24 TRC SYNERGY BERHAD (Incorporated in Malaysia, Company No. 413192 - D) DIRECTORS REPORTS AND AUDITED FINANCIAL STATEMENTS 31 December 2002 Index Pages No. Corporate Information 25 Directors Report 20-29 Statement by Directors 30 Statutory Declaration 31 Auditors Report 32 Balance Sheets 33-34 Income Statements 35 Statement of Changes in Equity - Group 36 Statement of Changes in Equity - Company 36 Cash Flow Statement - Group 37-38 Cash Flow Statement - Company 39 Notes to the Financial Statements 40-57
25 Corporate Information for the year ended 31 December 2002 Board of Directors : Dato Haji Sufri Bin Haji Mohd Zin : Abdul Aziz Bin Mohamad : Noor Asiah Binti Mahmood Rahman Bin Ali Noor Zilan Bin Mohamed Noor Secretaries : Tang Swee Guan Abdul Aziz Bin Mohamed Auditors : Kumpulan Naga Chartered Accountants (M) Bankers : EON Bank Berhad Affin Bank Berhad AmMerchant Berhad Maybank Berhad Aseambankers Malaysia Berhad Registered Office/ Principal Place of Business : Wisma TRC 217 & 218, Jalan Negara 2, Taman Melawati, 53100 Ulu Klang, Selangor Darul Ehsan.
Directors Report for the year ended 31 December 2002 26 The directors have pleasure in presenting their report together with the audited financial statements of the Group and the Company for the financial year ended 31 December 2002. PRINCIPAL ACTIVITIES The principal activities of the Company are investment holding and the provision of corporate, administrative and financial support services to the subsidiaries. The principal activities of the subsidiaries are construction, manufacturing and trading of building materials, hiring and servicing of machineries and vehicles, general contractors supplying labour and property development. There have been no significant changes in these activities during the financial year. Results Group Company Net profit/(loss) for the year 17,785,609 (204,877) DIVIDENDS No dividends were paid or declared by the Company during the financial year. The Directors now propose the payment of a first and final tax-exempt dividend of 2.5 sen per share amounting to 1,750,000 for the current financial year. The dividend is subject to the approval of members at the forthcoming Annual General Meeting of the Company. The financial statements for the current financial year do not reflect this proposed dividend. Such dividend, if approved by the shareholders, will be accounted for in the shareholders equity as an appropriation of retained profit in the next financial year ending 31 December 2003. Share Capital During the financial year the Company increased its :- i) authorised share capital from 100,000 to 100,000,000 through the creation of 99,900,000 ordinary shares of 1 each; and ii) the issued and paid up capital from 2 to 70,000,000 by way of issuance of 69,999,998 ordinary shares as follows:- a) issue of 49,052,252 new ordinary shares of 1.00 each in settlement of the purchase consideration upon its acquisition of the entire equity interest of 15,000,000 ordinary shares of 1.00 each in Trans Resources Corporation Sdn. Bhd. b) Issue of 16,000,000 new ordinary shares of 1.00 each to the public at an issue price of 1.60 per share. c) Issue of 4,947,746 new ordinary shares upon completion of a rights issue where the rights were granted in the proportion of 101 new ordinary shares for every 1,000 ordinary shares held by the existing shareholders as at 22 May 2002. Reserves and Provisions There were no material transfers to or from reserves or provisions during the financial year other than as disclosed in the Statements of Changes In Equity. Current Assets Before the income statements and balance sheets of the Group and the Company were made out, the directors took reasonable steps to ascertain whether any current assets which were unlikely to realise in the ordinary course of business their value as shown in the accounting records of the Group and the Company and the extent so ascertained, were written down to an amount that they might be expected to realise. At the date of this report, the directors are not aware of any circumstances that would render the values attributed to the current assets in the financial statements of the Group and the Company misleading.
27 Directors Report for the year ended 31 December 2002 Valuation Methods At the date of this report, the directors are not aware of any circumstances which have arisen which render adherence to the existing methods of valuation of assets or liabilities in the Group and the Company s financial statements misleading or inappropriate. Contingent and Other Liabilities At the date of this report, there does not exist :- i) any charge on the assets of the Group and the Company that has arisen since the end of the financial year which secures the liabilities of any other person, or ii) any contigent liability in respect of the Group and the Company that has arisen since the end of the financial year. No contingent liability or other liability of the Company has become enforceable, or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the directors, will or may substantially affect the ability of the Company to meet its obligations as and when they fall due. Change of Circumstances At the date of this report, the directors are not aware of any circumstances, not otherwise dealt with in this report or the financial statements of the Group and the Company, that would render any amount stated in the financial statements misleading. Items of an Unusual Nature The results of the operations of the Group and the Company for the financial year were not, in the opinion of the directors, substantially affected by any item, transaction or event of a material and unusual nature. There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors, to affect substantially the results of the operations of the Group and the Company for the current financial year. Directors of the Company The Directors who have held office during the year since the date of the last report are :- Dato Haji Sufri Bin Haji Mohd Zin (appointed on 29.3.2002) Abdul Aziz Bin Mohamad (appointed on 29.3.2002) Noor Asiah Binti Mahmood (appointed on 13.5.2002) (resigned on 24.2.2003) Rahman Bin Ali (appointed on 13.5.2002) Noor Zilan Bin Mohamed Noor (appointed on 13.5.2002) Muhamad Shahaizi Bin Abdul Hai (resigned on 29.3.2002) Mohd Fozi Bin Matori (resigned on 29.3.2002) In accordance with Article 84 of the Company s Articles of Association, Dato Haji Sufri Bin Haji Mohd Zin retires from the Board at the forthcoming Annual General Meeting and, being eligible, offer themselves for re-election.
Directors Report for the year ended 31 December 2002 28 According to the register of directors shareholding required to be kept under Section 134 of the Companies Act, 1965, the directors who held office at the end of the financial year and having interest in shares of the Company and related corporations during the year were as follows :- Directors shareholdings in the Company At beginning of the year Acquired Number of Shares Disposed At end of the year Dato Haji Sufri Bin Haji Mohd Zain - direct - 15,575,000 (5,000,000) 10,575,000 - deemed interest # - 32,400,000-32,400,000 Abdul Aziz Bin Mohamad - direct - 100,000-100,000 Noor Asiah Binti Mahmood - direct - 500,000 (110,000) 390,000 Noor Zilan Bin Mohamad Noor - direct - 200,000-200,000 # Deemed interested by virtue of his substantial shareholdings in TRC Capital Sdn. Bhd. and Kolektif Aman Sdn. Bhd. Directors benefits Since the end of the previous financial year, no director of the Company has received or become entitled to receive any benefits (except as disclosed in the notes to 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. Neither during nor at the end of the financial year, was the Company a party to any arrangement whose object is to enable the directors to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate. Signifinant Events The Company entered into a Conditional Sale and Purchase Agreement on 21 December 2000 and a Supplementary Agreement dated 27 March 2002 with the former shareholders of Trans Resources Corporation Sdn. Bhd. ( TRC ) pursuant to which the company acquired the entire issued and paid-up share capital of TRC comprising 15,000,000 ordinary shares of 1 each for a purchase consideration of 54,448,781 which was satisfied by the issue of 49,052,252 new ordinary shares of 1 each at an issue price of 1.11 per share. Following the completion of the acquisition of TRC, the Company made a Rights Issue of 4,947,746 new ordinary shares of 1.00 at par to the shareholders of the Company on the basis of 101 new ordinary shares for every 1,000 existing ordinary shares held then in accordance with their shareholding as at 22 May 2002. The Rights Issue was completed on 6 June 2002. Subsequently, the Company undertook a public issue of 16,000,000 new ordinary shares of 1.00 each at an issue price of 1.60 per share. The Company s shares were listed on the Main Board of the Kuala Lumpur Stock Exchange on 6 August 2002 upon successful completion of the public issue exercise. Ultimate Holding Company The Company was not a subsidiary of another corporation during the financial year and as at the end of the financial year.
29 Directors Report for the year ended 31 December 2002 Auditors The auditors, Kumpulan Naga, Chartered Accountants (M), have expressed their willingness to continue in office. The Board of Directors, DATO HAJI SUFRI BIN HAJI MOHD ZIN Director ABDUL AZIZ BIN MOHAMAD Director Kuala Lumpur Date: 21 April 2003
Statement by Directors pursuant to Section 169(15) of the Companies Act, 1965 30 We, DATO HAJI SUFRI BIN HAJI MOHD ZIN and ABDUL AZIZ BIN MOHAMAD, being two of the directors of TRC Synergy Bhd., do hereby state that, in the opinion of the directors, the accompanying financial statements set out on pages 10 to 40 are drawn up in accordance with applicable Approved Accounting Standards in Malaysia and the provisions of the Companies Act, 1965 so as to give a true and fair view of the financial position of the Group and of the Company as at 31 December 2002 and of the results of and the cash flows of the Group and of the Company for the year then ended. The Board of Directors, DATO HAJI SUFRI BIN HAJI MOHD ZIN ABDUL AZIZ BIN MOHAMAD Kuala Lumpur, Malaysia Date: 21 April 2003
31 Statutory Declaration pursuant to Section 169(16) of the Companies Act, 1965 I, DATO HAJI SUFRI BIN HAJI MOHD ZIN, being the director primarily responsible for the financial management of TRC Synergy Bhd., do solemnly and sincerely declare that the financial statements set out on pages 10 to 40 are, in my opinion correct, and I make this solemn declaration conscientiously believing the same to be true by virtue of the provisions of the Statutory Declarations Act, 1960. Subscribed and solemnly declared by the abovenamed, DATO HAJI SUFRI BIN HAJI MOHD ZIN at Petaling Jaya in the State of Selangor Darul Ehsan on 21 April 2003 } } DATO HAJI SUFRI BIN HAJI MOHD ZIN } Before me, S.Arokiasamy (No. B003) Commissioner for Oaths Kuala Lumpur, Malaysia
Report of the Auditors to the members of TRC Synergy Berhad. 32 We have audited the accompanying financial statements set out on pages 33 to 57. These financial statements are the responsibility of the Company s directors. Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with applicable Approved Standards on Auditing in Malaysia. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the directors as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion :- (a) the financial statements are properly drawn up in accordance with the provisions of the Companies Act, 1965 and applicable Approved Accounting Standards in Malaysia so as to give a true and fair view of :- (i) (ii) the financial position of the Group and of the Company as at 31 December 2002 and of the results and the cash flows of the Group and the Company for the year then ended and the matters required by Section 169 of the Companies Act, 1965, to be dealt with in the financial statements of the Group and the Company; (b) the accounting and other records and the registers required by the Companies Act, 1965 to be kept by the Company and by its subsidiaries have been properly kept in accordance with the provisions of the said Act. We are satisfied that the financial statements of the subsidiaries that have consolidated with the financial statements of the company are in form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements and we have received satisfactory information and explanations required by us for those purposes. The Auditors Reports on the financial statements of the subsidiaries were not subject to any qualification and did not include any comment to be made under section 174(3) of the Act. Kumpulan Naga A.F. No. 0024 Chartered Accountants (M) T. Nagarajan C.A.(M), FCCA, AICA No: 824/04/04 (J) Kuala Lumpur Date: 21 April 2003
33 Balance Sheets as at 31 December 2002 Group Company 2002 2002 2001 Notes SHARE CAPITAL 3 70,000,000 70,000,000 2 SHARE PREMIUM 4 12,885,471 12,885,471 - RESERVE ON CONSOLIDATION 16,540,657 - - UNAPPROPRIATED PROFITS / (ACCUMULATED LOSSES) 13,231,911 (217,575) (12,698) SHAREHOLDERS EQUITY 112,658,039 82,667,896 (12,696) DEFERRED TAXATION 5 3,101,830 - - HIRE PURCHASE AND LEASE CREDITORS 6 6,911,166 - - TE LOANS 7 702,375 - - 123,373,410 82,667,896 (12,696) PROPERTY, PLANT AND EQUIPMENT 8 56,421,220 - - INVESTMENTS 9 255,394 - - SUBSIDIARY COMPANIES 10-82,678,401 - ASSOCIATED COMPANY 11 143,946 - - DEFERRED EXPENDITURE 12 - - 696,477 CURRENT ASSETS Property development project costs 13 11,072,951 - - Inventories 14 533,942 - - Trade receivables 15 81,802,824 - - Other receivables 4,207,054 2,000 - Gross amount due from customers 16 91,891,767 - - Deposits with licensed banks 17 34,720,963 - - Cash and bank balances 18 7,486,321 20,081 2 231,715,822 22,081 2 The annexed notes form an integral part of these financial statements.
Balance Sheets as at 31 December 2002 (cont d.) 34 Group Company 2002 2002 2001 Notes CURRENT LIABILITIES Trade payables 46,346,358 - - Other payables 5,728,878 23,386 709,175 Hire purchase creditors - net 6 8,781,586 - - Short term borrowings 19 98,369,403 - - Taxation 5,922,100 9,200 - Due to a director 20 14,647 - - 165,162,972 32,586 709,175 NET CURRENT ASSETS/(LIABILITIES) 66,552,850 (10,505) (709,173) 123,373,410 82,667,896 (12,696) The annexed notes form an integral part of these financial statements.
35 Income Statements for the year ended 31 December 2002 Group Company 2002 2002 2001 Notes REVENUE 21 303,225,466 - - COST OF SALES 21 (264,862,365) - - GROSS PROFIT 38,363,101 - - OTHER OPERATING INCOME 6,873,156 34,525 - ADMINISTRATION EXPENSES (12,067,251) - - SELLING EXPENSES (109,693) - - OTHER OPERATING EXPENSES - (230,202) (4,100) OPERATING PROFIT 33,059,313 (195,677) (4,100) FINANCE COST (7,996,619) - - SHARES OF RESULTS OF ASSOCIATED COMPANY 195,615 - - PROFIT ON DISPOSAL OF PROPERTY, PLANT AND EQUIPMENT 474,841 - - NET PROFIT/(LOSS) BEFORE TAXATION 22 25,733,150 (195,677) (4,100) TAXATION 23 (5,552,080) (9,200) - NET PROFIT/(LOSS) AFTER TAXATION 20,181,070 (204,877) (4,100) Pre-acquisition profit of subsidiary acquired (2,395,461) - - Net profit/(loss) for the year 17,785,609 (204,877) (4,100) EARNINGS PER SHARE ( sen ) - Basic/diluted 24 37.88 - - The annexed notes form an integral part of these financial statements.
Statement of Changes in Equity - Group for the year ended 31 December 2002 36 Share Capital Share Premium Non-Distributable Capital Reserves Distributable Unappropriated Profits Total Note Balance at 1 January 2002 2 - - (12,698) (12,696) Net profit for the year - - - 17,785,609 17,785,609 Prior year adjustment 25 - - - (4,541,000) (4,541,000) Issue of shares 69,999,998 12,885,471 16,540,657-99,426,126 Balance at 31 December 2002 70,000,000 12,885,471 16,540,657 13,231,911 112,658,039 The annexed notes form an integral part of these financial statements. Statement of Changes in Equity - Company for the year ended 31 December 2002 Share Capital Share Premium Accumulated Losses Total Balance at 1 January 2001 2 - (8,598) (8,596) Net loss for the year - - (4,100) (4,100) Balance at 1 January 2002 2 - (12,698) (12,696) Net loss for the year - - (204,877) (204,877) Issue of shares 69,999,998 12,885,471-82,885,469 Balance at 31 December 2002 70,000,000 12,885,471 (217,575) 82,667,896 The annexed notes form an integral part of these financial statements.
37 Cash Flow Statement - Group for the year ended 31 December 2002 2002 Note CASH FLOWS FROM OPERATING ACTIVITIES Net profit before taxation 25,733,150 Adjustments for :- Deferred expenditure written off 13,563 Depreciation 7,232,285 Gain on disposal of property, plant and equipment (474,841) Share of profit of an associated company (155,952) Interest expense 7,083,726 Interest income (1,215,652) Provision for bad debts written back (5,500,000) Pre-acquisition profit before tax (3,335,573) OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES 29,380,706 Gross amount due from customers (34,681,872) Decrease in associated company s account 5,255,456 Increase in stocks (108,464) Increase in receivables (19,119,021) Increase in payables 13,791,173 Increase in directors account 14,647 Increase in property development project costs (16,816,145) Cash used in operations (22,283,520) Taxation paid (8,121,261) Interest paid (7,083,726) Interest received 1,215,652 Net cash used in operating activities (36,272,855) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment (12,353,763) Proceeds from disposal of property, plant and equipment 23,044,267 Acquisition of subsidiary net of cash acquired 26 (58,829,668) Net cash used in investing activities (48,139,164) The annexed notes form an integral part of these financial statements.
Consolidated Cash Flow Statement for the year ended 31 December 2002 ( Cont d ) 38 2002 Note CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares 30,547,746 Repayment of term loans (241,037) Repayment of hire purchase creditors (276,263) Deferred expenditure (1,428,144) Net cash from financing activities 28,602,302 Net decrease in cash and cash equivalents (55,809,717) Cash and cash equivalents at the beginning of the year 2 Cash and cash equivalents at the end of the year (55,809,715) Breakdown of cash and cash equivalents at the end of the year :- Cash and bank balances 7,486,321 Deposits with licensed banks 34,720,963 Bank overdrafts (27,150,080) Bankers acceptance (41,215,000) Revolving credit (5,000,000) Bridging loan (1,440,450) Medium term credit (4,370,692) Overdraft - non chequeing (18,840,777) (55,809,715) The annexed notes form an integral part of these financial statements.
39 Cash Flow Statement - Company For the year ended 31 December 2002 2002 2001 Note CASH FLOWS FROM OPERATING ACTIVITIES Net loss before taxation (195,677) (4,100) OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES Increase in receivables (2,000) - (Decrease)/increase in payables (685,789) 372,346 Increase in subsidiary companies accounts (28,229,620) - Decrease/(increase) in deferred expenditure 696,477 (368,246) Net cash used in operating activities (28,416,609) - CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from share issue 30,547,746 - Deferred expenditure (2,111,058) - Net cash from financing activities 28,436,688 - Net increase in cash and cash equivalents 20,079 - Cash and cash equivalents at the beginning of the year 2 2 Cash and cash equivalents at the end of the year 20,081 2 The annexed notes form an integral part of these financial statements.
Notes to the Financial Statements 31 December 2002 40 1 CORPORATE INFOATION The principal activities of the Company are that of investment holding and the provision of full corporate, administrative and financial support services to the subsidiaries. The principal activities of the subsidiaries are disclosed in note 10 to the financial statements. The number of employees of the group as at year end is 874. The number of employees of the Company as at year end is 8 (2001: Nil). The Company is a public limited liability company incorporated and domiciled in Malaysia and listed on the Main Board of the Kuala Lumpur Stock Exchange. The registered office and the principal place of business of the Company are located at :- Wisma TRC 217 & 218, Jalan Negara 2, Taman Melawati, 53100 Ulu Klang, Selangor Darul Ehsan. 2 PRINCIPAL ACCOUNTING POLICIES The financial statements of the Group and of the Company have been prepared in accordance with applicable Approved Accounting Standards issued by the Malaysian Accounting Standards Board (MASB). The principal accounting policies of the Group are as follows :- (a) Basis of Preparation of Financial Statements The financial statements of the Group and of the Company are prepared under the historical cost convention modified to include the revaluation of certain property, plant and equipment and comply with applicable Approved Accounting Standards issued by the MASB. In the preparation of the financial statements, the Group and the Company have adopted the Approved Accounting Standards MASB Standard No. 20, Provision, Contingent Liabilities and Contingent Assets, MASB Standard No. 22, Segment Reporting, MASB Standard No. 23 Impairment of Assets, and MASB Standard No. 24 Financial Instruments: Disclosure and Presentation that became applicable during the year. The Group and the Company had also exercised early adoption of MASB Standard No.25 Income Taxes the financial effects of which are disclosed in the Statement of Changes in Equity in respect of the Group and in Note 25 to the financial statements. (b) Basis of Consolidation The consolidated financial statements include the financial statements of the Company and all its subsidiaries made up to 31 December. Subsidiaries are those companies in which the Group has the power to exercise control over the financial and operating policies so as to obtain benefits from their activities. Subsidiaries are consolidated using the acquisition method of accounting under which the results of subsidiaries acquired or disposed of are included in the consolidated financial statements from the date of acquisition or up to the date of disposal. Goodwill or reserve on consolidation represents the difference between the consideration paid for the shares in the subsidiaries and the fair value of attributable net assets acquired, as applicable. Goodwill arising on consolidation is reflected in the consolidated balance sheet. The carrying amount of such goodwill is assessed in the year it arises, and periodically, including when economic conditions indicate that the carrying amount may be impaired. To the extent deemed impaired, such goodwill is written off by a charge to the income statement. All intercompany transactions, balances and unrealised gains or transactions between the companies within the Group are eliminated. The reserve on consolidation represents the excess of the share of assets of subsidiary companies on acquisition date over the consideration paid for their acquisition.
41 Notes to the Financial Statements 31 December 2002 (c) Subsidiaries Shares in the subsidiaries are revalued by the Directors at the balance sheet date on the basis of the net asset value of the subsidiaries. Any resulting surplus is taken to a non-distributable revaluation reserve in respect of the Company. A deficit to the extent that it exceeds the amount standing in such reserve is taken to the Income Statement of the Company. (d) Associated Companies An associated company is defined as a company, not being a subsidiary, in which the Group has a long term interest of at least 20% but not more than 50% of the equity and in whose financial and operating policy decisions the Group exercises significant influence. Significance influence is the power to participate in the financial and operating policy decisions of the associated companies but not control over those policies. Investments in associated companies are accounted for in the consolidated financial statements by the equity method of accounting. Equity accounting involves recognising in the income statement the group s share of results of associated companies for the period. The Group s share of results and reserves of associated companies acquired or disposed of are included in the consolidated financial statements from the date of acquisition or up to the date of disposal. The Group s share of post-acquisition reserves of associated companies is added to the initial cost of these investments in the Consolidated Balance Sheet.The carrying amount of investments in associated companies is assessed periodically and when there are indications of impairment, and any impairment is provided for. (e) Investments Investments in subsidiary companies, associated companies and other non-current investments are shown at cost and provision is only made where, in the opinion of the directors, there is permanent diminution in value. Permanent diminution in the value of an investment is recognised as an expense in the period in which the diminution is identified. Other investments held on a long-term basis are shown at cost unless in the opinion of the directors there has been an impairment in value in which case an appropriate provision is made. On disposal of an investment, the difference between net disposal proceeds and its carrying amount is charged or credited to the income statement. (f) Property, Plant and Equipment Property, plant and equipment are stated at cost or valuation less accumulated depreciation and impairment losses. The cost of property, plant and equipment comprises their purchase prices and any directly attributable costs including interest cost capitalised in bringing the property, plant and equipment to working condition. When property, plant and equipment are sold or retired, their cost or valuation and accumulated depreciation are removed from the financial statements and any gain or loss resulting from their disposal is included in the income statement. Freehold lands are not amortised as it has infinite life. Leasehold land is amortised in equal instalments over the periods of the respective leases that range from 55 to 99 years. Other leasehold lands are depreciated over the remaining period of the respective leases. All other property, plant and equipment are depreciated on a straight line basis to write off the cost of each asset to their estimated useful lives at the following annual rates: Building 2% Motor vehicles 20% Plant and machinery 10% Office equipment 20% Furniture and fittings 10% Renovation 10% Fully depreciated property, plant and equipment are retained in the financial statements until they are no longer in use.
Notes to the Financial Statements 31 December 2002 42 (g) Leases Operating leases Operating leases are leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased item. The payments are recognised as an expense in the income statement based on their contractual commitments over the period of the respective leases. Finance leases Leases of property, plant and equipment where the Group assumes substantially all the benefits and risks of ownership are classified as finance leases. Finance leases are capitalised at the estimated present value of the underlying lease payments at the date of inception. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the balance outstanding. The corresponding rental obligations, net of finance charges, are included in borrowings. The interest element of the finance charge is charged to the income statement over the lease period. Property, plant and equipment acquired under finance lease contracts are depreciated over the useful lives of the assets concerned. (h) Inventories Inventories comprising raw materials and finished goods are stated at the lower of cost and net realisable value. Cost of finished goods produced by the Group include costs of direct materials, labour and a proportion of production overheads Net realisable value is the estimated selling price in the ordinary course of business, less estimated cost of completion and the estimated costs necessary to make the sales, and provisions for obsolete and slow moving items, where applicable. (i) Development properties Development properties include all expenditure directly related to development together with an appropriate portion of other indirect expenses and are stated at the lower of cost and net realisable value. (j) Land held for development Land held for development include all expenditure directly related to development together with an appropriate portion of other indirect expenses and are stated at cost. (k) Receivables Specific provision for doubtful debts is based on an individual evaluation of receivables or group of receivables. (l) Payables Payables are carried at cost which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the Group. (m)provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. (n) Foreign Currencies Transactions in foreign currencies :- Transactions in foreign currencies are recorded in Ringgit Malaysia at the approximate rates of exchange ruling at the dates of the transactions or at contracted rates where applicable and where settlement has not taken place at the balance sheet date, at the approximate rates ruling at that date or at contracted rates as applicable. All exchange gains and losses are recognised in the Income Statement.
43 Notes to the Financial Statements 31 December 2002 (o) Deferred Taxation Deferred taxation is provided for, using the liability method, on all material temporary differences except to the extent that it can be demonstrated, with reasonable probability, that the temporary differences will continue in the foreseeable future. When such temporary differences give rise to net deferred tax benefits, these benefits are not recognised except when there is reasonable expectation of realisation. (p) Cash and Cash Equivalents The statements of cash flows, prepared using the indirect method, classify changes in cash and cash equivalents according to operating, investing and financing activities. For the purpose of the cash flow statements, cash and cash equivalents comprise cash and bank balances, deposits with licensed financial institutions, and other short-term, highly liquid investments that are readily convertible to known amounts of cash and are subject to insignificant risk of changes in value, against which short term bank borrowings are deducted. (q) Revenue Recognition (a) Dividend income from long-term investments and, in respect of the Company, from subsidiaries and associated companies, is recognised in the income statement upon the right to receipt of such dividends being established. (b) Interest income is recognised on an accrual basis. (c) Revenue on sales of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer. (d) Rental income is derived from letting out of properties and hire of machineries and recognised as it accrues. (r) Impairment At each balance sheet date, the Group reviews the carrying amounts of its assets (other than inventories, deferred tax assets, assets arising from employee benefits and financial assets which are reviewed pursuant to the relevant accounting policies) to determine whether there are any indications that those assets have suffered an impairment loss. If any such indication exists, impairment is measured by comparing the carrying values of the assets with their recoverable amounts. Recoverable amount is the higher of net selling price and value in use, which is measured by reference to discounted future cash flows. Recoverable amounts are estimated for individual assets or, if it is possible, for the cash-generating unit to which the asset belongs. An impairment loss is charged to the income statement immediately, unless the asset is carried at revalued amount. Any impairment loss of a revalued asset is treated as a revaluation decrease to the extent of any available previously recognised revaluation surplus for the same asset. Reversal of impairment losses recognised in prior years is recorded when there is an indication that the impairment losses recognised for the asset no longer exist or have decreased. The reversal is recognised to the extent of the carrying amount of the asset that would have been determined (net of amortisation and depreciation) had no impairment loss been recognised. The reversal is recognised in the income statement immediately, unless the asset is stated at revaluation, in which case it is taken to revaluation surplus. However, to the extent that an impairment loss on the same revalued asset was previously recognised as an expense in the income statement, a reversal of that impairment loss is recognised in the income statement.
Notes to the Financial Statements 31 December 2002 44 (s) Financial Instruments Financial instruments carried in the balance sheet include cash and bank balances, investments, debtors, creditors, leases and borrowings. The particular recognition methods adopted are disclosed in the individual policy statements for the relevant item. The financial instruments are recognised in the balance sheet when the Group has become a party to the contractual provisions of the instrument. Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement. Interest, dividends, gains and losses relating to a financial instrument classified as a liability, are reported as expense or income. Distributions to holders of financial instruments classified as equity are charged directly to equity. Financial instruments are offset when the Group has a legally enforceable right to offset and intends to settle either on a net basis or to realise the assets and settle the liability simultaneously. (t) Construction Contracts When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred that it is probable will be recoverable and contract costs are recognised as expenses. When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs are recognised over the period of the contract as revenue and expenses respectively. The Group uses the percentage of completion method to determine the appropriate amount of revenue and costs to recognise in a given period. The stage of completion is measured by reference to the proportion of contract costs incurred for work performed to date to the estimated total contract costs. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. The aggregate of the costs incurred and the profit/loss recognised on each contract is compared against the progress billings up to the year end. Where costs incurred and recognised profits (less recognised losses) exceed progress billings, the balance is shown as amounts due from customers on construction contracts. Where progress billings exceed costs incurred plus recognised profits (less recognised losses), the balance is shown as amounts due to customers on construction contracts. (u) Cash and Cash Equivalents Cash and cash equivalents are cash in hand, balances with banks and highly liquid investments with original maturities of three months or less. For purposes of the cash flow statement, cash and cash equivalents are presented net of bank overdrafts. 3 SHARE CAPITAL Group and Company 2002 2001 Authorised:- Ordinary shares of 1.00 each At 1 January 100,000 100,000 Created during the year 99,900,000 - At 31 December 100,000,000 100,000 Issued and fully paid :- Ordinary shares of 1.00 each At 1 January 2 2 Issued during the year 69,999,998 - At 31 December 70,000,000 2
45 Notes to the Financial Statements 31 December 2002 During the financial year, the Company increased its :- i) authorised share capital from 100,000 to 100,000,000 through the creation of 99,900,000 ordinary shares of 1 each, and ii) issued and paid up share capital from 2 to 70,000,000 by way of issuance of 69,999,998 ordinary shares as follows :- a) issue of 49,052,252 new ordinary shares of 1.00 each in settlement of the purchase consideration upon its acquisition of the entire equity interest of 15,000,000 ordinary shares of 1.00 each in Trans Resources Corporation Sdn. Bhd., b) Issue of 16,000,000 new ordinary shares of 1.00 each to the public at an issue price of 1.60 per share. c) Issue of 4,947,746 new ordinary shares upon completion of a rights issue where the rights were granted in the proportion of 101 new ordinary shares for every 1,000 ordinary shares held by the existing shareholders as at 22 May 2002. 4 SHARE PREMIUM Group and Company 2002 2001 Balance as at 1 January - - Arising during the year 12,885,471 - Balance as at 31 December 12,885,471 - Arising from : Share premium arising from the issue of shares in settlement of the purchase consideration on the acquisition of the entire equity interest in TRC 5,396,529 - Issue of 16,000,000 ordinary shares to the public of 1.00 each at the issue price of 1.60 per ordinary share (16,000,000 shares at 0.60 per share) 9,600,000 - Less: Written - off against Listing expenditure (2,111,058) - 5 DEFERRED TAXATION 12,885,471 - At 1 January - Prior year adjustment 4,541,000 Group 2002 Transfer to income statement (1,439,170) At 31 December 3,101,830 Deferred taxation is in respect of the following temporary difference Depreciation and capital allowances 11,077,964
Notes to the Financial Statements 31 December 2002 46 6 HIRE PURCHASE AND LEASE CREDITORS Portion repayable not later than 1 year 8,781,586 Portion repayable later than 1 year and not later than 5 years 6,911,166 7 TE LOANS Group 2002 15,692,752 Term Loans - secured 1,054,779 Group 2002 Less: Due within 12 months included in short term borrowings (Note 19) (352,404) The term loans bear :- 702,375 i) interest at a rate of approximately 1.5% above the bank s base lending rate and is secured by freehold land and building belonging to the subsidiary company and is jointly and severally guaranteed by the directors of the subsidiary company. The term loan is repayable by way of 60 equal monthly installments of 24,367. ii) interest at the rate of 6.5% per annum on a monthly rest basis as prescribed under the Tabung Industri Kecil dan Serderhana and is repayable by way of equal monthly instalments. The facility is secured by fixed deposits placed with licensed banks as disclosed in note (17) to the financial statements, a joint and several guarantee by the directors of the subsidiary company and a legal charge over leasehold land belonging to the Holding Company.
47 Notes to the Financial Statements 31 December 2002 8 FIXED ASSETS The Group At cost/ valuation At date of acquisition Additions Disposals/ Adjustments At 31.12.2002 Freehold land 17,860,200 - (13,025,000) 4,835,200 Leasehold land & building 3,995,368 - (145,368) 3,850,000 Buildings 3,127,300 - - 3,127,300 Plant and machinery 66,503,517 8,419,628 (3,187,319) 71,735,826 Motor vehicles 15,558,209 3,378,326 (980,725) 17,955,810 Office equipment 3,468,762 357,328 (13,292) 3,812,798 Furniture and fittings 742,521 26,233 (3,570) 765,184 Renovation 1,229,975 167,058 (65,427) 1,331,606 Computer 64,594 3,940-68,534 Telecommunications equipment - 1,250-1,250 112,550,446 12,353,763 (17,420,701) 107,483,508 Accumulated Amortisation/ Depreciation At date of acquisition Charge for the year Disposals/ Adjustments At 31.12.2002 Freehold land - - - - Leasehold land & building 82,170 59,297 70,013 211,480 Buildings 169,029 45,484-214,513 Plant and machinery 29,813,715 5,516,001 (502,619) 34,827,097 Motor vehicles 11,270,971 1,235,451 (782,434) 11,723,988 Office equipment 2,636,858 225,225 (11,236) 2,850,847 Furniture and fittings 426,509 53,937-480,446 Renovation 600,999 94,305-695,304 Computer 56,028 2,397-58,425 Telecommunications equipment - 188-188 45,056,279 7,232,285 (1,226,276) 51,062,288
Notes to the Financial Statements 31 December 2002 48 Net Book Value At date of acquisition At 31.12.2002 Freehold land 17,860,200 4,835,200 Leasehold land & building 3,913,198 3,638,520 Buildings 2,958,271 2,912,787 Plant and machinery 36,689,802 36,908,729 Motor vehicles 4,287,238 6,231,822 Office equipment 831,904 961,951 Furniture and fittings 316,012 28 4,738 Renovation 628,976 636,302 Computer 8,566 10,109 Telecommunications equipment - 1,062 (a) Revaluation 67,494,167 56,421,220 Certain freehold and leasehold land and buildings of a subsidiary company were revalued by independent professional valuers using the open market valuation basis. However in 2001, a proportion of this revaluation was deemed to be in excess of market values and was consequently subject to a downward revaluation during that year. The properties acquired subsequent to the said revaluation are however stated at cost, as the directors are of the opinion that the purchase consideration for the properties approximate their market values. Had the land and building affected been carried at their historical costs less accumulated depreciation, the carrying amounts of the revalued assets that would have been included in the financial statements at the end of the year are as follows :- Freehold land 1,730,490 Buildings 1,435,200 Leasehold land and buildings 4,431,943 (b) Security Group 2002 7,597,633 Certain land and buildings with a net carrying value of 9,797,072 have been charged to financial institutions as security for various credit facilities granted to a subsidiary company. (c) Assets acquired under hire purchase and lease arrangements The net book value of fixed assets of the subsidiary company acquired under hire purchase and lease arrangements are as follows :- 2002 Plant and machinery 10,922,459 Motor vehicle 5,707,521 16,629,980
49 Notes to the Financial Statements 31 December 2002 9 OTHER INVESTMENTS Group 2002 At Cost: - Shares quoted in Malaysia 111,394 - Corporate membership 144,000 255,394 Market value - Shares quoted in Malaysia 7,000 No provision for diminution in value of investment in respect of the quoted shares have been made as the investment is held for long term purposes. 10 INVESTMENT IN SUBSIDIARY COMPANIES Company 2002 2001 Unquoted shares, at cost 54,448,781 - Amount due from subsidiary companies 28,229,620-82,678,401 - The details of the subsidiary companies are as follows :- Country of Incorporation Effective Interest (%) 2002 2001 Principal Activities Trans Resources Corporation Sdn. Bhd. Malaysia 100 - TRC Development Sdn. Bhd. Malaysia 100 - TRC Concrete Industries Sdn. Bhd. Malaysia 100 - Construction activities. Property development. Manufacture of ready mixed concrete.
Notes to the Financial Statements 31 December 2002 50 11 INVESTMENT IN ASSOCIATED COMPANY Details of Associated Company are : Name Principal Activity Country of Incorporation Percentage of equity 2002 2001 % % Andaman Budi Sdn. Bhd. Property development Malaysia 40 40 Group Unquoted shares, at cost 200,000 Share of post - acquisition losses (200,000) Amount due from Associated Company 143,946 2002-143,946 The amount due from Associated Company is unsecured, interest free and has no fixed terms of repayment. The following amounts represent the Group s share of the assets, liabilities, revenue and expenses of the Associated Company: Property, plant and equipment 54,590 Current assets 8,483,790 Group 2002 Current liabilities (8,408,842) Long term liabilities (205,963) Net liabilities (76,425) Share of net liabilities in excess of cost 76,425 - Amount due from Associated Company 143,946 143,946 Revenue 2,412,005 Profit before taxation 195,615 Taxation - Profit after taxation 195,615
51 Notes to the Financial Statements 31 December 2002 12 DEFERRED EXPENDITURE Company 2002 2001 Preliminary expenses - 2,500 Pre-operating expenses - 693,977-696,477 The main composition of deferred expenditure are professional costs incurred for the proposed listing of the Company on the Main Board of the Kuala Lumpur Stock Exchange ( KLSE ). An additional amount of 1,414,581 was incurred during the current financial year for this exercise. The total sum of these expenditures have been written off against the share premium account upon the listing of the Company on the KLSE. 13 PROPERTY DEVELOPMENT PROJECT COSTS Brought forward - Land - - Development costs 276,134 Incurred during the year Group 2002 276,134 - Land 13,384,152 - Development costs 5,180,461 18,840,747 Recognised in income statement (7,767,796) 11,072,951 Sold portion 8,737,321 Unsold portion 2,335,630 14 INVENTORIES At Cost Construction materials 352,569 Raw materials 181,373 Group 2002 533,942
Notes to the Financial Statements 31 December 2002 52 15 TRADE RECEIVABLES Included in the trade receivables of the Group are amounts of retentions for contract works of 11,356,367 (2001: 8,674,831) which are receivable subject to satisfactory completion of the respective project defect liability periods. 16 GROSS AMOUNT DUE FROM CUSTOMERS Costs incurred to date 597,305,057 Add: Attributable profits 4,335,332 Group 2002 601,640,389 Less: Progress billings received and receivable (509,748,622) 17 FIXED DEPOSITS 91,891,767 The fixed deposits are placed with licenced financial institutions and have been charged to secure credit facilities granted to the subsidiary company by the financial institutions concerned. 18 CASH AND BANK BALANCES Included in the cash and bank balances of the Group are monies kept in separate trust accounts in accordance with Regulation 12 of the Housing Developers (Housing Development Account) Regulations 1991, amounting to 701,812 (2001:Nil).
53 Notes to the Financial Statements 31 December 2002 19 SHORT TE BORROWINGS Group 2002 Secured: Bankers acceptance 41,215,000 Bank overdrafts 27,150,081 Revolving credit facility 5,000,000 Medium term credit 4,370,692 Bridging loan 1,440,450 Overdraft non chequing 18,840,776 98,016,999 Term loan repayable not later than one year 352,404 (a) Bank Overdrafts 98,369,403 The bank overdrafts of the subsidiary companies are subject to interest at rates ranging from 1.25% to 2.5% per annum above the banks base lending rates and are secured by fixed and floating charges over the subsidiary companies present and future assets, certain fixed deposits, freehold land and assignment of certain contract receipts of the subsidiary companies and a joint and several guarantee by the directors of the subsidiary companies and a corporate guarantee by a subsidiary company. (b) Revolving Credit Facility The revolving credit facility is subject to interest at the rate of 1.25% above the Kuala Lumpur Inter-Bank Offer Rates (KLIBOR) and is secured by certain fixed deposits of the subsidiary company placed with licensed financial institutions. (c) Bankers Acceptance The bankers acceptances are subject to commission at rates of approximately 1.0% to 2.0% over the B.A. rate and are secured by fixed and floating charges over the subsidiary companies present and future assets, certain fixed deposits, freehold land and leasehold properties belonging to the subsidiary company, a joint and several guarantee by the directors of the subsidiary companies and a corporate guarantee by a subsidiary company. (d) Bridging Loan The bridging loan is subject to interest at the rate of 1.5 % per annum above the bank s base lending rate and is secured by a property belonging to a subsidiary Company and a personal guarantee by a director of the subsidiary Company. (e) Other Short Term Trade Facilities The domestic factoring facility is subject to charges at a rate of 9.9% per annum. The medium term credit is subject to interest at a rate of 1.75% above the financial institution cost of fund while the non chequing overdraft facility bears interest at a rate of 8.3% per annum. The facilities are jointly and severally guaranteed by the directors of the subsidiary company. 20 AMOUNT DUE TO A DIRECTOR The amount due to a director is unsecured, interest free and has no fixed terms of repayments.
Notes to the Financial Statements 31 December 2002 54 21 REVENUE AND COST OF SALES Revenue of the Group represents recognised contract revenue, billings for sale of construction materials, hiring of machineries and motor vehicles, property development and supply of labour. Cost of sales consists of direct materials, direct labour, direct overhead, sub-contract charges and other directly attributable expenses. 22 NET PROFIT BEFORE TAXATION Group Company These are stated after charging/(crediting) :- 2002 2002 2001 After charging :- Directors remuneration 294,960 42,000 - Auditors remuneration - current year 76,000 12,000 1,300 - prior year overprovision (2,500) - - Bank overdraft interest 3,148,441 - - Term loan interest 95,134 - - Hire purchase interest 1,432,130 - - BA interest 1,327,405 - - Other loan interest 1,080,616 - - Depreciation of fixed assets 9,252,226 - - Rental of premises 597,788 - - After crediting :- Provision for doubtful debts written back (5,500,000) - - Fixed deposit interest (1,215,652) - - Gain on disposal of fixed assets (474,841) - - 23 TAXATION Malaysian taxation based on results for the year:- Group Company 2002 2002 2001 Provision for the year 7,386,600 9,200 - Overprovision in prior years (395,350) - - Transfer from deferred taxation (Note 5) (1,439,170) - - 24 EARNINGS PER SHARE 5,552,080 9,200 - The calculation of earnings per share is based on the Group s net profit for the year of 17,785,609 and weighted average number of ordinary shares in issue during the year amounting to 46,949,891. There are no diluted shares in issue.