Notice of Annual General Meeting 2 Profile of Directors 4 Corporate Information 8 Executive Chairman s Statement 9 Statement of Corporate Governance

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2 Notice of Annual General Meeting 2 Profile of Directors 4 Corporate Information 8 Executive Chairman s Statement 9 Statement of Corporate Governance 12 Other Compliance Information 17 Audit Committee Report 18 Statement on Internal Control 22 Statement of Directors Responsibility 24 Financial Statements 25 Group Properties 66 Analysis of Shareholdings 67 Proxy Form Enclosed

3 notice of annual general meeting NOTICE IS HEREBY GIVEN THAT the Twelfth Annual General Meeting of the Company will be held at Kelab Golf Sultan Abdul Aziz Shah, No. 1, Rumah Kelab, Jalan Kelab Golf 13/6, Shah Alam, Selangor Darul Ehsan on 26th November, 2009, Thursday at a.m. AGENDA 1. To receive and consider the Audited Financial Statements for the year ended 31st May, 2009 together with the Directors' and Auditors' Reports thereon. 2. To approve the payment of Directors' Fees of RM112, in respect of the financial year ended 31st May, Resolution 1 Resolution 2 3. To re-elect the following Directors: 3.1 Ms. Lim Chang Ching who retires pursuant to Article 103 of the Company s Articles of Association and being eligible, offers herself for re-election. 3.2 Ms. Alice Boo Miau Li who retires pursuant to Article 103 of the Company s Articles of Association and being eligible, offers herself for re-election. 4. To re-appoint Messrs KPMG as Auditors of the Company and authorise the Directors to fix their remuneration. Resolution 3 Resolution 4 Resolution 5 5. As Special Business, to consider and, if thought fit, pass the following Ordinary Resolution: Authority to Directors To Issue Shares THAT pursuant to Section 132D of the Companies Act, 1965, the Directors be and are hereby empowered to issue shares in the Company, at any time and upon such terms and conditions and for such purposes as the Directors may, in their absolute discretion, deem fit, provided that the aggregate number of shares issued pursuant to this resolution in any one financial year does not exceed 10% of the issued capital of the Company for the time being and that the Directors be and are also empowered to obtain approval for the listing of and quotation for the additional shares so issued on the Bursa Malaysia Securities Berhad and that such authority shall continue in force until the conclusion of the next Annual General Meeting of the Company. Resolution 6 6. To transact any other business of which due notice shall have been given. BY ORDER OF THE BOARD HO MENG CHAN (MACS 00574) WU SIEW HONG (MAICSA ) Secretaries Petaling Jaya Selangor Darul Ehsan. 4th November,

4 notice of annual general meeting (Cont d) Notes : 1. A member entitled to attend and vote at the Meeting is entitled to appoint a proxy or proxies to attend and vote in his/her stead. Where two of more proxies are appointed, the proportions of shareholdings to be represented by each proxy must be specified in order for the appointments to be valid. If there is no indication as to how you wish your vote(s) to be cast, the proxy may vote or abstain from voting at his/her discretion. 2. A proxy may but need not be a member of the Company and the provision of Section 149(1)(b) of the Companies Act, 1965 shall not apply to the Company. 3. The instrument appointing a proxy, in the case of an individual, shall be signed by the appointer or by his attorney duly authorised in writing, and in the case of a corporation, shall either be given under its common seal or under the hand of an officer or attorney of the corporation duly authorised. 4. The instrument appointing a proxy must be duly executed and deposited at the Registered Office of the Company at No. 308, Block A (3rd Floor), Kelana Business Centre, 97, Jalan SS7/2, Kelana Jaya, Petaling Jaya, Selangor Darul Ehsan not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof. EXPLANATORY NOTE ON SPECIAL BUSINESS Ordinary Resolution -Resolution On Authority To Directors To Issue Shares The effect of the resolution 6 under item 5 of the agenda, if passed, will give authority to the Directors of the Company, from the date of the above Annual General Meeting, to issue and allot shares in the Company up to and not exceeding 10% of the issued share capital of the Company for the time being, for such purposes as they consider would be in the interest of the Company. This authority, unless revoked or varied at a general meeting, will expire at the next Annual General Meeting of the Company. 3

5 profile of directors Dato Lim Tong Lim Tong Yaim Executive Chairman/Non-Independent Director Dato' Lim Tong Lim Tong Yaim, aged 59, a Malaysian, is the Executive Chairman of Paos Holdings Berhad ("PHB") and was appointed to the Board of PHB on 2nd June, He obtained his Bachelor Degree in Malay Studies from Nanyang University, Singapore in Thereafter, he worked as a lecturer of Malay Studies in Taylor's College from 1972 to 1973, Nanyang University from 1973 to 1974 and Culin College, in Singapore from 1974 to Prior to setting up the Group's business, he served Maran Edible Oil Sdn. Bhd., a company involved in palm kernel crushing, as the Marketing Manager from 1979 to Using his knowledge and experience in the palm oil industry, he established Paos Industries Sdn. Bhd. in In its early days, the company was mainly involved in the trading of palm oil and palm oil-based products. However, instead of operating upstream, he steered the company towards the downstream of the industry, producing and being involved in the production of value-added products from oil palm, such as finished soap, animal feed, cocoa butter substitute and soap chips. Dato' Lim Tong Yong is the parent of Ms. Lim Chang Ching, the Executive Director of PHB. Dato' Lim Tong Yong has no conflict of interest with PHB and has no conviction for offences within the past ten years other than traffic offences. Datuk Simon Shim Kong Yip Non-Independent Non-Executive Director Datuk Simon Shim, aged 52, a Malaysian, was appointed to the Board of PHB on 31st January, Datuk Simon Shim holds a Master Degree in law from University College London, London University and is a Barrister-at-law of the Lincoln's Inn, London, an Advocate and Solicitor of the High Court in Sabah and Sawarak, a Notary Public and a Justice of the Peace in Sabah. He is a Chartered Arbitrator, a Fellow of the Chartered Institute of Arbitrators and a Fellow of the Malaysian Institute of Arbitrators. He is also a member of the Malaysian Institute of Corporate Governance, a member of the Corporate Law Reform Committee and its Working Group on Corporate Governance and Shareholders' Rights. Datuk Simon Shim was appointed as Director of Hap Seng Consolidated Berhad on 16th February, 1996, the Malaysian Mosaics Berhad on 31st December, 2002, Lam Soon (Thailand) Public Company Limited on 26th April, 2007 and Hap Seng Plantations Holdings Berhad on 9th August, 2007, all public listed companies. Datuk Simon Shim has no family relationship with any other director or substantial shareholder of PHB, no conflict of interest with PHB and has no conviction for offences within the past ten years other than traffic offences. 4

6 profile of directors (Cont d) Lim Chang Ching Non-Independent Executive Director Ms. Lim Chang Ching, aged 35, a Malaysian, was appointed to the Board of PHB on 31st January, She holds a Bachelor Degree in Business Studies (Honors) from University of Sheffield (United Kingdom) in Ms. Lim Chang Ching served as Commercial Manager of Asia Poly Industrial Sdn. Bhd. in May, 1998 to March, She then held position as a Business Development Manager in Paos Industries Sdn. Bhd. in April, 2000 to May, Subsequently, she was appointed as Business Development Director of Asia Poly Industrial Sdn. Bhd. in June, 2001 to August, She was the Chief Operating Officer of Hospital Pantai Indah Sdn. Bhd. from September, 2005 to August, Currently, she is holding directorship in various private limited companies and subsidiaries of PHB. She is also the Director of Esthetics International Group Berhad, a public listed company. Ms. Lim Chang Ching is the daughter of Dato' Lim Tong Lim Tong Yaim, the Executive Chairman of PHB. Ms. Lim Chang Ching has no conflict of interest with PHB and has no conviction for offences within the past ten years other than traffic offences. Wang Hak Wong Hak Tham Independent Non-Executive Director Mr. Wang Hak Wong Hak Tham, aged 68, a Malaysian, was appointed to the Board of PHB on 2nd June, He is an Associate of Chartered Institute of Secretaries and Administrators, London and an Associate of Chartered Institute of Bankers, London. He started his career as an Officer in Malayan Banking Berhad in He served the bank until 1985 before joining Perwira Affin Bank Berhad ("PABB") as Assistant General Manager in He left PABB in 1992 to join Long Huat Berhad as Group General Manager. Later, in 1993 he rejoined PABB as the General Manager of Banking & Operations Division before he retired in Thereafter, in 1997, he was appointed to the board of Kaohsiung Timber Company Sdn. Bhd., a company involved in timber logging and resigned in early Presently, he is also the Director of Best Grade Printing Sdn. Bhd., a company involved in printing business and Woodlandor Holdings Berhad, a public listed company. Mr. Wang Hak Tham has no family relationship with any other director or substantial shareholder of PHB, no conflict of interest with PHB and no conviction for offences within the past ten years other than traffic offences. 5

7 profile of directors (Cont d) Alice Boo Miau Li Non-Independent Executive Director Ms. Alice Boo, aged 40, a Malaysian, was appointed to the Board of PHB on 17th April, She is a Fellow of The Association of Chartered Certified Accountants (FCCA). She has over 10 years of experience in the fields of auditing, accounting and corporate finance. Her previous appointments include an auditor with a major public accounting firm in Kuala Lumpur, Finance Manager and Senior Corporate Finance Manager of several Malaysian public listed companies. Ms. Alice Boo has no family relationship with any other director or substantial shareholder of PHB, no conflict of interest with PHB and has no conviction for offences within the past ten years other than traffic offences. Dr. Dominic Er Kong Kiong Independent Non-Executive Director Dr. Dominic Er Kong Kiong, aged 66, an Australian, was appointed to the Board of PHB on 22nd May, He obtained his Bachelor of Medicine & Surgery (MBBS) from University of Queensland, Australia in He was a member of the Royal College Physician (MRCP) from United Kingdom in He was admitted as a Fellow of the Royal College Physician (FRCP) from London College in 1987 and also a Fellow of the Academy Medicine Singapore (FAMS) from Singapore in He was also a member of the Singapore Medicine Association and Singapore Medical Council Compliants Committee in 1990 and 2000 respectively. He is currently a Consultant Renal Physician in Mount Elizabeth Hospital, Gleneagles Hospital and East Shore Hospital since He was a Managing Director of Gleneagles Dialysis Centre Pte.Ltd., Gleneagles Dialysis International Pte. Ltd. and Gleneagles International GP Pte. Ltd. before being appointed as General Manager of Gleneagles Hospital and Group General Manager of Parkway Group Healthcare Ltd. in Subsequently, he was appointed as Chief Executive Officer ( CEO ) and Director of Asia Medic Ltd. in 2000 until During 6 years tenure as CEO of Asia Medic Ltd., Asia Medic Ltd. under went a number of restructuring exercises which includes the acquisition of majority shareholdings in subsidiary companies and divestment of its Plastic Injection Mould Company to allow the Group to focus on its core Healthcare Business. Presently, he is also Chairman of Quantum Health, an investment and consulting company with its interests predominately in the healthcare industry. Dr. Dominic Er Kong Kiong has no family relationship with any other director or substantial shareholder of PHB, no conflict of interest with PHB and has no conviction for offences within the past ten years other than traffic offences. 6

8 profile of directors (Cont d) On Boon Kai Independent Non-Executive Director Mr. On Boon Kai, aged 61, a Malaysian, was appointed to the Board of PHB on 22nd September, He holds a Bachelor of Commerce from the Nanyang University in Singapore. He is a member of the Institute of Chartered Accountants in Australia. He obtained his professional training in Accountancy in Holmes & Harrington Chartered Accounting firm in Sydney, Australia and he was admitted as a member of the Institute in year He is also a member of the Malaysian Institute of Accountants since Mr. On Boon Kai established his own audit firm B.K.On & Co. in year 1984, which provides audit, taxation and consultancy services to clients from various industries including manufacturing, plantation and the agricultural sector and is also involved in Income Tax investigation work for the past 24 years. He is also presently a Managing Partner of audit firms Messrs. K. H. Pun & Co. in Johor Bahru and Messrs Lim Tau Lih & Co. in Malacca. Mr. On Boon Kai has no family relationship with any other director or substantial shareholder of PHB, no conflict of interest with PHB and has no conviction for offences within the past ten years other than traffic offences. Lee Wee Yong Alternate Director to Datuk Simon Shim Kong Yip Mr. Lee Wee Yong, aged 61, a Malaysian, was appointed to the Board of PHB on 13th January, 2006 as the Alternate Director to David Park who resigned as director of PHB on 31st January, Mr. Lee was subsequently appointed as the Alternate Director to Datuk Simon Shim Kong Yip on 31st January, He holds a Bachelor of Commerce and Administration degree from Victoria University in New Zealand and is a member of the Malaysian Institute of Accountants and New Zealand Institute of Chartered Accountants. He had worked in Mobil Oil (N.Z.) Ltd, Zip Holdings (N.Z.) Ltd, Associated Tractors Sdn. Bhd. and Asia Commercial Finance (M) Berhad. He joined Malaysian Mosaics Berhad in 1992 and has held various senior positions in the Group, including the Group Chief Financial Officer, a position he held from 1st March, 2003 to 15th December, Mr. Lee is presently the Non-Independent Non-Executive Director of Malaysian Mosaics Berhad and Deputy Managing Director of Hap Seng Consolidated Berhad. He is also a Company Secretary of Malaysian Mosaics Berhad and Hap Seng Consolidated Berhad. Mr. Lee has no family relationship with any other director or substantial shareholder of PHB, no conflict of interest with PHB and no conviction for offences within the past ten years other than traffic offences. 7

9 corporate information board of directors Dato' Lim Tong Lim Tong Yaim Executive Chairman, Non-Independent Executive Director Lim Chang Ching Non-Independent Executive Director Alice Boo Miau Li Non-Independent Executive Director Datuk Simon Shim Kong Yip Non-Independent Non-Executive Director Lee Wee Yong (Alternate Director to Datuk Simon Shim Kong Yip) On Boon Kai Independent Non-Executive Director Wang Hak Wong Hak Tham Independent Non-Executive Director Dr. Dominic Er Kong Kiong Independent Non-Executive Director company secretaries Ho Meng Chan (MACS 00574) Wu Siew Hong (MAICSA ) head office No. 65, Persiaran Selangor, Section 15, Shah Alam, Selangor Darul Ehsan. Phone No Fax No info@paos.com.my Website: registrars Symphony Share Registrars Sdn. Bhd. Level 26, Menara Multi Purpose, Capital Square, No. 8, Jalan Munshi Abdullah, Kuala Lumpur. Phone No Fax No auditors KPMG (Firm No. AF 0758) Chartered Accountants Level 10, KPMG Tower, 8, First Avenue, Bandar Utama, Petaling Jaya, Selangor Darul Ehsan. registered office No. 308, Block A (3rd Floor), Kelana Business Centre, 97, Jalan SS7/2, Kelana Jaya, Petaling Jaya, Selangor Darul Ehsan. Phone No Fax No principal bankers Public Bank Berhad United Overseas Bank (M) Berhad Standard Chartered Bank Malaysia Berhad stock exchange listing Main Market of Bursa Malaysia Securities Berhad 8

10 executive chairman s statement FINANCIAL HIGHLIGHTS The Group recorded a 2.3% growth in revenue to RM million for the financial year, in comparison to RM million for the preceding year. The Group profits for the year have also seen a significant increase compared to the preceding year with profit before taxation of RM9.94 million and net profit of RM9.71 million against a loss before taxation of RM12.79 million and net loss of RM10.90 million respectively. Earnings per share for the financial year stood at 8.04 sen (2008 : loss per share of 9.03 sen) and net assets per share were RM0.83 as at 31st May, 2009 (31st May, 2008 : RM0.78). OPERATIONAL REVIEW Paos Industries Sdn. Bhd. s revenue of RM million was 26.8% lower than the revenue of RM million for the preceding year mainly due to decrease in crude palm oil prices. In line with the reduction in crude palm oil prices, the operating expenses of the Company decreased by 28.1% to RM million from RM million. Paos Industries Sdn. Bhd. completed the disposal of the Bukit Raja, Klang property in May, 2009 upon obtaining the approvals from all relevant authorities. The disposal contributed a gain of approximately RM7.91 million to the Company. Consequently, the Company registered a profit before taxation of RM11.71 million against a loss before taxation of RM0.10 million in the preceding year. Premier Oil Industries Sdn. Bhd. has changed its principal activity from manufacturing to rental of its property, plant and equipment during the financial year ended 31st May, The revenue of the Company reduced by 79.5% to RM32.35 million in the current year from RM million recorded in the preceding year. However, the Company registered a profit before taxation of RM1.13 million compared to a loss before taxation of RM11.84 million in the preceding year. On behalf of the Board of Directors of Paos Holdings Berhad, it is my pleasure to present to you the Twelfth Annual Report and Audited Financial Statements of the Group and the Company for the financial year ended 31st May, Dato Lim Tong Lim Tong Yaim Executive Chairman 9

11 executive chairman s statement (Cont d) The current year under review has seen the full year of operations for Alpine Legacy (M) Sdn. Bhd., which is involved in the rental of retail podium and office space located at Kompleks Selangor, Jalan Sultan, Kuala Lumpur. Revenue of the Company increased from RM0.60 million in the preceding year to RM2.32 million in the current year. The operating profit before interest, tax and depreciation of the Company for the current year was RM0.31 million against RM0.01 million in the preceding year. The 5 Elements Hotel Sdn. Bhd. commenced operations in March, The Company operates and manages The 5 Elements Hotel located at the adjoining Kompleks Selangor property. For the financial year ended 31st May, 2009, the Company registered an operating loss before interest, tax and depreciation of RM0.27 million. As the hotel operation is still in its infancy stage, we hope to have a better contribution from the hotel in the forthcoming years. DIVIDENDS During the financial year ended 31st May, 2009, Paos Holdings Berhad paid two tax exempt interim dividends totalling 5% (2008 : Nil). These dividend payments have taken into consideration the improved performance and cash flow position of the Group during the financial year. PROSPECTS The volatility of petroleum prices, crude palm oil prices and interest rates are expected to continue to present challenging business conditions for the Group in the coming year. However, the Group will keep pursuing its initiatives to further optimise its operations and mitigate as much as possible the impact of higher input costs. The financial strength of the Group has improved with net cash generated from operating activities of RM28.51 million and a cash flow balance of RM27.26 million compared with a negative cash flow balance of RM1.22 million in the preceding year. Bank borrowings reduced from RM44.83 million as at the preceding year end to RM34.89 million as at this year end. The Group will adopt focused and prudent strategies to consolidate the existing business operations to overcome the current economic challenges. Efforts will continuously be made in improving productivity and cost efficiencies and to continue to improve returns on existing assets. CORPORATE SOCIAL RESPONSIBILITY The Group treats Corporate Social Responsibility as a management initiative and will continually strive to improve its corporate values towards the community, environment, its employees, shareholders and other stakeholders. 10

12 executive chairman s statement (Cont d) We constantly evaluate and develop work processes, quality management systems conforming to ISO 9001 standards and Good Manufacturing Practices to minimise any negative impact on the environment throughout the entire production chain. High standards of quality, occupational health and safety are maintained by conducting regular audits in our business activities. The Group provides relevant training to our employees to upgrade their skills and develop their potentials as we value our employees whom we believe is fundamental to the success and growth of the Group. Senior management is also heavily involved in the day to day operations. APPRECIATION On behalf of the Board of Directors, I would like to extend our appreciation to our shareholders, customers, suppliers, business partners, bankers and all regulatory authorities for their continued confidence and support to the Group. We would also like to thank the management and employees of the Group for their dedication and commitment and to my fellow Board members for their contribution during the year. Dato Lim Tong Lim Tong Yaim Executive Chairman 11

13 statement of corporate governance The Board of Directors of Paos Holdings Berhad is committed to ensuring that the highest standards of corporate governance are practiced throughout the Group as a fundamental part of discharging its responsibilities to protect and enhance shareholders' value and the financial performance of Paos Holdings Berhad. The Board is pleased to disclose to shareholders the manner in which it has applied the principles of good corporate governance and the extent to which it has complied with the best practices set out in the Malaysian Code. These principles and best practices have been applied throughout the financial year ended 31st May, 2009 and are regularly audited and reviewed to ensure transparency and accountability. (A) BOARD OF DIRECTORS (a) The Board Composition The Board comprises the Chairman, who is an Executive Director and founder of the Group, two (2) Executive Directors and four (4) Non-Executive Directors, three (3) of whom are independent. The composition of the Board reflects that one-third (1/3) of its members are independent and this is to ensure that minority shareholders interests are represented. There is a clear division of responsibilities between the executive and non-executive functions to ensure effectiveness of the decision making process of the Board. The Independent Non-Executive Directors are committed to enhancing business integrity and independent judgement in the Board s activities. The Board members collectively have a wide range of working experiences drawn from accounting, financial, business, corporate, legal and academic backgrounds. The profiles of the Directors are provided in the Annual Report. (b) Board Meetings During the financial year ended 31st May, 2009, the Board held four (4) meetings and the details of their attendance are as follows: Name of Directors Total Meetings Attended Dato Lim Tong Lim Tong Yaim 3 out of 4 Wang Hak Wong Hak Tham 4 out of 4 Lim Chang Ching 4 out of 4 Datuk Simon Shim Kong Yip 3 out of 4 Alice Boo Miau Li 4 out of 4 Lee Wee Yong 2 out of 4 (Alternate Director to Datuk Simon Shim Kong Yip) Dr. Dominic Er Kong Kiong 4 out of 4 On Boon Kai # 3 out of 3 # appointed on 22nd September, 2008 (c) Supply of information The agenda and a full set of reports for consideration are distributed well before each meeting of the Board to provide Directors with sufficient time to study and review them. The Company Secretary is in attendance at Board meetings to ensure that Board meeting procedures are followed and applicable statutory and other regulations are complied with. Senior management staff may be invited to attend Board meetings to provide the Board with detailed explanations and clarifications on issues that are being deliberated. All Directors have also access to the advice of independent professionals, including the internal auditors. 12

14 statement of corporate governance (Cont d) (A) BOARD OF DIRECTORS (Cont d) (d) Re-Election of Directors Each Director shall retire from office at least once in every three (3) years and can offer himself for re-election. Directors who are appointed by the Board are subject to re-election at the next Annual General Meeting. (e) Directors Training All Directors have attended and completed the Mandatory Accreditation Training Programme (MAP) prescribed by Bursa Malaysia Securities Berhad. Directors are encouraged to attend talks, seminars, workshops and conferences to update and enhance their skills and knowledge to enable them to carry out their roles effectively as Directors in discharging their responsibilities towards corporate governance, operational and regulatory issues. During financial year ended 31st May, 2009, the Directors have attended and participated in various programmes, seminars and briefings which they have individually or collectively considered as relevant and useful in contributing to the effective discharge of their duties as Directors. In addition, Directors education also includes briefings by the External Auditors, Internal Auditors and the Company Secretaries on the relevant updates on statutory and regulatory requirements from time to time during the Audit Committee meetings and Board meetings. (f) Board Committees The Board had established the following committees and delegated specific tasks and responsibilities to them. These committees are to report back to the Board the outcome and recommendations thereon for the Board to make final decision. The main committees that were set up are:- (i) Nomination Committee The Nomination Committee was established on 26th July, Composition Wang Hak Wong Hak Tham Dr. Dominic Er Kong Kiong (Chairman of the Committee, Independent Non-Executive Director) (Independent Non-Executive Director) Responsibilities (a) (b) (c) (d) (e) to recommend to the Board, candidates for all directorships to be filled by the shareholders or the Board. In making its recommendations, the following of the candidates should be considered : - skills, knowledge, expertise and experience; - professionalism; - integrity; and - in the case of candidates for the position of independent non-executive directors, the candidates ability to discharge such responsibilities/functions as expected from independent non-executive directors should be evaluated. to consider, in making its recommendations, candidates for directorships proposed by the Chief Executive Officer and, within the bounds of practicality, by any other senior executive or any Director or Substantial shareholder. to recommend to the Board, Directors to fill the seats on Board committees. to annually review the Board s required mix of skills and experience and other qualities including core competencies which Non-Executive Directors should bring to the Board. to annually assess the effectiveness of the Board as a whole and the committees of the Board and to assess the contribution of each director, including independent non-executive directors, as well as the Chief Executive Officer. 13

15 statement of corporate governance (Cont d) (A) BOARD OF DIRECTORS (Cont d) (f) Board Committees (Cont d) (i) Nomination Committee (Cont d) During the financial year ended 31st May, 2009, the Committee met twice on 29th July, 2008 and 22nd September, 2008 for the following purposes :- a) to review the Board's required mix of skills, experience and other qualities; b) to assess the effectiveness of the Board as a whole and the committees of the Board and to assess the contribution of each Director; c) to review the terms of reference of the Nomination Committee; and d) to nominate Mr. On Boon Kai as an Independent Non-Executive Director of the Company and as a member of the Audit Committee. (ii) Remuneration Committee The Remuneration Committee was established on 26th July, Composition Dr. Dominic Er Kong Kiong Dato Lim Tong Lim Tong Yaim Datuk Simon Shim Kong Yip Wang Hak Wong Hak Tham (Chairman of the Committee, Independent Non-Executive Director) (Executive Chairman) (Non-Independent Non-Executive Director) (Independent Non-Executive Director) Responsibilities a) to review the annual remuneration packages of each individual Director (both Executive and Non-Executive) such that the levels of remuneration are sufficient to attract and retain the Directors needed to run the Company successfully. b) to recommend to the Board the remuneration packages of the Directors (both Executive and Non-Executive) of the Company. c) to review the remuneration packages of senior management and employees of the Company. During the financial year ended 31st May, 2009, the Committee met once on 29th July, 2008 for the following purposes:- a) to review the remuneration package of the Executive Directors; and b) to consider and recommend the payment of Directors Fees for the year ended 31st May, (iii) Audit Committee The composition, term of reference and other related report on Audit Committee are presented on pages 18 to 21 of the Annual Report. (iv) Employees' Share Option Scheme ( ESOS ) Committee The committee was established on 8th January, Composition Alice Boo Miau Li Wang Hak Wong Hak Tham (Executive Director) (Independent Non-Executive Director) The Committee s responsibility is to implement and administer the Company s ESOS (the Scheme) introduced during the year. The Committee administers the Scheme in such manner as it shall in its discretion deem fit, including such powers and duties conferred upon it under the Bye-Law of the Scheme. The Committee ensures that the Scheme is administered in accordance with the Bye-Law. The Committee meets as and when is required. 14

16 statement of corporate governance (Cont d) (A) BOARD OF DIRECTORS (Cont d) (f) Board Committees (Cont d) (v) Investment Committee The investment Committee was established on 29th October, Composition Dato Lim Tong Lim Tong Yaim Datuk Simon Shim Kong Yip Alice Boo Miau Li Wang Hak Wong Hak Tham (Executive Chairman) (Non-Independent Non-Executive Director) (Executive Director) (Independent Non-Executive Director) Responsibilities a) to report appropriately to the Board of Directors. b) to develop procedures and guidelines for the investment of available funds. c) to make recommendation with respect to asset allocations principles for investment portfolio and investment policy. d) to keep under review the investments and to recommend such sales and reinvestments. e) to act in an advisory capacity when the Board decides on amount to be invested. f) to generally meet when necessary. (B) DIRECTORS' REMUNERATION Details of the Directors remuneration for the financial year ended 31st May, 2009 are as follows:- (a) The aggregate remuneration (within the Group) of the Directors of the Company is as follows:- GROUP 2009 RM Executive Directors - Salaries and other emoluments 1,010,519 - Fees 6,288 - Benefit-in-kind Non-Executive Directors - Salaries and other emoluments 15,500 - Fees 105,712 - Benefit-in-kind (b) The number of Directors of the Company whose total remuneration falls within the following bands are: Executive Directors RM450,000 - RM500,000 1 RM300,000 - RM350,000 1 RM200,000 - RM250,000 1 Non-Executive Directors Below RM50,

17 statement of corporate governance (Cont d) (C) SHAREHOLDERS (a) Relationship with Individual Shareholders and Investors The Board acknowledges the importance of regular communication with shareholders and investors via the annual reports, circular to shareholders, quarterly financial reports and the various announcements made during the year, through which shareholders and investors can have an overview of the Group s performance and operation. The Company encourages direct dialogue with individual shareholders and investors especially during Annual General Meeting ( AGM ). (b) AGM The AGM provides an opportunity for the shareholders to seek and clarify any issues and to have a better understanding of the Group s performance. During the AGM, they have direct access to the Board of Directors and are given opportunity to ask questions during the question and answer session prior to adoption of the Company s audited financial statements. They are encouraged to ask questions about the resolutions being proposed and the Group s operation in general. (D) ACCOUNTABILITY AND AUDIT (a) Financial Reporting The financial statements are prepared in accordance with the requirements of the applicable approved accounting standards in Malaysia and the provisions of the Companies Act, The Board is responsible to ensure that the financial statements of the Group and the Company give a true and fair view of the state of affairs of the Group and the Company. (b) Internal Controls The Statement on Internal Controls furnished on pages 22 to 23 of the Annual Report provides an overview of the state of internal controls within the Group. (c) Relationship with the Auditors The Company maintains a close and transparent professional relationship with the external auditors, Messrs KPMG. The external auditors were present at meetings that deliberate on the Company s annual audited financial results, as well as during reviews of the Company s and Group s accounting policies. (E) STATEMENT OF COMPLIANCE WITH THE BEST PRACTICES OF THE CODE The Company is committed to achieving high standards of corporate governance throughout the Group and to the highest level of integrity and ethical standards in all its business dealings. The Board considers that it has complied throughout the financial year with the Best Practices as set out in the Code. This Statement is made in accordance with the resolution of the Board of Directors on 28th September,

18 other compliance information 1) UTILISATION OF PROCEEDS During the financial year ended 31st May, 2009, the Company did not raise any proceed from any corporate proposal. 2) SHARE BUY-BACK During the financial year ended 31st May, 2009, the Company did not enter into any share-buy-back transaction. 3) OPTIONS, WARRANTS OR CONVERTIBLE SECURITIES The Company has not issued any options, warrants or convertible securities during the financial year ended 31st May, ) AMERICAN DEPOSITORY RECEIPT / GLOBAL DEPOSITORY RECEIPT The Company does not sponsor any ADR or GDR programmes. 5) SANCTIONS AND / OR PENALTIES There were no sanctions and/or penalties imposed on the Company and its subsidiaries, Directors or management by the relevant regulatory bodies during the financial year ended 31st May, ) NON-AUDIT FEES During the financial year ended 31st May, 2009, non-audit fees paid to the external auditors by the Company amounted to RM9, for reviewing the Statement on Internal Control. 7) VARIATION IN RESULTS The Company did not release any profit estimate, forecast or projection for the financial year. There is no significant variance between results for the financial year and the unaudited results previously released by the Company. 8) PROFIT GUARANTEE There is no profit guarantee in respect of the Company during the financial year ended 31st May, ) REVALUATION POLICY ON LANDED PROPERTIES The Group does not adopt a policy of regular revaluation of its properties. 10) MATERIAL CONTRACTS The Company and its subsidiaries do not have any material contracts involving the interest of its Directors and/or major shareholders. 11) MATERIAL CONTRACTS RELATING TO LOANS The Company and its subsidiaries do not have any material contracts relating to loans involving the interest of its Directors and/or major shareholders. 12) RECURRENT RELATED PARTY TRANSACTION The Company did not enter into any recurrent related party transaction during the financial year ended 31st May,

19 audit committee report COMPOSITION OF MEMBERS The Audit Committee appointed by the Board of Directors comprises of:- On Boon Kai Wang Hak Wong Hak Tham Dr. Dominic Er Kong Kiong (Chairman of the Committee, Independent Non-Executive Director) (Independent Non-Executive Director) (Independent Non-Executive Director) TERMS OF REFERENCE Objectives The objectives of the Audit Committee are to comply with the Main Market Listing Requirements and the Malaysian Code on Corporate Governance and to relieve the full Board of Directors from detailed involvement in the review of the results of internal and external audit activities and ensure that audit findings are brought up to the highest level for consideration. Members a) The Audit Committee shall be appointed by the Board from amongst the Directors of the Company and shall consist of not less than three (3) members. All members of the Audit Committee must be Non-Executive Directors, with a majority of them being Independent Directors. At least one member of the Audit Committee :- i) must be a member of the Malaysian Institute of Accountants; or ii) if he is not a member of the Malaysian Institute of Accountants, he must have at least three years' working experience and :- (aa) he must have passed the examinations specified in Part 1 of the 1st Schedule of the Accountants Act, 1967; or (bb) he must be a member of one of the associations of accountants specified in Part II of the 1st Schedule of the Accountants Act, 1967; or iii) fulfils such other requirements as prescribed or approved by the Bursa Malaysia Securities Berhad. b) No alternate Director shall be appointed as a member of the Audit Committee. c) The members of the Audit Committee shall elect a Chairman from among their numbers who shall be an Independent Director. Functions The functions of the Audit Committee shall be a) to review the following and report the same to the Board of Directors :- i) with the external auditors, the audit plan; ii) iii) iv) with the external auditors, the evaluation of the system of internal controls; with the external auditors, the audit report; the assistance given by the employees of the Company to the external auditors; v) the adequacy of the scope, functions, competency and resources of the internal audit functions and that it has the necessary authority to carry out its work; 18

20 audit committee report (Cont d) TERMS OF REFERENCE (Cont d) Functions (Cont d) a) to review the following and report the same to the Board of Directors :- (Cont d) vi) vii) the internal audit programme, processes, the results of the internal audit programme, processes or investigation undertaken and whether or not appropriate action is taken on the recommendations of the internal audit function; the quarterly results and year end financial statements, prior to the approval by the Board of Directors, focusing particularly on :- (aa) changes in or implementation of major accounting policy changes; (bb) significant and unusual events; (cc) compliance with accounting standards and other legal requirements; and (dd) going concern assumption. viii) any related party transaction and conflict of interest situation that may arise within the Company or Group including any transaction, procedure or course of conduct that raises questions of management integrity; ix) any letter of resignation from the external auditors of the Company; x) whether there is reason (supported by grounds) to believe that the Company's external auditors are not suitable for re-appointment; xi) xii) the external auditors' management letter and management's response; and the list of eligible employee and the allocation of Employees' Share Option Scheme (ESOS) to be offered to them. b) to do the following, in relation to the internal audit function :- i) review any appraisal or assessment of the performance of members of the internal audit function; ii) iii) approve any appointment or termination of senior staff members of the internal audit function; and take cognisance of resignations of internal audit staff members and provide the resigning staff member an opportunity to submit his reasons for resigning. c) to consider :- i) the major findings of internal investigations and management's response; ii) iii) other topics as defined by the Board; and the nomination of a person or persons as external auditors together with such other functions as may be agreed by the Audit Committee and the Board of Directors. d) to discuss problems and reservations arising from the interim and final audits, and any matter the auditors may wish to discuss (in the absence of management where necessary). 19

21 audit committee report (Cont d) TERMS OF REFERENCE (Cont d) Authority The Audit Committee shall have the authority to : a) investigate any matter within its terms of reference; b) have the resources which are required to perform its duties; c) have full and unrestricted access to any information pertaining to the Company; d) have direct communication channels with the external auditors and person(s) carrying out the internal audit function or activity ; e) obtain independent professional or other advice; and f) convene meetings with the external auditors, the internal auditors or both, excluding the attendance of other Directors and employees of the Company, whenever deemed necessary. However, the committee should meet with the external auditors without Executive Board members present at least twice a year. Meetings and Reporting Procedures a) The agenda for Audit Committee meetings shall be circulated at least five (5) days before each meeting. b) The Audit Committee shall meet as the Chairman deems necessary but not less than four (4) times a year. c) The Chairman shall be entitled, where deemed appropriate, to invite any person(s) to meetings of the Audit Committee. d) The Chairman should engage on a continuous basis with senior management, such as the chairman, the chief executive officer, the finance director, the head of internal audit and the external auditors in order to be kept informed of matters affecting the Company. e) In order to form a quorum in respect of a meeting of the Audit Committee, the majority of members of the Audit Committee present at the meeting must be Independent Directors. f) The Secretary is responsible for sending out notices of meetings, preparing and keeping minutes of meetings and circulating the minutes of meetings to all members of the Board. During the financial year ended 31st May, 2009, the Committee met five (5) times. The number of meetings attended by each member is as follows :- Name Total Meetings Attended On Boon Kai* 4 out of 4 Wang Hak Wong Hak Tham 5 out of 5 Dr. Dominic Er Kong Kiong 5 out of 5 * appointed as audit committee member on 22nd September,

22 audit committee report (Cont d) TERMS OF REFERENCE (Cont d) Activities Undertaken The Committee has during the financial year ended 31st May, 2009 carried out the following :- (a) (b) (c) (d) reviewed the unaudited quarterly results and audited financial statements of the Company and the Group and recommended the same to the Board for approval prior to the announcement to Bursa Malaysia Securities Berhad; reviewed with the external auditors the results of the audit, the audit report and the management letters, management s response and the recommendations arising from their findings; reviewed the Internal Audit Reports presented by the internal auditors on findings and recommendation with regards to system and control weaknesses noted in the course of their audit and management s responses thereto and ensuring material findings are adequately addressed by management; and reviewed the Statement on Internal Control. Internal Audit Function and Summary of Activities The internal audit function of the Company has been outsourced to an independent professional firm, namely Audex Governance Sdn. Bhd., which assists the Audit Committee in discharging its duties and responsibilities. They act independently and with due professional care and present the Internal Audit Report on the findings and recommendations to the Audit Committee on a quarterly basis. In respect of the financial year ended 31st May, 2009, the Internal Auditors had carried out internal audit reviews on the following subsidiaries: a) Paos Industries Sdn. Bhd. and Premier Oil Industries Sdn. Bhd. covering the following business process/areas: Sales and Marketing; Procurement; and Production b) Alpine Legacy (M) Sdn. Bhd. covering the following business process/areas: Sales and Marketing Credit Control and Collection The reviews were conducted to assess: the adequacy and effectiveness of the Group s system of internal control its compliance with the group policies and procedures over its business processes This could enhance the existing system of internal control and process efficiency of companies and thereon provide recommendations for improvement. Statement by the Audit Committee The Committee confirms that the allocation of options offered by the Company to eligible employees of the Group complies with the Bye-Law of the Company s Employees Share Option Scheme. This report is made in accordance with the resolution of the Board of Directors on 28th September,

23 statement of internal control INTRODUCTION Pursuant to paragraph 15.26(b) of Bursa Malaysia Securities Berhad's Listing Requirements, the Board of Directors ("the Board") of Paos Holdings Berhad ("the Group") is pleased to make a statement in the annual report on the state of the internal controls of the Group which has been prepared in accordance with the Listing Requirements and as guided by the Statement on Internal Control: Guidance for Directors of Public Listed Companies. BOARD RESPONSIBILITY The Board has overall responsibility for the Group's system of internal controls, which includes the establishment of an appropriate control environment and framework, and the review of its effectiveness and adequacy to ensure that the Group's assets and shareholders' interests are safeguarded. Due to the inherent limitations in any system of internal controls, such system put in place by management can only manage rather than eliminate all risks of failure to achieve the Group's corporate objectives. Consequently, the system can only provide a reasonable rather than absolute assurance against material misstatement or loss. RISK MANAGEMENT FRAMEWORK Risk Management is regarded by the Board to be an integral part of the business operations. Key management staff and Heads of Departments are delegated with the responsibility to manage identified risks within defined parameters and standards. Managing the significant risks is an ongoing process undertaken by certain operating subsidiaries. During the year under review, management meetings were held to discuss key risks and the appropriate mitigating controls. Significant risks affecting the Company's strategic and business plans are escalated to the Risk Management Committee at their scheduled meetings. The Risk Management Committee, comprising key management staff and the Executive Directors will meet to review the risk profile of the Group on a yearly basis. During the year under review, the risk profile of the Group, other than those relating to the hotel operations which has just commenced its business, was updated by the Risk Management Committee. The abovementioned are the summary or overview of the process used to identify, evaluate and manage significant risks. INTERNAL AUDIT The Group's internal audit function is outsourced to external consultants to assist the Board and Audit Committee in providing an independent assessment on the adequacy and effectiveness of the Group's internal control system. During the financial year ended 31st May, 2009, the internal audit function carried out audits in accordance with the internal audit plan approved by the Audit Committee. The results of the internal audit reviews and the recommendations for improvement were presented to the Audit Committee at their quarterly meetings. Based on the internal audit reviews conducted, the Board is of the opinion that none of the weaknesses noted have resulted in any material losses, contingencies or uncertainties that would require separate disclosure in this annual report. For the financial year ended 31st May, 2009, the total costs incurred for the outsourced internal audit function is RM38,

24 statement of internal control (Cont d) OTHER KEY ELEMENTS OF INTERNAL CONTROL The other key elements of the Company's internal control systems are: Clearly defined organizational structure with lines of responsibility, proper segregation of duties and delegation of authority on certain active subsidiaries; Executive Directors are responsible for the daily operations and performance of the respective businesses. The daily operations are monitored through review of reports, attendance at scheduled management meetings and informal discussions on operational issues. Significant issues identified are brought to the attention of Board members, if necessary; One of the Group's subsidiaries, i.e. Paos Industries Sdn Bhd is ISO 9001:2000 certified. With such certification, audits are conducted by external parties periodically to ensure compliance with the ISO procedures or manual; Quarterly reviews on the performance of the Group by the Audit Committee and Board. CONCLUSION The Board is of the view that the Group's system of internal controls is adequate to safeguard shareholders' investments and the Group's assets. However, the Board is also cognizant of the fact that the Group's system of internal control and risk management practices must continuously evolve in the changing and challenging business environment. Therefore, the Board will, when necessary, put in place appropriate action plans to further enhance the system of internal controls. This statement is made in accordance with a resolution of the Board of Directors on 28th September,

25 statement of directors responsibility in respect of audited financial statements pursuant to paragraph 15.27(a) of the listing requirements The Directors are responsible to ensure that financial statements are drawn up in accordance with Financial Reporting Standards and the Companies Act, 1965 so as to give a true and fair view of the state of affairs and results of the Group and the Company as at 31st May, 2009 and of the results of their operations and cash flows for the financial year then ended. In preparing these financial statements for the year ended 31st May, 2009, the Directors have: adopted suitable accounting policies and then applied them consistently; made estimates and judgements that are reasonable and prudent; ensure that applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and prepared the financial statements on the going concern basis. This Statement is made in accordance with the resolution of the Board of Directors on 28th September,

26 Directors Report 26 Balance Sheets 31 Income Statements 32 Statements of Changes in Equity 33 Cash Flow Statements 34 Notes to the Financial Statements 36 Statement by Directors 64 Statutory Declaration 64 Independent Auditors Report 65

27 directors report for the year ended 31st May 2009 The Directors have pleasure in submitting their report and the audited financial statements of the Group and of the Company for the year ended 31st May, PRINCIPAL ACTIVITIES The Company is principally engaged in investment holding, whilst the principal activities of the subsidiaries are as stated in Note 6 to the financial statements. There has been no significant change in the nature of these activities during the financial year other than that of Premier Oil Industries Sdn. Bhd. whose principal activities became rental of investment property and the newly incorporated company, The 5 Elements Hotel Sdn. Bhd. which is that of operating and managing a hotel. RESULTS Group RM Company RM Profit attributable to the shareholders of the Company 9,710,136 2,858,310 RESERVES AND PROVISIONS There were no material transfers to or from reserves and provisions during the year under review. DIVIDENDS Since the end of the previous financial year, the Company paid: i) first interim tax exempt ordinary dividend of 1.25 sen per ordinary share totalling RM1,509,700 in respect of year ended 31st May, 2009 on 28th November, ii) second interim tax exempt ordinary dividend of 1.25 sen per ordinary share totalling RM1,509,701 in respect of year ended 31st May, 2009 on 29th May, The Directors do not recommend any final dividend to be paid for the year under review. DIRECTORS OF THE COMPANY Directors who served since the date of the last report are: Director Dato Lim Tong Lim Tong Yaim (Executive Chairman) Wang Hak Wong Hak Tham Datuk Shim Kong Yip Lim Chang Ching Alice Boo Miau Li Dr Dominic Er Kong Kiong On Boon Kai (appointed on ) Alternate Lee Wee Yong 26

28 directors report (Cont d) DIRECTORS OF THE COMPANY (Cont d) The interests and deemed interests in the ordinary shares and options of the Company of those who were Directors at year end as recorded in the Register of Directors Shareholdings are as follows: Number of ordinary shares of RM0.50 each Balance at / Balance at Date of appointment* Bought Sold Shareholdings in which Directors have direct interest in the Company Dato Lim Tong Lim Tong Yaim 57,284,000 57,284,000 Wang Hak Wong Hak Tham 20,000 20,000 Lim Chang Ching 20,000 20,000 On Boon Kai 1,000,000* 1,000,000 Number of options over ordinary shares of RM0.50 each Balance at Balance at Company Granted Exercised Dato Lim Tong Lim Tong Yaim 1,700,000 1,700,000 By virtue of his interests in the shares of the Company, Dato Lim Tong Lim Tong Yaim is also deemed interested in the shares of the subsidiaries during the financial year to the extent that Paos Holdings Berhad has an interest, pursuant to Section 6A(4) of the Companies Act, None of the other Directors holding office at 31st May,2009 had any interest in the ordinary shares of the Company and of its subsidiaries during the financial year. DIRECTORS BENEFITS Since the end of the previous financial year, no Director of the Company has received nor become entitled to receive any benefit (other than a benefit included in the aggregate amount of emoluments received or due and receivable by Directors as shown in the financial statements) by reason of a contract made by the Company or a related corporation with the Director or with a firm of which the Director is a member, or with a company in which the Director has a substantial financial interest. There were no arrangements during and at the end of the financial year which had the object of enabling Directors of the Company to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate apart from the option under the Employees Share Option Scheme. ISSUE OF SHARES AND DEBENTURES There were no changes in the authorised, issued and paid-up capital of the Company during the financial year. There were no debentures issued during the financial year. 27

29 directors report (Cont d) OPTIONS GRANTED OVER UNISSUED SHARES No options were granted to any person to take up unissued shares of the Company during the financial year. At an Extraordinary General Meeting ( EGM ) held on 11th October, 2001, the Company s shareholders approved the establishment of an employees share option scheme ( ESOS ) of not more than 10% of the issued share capital of the Company or 6,000,000 new ordinary shares of RM1.00 each, whichever is the higher, to eligible full time Executive Directors and eligible employees of the Group. At an EGM held on 25th November, 2004, the Company s shareholders had approved amendments to the ESOS by-laws for the issue of additional Options of not more than 15% of the issued share capital of the Company or 9,086,000 new ordinary shares of RM0.50 each, whichever is the higher, to eligible full time Executive Directors, Non-Executive Directors and eligible employees of the Group. At the third ESOS Committee meeting held on 30th October, 2006, the Committee has approved the extension of the ESOS from five years to ten years, which extended the expiry date from 6th January, 2007 to 6th January, The options offered to take up unissued ordinary shares of RM0.50 each and the option price is as follows: Number of options over ordinary shares of RM0.50 each Balance at Balance at Date of offer Option price Granted Exercised Lapsed RM ,194,000 5,194, RM ,630,000 2,630,000 The salient features of the scheme are as follows: i) Eligible employees are those who are employed on a full-time basis and on the payroll of a company within the Group and have been confirmed in writing as employees of the Group prior to the date of the offer. However, where employees are serving under an employment contract, the contract should be for a duration of at least one (1) year. ii) The option is personal to the grantee and is non-assignable. iii) The option price shall be determined by the weighted average of the middle market quotation of the Company s ordinary shares as shown in the daily official list issued by the Bursa Malaysia Securities Berhad for the five trading days preceding the respective dates of the offer in writing to the grantee or at the par value of the ordinary shares of the Company, whichever is higher. iv) The options granted may be exercised at any time within a period of five years from the date of offer of the option or such shorter period as may be specifically stated in the offer upon giving notice in writing. v) The options granted may be exercised in full or in lesser number of ordinary shares provided that the number shall be in multiples of 100 shares. The persons to whom the options have been granted have no right to participate by virtue of the options in any share issue of any other company. The Company has been granted exemption by the Companies Commission of Malaysia from having to disclose the name of option holders who have been granted options. 28

30 directors report (Cont d) OTHER STATUTORY INFORMATION Before the balance sheets and income statements of the Group and of the Company were made out, the Directors took reasonable steps to ascertain that: i) there are no bad debts to be written off and no provision need to be made for doubtful debts, and ii) all current assets have been stated at the lower of cost and net realisable value. At the date of this report, the Directors are not aware of any circumstances: i) that would render it necessary to write off any bad debts or provide for any doubtful debts, or ii) that would render the value attributed to the current assets in the Group and in the Company financial statements misleading, or iii) which have arisen which render adherence to the existing method of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate, or iv) not otherwise dealt with in this report or the financial statements, that would render any amount stated in the financial statements of the Group and of the Company misleading. At the date of this report, there does not exist: i) any charge on the assets of the Group or of the Company that has arisen since the end of the financial year and which secures the liabilities of any other person, or ii) any contingent liability in respect of the Group or of the Company that has arisen since the end of the financial year. No contingent liability or other liability of any company in the Group has become enforceable, or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the Directors, will or may substantially affect the ability of the Group and of the Company to meet their obligations as and when they fall due. In the opinion of the Directors, other than the gain on disposal of assets classified as held for sale as disclosed in Note 16, the results of the operations of the Group and of the Company for the financial year ended 31st May, 2009 have not been substantially affected by any item, transaction or event of a material and unusual nature nor has any such item, transaction or event occurred in the interval between the end of that financial year and the date of this report. 29

31 directors report (Cont d) SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR The significant events during the financial year are disclosed in Note 26 to the financial statements. SIGNIFICANT EVENT SUBSEQUENT TO THE BALANCE SHEET DATE The significant event subsequent to year end is disclosed in Note 27 to the financial statements. AUDITORS The auditors, Messrs KPMG, have indicated their willingness to accept re-appointment. Signed on behalf of the Board of Directors in accordance with a resolution of the Directors: DATO LIM TONG LIM TONG YAIM LIM CHANG CHING Shah Alam, Malaysia 28th September,

32 balance sheets at 31st May 2009 Group Company Note RM RM RM RM Assets Property, plant and equipment 3 39,244,089 68,384,535 Prepaid lease payments 4 11,468,757 11,658,021 Investment properties 5 33,118,292 Investment in subsidiaries 6 38,485,136 38,485,136 Receivables, deposits and prepayments 7 21,422,866 36,716,386 Deferred tax asset 8 460,000 Total non-current assets 84,291,138 80,042,556 59,908,002 75,201,522 Assets classified as held for sale 9 10,448,082 Inventories 10 9,189,347 26,575,506 Receivables, deposits and prepayments 7 35,129,995 41,614,049 16,588,205 1,552,000 Current tax assets 1,065,652 2,398,945 30,000 Cash and cash equivalents 11 27,365, ,264 55,865 9,852 Total current assets 72,750,076 81,800,846 16,674,070 1,561,852 Total assets 157,041, ,843,402 76,582,072 76,763,374 Equity Share capital 60,388,000 60,388,000 60,388,000 60,388,000 Reserves 39,914,427 33,223,692 16,045,396 16,206,487 Total equity attributable to shareholders of the Company ,302,427 93,611,692 76,433,396 76,594,487 Liabilities Loans and borrowings 13 32,094,996 30,075,404 Deferred tax liabilities 8 321, ,000 Total non-current liabilities 32,416,526 30,601,404 Payables and accruals 14 21,531,962 22,804, , ,188 Loans and borrowings 13 2,790,299 14,749,830 Current tax liabilities 75,649 59,699 Total current liabilities 24,322,261 37,630, , ,887 Total liabilities 56,738,787 68,231, , ,887 Total equity and liabilities 157,041, ,843,402 76,582,072 76,763,374 The notes set out on pages 36 to 63 are an integral part of these financial statements. 31

33 income statements for the year ended 31st May 2009 Group Company Note RM RM RM RM Revenue ,132, ,037,521 3,100,000 1,550,000 Cost of sales (305,273,745) (314,925,045) Gross profit/(loss) 6,858,326 (9,887,524) 3,100,000 1,550,000 Administrative expenses (4,013,458) (3,882,161) (338,887) (304,673) Distribution expenses (460,601) (1,043,215) Other expenses (184,090) (212,583) Other income 9,335,323 2,691,577 Operating profit/(loss) 11,535,500 (12,333,906) 2,761,113 1,245,327 Finance costs (1,664,818) (843,396) Interest income 65, ,311 Profit/(Loss) before taxation 16 9,935,730 (12,793,991) 2,761,113 1,245,327 Tax expense 18 (225,594) 1,890,555 97,197 Profit/(Loss) for the year 9,710,136 (10,903,436) 2,858,310 1,245,327 Basic earnings/(loss) per ordinary share (sen) (9.03) The notes set out on pages 36 to 63 are an integral part of these financial statements. 32

34 statements of changes in equity for the year ended 31st May 2009 Non-distributable Distributable Share Share Retained Note capital premium earnings Total Group RM RM RM RM At 1 June ,388,000 14,871,806 30,765, ,024,828 Loss for the year (10,903,436) (10,903,436) Dividends 20 (1,509,700) (1,509,700) At 31 May 2008/1 June ,388,000 14,871,806 18,351,886 93,611,692 Profit for the year 9,710,136 9,710,136 Dividends 20 (3,019,401) (3,019,401) At 31 May ,388,000 14,871,806 25,042, ,302,427 Company Note 12.1 At 1 June ,388,000 14,871,806 1,599,054 76,858,860 Profit for the year 1,245,327 1,245,327 Dividends 20 (1,509,700) (1,509,700) At 31 May 2008/1 June ,388,000 14,871,806 1,334,681 76,594,487 Profit for the year 2,858,310 2,858,310 Dividends 20 (3,019,401) (3,019,401) At 31 May ,388,000 14,871,806 1,173,590 76,433,396 Note 12.1 Note 12.2 The notes set out on pages 36 to 63 are an integral part of these financial statements. 33

35 cash flow statements for the year ended 31st May 2009 Group Company Note RM RM RM RM Cash flows from operating activities Profit/(Loss) before taxation 9,935,730 (12,793,991) 2,761,113 1,245,327 Adjustments for: Amortisation of prepaid lease payments 189, ,168 Depreciation of investment properties 1,272,141 Depreciation of property, plant and equipment 2,357,261 3,860,108 Loss on disposal of property, plant and equipment 667 Gain on disposal of assets held for sale (net of incidental cost) (i) (7,908,794) (1,671,892) Finance costs 1,664, ,396 Interest income (65,048) (383,311) Unrealised foreign exchange loss/(gain) 162,497 (380,521) Unrealised losses on hedging 11,350 Dividend income (3,100,000) (1,550,000) Operating profit/(loss) before working capital changes 7,607,869 (10,341,026) (338,887) (304,673) Changes in working capital: Inventories 17,386,159 (10,734,140) Receivables, deposits and prepayments 4,460,420 (865,207) 257, ,045 Payables and accruals (1,252,919) 5,826,218 39,488 (25,882) Cash generated from/(used in) operations 28,201,529 (16,114,155) (42,084) (119,510) Interest paid (59,130) (134,565) Tax paid (1,197,080) (1,098,978) (14,581) (12,498) Tax refunded 1,564, ,913 22,079 70,441 Net cash generated from/(used in) operating activities 28,509,979 (16,669,785) (34,586) (61,567) 34

36 cash flow statements (Cont d) Group Company Note RM RM RM RM Cash flows from investing activities Interest received 65, ,311 Proceeds from disposal of assets held for sale (i) 20,500,000 3,500,000 Purchase of property, plant and equipment (ii) (4,621,405) (20,034,474) Dividends received 3,100,000 1,550,000 Investment in subsidiaries (48,029) Net cash generated from/(used in) investing activities 15,943,643 (16,151,163) 3,100,000 1,501,971 Cash flows from financing activities Dividends paid (3,019,401) (1,509,700) (3,019,401) (1,509,700) Interest paid (1,605,688) (708,831) Repayment of bills payable (11,013,276) 11,605,277 Repayment of finance lease liabilities (28,284) (28,285) Net cash (used in)/generated from financing activities (15,666,649) 9,358,461 (3,019,401) (1,509,700) Net increase/(decrease) in cash and cash equivalents 28,786,973 (23,462,487) 46,013 (69,296) Cash and cash equivalents at beginning of year (1,224,006) 22,231,605 9,852 79,148 Effect of exchange rate changes (301,933) 6,876 Cash and cash equivalents at end of year (iii) 27,261,034 (1,224,006) 55,865 9,852 (i) Proceeds from disposal of assets held for sale During the year, the Group has disposed assets held for sale with carrying amount of RM10,448,082 (2008 RM1,828,108) for cash consideration of RM20,500,000 (2008 RM3,500,000). The incidental cost of this transaction was RM2,143,124 (2008 Nil). (ii) Purchase of property, plant and equipment During the year, the Group acquired property, plant and equipment with an aggregate cost of RM7,607,248 (2008 RM50,034,474), of which RM2,985,843 ( RM30,000,000) was acquired by means of term loan. (iii) Cash and cash equivalents Cash and cash equivalents included in the cash flow statements comprise the following balance sheet amounts: Group Company RM RM RM RM Cash and bank balances 13,365, ,264 55,865 9,852 Deposits placed with licensed banks 14,000,000 Bank overdrafts (104,048) (1,988,270) 27,261,034 (1,224,006) 55,865 9,852 The notes set out on pages 36 to 63 are an integral part of these financial statements. 35

37 notes to the financial statements Paos Holdings Berhad is a public limited liability company, incorporated and domiciled in Malaysia and is listed on the Main Market of Bursa Malaysia Securities Berhad. The addresses of its registered office and principal place of business are as follows: Registered office No. 308, Block A (3rd Floor) Kelana Business Centre 97, Jalan SS7/2, Kelana Jaya Petaling Jaya Selangor Darul Ehsan Malaysia Principal place of business No. 65, Persiaran Selangor Section 15, Shah Alam Selangor Darul Ehsan Malaysia The consolidated financial statements as at and for the year ended 31st May, 2009 comprise the Company and its subsidiaries (together referred to as the Group). The Company is principally engaged in investment holding, whilst the principal activities of the subsidiaries are as stated in Note 6 to the financial statements. The financial statements were approved by the Board of Directors on 28th September, BASIS OF PREPARATION (a) Statement of compliance These financial statements of the Group and the Company have been prepared in accordance with Financial Reporting Standards (FRSs), accounting principles generally accepted and the Companies Act, 1965 in Malaysia. The Group and the Company has not applied the following accounting standards (including its consequential amendments) and Interpretations that have been issued by the MASB but are not yet effective: FRSs / Interpretations Effective date Amendments to FRS 1, First-time Adoption of Financial Reporting Standards and FRS 127, Consolidated and Separate Financial Statements: Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate 1 January 2010 Amendments to FRS 2, Share-based Payment: Vesting Conditions and Cancellations 1 January 2010 FRS 4, Insurance Contracts 1 January 2010 FRS 7, Financial Instruments: Disclosures 1 January 2010 FRS 8, Operating Segments 1 July 2009 FRS 123, Borrowing Costs 1 January 2010 FRS 139, Financial Instruments: Recognition and Measurement 1 January 2010 IC Interpretation 9, Reassessment of Embedded Derivatives 1 January 2010 IC Interpretation 10, Interim Financial Reporting and Impairment 1 January 2010 IC Interpretation 11, FRS 2 - Group and Treasury Share Transactions 1 January 2010 IC Interpretation 13, Customer Loyalty Programmes 1 January 2010 IC Interpretation 14, FRS The Limit on a Defined Benefit Asset, Minimum Funding Requirements and Their Interaction 1 January

38 notes to the financial statements (Cont d) 1. BASIS OF PREPARATION (Cont d) (a) Statement of compliance (Cont d) The Group and the Company plan to apply the abovementioned standards, amendments and interpretations from the annual period beginning 1st January, 2010 except for FRS 4, IC Interpretation 13 and IC Interpretation 14 which are not relevant. The impact of applying FRS 7 and FRS 139 on the financial statements upon first adoption as required by paragraph 30(b) of FRS 108, Accounting Policies, Changes in Accounting Estimates and Errors is not disclosed by virtue of the exemptions given in the respective FRSs. The initial application of FRS123, other amendments and interpretations are not expected to have any material financial impact on the financial statements or any material change in accounting policy. The impact of application of FRS 8 and IC Interpretation 10 are summarised as follows: FRS 8, Operating Segments FRS 8 will become effective for financial statements of the Group for the year ending 31st May, FRS 8, which replaces FRS , Segment Reporting, requires identification and reporting of operating segments based on internal reports that are regularly reviewed by the chief operating decision maker of in order to allocate resources to the segment and to assess its performance. Currently, the Group presents segment information in respect of its business segments (see note 21). Under FRS 8, the Group will present segment information in respect of its operating segments: palm oil related products trading, palm oil related products manufacturing, hotel operation and investment properties rental and marine gasoil trading. IC Interpretation 10, Interim Financial Reporting and Impairment IC Interpretation 10 will become effective for the financial statements of the Group for the financial year ending 31st May, IC Interpretation 10 prohibits the reversal of an impairment loss that has been recognised in an interim period during a financial year in respect of goodwill, an investment in an equity instrument or a financial asset carried at cost. In accordance with the transitional provisions, the Group will apply IC Interpretation 10 to goodwill, investments in equity instruments, and financial assets carried at cost prospectively from the date the Group first applied the measurement criteria of FRS 136, Impairment of Assets and FRS 139, Financial Instruments: Recognition and Measurement respectively. The adoption of IC Interpretation 10 is not expected to have any material financial impact. (b) Basis of measurement The financial statements have been prepared on the historical cost basis, except as disclosed in the notes to the financial statements. (c) Functional and presentation currency These financial statements are presented in Ringgit Malaysia (RM), which also the Company s functional currency. (d) Use of estimates and judgements The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. There are no significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements other than those disclosed in Note 8 Recognition of deferred tax assets in respect of unutilised tax losses. 37

39 notes to the financial statements (Cont d) 2. SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to the periods presented in these financial statements, and have been applied consistently by Group entities, unless otherwise stated. (a) Basis of consolidation (i) Subsidiaries Subsidiaries are entities controlled by the Group. Control exists when the Group has the ability to exercise its power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. Subsidiaries are consolidated using the purchase method of accounting. Under the purchase method of accounting, the financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Investment in subsidiaries is stated in the Company s balance sheet at cost less any impairment losses. (ii) Transactions eliminated on consolidation Intra-group balances, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. (b) Foreign currency Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated to the functional currency at the exchange rate at that date. Non-monetary assets and liabilities denominated in foreign currencies are translated at the exchange rate at the date of the transactions except for those that are measured at fair value which are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in the income statement. (c) Derivative financial instruments The Group holds derivative financial instruments to hedge its foreign currency risk exposures. Forward foreign exchange contracts used are accounted for on an equivalent basis as the underlying assets, liabilities or net positions. Any profit or loss arising is recognised on the same basis as that arising from the related assets, liabilities or net positions. (d) Property, plant and equipment (i) Recognition and measurement Items of property, plant and equipment are stated at cost less accumulated depreciation and any impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset and any other costs directly attributable to bringing the asset to working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. The cost of self-constructed assets includes the cost of materials and direct labour. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. When significant parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised net within other income or other expenses respectively in the income statement. 38

40 notes to the financial statements (Cont d) 2. SIGNIFICANT ACCOUNTING POLICIES (Cont d) (d) Property, plant and equipment (Cont d) (ii) Subsequent costs The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in the income statement as incurred. (iii) Depreciation Depreciation is recognised in the income statement on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Freehold land is not depreciated. Property, plant and equipment under construction are not depreciated until the assets are ready for their intended use. The estimated useful lives for the current and comparative periods are as follows: Buildings Plant and machineries Motor vehicles Renovation, office equipment and furniture and fittings Hotel operating equipment 33 years years 5 years 5-33 years 5 years The depreciable amount is determined after deducting the residual value. Depreciation methods, useful lives and residual values are reassessed at the reporting date. (iv) Reclassification to investment property When the use of a property changes from owner-occupied to investment property, the property is reclassified from property, plant and equipment to investment property and accounted for in accordance with the accounting policy for investment property as stated in accounting policy Note 2(f). (e) Leased assets (i) Finance lease Leases in terms of which the Group or the Company assume substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed. (ii) Operating lease Leases, where the Group does not assume substantially all the risks and rewards of the ownership are classified as operating leases and the leased assets are not recognised on the Group s balance sheet. Leasehold land that normally has an indefinite economic life and title is not expected to pass to the lessee by the end of the lease term is treated as an operating lease. The payment made on entering into or acquiring a leasehold land is accounted for as prepaid lease payments and is amortised over the lease term of 74 to 99 years. 39

41 notes to the financial statements (Cont d) 2. SIGNIFICANT ACCOUNTING POLICIES (Cont d) (f) Investment property Investment property carried at cost Investment properties are properties which are owned or held under a leasehold interest to earn rental income or for capital appreciation or for both. These include land (other than leasehold land) held for a currently undetermined future use. Properties that are occupied by the Group are accounted for as owneroccupied rather than as investment properties. Investment properties are stated at cost less any accumulated depreciation and any accumulated impairment losses, consistent with the accounting policy for property, plant and equipment as stated in accounting policy note 2(d). Depreciation is charged to the income statement on a straight-line basis over the estimated useful live of 33 years for buildings. Freehold land is not depreciated. (g) Assets classified as held for sale Non-current assets (or disposal groups comprising assets and liabilities) that are expected to be recovered primarily through sale rather than through continuing use are classified as held for sale. Immediately before classification as held for sale, the assets (or components of a disposal group) are remeasured in accordance with the Group s accounting policies. Thereafter, generally the assets (or disposal group) are measured at the lower of their carrying amount and fair value less cost to sell. Impairment losses on initial classification as held for sale and subsequent gains or losses on remeasurement are recognised in the income statement. Gains are not recognised in excess of any cumulative impairment loss. (h) Inventories Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the first-in first-out principle and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of manufactured inventories, cost includes an appropriate share of production overheads based on normal operating capacity and the cost of raw materials. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and the estimated costs necessary to make the sale. (i) Receivables Receivables are initially recognised at their cost when the contractual right to receive cash or another financial asset from another entity is established. Subsequent to initial recognition, receivables are stated at cost less allowance for doubtful debts. Receivables are not held for the purpose of trading. (j) Cash and cash equivalents Cash and cash equivalents consist of cash on hand, balances and deposits with banks. For the purpose of the cash flow statement, cash and cash equivalents are presented net of bank overdrafts. (k) Impairment of assets The carrying amounts of assets, other than inventories, deferred tax assets, assets classified as held for sale and financial assets (other than investment in subsidiaries), are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset s recoverable amount is estimated. 40

42 notes to the financial statements (Cont d) 2. SIGNIFICANT ACCOUNTING POLICIES (Cont d) (k) Impairment of assets (Cont d) The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the cash-generating unit ). An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated to reduce the carrying amount of the assets in the unit (groups of units) on a prorata basis. Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss has been recognised. Reversals of impairment losses are credited to the income statement in the year in which the reversals are recognised. (l) Payables Payables are measured initially and subsequently at cost. Payables are recognised when there is a contractual obligation to deliver cash or another financial asset to another entity. (m) Loans and borrowings Loans and borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the loans and borrowings using the effective interest method. (n) Employee benefits (i) Short term employee benefits Short-term employee benefit obligations in respect of salaries, annual bonuses, paid annual leave and sick leave are measured on an undiscounted basis and are expensed as the related service is provided. A provision is recognised for the amount expected to be paid under short- term cash bonus or profitsharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. The Group s contributions to the Employees Provident Fund are charged to the income statements in the year to which they relate. Once the contributions have been paid, the Group has no further payment obligations. (ii) Share-based payment transactions The share option programme allows Group employees to acquire shares of the Company. In the previous year, share options granted to employees is not recognised as an employee cost. Following the adoption of FRS 2, Share-based Payment, the grant date fair value options granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period in which the employees become unconditionally entitled to the options. As there are no share options granted to employees after the transition period, such expense has not been recognised. (o) Contingent liabilities Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote. 41

43 notes to the financial statements (Cont d) 2. SIGNIFICANT ACCOUNTING POLICIES (Cont d) (o) Contingent liabilities (Cont d) Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within its group, the Company considers these to be insurance arrangements, and accounts for them as such. In this respect, the Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee. (p) Revenue (i) Goods sold Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns and allowances, trade discounts and volume rebates. Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, and there is no continuing management involvement with the goods. (ii) Dividend income Dividend income is recognised when the right to receive payment is established. (iii) Rental income Rental income from investment property is recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income, over the term of lease. (iv) Hotel operations Revenue from the provision of rooms, food and beverage, other department sales and laundry services are recognised when services are rendered. (q) Interest income and borrowing costs Interest income is recognised in the income statement as it accrues, using the effective interest method. All borrowing costs are recognised in the income statement using the effective interest method, in the period in which they are incurred. (r) Tax expense Tax expense comprises current and deferred tax. Tax expense is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit (tax loss). Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax liability is recognised for all taxable temporary differences. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. 42

44 notes to the financial statements (Cont d) 2. SIGNIFICANT ACCOUNTING POLICIES (Cont d) (s) Earnings per ordinary share The Group presents basic and diluted earnings per ordinary share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprised of share options granted to employees. (t) Segment reporting A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. 3. PROPERTY, PLANT AND EQUIPMENT Renovation, office equipment Hotel Capital Group Freehold Plant and Motor and furniture operating work-inland Buildings machineries vehicles and fittings equipment progress Total Cost RM RM RM RM RM RM RM RM At 1 June ,488,488 44,953, ,615 2,361,334 65,355,145 Additions 15,500,000 34,441,473 76,200 16,801 50,034,474 Disposals (440,000) (440,000) At 31 May 2008/ 1 June ,500,000 51,929,961 44,589, ,615 2,378, ,949,619 Transfer to investment properties (Note 5) (8,838,716) (27,603,106) (36,441,822) Additions 83,608 1,834, ,514 5,007,254 7,607,248 At 31 May ,661,284 24,326,855 44,673, ,615 4,213, ,514 5,007,254 86,115,045 Accumulated depreciation At 1 June ,792,881 36,000, ,817 1,920,644 43,064,309 Charge for the year 782,967 2,927,406 59,735 90,000 3,860,108 Disposals (359,333) (359,333) At 31 May 2008/ 1 June ,575,848 38,569, ,552 2,010,644 46,565,084 Transfer to investment properties (Note 5) (2,051,389) (2,051,389) Charge for the year 285,758 1,849,193 27, ,834 33,088 2,357,261 At 31 May ,810,217 40,418, ,940 2,172,478 33,088 46,870,956 43

45 notes to the financial statements (Cont d) 3. PROPERTY, PLANT AND EQUIPMENT (Cont d) Renovation, office equipment Hotel Capital Group Freehold Plant and Motor and furniture operating work-inland Buildings machineries vehicles and fittings equipment progress Total Carrying amounts RM RM RM RM RM RM RM RM At 1 June ,695,607 8,952, , ,690 22,290,836 At 31 May 2008/ 1 June ,500,000 46,354,113 6,020, , ,491 68,384,535 At 31 May ,661,284 20,516,638 4,255, ,675 2,040, ,426 5,007,254 39,244,089 Assets under finance lease agreements Included in property, plant and equipment of the Group is motor vehicle acquired under hire purchase agreement with a carrying amount of RM97,877 ( RM120,463). Security Certain land and buildings of the Group with a carrying amount of RM20,907,801 ( RM49,683,162) are charged to a bank as security for term loan granted to a subsidiary of the Group (see Note 13). Reclassification During the year, certain freehold land and buildings of the Group with carrying amount of RM34,390,433 has been reclassified to investment properties in line with the change in the principal activity of certain subsidiaries of the Group (see Note 5). Titles Included in the capital work-in-progress was an amount of RM4,094,168 ( Nil) paid to third parties for the acquisition and refurbishment of a vessel. As at 31st May, 2009, the refurbishment work has yet to be completed and the title of the vessel is pending transfer to a subsidiary (see Note 26). 4. PREPAID LEASE PAYMENTS Group Unexpired period more than 50 years RM Cost At 1 June 2007/31 May 2008/1 June 2008/31 May ,329,580 Accumulated amortisation At 1 June ,498,391 Amortisation for the year 173,168 At 31 May 2008/1 June ,671,559 Amortisation for the year 189,264 At 31 May ,860,823 44

46 notes to the financial statements (Cont d) 4. PREPAID LEASE PAYMENTS (Cont d) Group Unexpired period more than 50 years RM Carrying amounts At 1 June ,831,189 At 31 May 2008/1 June ,658,021 At 31 May ,468, INVESTMENT PROPERTIES Freehold land Buildings Total Group RM RM RM Cost At 1 June 2007/31 May 2008/1 June 2008 Transfer from property, plant and equipment (Note 3) 8,838,716 27,603,106 36,441,822 At 31 May ,838,716 27,603,106 36,441,822 Depreciation At 1 June 2007/31 May 2008/1 June 2008 Transfer from property, plant and equipment (Note 3) 2,051,389 2,051,389 Charge for the year 1,272,141 1,272,141 At 31 May ,323,530 3,323,530 Carrying amounts At 1 June 2007/31 May 2008/1 June 2008 At 31 May ,838,716 24,279,576 33,118,292 Fair value At 1 June 2007/31 May 2008/1 June 2008 At 31 May ,838,716 29,673,271 38,511,987 Valuation The fair value of certain investment properties which consists of freehold land and building with carrying amount of RM8,838,716 and RM18,903,401 respectively were RM8,838,716 and RM19,673,271 respectively. These values were determined by the directors based on valuation report dated 5th October, 2007 by Mr. Chee Kok Thim, Registered Valuer in Rahim & Co. Chartered Surveyors Sdn Bhd, an external, independent valuation firm, having appropriate recognised professional qualifications and recent experience in the location and category of property being valued. The fair value of the remaining investment properties with carrying amount of RM5,376,175 and has been determined by the directors based on the enquiries of property valuers and real estate agents to be RM10,000,

47 notes to the financial statements (Cont d) 5. INVESTMENT PROPERTIES (Cont d) Valuation (Cont d) The following are recognised in the income statement in respect of investment properties: RM RM Rental income 4,517, ,208 Direct operating expenses: - income generating investment properties 4,276, ,923 Reclassification During the year, certain freehold land and buildings of the Group with carrying amount of RM34,390,433 has been reclassified to investment properties in line with the change in the principal activity of certain subsidiaries of the Group (see Note 3). Security During the year, investment property which consists of freehold land and building with carrying amount of RM8,838,716 and RM18,903,401 respectively ( property, plant and equipment of RM49,683,162) are charged to a bank as a security for term loan granted to a subsidiary of the Group (see Note 13). 6. INVESTMENT IN SUBSIDIARIES Company RM RM Unquoted shares, at cost 38,485,136 38,485,136 The principal activities of the subsidiaries, their places of incorporation and the interest of Paos Holdings Berhad are as follows: Effective equity interest Name of company Principal activities % % Paos Industries Sdn. Bhd. Manufacture and trading of soap and its related products, trading in specialty fats produce from palm oil and trading of marine gasoil Premier Oil Industries Sdn. Bhd. Rental of investment properties Alpine Legacy (M) Sdn. Bhd. Property investment holding Subsidiary of Alpine Legacy (M) Sdn. Bhd. The 5 Elements Hotel Sdn. Bhd. Operate and management of hotel 100 All subsidiaries are incorporated in Malaysia. 46

48 notes to the financial statements (Cont d) 7. RECEIVABLES, DEPOSITS AND PREPAYMENTS Group Company Note RM RM RM RM Non-current Non-trade Amount due from subsidiaries ,422,866 36,716,386 Current Trade Trade receivables ,350,948 39,508,817 Non-trade Other receivables 933, ,199 1,210 Deposits 96, ,569 2,000 2,000 Prepayments 749,474 1,565,464 Amount due from subsidiaries ,584,995 1,550,000 1,779,047 2,105,232 16,588,205 1,552,000 35,129,995 41,614,049 16,588,205 1,552, The amounts due from subsidiaries are unsecured, interest free and have no fixed term of repayment except for an amount of RM21,422,866 ( RM36,716,386) which is not repayable within the period of next twelve months. 7.2 The analysis of foreign currency exposure of trade receivables are as follows: Group RM RM Ringgit Malaysia 27,053,688 31,075,821 US Dollar 3,154,764 3,526,130 Singapore Dollar 3,142,496 4,906,866 33,350,948 39,508,817 47

49 notes to the financial statements (Cont d) 8. DEFERRED TAX ASSETS AND LIABILITIES Recognised deferred tax assets and liabilites The recognised deferred tax assets and liabilities are as follows: Assets Liabilities Net RM RM RM RM RM RM Property, plant and equipment 349, , , ,000 Provisions (28,000) 92,000 (28,000) 92,000 Other items (228,000) (228,000) Unutilised tax losses (460,000) (120,000) (460,000) (120,000) Tax (assets)/ liabilites (488,000) (348,000) 349, ,000 (138,470) 526,000 Set off 28, ,000 (28,000) (348,000) Net tax (assets)/ liabilites (460,000) 321, ,000 (138,470) 526,000 Movement in temporary differences during the year Recognised Recognised in income in income At statement At statement At (note 18) (note 18) RM RM RM RM RM Property, plant and equipment 2,510,000 (1,728,000) 782,000 (432,470) 349,530 Provisions 17,000 75,000 92,000 (120,000) (28,000) Other items (15,000) (213,000) (228,000) 228,000 Unutilised tax losses (120,000) (120,000) (340,000) (460,000) 2,512,000 (1,986,000) 526,000 (664,470) (138,470) Deferred tax assets and liabilities are offset above where there is a legally enforceable right to set off current tax assets against current tax liabilities and where the deferred taxes relate to the same tax authority. Unrecognised deferred tax assets Deferred tax assets have not been recognised in respect of the following items: Group RM RM Unutilised tax losses (6,801,000) (9,830,000) Unabsorbed capital allowance (708,000) (394,000) Other temporary differences 4,129,000 4,952,000 (3,380,000) (5,272,000) The temporary differences, unutilised tax losses and unabsorbed capital allowance do not expire under current tax legislation. Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profit will be available against which the Group can utilise the benefits therefrom. During the financial year, the tax benefit arising from unabsorbed capital allowance of RM394,000 (2008 Nil) was lapsed due to the change in one of the subsidiary s principal business. 48

50 notes to the financial statements (Cont d) 9. ASSETS CLASSIFIED AS HELD FOR SALE Certain assets of a subsidiary were classified as held for sale following the commitment of the Group s management to sell the prepaid lease payments and investment properties to third party. On 25th March, 2008, the Group entered into a Sale and Purchase Agreement with a third party for the disposal of these assets for a cash consideration of RM20,500,000. The transaction was completed during the year under review (see Note 26). The assets classified as held for sale are as follows: Group Note RM RM Assets classified as held for sale Prepaid lease payments 6,009,400 Investment properties 4,438,682 a 10,448,082 Note a Properties held for sale comprised the following: Prepaid lease payments Cost 6,027,778 Accumulated depreciation (18,378) 6,009,400 Investment properties Cost 4,472,222 Accumulated depreciation (33,540) 4,438,682 10,448, INVENTORIES Group RM RM At cost: Raw materials 4,097,031 6,529,537 Manufactured inventories 5,086,928 20,045,969 Food and beverage 5,388 9,189,347 26,575,506 49

51 notes to the financial statements (Cont d) 11. CASH AND CASH EQUIVALENTS Group Company RM RM RM RM Cash and bank balances 13,365, ,264 55,865 9,852 Deposits placed with licensed banks 14,000,000 27,365, ,264 55,865 9, SHARE CAPITAL AND RESERVES 12.1 Share capital Group and Company Number of shares Amount RM RM Authorised: Ordinary shares of RM0.50 each 200,000, ,000, ,000, ,000,000 Issued and fully paid: Ordinary shares of RM0.50 each At 1 June/31 May 120,776, ,776,000 60,388,000 60,388,000 The details of options granted to subscribe for shares which were outstanding at 31 May 2009 are as follows: Option expiry date Exercise price Number of options 6 January 2012 RM ,194,000 6 January 2012 RM ,630,000 7,824,000 The number of share options is as follows: Group and Company Outstanding and exercisable at 1 June/31 May 7,824,000 7,824,000 The consideration is payable in full upon application. The options outstanding at 31st May, 2009 have a remaining contractual life 2.6 years. During the year, no share option was exercised ( Nil). The weighted average share price was RM0.90 ( RM0.90). 50

52 notes to the financial statements (Cont d) 12. SHARE CAPITAL AND RESERVES (Cont d) 12.2 Section 108 tax credit Subject to agreement by the Inland Revenue Board, the Company has sufficient Section 108 tax credit and tax exempt income to frank up to RM4,184,000 ( all) of its retained earnings as at 31st May, 2009 if paid out as dividends. The Finance Act 2007 introduced a single tier Company income tax system with effect from year of assessment As such, the Section 108 tax credit as at 31st December, 2008 will be available to the Company until such time the credit is fully utilised or upon expiry of the six-year transitional period on 31st December, 2013, whichever is earlier. 13. LOANS AND BORROWINGS Group RM RM Non-current Term loan - secured 32,048,343 30,000,000 Finance lease liabilities 46,653 75,404 32,094,996 30,075,404 Current Bills payable - unsecured 1,720,000 12,733,276 Bank overdrafts - unsecured 104,048 1,988,270 Term loan - secured 937,500 Finance lease liabilities 28,751 28,284 2,790,299 14,749,830 Terms and debt repayment schedule The bank overdrafts of the Group are subject to interest rates varying between 0.50% and 1.50% ( % and 2.40%) above the lender s base lending rates per annum. Bill payable consists of bankers acceptance. The bills payable of the Group is subject to a fixed interest rate of 3.50% ( %) per annum. The bank overdrafts and bills payable of the subsidiaries are secured by way of a corporate guarantee from the Company. Finance lease liabilities Finance lease liabilities are payable as follows: Gross Interest Principal Gross Interest Principal RM RM RM RM RM RM Less than one year 31,848 (3,097) 28,751 31,848 (3,564) 28,284 Between one and five years 53,056 (6,403) 46,653 84,904 (9,500) 75,404 84,904 (9,500) 75, ,752 (13,064) 103,688 51

53 notes to the financial statements (Cont d) 13. LOANS AND BORROWINGS (Cont d) Finance lease liabilities (Cont d) The finance lease liabilities is subject to a fixed interest rate of 2.52% ( %) per annum. Term loan Year Less of Carrying than Over maturity amount 1 year years years 5 years 2009 RM RM RM RM RM Term loan ,000, ,500 3,750,000 11,250,000 14,062,500 Term loan ,985, ,500 2,048,343 32,985, ,500 4,687,500 13,298,343 14,062, Term loan ,000, ,500 11,250,000 17,812,500 Term loan 1 and term loan 2 are subject to a variable interest rate of 1.5% ( %) above the cost of funds of the bank per annum, repayable quarterly via equal instalments from the first drawdown date in February, 2008 and December, 2008 respectively. The first and second year will be interest servicing period, whilst the quarter principal repayment of RM937,500 and RM468,750 will commence from May, 2010 and February, 2011 for term loan 1 and term loan 2 respectively. As at 31st May, 2009, the term loan 2 has yet to be drawndown in full. The term loans are secured over property, plant and equipment and investment properties of a subsidiary with carrying amount of RM20,907,801 and RM27,742,117 respectively ( property, plant and equipment of RM49,683,162) (see Note 3 and Note 5), assignment of proceeds from monthly rental derived from the abovementioned investment properties and corporate guarantee from the Company. 14. PAYABLES AND ACCRUALS Group Company RM RM RM RM Trade Trade payables 19,479,445 18,995,074 Non-trade Other payables 1,377,277 1,272,729 11,466 Accruals 675,240 2,537, , ,188 2,052,517 3,809, , ,188 21,531,962 22,804, , , Included in other payables are security deposits received from third party tenants amounting to RM495,197 ( RM495,383) In 2008, included in accruals was a deposit of RM2,050,000 received from a third party in relation to the disposal of certain assets classified as held for sale which has completed during the financial year (note 26). 52

54 notes to the financial statements (Cont d) 15. REVENUE Group Company RM RM RM RM Revenue - Sale of goods 307,403, ,441,493 - Dividends 3,100,000 1,550,000 - Rental 4,517, ,028 - Other 211, ,132, ,037,521 3,100,000 1,550, PROFIT/(LOSS) BEFORE TAXATION Profit/(Loss) before taxation is arrived at after charging: Group Company RM RM RM RM Auditors remuneration Audit service - current 80,000 78,000 20,000 20,000 - under provision in prior year 15,000 5,000 - other services 9,000 7,000 Amortisation of prepaid lease payments 189, ,168 Depreciation of property, plant and equipment 2,357,261 3,860,108 Depreciation of investment properties 1,272,141 Interest payable on: - bank overdrafts 59, ,565 - term loan 1,484, ,301 - bills payable 117, ,966 - finance lease 3,563 3,564 Personnel expenses (including Directors emoluments): - Contributions to Employees Provident Fund 319, ,150 -Wages, salaries and others 4,369,318 4,876, ,185 98,500 Loss on disposal of property, plant and equipment 667 Loss on foreign exchange - unrealised 162,497 - unrealised losses on hedging 11,350 and after crediting: Gain on disposal of assets classified as held for sale 7,908,794 1,671,892 Gain on foreign exchange - realised 1,316, ,101 - unrealised 380,521 Other rental income 96,000 90,000 53

55 notes to the financial statements (Cont d) 17. KEY MANAGEMENT PERSONNEL COMPENSATION The key management personnel compensations are as follows: Group Company RM RM RM RM Directors emoluments Holding company - fees 112,000 75, ,000 75,000 - remuneration 1,026,019 1,128,961 22,500 23,500 Subsidiary - remuneration 138, ,440 Other key management personnel - Short-term employee benefits 619, , TAX EXPENSE Group Company RM RM RM RM Recognised in the income statement Current tax expense - current year 847,965 - under/(over) provision in prior year 42,099 95,445 (97,197) 890,064 95,445 (97,197) Deferred tax expense - origination and reversal of temporary differences (301,288) (2,175,000) - (over)/under provision in prior year (363,182) 210,044 - effect of changes in tax rate (21,044) (664,470) (1,986,000) Tax expense 225,594 (1,890,555) (97,197) 54

56 notes to the financial statements (Cont d) 18. TAX EXPENSE (Cont d) Reconciliation of tax expense Group Company RM RM RM RM Profit/(Loss) before taxation 9,935,730 (12,793,991) 2,761,113 1,245,327 Tax at Malaysian tax rate of 25% ( %) 2,483,933 (3,326,438) 690, ,785 Non-taxable income (1,977,199) (438,361) (775,000) (403,000) Non-deductible expenses 454, ,023 84,722 79,215 Tax incentives (27,423) (6,707) Effect of change in tax rates* (21,044) Effect of deferred tax asset not recognised 79,023 1,370,720 Other items (50,237) Changes in unrecognised temporary differences (6,427) Recognition of previously unrecognised tax losses (460,000) 546,677 (2,196,044) Under/(Over) provision in prior year (321,083) 305,489 (97,197) Tax expense 225,594 (1,890,555) (97,197) * The corporate tax rates are 26% for year of assessment 2008 and 25% for the subsequent years of assessment. Consequently deferred tax assets and liabilities are measured using these tax rates. 19. EARNINGS PER ORDINARY SHARE - GROUP Basic earnings per share The calculation of basic earnings per share at 31st May, 2009 was based on the profit attributable to ordinary shareholders of RM9,710,136 ( loss attributable to ordinary shareholders of RM10,903,436) and the weighted average number of ordinary shares outstanding during the year of 120,776,000 ( ,776,000). Weighted average number of ordinary shares Issued ordinary shares at 31 May/1 June 120,776, ,776,000 Weighted average number of ordinary shares at 31 May 120,776, ,776, Sen Sen Basic earnings/(loss) per ordinary share 8.04 (9.03) Diluted earnings/(loss) per share The diluted earnings/(loss) per ordinary share is not disclosed as the unissued ordinary shares granted to eligible Directors and employees pursuant to the Company s ESOS have an anti-dilutive effect as the exercise price is above the average market price of the Company s shares. 55

57 notes to the financial statements (Cont d) 20. DIVIDENDS Dividends recognised in the current year by the Company are: Sen Total Dividends per share amount Date of 2009 RM Payment Interim 2009 ordinary - tax exempt ,509, November 2008 Interim 2009 ordinary - tax exempt ,509, May 2009 Total amount 3,019, Final 2007 ordinary - tax exempt ,509, December 2007 Total amount 1,509, SEGMENT REPORTING Segment information is presented in respect of the Group s business. The primary format, business segments, is based on the Group s management and internal reporting structure. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly loan and borrowings and related expenses, corporate assets and head office expenses, and tax assets and liabilities. Segment capital expenditure is the total cost incurred during the year to acquire segment assets that are expected to be used for more than one year. Inter-segment pricing is determined on an arm s length basis. Business segments The Group comprises the following main business segments: i) Manufacturing Manufacture of specialty fats, soap and other palm oil related products. ii) Trading Trading of specialty fats from palm oil, soap chips and other palm oil related products and marine gasoil. iii) Integrated hotel operation and Income from hotel operations and property investment. property investment. Geographical segments The Group operates primarily in Malaysia, hence segmental reporting on geographical segment is not prepared. 56

58 notes to the financial statements (Cont d) 21. SEGMENT REPORTING (Cont d) Integrated hotel operation and Manufacturing Trading property investment Eliminations Consolidated RM RM RM RM RM RM RM RM RM RM Business segments Total external revenue 42,959,009 44,303, ,444, ,137,534 4,728, , ,132, ,037,521 Inter-segment revenue 30,096, ,438,848 14,968, ,350,560 (45,065,631) (293,789,408) Total segment revenue 73,055, ,742, ,413, ,488,094 4,728, ,028 (45,065,631) (293,789,408) 312,132, ,037,521 Segment result 4,199,629 (11,503,598) (645,767) (1,583,617) (771,713) (132,725) (16,092) 2,766,057 (13,219,940) Less: Unallocated expenses (565,880) (772,363) Add: Unallocated income 9,335,323 1,658,397 Results from operating activities 11,535,500 (12,333,906) Finance costs (1,664,818) (843,396) Interest income 65, ,311 Profit/(Loss) before taxation 9,935,730 (12,793,991) Taxtion (225,594) 1,890,555 Profit/(Loss) for the year 9,710,136 (10,903,436) 57

59 notes to the financial statements (Cont d) 21. SEGMENT REPORTING (Cont d) Integrated hotel operation and Manufacturing Trading property investment Eliminations Consolidated RM RM RM RM RM RM RM RM RM RM Segment assets 70,381,086 87,494,195 43,139,141 29,315,405 57,656,695 50,162,910 (15,720,435) (7,539,905) 155,456, ,432,605 Unallocated assets 1,584,727 2,410,797 Total assets 157,041, ,843,402 Segment liabilities 5,709,843 16,577,001 30,772,494 32,178, , ,110 (16,003,644) (26,728,953) 21,383,286 22,695,639 Unallocated liabilities 35,355,501 45,536,071 Total liabilities 56,738,787 68,231,710 Capital expenditure 83,608 93,001 4,094,168 3,429,472 49,941,473 7,607,248 50,034,474 Depreciation and amortisation 712,662 3,774,965 1,741,286 1,364, ,311 3,818,666 4,033,276 No segmental reporting has been prepared for geographical segments as the Group s activities are predominantly carried out in Malaysia. 58

60 notes to the financial statements (Cont d) 22. CONTINGENT LIABILITIES - UNSECURED The Company has executed corporate guarantees in favour of licensed banks for facilities up to a limit of RM95,000,000 ( RM167,000,000) granted to its subsidiaries. 23. CAPITAL COMMITMENT Outstanding commitments in respect of capital expenditure at balance sheet date not provided for in the financial statements are: Property, plant and equipment Group RM RM Approved, contracted for and payable within one year 396,906 Approved but not contracted for 3,126, RELATED PARTIES Identity of related parties For the purposes of these financial statements, parties are considered to be related to the Group if the Group has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group and the party are subject to common control or common significant influence. Related parties may be individuals or other entities. Key management personnel are defined as those persons having authority and responsibility for planning, directing and controlling the activities of the Group either directly or indirectly. The key management personnel include all the Directors of the Group, and certain members of senior management of the Group. The Group has a related party relationship with its subsidiaries (see Note 6) and Directors. Key management personnel compensation Key management personnel compensation is disclosed in note 17. Transactions with Directors other than compensation Certain Directors of the Company control 47% ( %) of the voting shares of the Company. A number of Directors, or their related parties, hold positions in Group entities that result in them having control or significant influence over the financial or operating policies of these entities. 59

61 notes to the financial statements (Cont d) 24. RELATED PARTIES (Cont d) Other related party transactions Significant related party transactions other than those disclosed elsewhere in the financial statements are as follows:- Company RM RM Subsidiary Premier Oil Industries Sdn. Bhd. Dividend income 3,100,000 1,550,000 The Directors of the Company are of the opinion that the above transactions have been entered into within the ordinary course of business of the Group and of the Company respectively and have been established under negotiated terms. The amounts due from the subsidiaries are disclosed in Note 7 and there are no allowances for doubtful debts being made in respect of the balances due from subsidiaries. 25. FINANCIAL INSTRUMENTS Financial risk management objectives and policies The Group s activities expose it to various types of financial risks, including liquidity risk, credit risk, foreign currency risk and interest rate risk. The Group s overall financial risk management objectives are to create values for its shareholders and minimise adverse effects on its financial performance. The management monitors these risks by reviewing all significant transactions. Liquidity risk The Group actively manages its operating cash flows and the availability of funding so as to ensure that all repayments and funding requirements are met. As part of its overall prudent liquidity management, the Group strives to maintain sufficient levels of cash and cash equivalents and banking facilities to meet its operational needs in the short term and long term. Credit risk Management monitors the exposure to credit risk on an ongoing basis. The Group does not require collateral in respect of trade receivables. The maximum exposure to credit risk is represented by the carrying amount of each financial asset presented in the balance sheet. The Group minimises concentrations of credit risk by undertaking transactions with a large number of customers across diversified industries. However, a significant concentration of credit risk exists in respect of 3 (2008-2) major customers which amounted to RM19,546,311 ( RM10,538,508) as at 31st May, Subsequent to year end, collections (up to the date of these financial statements) from these customers relating to balances as at 31st May, 2009 amounted to RM13,925,433 ( RM2,429,841), thus further reducing the credit risk. The Directors are closely monitoring the Group s credit risk exposure to these major customers and are confident in recovering the amount. 60

62 notes to the financial statements (Cont d) 25. FINANCIAL INSTRUMENTS (Cont d) Foreign currency risk The Group exposed to foreign currency risk on sales that are denominated in a currency other than Ringgit Malaysia. The Group manages its foreign currency risk to an acceptable level by entering into forward contracts where necessary. Interest rate risk Interest rate exposure arises from the Group s borrowings and deposits and is managed through effective negotiation with financial institutions for best available rates. The following table shows information about the Group s and Company s exposure to interest rate risk. Effective interest rates and repricing analysis In respect of interest-earning financial assets and interest-bearing financial liabilities, the following table indicates their effective interest rates at the balance sheet date and the periods in which they reprice or mature, whichever is earlier. Effective interest rate Less than per annum Total 1 year years years 2009 % RM RM RM RM Financial assets Deposits placed with licensed bank ,000,000 14,000,000 Financial liabilities Bank overdrafts , ,048 Bills payable ,720,000 1,720,000 Finance lease liabilities ,404 28,751 30,155 16,498 Term loan ,985,843 32,985,843 34,885,295 34,838,642 30,155 16, Financial liabilities Bank overdrafts ,988,270 1,988,270 Bills payable ,733,276 12,733,276 Finance lease liabilities ,688 28,284 28,751 46,653 Term loan ,000,000 30,000,000 44,825,234 44,749,830 28,751 46,653 61

63 notes to the financial statements (Cont d) 25. FINANCIAL INSTRUMENTS (Cont d) Fair values Recognised financial instruments In the opinion of the Directors, the carrying amount of cash and cash equivalents, receivables, deposits and other receivables, other payables and accruals, and short term borrowings approximate fair values due to the relatively short term nature of these financial instruments. In respect of amounts due from/to subsidiaries, it is not practical to estimate the fair values due principally to a lack of specific repayment terms entered into by the parties involved and without incurring excessive costs. The Company provides financial guarantees to banks for credit facilities extended to certain subsidiaries. The Directors of the Company are of the opinion that the fair value of such financial guarantees is not expected to be material as the probability of the subsidiaries defaulting on the credit lines is remote. The fair values of other financial assets and liabilities, together with the carrying amounts shown in the balance sheet are as follows: Carrying Fair Carrying Fair amount value amount value Group RM RM RM RM Term loan 32,985,843 32,985,843 30,000,000 30,000,000 Finance lease liabilities 75,404 70, ,688 96,019 Unrecognised financial instruments The valuation of financial instruments not recognised in the balance sheet reflects their current market rates at the balance sheet date. The fair value of the financial instruments, together with the carrying amount is as follows: Carrying Fair Carrying Fair amount value amount value Group RM RM RM RM Forward foreign exchange contracts Mark to market (loss)/gain (14,210) 6,600 The nominal value of the derivative is as follows: Group RM RM Denominated in USD (Forward foreign exchange contracts) 504,910 1,927,580 62

64 notes to the financial statements (Cont d) 26. SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR (i) In March, 2008, a wholly-owned subsidiary, Paos Industries Sdn. Bhd. ( PISB ), entered into a Sale and Purchase Agreement with a third party to a disposal of leasehold property classified as held for sale for a cash consideration of RM20,500,000. The disposal was completed during the year in accordance with the provision of the Sale and Purchase Agreement. (ii) In August, 2008, a wholly-owned subsidiary, Alpine Legacy (M) Sdn. Bhd. ( ALSB ) acquired the entire equity shares in The 5 Elements Hotel Sdn. Bhd. ( T5EH ) comprising 2 ordinary shares of RM1.00 each for a cash consideration of RM2. T5EH is principally engaged in the operation and management of hotel and restaurant. (iii) In January, 2009, PISB entered into a Sale and Purchase Agreement with a third party in relation to the acquisition of vessel for a consideration of RM3,375,668. The acquisition was completed on 30th January, 2009 and the title of the vessel is in the process of being registered in the name of PISB. 27. SIGNIFICANT EVENT SUBSEQUENT TO THE BALANCE SHEET DATE Subsequent to year end, ALSB has made an early repayment amounting to RM10,000,000 as partial settlement of its term loan. 63

65 statement by Directors pursuant to Section 169(15) of the Companies Act, 1965 In the opinion of the Directors, the financial statements set out on pages 31 to 63 are drawn up in accordance with Financial Reporting Standards and the Companies Act, 1965 in Malaysia and so as to give a true and fair view of the financial position of the Group and of the Company as of 31st May, 2009 and of their financial performance and cash flows for the year then ended. Signed on behalf of the Board of Directors in accordance with a resolution of the Directors: DATO LIM TONG LIM TONG YAIM LIM CHANG CHING Shah Alam, Malaysia 28th September, 2009 statutory declaration pursuant to Section 169(16) of the Companies Act, 1965 I, Alice Boo Miau Li, the Director primarily responsible for the financial management of Paos Holdings Berhad, do solemnly and sincerely declare that the financial statements set out on pages 31 to 63 are, to the best of my knowledge and belief, correct and I make this solemn declaration conscientiously believing the same to be true, and by virtue of the provisions of the Statutory Declarations Act, Subscribed and solemnly declared by the abovenamed in Petaling Jaya on 28th September, ALICE BOO MIAU LI Before me: S. SELVARAJAH (B144) Commissioner for Oaths 64

66 independent auditors report to the members of Paos Holdings Berhad (Company No W) (Incorporated in Malaysia) Report on the Financial Statements We have audited the financial statements of Paos Holdings Berhad, which comprise the balance sheets as at 31st May, 2009 of the Group and of the Company, and the income statements, statements of changes in equity and cash flow statements of the Group and of the Company for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 31 to 63. Directors Responsibility for the Financial Statements The Directors of the Company are responsible for the preparation and fair presentation of these financial statements in accordance with Financial Reporting Standards and the Companies Act, 1965 in Malaysia. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements have been properly drawn up in accordance with Financial Reporting Standards and the Companies Act, 1965 in Malaysia so as to give a true and fair view of the financial position of the Group and of the Company as of 31st May, 2009 and of their financial performance and cash flows for the year then ended. Report on Other Legal and Regulatory Requirements In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report the following: a) In our opinion, the accounting and other records and the registers required by the Act to be kept by the Company and its subsidiaries have been properly kept in accordance with the provisions of the Act. b) We are satisfied that the accounts of the subsidiaries that have been consolidated with the Company s financial statements are in form and content appropriate and proper for the purposes of the preparation of the financial statements of the Group and we have received satisfactory information and explanations required by us for those purposes. c) Our audit reports on the accounts of the subsidiaries did not contain any qualification or any adverse comment made under Section 174(3) of the Act. Other Matters This report is made solely to the members of the Company, as a body, in accordance with Section 174 of the Companies Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report. KPMG Firm Number: AF 0758 Chartered Accountants OW PENG LI Approval Number: 2666/09/11(J) Chartered Accountants Petaling Jaya, Selangor 28th September,

67 group properties The details of the properties of the Group as at 31st May, Land area/ Net book Approx. Particulars of Description/ Date of built-up area value age property Tenure existing use acquisition (square feet) (RM 000) (years) PISB/H.S. (C) years Industrial/double storey ,850/ 16, No. 65 Persiaran lease office block, four storey 160,740 Selangor expiring on office block annexed Section single storey factory Shah Alam building and single Selangor Darul Ehsan storey warehouse building POISB/Lots 1 & 3 99 years Industrial/single storey ,356/ 6, Jalan Perusahaan 8 lease detached factory cum ,452 Kaw. Pekan Banting expiring on office annexe Banting Selangor Darul Ehsan ALSB/Lot 243 Freehold i) 3-Storey retail podium ,307/ 48, ALSB/Lot 244 together with 13 storey 119,208 ALSB/Lot 245 office block Kompleks Selangor ii) 16-Storey hotel block Jalan Sultan iii) Car park Kuala Lumpur 66

68 analysis of shareholdings as at 30th September 2009 AUTHORISED SHARE CAPITAL ISSUED AND FULLY PAID-UP CAPITAL CLASS OF SHARES VOTING RIGHTS : RM100,000, : RM60,388, : Ordinary shares of RM0.50 each : One vote per share (on poll) DISTRIBUTION SCHEDULE OF SHAREHOLDINGS No. of No. of %of Share- Shares Issued Size of Shareholdings holders Held Capital Less than 100 shares 80 1, to 1,000 shares , ,001 to 10,000 shares 767 2,253, ,001 to 100,000 shares 122 3,485, ,001 to less than 5% of issued shares 16 29,050, % and above of issued shares 3 85,935, Total 1, ,776, TOP THIRTY SECURITIES ACCOUNT HOLDERS (without aggregating the securities from different securities accounts belonging to the same Depositor) No. of % of Shares Issued No. Name of Shareholders Held Capital 1. DATO' LIM TONG LIM TONG YAIM 47,784, HAP SENG CONSOLIDATED BERHAD 30,151, HSBC NOMINEES (TEMPATAN) SDN. BHD. 8,000, PLEDGED SECURITIES ACCOUNT FOR DATO LIM TONG LIM TONG YAIM 4. ER KOK ER CHAI TUAN 5,386, MALAYSIAN ASSURANCE ALLIANCE BERHAD 5,327, YEO TEE EONG 5,206, PANG HEE KIN 3,994, NG POH CHUAN 3,079, LIM TONG TANG 3,000, EB NOMINEES (TEMPATAN) SENDIRIAN BERHAD 656, PLEDGED SECURITIES ACCOUNT FOR ON BOON KAI 11. CHEW SENG KEA 600, KENANGA NOMINEES (TEMPATAN) SDN. BHD. 344, PLEDGED SECURITIES ACOUNT FOR ON BOON KAI 13. CHEONG YOU CHIN 316, AIK YUN YEK YUE KIEW 300, CHEAH KIU LEAN 250, CHEAH SEE HAN 176, TAN TAI FONG 162, CHEONG AH YOON 142, TYE SOON PING 110, KAO, EDWARD KAO 100, TAN MING HUAT 100, YEO TEE EONG 97, HO MENG CHAN 85, KOK FOONG TEENG 80, HLG NOMINEE (ASING) SDN. BHD. 71, PLEDGED SECURITIES ACCOUNT FOR PRISCILLA LIM LAN ENG 26. TAN LAI KUAN 70, LIM MAY KUIN 66, CHAN BOON HOCK 65,

69 analysis of shareholdings (Cont d) TOP THIRTY SECURITIES ACCOUNT HOLDERS (Cont d) (without aggregating the securities from different securities accounts belonging to the same Depositor) No. of % of Shares Issued No. Name of Shareholders Held Capital 29. AMSEC NOMINEES (TEMPATAN) SDN. BHD. 60, PLEDGED SECURITIES ACCOUNT FOR AIK YUN YEK YUE KIEW 30. MAYBAN SECURITIES NOMINEES (TEMPATAN) SDN. BHD. 60, PLEDGED SECURITIES ACCOUNT FOR KENG CHIN ENG (REM 132-MARGIN) 115,842, DIRECTORS' INTERESTS IN THE SHARES HELD IN THE COMPANY AS PER REGISTER OF DIRECTORS' SHAREHOLDINGS Shares held in the Company No. Of Shares Held No. Name Direct Interest % Deemed Interest % 1. Dato' Lim Tong Lim Tong Yaim *55,784, Lim Chang Ching 20, Alice Boo Miau Li 4. Datuk Simon Shim Kong Yip 5. Lee Wee Yong (Alternate Director to Datuk Simon Shim Kong Yip) 6. On Boon Kai #1,000, Wang Hak Wong Hak Tham 20, Dr. Dominic Er Kong Kiong * of which 8,000,000 shares are held via HSBC Nominees (Tempatan) Sdn. Bhd. # 656,000 shares are held via EB Nominees (Tempatan) Sendirian Berhad and 344,000 shares are held via Kenanga Nominees (Tempatan) Sdn. Bhd. By virtue of his interests in the shares of the Company, Dato Lim Tong Lim Tong Yaim is also deemed to be interested in the ordinary shares of all the subsidiaries of the Company to the extent that the Company has an interest. Option shares held in the Company (Employees' Share Option Scheme) No. Name No. of Option Shares Held Option Price (RM) 1. Dato Lim Tong Lim Tong Yaim 1,200,000 (a) ,000 (b) (a) Granted on 15th January, (b) Granted on 9th December, LIST OF SUBSTANTIAL SHAREHOLDERS AS PER REGISTER OF SUBSTANTIAL SHAREHOLDERS (EXCLUDING BARE TRUSTEES) No. Of Shares Held In The Company No. Name Direct Interest % Deemed Interest % 1. Dato' Lim Tong Lim Tong Yaim *55,784, Hap Seng Consolidated Berhad 30,151, * of which 8,000,000 shares are held via HSBC Nominees (Tempatan) Sdn. Bhd. 68

70 Proxy form CDS account no. No. of shares held I/We, (name of shareholders as per NRIC, in capital letters) IC No./ID No./Company No (new) (old) of (full address) being a member(s) of the above Company, hereby appoint (name of proxy as per NRIC, in capital letters) IC No (new) (old) or failing him/her (name of proxy as per NRIC, in capital letters) IC No (new) (old) or failing him/her, the Chairman of the meeting as my/our proxy to vote for me/us on my/our behalf at the Twelfth Annual General Meeting of the Company to be held at Kelab Golf Sultan Abdul Aziz Shah, No. 1, Rumah Kelab, Jalan Kelab Golf 13/6, Shah Alam, Selangor Darul Ehsan on 26th November, 2009, Thursday at a.m. and at any adjournment thereof. My/Our proxy is to vote either on a show of hands or on a poll as indicated below with an X : No. RESOLUTIONS FOR AGAINST 1. To receive the Reports and Audited Financial Statements for the year ended 31st May, To approve the payment of Directors fees of RM112, To re-elect Ms. Lim Chang Ching as Director. 4. To re-elect Ms. Alice Boo Miau Li as Director. 5. To re-appoint Messrs KPMG as Auditors and to authorize the Directors to fix their remuneration. 6. To empower the Directors of the Company to issue shares pursuant to Section 132D of the Companies Act, For appointment of two or more proxies, percentage of shareholdings to be represented by the proxies: No. of Shares Percentage Proxy 1 % Proxy 2 % Signature Dated this day of, Total 100% NOTES: 1. A member entitled to attend and vote at the meeting is entitled to appoint a proxy or proxies to attend and vote in his/her stead. Where two or more proxies are appointed, the proportions of shareholdings to be represented by each proxy must be specified in order for the appointments to be valid. If there is no indication as to how you wish your vote(s) to be cast, the proxy may vote or abstain from voting at his/her discretion. 2. A proxy may but need not be a member of the Company and the provision of Section 149(1)(b) of the Companies Act, 1965 shall not apply to the Company. 3. The instrument appointing a proxy, in the case of an individual, shall be signed by the appointer or by his attorney duly authorised in writing, and in the case of a corporation, shall either be given under its common seal or under the hand of an officer or attorney of the corporation duly authorised. 4. The instrument appointing a proxy must be duly executed and deposited at the Registered Office of the Company at No. 308, Block A (3rd Floor), Kelana Business Centre, 97, Jalan SS7/2, Kelana Jaya, Petaling Jaya, Selangor Darul Ehsan not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof.

71 Fold here STAMP PAOS HOLDINGS BERHAD (Co. No W) No. 308, Block A (3rd Floor) Kelana Business Centre 97, Jalan SS7/2, Kelana Jaya Petaling Jaya Selangor Darul Ehsan Fold here

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