue of the provisions of the Statutory Declarations Act, Subscribed and solemnly declared by the abovenamed CHONG KAN HIUNG at Kota Kinabalu in the State of Sabah on 21 October 2005 CHONG KAN HIUNG Before me,

26 46 kwantas corporation berhad W Report of the Auditors to the Members of KWANTAS CORPORATION BERHAD (Incorporated in Malaysia) We have audited the financial statements set out on pages 47 to 97. These financial statements are the responsibility of the Company s directors. It is our responsibility to form an independent opinion, based on our audit, on the financial statements and to report our opinion to you, as a body, in accordance with Section 174 of the Companies Act, 1965 and for no other purpose. We do not assume responsibility to any other person for the content of this report. We conducted our audit in accordance with applicable Approved Standards on Auditing 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 presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. In our opinion: (a) the financial statements have been properly drawn up in accordance with the provisions of the Companies Act, 1965 and applicable MASB Approved Accounting Standards in Malaysia so as to give a true and fair view of: (i) (ii) the financial position of the Group and of the Company as at 30 June 2005 and of the results and the cash flows of the Group and of the Company for the year then ended; 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 Act to be kept by the Company and by its subsidiaries of which we have acted as auditors have been properly kept in accordance with the provisions of the Act. We have considered the financial statements and the auditors reports thereon of the subsidiaries of which we have not acted as auditors, as indicated in Note 13 to the financial statements, being financial statements that have been included in the consolidated financial statements. We are satisfied that the financial statements of the subsidiaries that have been consolidated with the financial statements of the Company are in form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements and we have received satisfactory information and explanations required by us for those purposes. The auditors reports on the financial statements of the subsidiaries were not subject to any qualification material to the consolidated financial statements and did not include any comment required to be made under Section 174 (3) of the Act. Ernst & Young AF: 0039 Chartered Accountants Pang Pak Lok 1228/03/07 (J) Partner Tawau, Sabah Malaysia 21 October 2005

27 annual report income statements For the year ended 30 June 2005 Group Company Note RM 000 RM 000 RM 000 RM 000 Revenue 3 1,206,549 1,190,410 44,310 16,694 Cost of sales (1,094,935) (1,060,770) - - Gross profit 111, ,640 44,310 16,694 Other operating income 16,404 4, Selling expenses (42,889) (54,523) - - Administrative expenses (22,449) (19,645) (751) (204) Profit from operations 4 62,680 59,658 43,566 16,813 Interest income 7 3,055 1,115 6,504 6,606 Finance costs 8 (16,773) (13,049) (6,502) (6,770) Profit before taxation 48,962 47,724 43,568 16,649 Taxation 9 (13,650) (7,065) (9,055) (2,185) Profit after taxation 35,312 40,659 34,513 14,464 Minority interests 2,307 (316) - - Net profit for the year 37,619 40,343 34,513 14,464 Earnings per share (sen): Basic Diluted Net dividends per ordinary share in respect of the year (sen): The accompanying notes form an integral part of the financial statements.

28 48 kwantas corporation berhad W balance sheets As at 30 June 2005 Group Company Note RM 000 RM 000 RM 000 RM 000 NON-CURRENT ASSETS Property, plant and equipment , , Investments in subsidiaries , ,376 Deferred tax assets 25 5,580 4, , , , ,376 CURRENT ASSETS Inventories , , Trade receivables 15 74,674 73, Other receivables 16 48,035 63,863 95,003 96,645 Cash and bank balances 17 66,528 30,473 13,225 13, , , , ,151 CURRENT LIABILITIES Borrowings , ,391 10,000 10,000 Trade payables 20 93,495 68, Other payables 21 24,868 16, , ,120 Provision for taxation 1, , , , ,120 NET CURRENT (LIABILITIES)/ASSETS (32,632) 30,320 (67,139) (60,969) 613, , , ,407