CHIN FOH BERHAD (Incorporated in Malaysia) DIRECTORS' REPORT The directors of CHIN FOH BERHAD have pleasure in submitting their report and the audited financial statements of the Group and of the Company for the financial year ended January 31, 2005. PRINCIPAL ACTIVITIES The Company is principally an investment holding company. During the financial year, a subsidiary company disposed off: 1) 255,000 ordinary shares of RM1.00 each, representing 51% equity interest in Chin Foh Trading (Melaka) Sdn. Bhd., a company incorporated in Malaysia, for a consideration of RM881,037; 2) 350,000 ordinary shares of RM1.00 each, representing 70% equity interest in Chin Foh Trading (Kuantan) Sdn. Bhd., a company incorporated in Malaysia, for a consideration of RM2,066,257; and 3) 4,080,000 ordinary shares of RM1.00 each, representing 51% equity interest in Chin Foh Stainless Steel Service Centre Sdn. Bhd., a company incorporated in Malaysia, for a consideration of RM4,334,702. The principal activities of the subsidiary companies are disclosed in Note 12 to the Financial Statements. Other than as stated above, there have been no significant changes in the nature of the activities of the Company and its subsidiary companies during the financial year. OUTSTANDING CORPORATE PROPOSALS The details and status of certain corporate proposals announced are dealt with in Note 34 to the Financial Statements. 1
RESULTS OF OPERATIONS The results of operations of the Group and of the Company for the financial year are as follows: The Group RM The Company RM Loss before tax (6,586,107) (2,880,049) Income tax expense (1,402,763) - Loss after tax (7,988,870) (2,880,049) Minority interest (4,641,985) - Net loss for the year (12,630,855) (2,880,049) In the opinion of the directors, the results of operations of the Group and of the Company during the financial year have not been substantially affected by any item, transaction or event of a material and unusual nature. DIVIDENDS No dividend has been paid or declared by the Company since the end of the previous financial year. The directors also do not recommend any dividend payment in respect of the current financial year. RESERVES AND PROVISIONS There were no material transfers to or from reserves or provisions during the financial year other than those disclosed in the financial statements. ISSUE OF SHARES AND DEBENTURES The Company did not issue any new shares or debentures during the financial year. SHARE OPTIONS No options have been granted by the Company to any parties during the financial year to take up unissued shares of the Company. No shares were issued during the financial year by virtue of the exercise of any option to take up unissued shares of the Company. As of the end of the financial year, there were no unissued shares of the Company under options. 2
OTHER FINANCIAL INFORMATION Before the income statements and the balance sheets of the Group and of the Company were made out, the directors took reasonable steps: (a) (b) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of allowance for doubtful debts, and have satisfied themselves that all known bad debts had been written off and that adequate allowance for doubtful debts had been made; and to ensure that any current assets which were unlikely to realise their book values in the ordinary course of business have been written down to their estimated realisable values. At the date of this report, the directors are not aware of any circumstances: (a) (b) (c) (d) which would render the amount of bad debts written off or the amount of allowance for doubtful debts in the financial statements of the Group and of the Company inadequate to any substantial extent; which would render the values attributed to current assets in the financial statements of the Group and of the Company misleading; 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; and not otherwise dealt with in this report or financial statements which 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: (a) (b) any charge on the assets of the Group and of the Company which has arisen since the end of the financial year and secures the liability of any other person; or any contingent liability of the Group and of the Company which has arisen since the end of the financial year. No contingent or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the directors, will or may substantially affect the ability of the Group or of the Company to meet their obligations as and when they fall due. In the opinion of the directors, no item, transaction or event of a material and unusual nature has arisen in the interval between the end of the financial year and the date of this report which is likely to affect substantially the results of operations of the Group and of the Company for the succeeding financial year. 3
DIRECTORS The following directors served on the Board of the Company since the date of the last report: Kuan Shin @ Kuan Nyong Hin Kuan Pek Seng Kwan Chin Hing Mohd. Rizal Al-Amin bin Tun Sardon Wong Cham Mew Kwan Pek Wong Kwan Yun Hong @ Kuan Onn Hing (resigned on 23.7.2004) In accordance with Article 101 of the Company s Articles of Association, Messrs. Kwan Pek Wong and Wong Cham Mew retire by rotation at the forthcoming Annual General Meeting and, being eligible, offer themselves for re-election. DIRECTORS INTERESTS The shareholdings in the Company and in the related companies of those who were directors at the end of the financial year as recorded in the Register of Directors Shareholdings kept by the Company under Section 134 of the Companies Act, 1965, are as follows: Shares in the Company Number of ordinary shares of RM1 each Balance at Balance at 1.2.2004 Bought Sold 31.1.2005 Registered in the name of directors Kuan Shin @ Kuan Nyong Hin - Direct interest 4,572,797 1,077,038-5,649,835 - Indirect interest 3,447,241 - - 3,447,241 Kuan Pek Seng - Direct interest 592,203 - - 592,203 - Indirect interest 3,447,241 - - 3,447,241 Kwan Chin Hing - direct interest 1,573,864 - - 1,573,864 Mohd. Rizal Al-Amin bin Tun Sardon - direct interest 6,000 - - 6,000 Wong Cham Mew - direct interest 1,000 - - 1,000 Kwan Pek Wong - direct interest 4,000 - - 4,000 (Forward) 4
Number of ordinary shares of RM1 each Balance at 1.2.2004 Bought Sold Balance at 31.1.2005 Shares in subsidiary companies Chin Foh Trading (Utara) Sdn. Bhd. Registered in name of directors Kuan Shin @ Kuan Nyong Hin 1 - - 1 Kuan Pek Seng 1 - - 1 Perfect Aluminium Sdn. Bhd. Registered in name of director Kwan Pek Wong 49,000 - - 49,000 By virtue of the above directors interests in the shares of the Company, the abovementioned directors are also deemed to have an interest in the shares of all the subsidiary companies to the extent that the Company has interest. DIRECTORS' BENEFITS Since the end of the previous financial year, none of the directors of the Company has received or become entitled to receive any benefit (other than the benefit included in the aggregate amount of emoluments received or due and receivable by the directors as disclosed in the financial statements or being the fixed salary of a full-time employee of the Company) by reason of a contract made by the Company or a related corporation with the director or with a firm of which he is a member, or with a company in which he has a substantial financial interest other than any benefit that might have arisen by virtue of the transactions with companies in which certain directors of the Company and/or of the subsidiary and associated companies are also directors and/or have interest as disclosed in Notes 18 and 21 to the Financial Statements. During and at the end of the financial year, no arrangement subsisted to which the Company was a party whereby directors of the Company might acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate. 5
AUDITORS The auditors, Messrs. Deloitte KassimChan, have indicated their willingness to continue in office. Signed on behalf of the Board in accordance with a resolution of the Directors, KUAN SHIN @ KUAN NYONG HIN KUAN PEK SENG Kuala Lumpur, May 30, 2005 6
REPORT OF THE AUDITORS TO THE MEMBERS OF CHIN FOH BERHAD (Incorporated in Malaysia) We have audited the accompanying balance sheets as of January 31, 2005 and the related statements of income, cash flows and changes in equity for the year then ended. These financial statements are the responsibilities of the Company s directors. It is our responsibility to form an independent opinion, based on our audit, on these financial statements and to report our opinion to you, as a body, in accordance with Section 174 of the Companies Act, 1965 and for no other purpose. We do not assume responsibility towards any other person for the content of this report. We conducted our audit in accordance with approved standards on auditing in Malaysia. These 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 abovementioned financial statements are properly drawn up in accordance with the provisions of the Companies Act, 1965 and the applicable approved accounting standards in Malaysia so as to give a true and fair view of: (i) the state of affairs of the Group and of the Company as of January 31, 2005 and of the results and the cash flows of the Group and of the Company for the year ended on that date; and (ii) the matters required by Section 169 of the Act to be dealt with in the financial statements and consolidated financial statements; and (b) the accounting and other records and the registers required by the Act to be kept by the Company and by the subsidiary companies of which we have acted as auditors have been properly kept in accordance with the provisions of the Act. (Forward) 7
We have considered the financial statements and the auditors' reports of the subsidiary companies of which we have not acted as auditors, as indicated in Note 12 to the Financial Statements, being the financial statements that have been included in the consolidated financial statements. We are satisfied that the financial statements of the subsidiary companies that have been consolidated with the financial statements of the Company are in form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements, and we have received satisfactory information and explanations as required by us for these purposes. The auditors' reports on the financial statements of the subsidiary companies were not subject to any qualification and did not include any comment made under Sub-section (3) of Section 174 of the Act. Without qualifying our opinion, we draw attention to Note 2 to the Financial Statements. The Group s total current liabilities exceeded its total current assets by RM24,447,901 as of January 31, 2005. In 2004, the Group and the Company proposed to undertake a Debt Rationalisation/Settlement scheme ( the Scheme ) as mentioned in Note 34 (a) to the Financial Statements with its financial institutions, trade and other creditors and certain directors of the Company and its subsidiary companies. As of the date of this report, the Company is in the process of submitting the revised proposals to the relevant regulatory authorities for approval. However, the financial statements of the Group and of the Company have been prepared on the basis of accounting principles applicable to a going concern which assumes that the Scheme will be approved and successfully implemented and that the Group and the Company will be able to operate profitably in the foreseeable future, and consequently, the realisation of assets and settlement of liabilities will occur in the ordinary course of business. DELOITTE KASSIMCHAN AF 0080 Chartered Accountants OOI THIAM POH 2495/01/06 (J) Partner May 30, 2005 8
CHIN FOH BERHAD (Incorporated in Malaysia) AND ITS SUBSIDIARY COMPANIES INCOME STATEMENTS FOR THE YEAR ENDED JANUARY 31, 2005 The Company 2005 2004 2005 2004 Note RM RM RM RM Revenue 4 218,492,427 280,528,032 - - Other operating income 5 2,166,004 7,404,774 52,971 3,903,924 Changes in inventories of work-in-progress and finished goods (14,517,307) (2,163,715) - - Raw materials and consumables used (161,217,629) (229,846,190) - - Directors remuneration 6 (2,874,910) (3,182,309) (204,500) (54,000) Staff costs 5 (14,776,464) (15,836,304) (493,535) (391,669) Depreciation of property, plant and equipment (5,127,381) (6,421,843) (58,501) (58,780) Contract costs recognised (2,978,607) (2,870,382) - - Other operating expenses 5 (14,591,149) (18,624,172) (2,171,626) (5,472,878) Profit/(Loss) from operations 4,574,984 8,987,891 (2,875,191) (2,073,403) Finance costs 7 (10,233,439) (10,171,805) (4,858) (5,075) Share of results in associated companies (964,839) - - - Income from other investment 8 37,187 7,941 - - Loss before tax (6,586,107) (1,175,973) (2,880,049) (2,078,478) Income tax expense 9 (1,402,763) (1,787,324) - 11,619 Loss after tax (7,988,870) (2,963,297) (2,880,049) (2,066,859) Minority interest (4,641,985) (311,180) - - Net loss for the year (12,630,855) (3,274,477) (2,880,049) (2,066,859) Loss per ordinary share Basic (sen) 10 (26.5) (8.0) The accompanying Notes form an integral part of the Financial Statements. 9
CHIN FOH BERHAD (Incorporated in Malaysia) AND ITS SUBSIDIARY COMPANIES BALANCE SHEETS AS OF JANUARY 31, 2005 The Company 2005 2004 2005 2004 Note RM RM RM RM Assets Property, plant and equipment 11 92,725,141 113,601,629 193,991 254,627 Investment in subsidiary companies 12 - - 21,556,031 25,169,059 Investment in associated companies 13 14,361,592 13,022,718 11,062,287 8,849,259 Other investments 14 157,370 157,370 - - Goodwill on consolidation 15 6,404,699 8,745,019 - - Current Assets Inventories 16 44,524,495 57,639,473 - - Trade receivables 17 & 18 78,144,106 103,780,671 - - Other receivables and prepaid expenses 17 19,036,545 22,095,854 6,081,434 6,078,815 Amount owing by subsidiary companies 12 - - 21,644,019 22,733,091 Amount owing by associated companies 13 19,213,266 19,108,590 142,825 139,987 Cash and bank balances 19 5,193,880 6,258,228 36,139 153,038 Total Current Assets 166,112,292 208,882,816 27,904,417 29,104,931 (Forward) 10
The Company 2005 2004 2005 2004 Note RM RM RM RM Current Liabilities Trade payables 18 & 20 29,231,004 42,201,061 - - Other payables and accrued expenses 18 & 20 16,898,781 28,978,688 726,431 542,808 Amount owing to subsidiary companies 12 - - 21,635 21,156 Amount owing to associated companies 13 4,171,975 4,172,351 4,132,166 4,132,166 Amount owing to directors 21 16,180,659 16,105,242 200,000 130,500 Amount owing to minority shareholders of subsidiary companies 22 3,202,494 3,457,259 - - Hire-purchase payables 23 893,517 1,149,288 6,096 34,703 Finance lease payables 24 316,775 376,494 - - Bank borrowings 25 119,449,437 116,308,204 - - Tax liabilities 215,551 324,582 - - Total Current Liabilities 190,560,193 213,073,169 5,086,328 4,861,333 Net Current (Liabilities)/Assets (24,447,901) (4,190,353) 22,818,089 24,243,598 Long-term and Deferred Liabilities Other payables and accrued expenses 20 (1,732,500) (1,837,500) - - Amount owing to directors 21 - (200,000) - - Amount owing to minority shareholders of subsidiary companies 22 (185,000) (266,002) - - Hire-purchase payables 23 (1,148,829) (1,100,678) - (6,096) Finance lease payables 24 (16,235) (304,261) - - Bank borrowings 25 (30,674,291) (52,139,425) - - Deferred tax liabilities 26 (197,000) (806,739) - - (33,953,855) (56,654,605) - (6,096) Minority interest (10,688,704) (17,438,020) - - (Forward) 44,558,342 57,243,758 55,630,398 58,510,447 11
The Company 2005 2004 2005 2004 Note RM RM RM RM Represented by : Issued capital 27 47,706,173 47,706,173 47,706,173 47,706,173 Reserves 28 (3,147,831) 9,537,585 7,924,225 10,804,274 Shareholders Equity 44,558,342 57,243,758 55,630,398 58,510,447 The accompanying Notes form an integral part of the Financial Statements. 12
CHIN FOH BERHAD (Incorporated in Malaysia) AND ITS SUBSIDIARY COMPANIES STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED JANUARY 31, 2005 Non-distributable Issued capital Share premium Reserves on consolidation Capital reserve Translation adjustment account Accumulated losses Total RM RM RM RM RM RM RM Balance as of February 1, 2003 39,000,000 11,973,831 8,958,551 480,048 2,655,689 (17,976,346) 45,091,773 Issue of shares (Note 27 & 28) 8,706,173 11,318,025 - - - - 20,024,198 Disposal of subsidiary companies - - (1,487,442) - (3,195,492) - (4,682,934) Translation differences - - - - 85,198-85,198 Net loss for the year - - - - - (3,274,477) (3,274,477) Balance as of January 31, 2004 47,706,173 23,291,856 7,471,109 480,048 (454,605) (21,250,823) 57,243,758 (Forward) 13
Non-distributable Issued capital Share premium Reserves on consolidation Capital reserve Translation adjustment account Accumulated losses Total RM RM RM RM RM RM RM Translation differences - - - - (54,561) - (54,561) Net loss for the year - - - - - (12,630,855) (12,630,855) Balance as of January 31, 2005 47,706,173 23,291,856 7,471,109 480,048 (509,166) (33,881,678) 44,558,342 14
Issued capital Nondistributable Share premium Accumulated losses Total The Company RM RM RM RM Balance as of February 1, 2003 39,000,000 11,973,831 (10,420,723) 40,553,108 Issue of shares (Note 27 & 28) 8,706,173 11,318,025-20,024,198 Net loss for the year - - (2,066,859) (2,066,859) Balance as of January 31, 2004 47,706,173 23,291,856 (12,487,582) 58,510,447 Net loss for the year - - (2,880,049) (2,880,049) Balance as of January 31, 2005 47,706,173 23,291,856 (15,367,631) 55,630,398 The accompanying Notes form an integral part of the Financial Statements. 15
CHIN FOH BERHAD (Incorporated in Malaysia) AND ITS SUBSIDIARY COMPANIES CASH FLOW STATEMENTS FOR THE YEAR ENDED JANUARY 31, 2005 The Company 2005 2004 2005 2004 Note RM RM RM RM CASH FLOWS FROM/ (USED IN) OPERATING ACTIVITIES Loss before tax (6,586,107) (1,175,973) (2,880,049) (2,078,478) Adjustments for: Interest expense 10,236,863 10,172,189 4,858 5,075 Depreciation of property, plant and equipment 5,127,381 6,421,843 58,501 58,780 Allowance for doubtful debts 2,459,281 8,022,973-4,653,230 Impairment loss in investment of associated 1,400,000-1,400,000 - company Loss/(Gain) on disposal of subsidiary companies 1,342,748 (976,737) - (3,833,870) Share of results in associated companies 964,839 - - - Allowance for slow-moving inventories 600,000 - - - Goodwill written off 393,245 - - - Inventories written off 171,610 168,602 - - Bad debts written off 145,258 1,228,710 - - Property, plant and equipment written off 16 2,135 34,861 2,135 - Gain on disposal of property, plant and equipment (608,952) (555,830) - - Allowance for doubtful debts no longer required (74,856) (2,272,891) - - Interest income (43,523) (567,360) - - Dividend income (396) (420) - - Amortisation of land use rights - 26,796 - - Operating Profit/(Loss) Before Working Capital Changes 15,529,526 20,526,763 (1,414,555) (1,195,263) (Forward)
The Company 2005 2004 2005 2004 Note RM RM RM RM (Increase)/Decrease in: Inventories (9,022,589) (720,499) - - Trade receivables 2,441,746 2,767,200 - - Other receivables and prepaid expenses (1,152,748) (8,205,078) (2,619) (268,747) Increase/(Decrease) in: Trade payables (5,574,010) 15,344,002 - - Other payables and accrued expenses 2,986,026 5,795,664 183,623 (371,869) Cash Generated From/(Used In) Operations 5,207,951 35,508,052 (1,233,551) (1,835,879) Tax refund/(paid) 424,630 (2,421,200) - (44,374) Interest received 6,336 559,419 - - Interest paid (3,424) (384) - - Net Cash From/(Used In) Operating Activities 5,635,493 33,645,887 (1,233,551) (1,880,253) CASH FLOWS FROM/ (USED IN) INVESTING ACTIVITIES Disposals/Dilution of subsidiary companies 12 5,809,039 1,567,450 - - Proceeds from disposal of property, plant and equipment 4,422,798 1,347,677 - - Withdrawal of fixed deposits pledged 682,879 303,699 - - Interest received 37,187 7,941 - - Dividend received 396 420 - - Purchase of property, plant and equipment (Note) (1,223,311) (4,590,339) - - Increase in amount owing by associated companies (105,052) (21,695,781) (2,838) (204,475) Purchase of other investment - (144,120) - - Amount owing by/(to) subsidiary companies - - 1,089,551 2,253,512 Net Cash From/(Used In) Investing Activities 9,623,936 (23,203,053) 1,086,713 2,049,037 (Forward) 17
The Company 2005 2004 2005 2004 Note RM RM RM RM CASH FLOWS FROM/ (USED IN) FINANCING ACTIVITIES Proceeds from bank borrowings 256,190,199 267,343,342 - - Proceeds from issue of shares to minority shareholders of subsidiary companies 245,000 743,726 - - Repayment of bank (255,165,369) (266,349,693) - - borrowings Interest paid (10,233,439) (10,171,805) (4,858) (5,075) Repayment of hire-purchase payables (1,265,284) (1,112,081) (34,703) (34,474) Increase/(Decrease) in amount owing to directors (123,583) (562,329) 69,500 (25,500) Repayment of finance lease payables (347,745) (282,573) - - Decrease in amount owing to minority shareholders of subsidiary companies (335,767) (250,185) - - Dividend paid to minority shareholders (49,000) - - - Net Cash (Used In)/From Financing Activities (11,084,988) (10,641,598) 29,939 (65,049) NET INCREASE/ (DECREASE) IN CASH AND CASH EQUIVALENTS 4,174,441 (198,764) (116,899) 103,735 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR (15,616,211) (15,741,665) 153,038 49,303 Translation adjustment 2,566 324,218 - - CASH AND CASH EQUIVALENTS AT END OF YEAR 31 (11,439,204) (15,616,211) 36,139 153,038 (Forward) 18
Note: During the financial year, the Group and the Company acquired property, plant and equipment through the following arrangements: The Company 2005 2004 2005 2004 RM RM RM RM Total cost of property, plant and equipment acquired 6,241,798 49,724,185 - - Less: Acquisition costs of property, plant and equipment satisfied by: - Settlement of trade debts owing by customers (3,548,166) (4,017,710) - - - Hire-purchase arrangements (1,470,321) (1,002,798) - - - Reclassification from other receivables - (20,024,200) - - - Issue of shares - (20,024,198) - - - Finance lease arrangements - (64,940) - - Cash payments 1,223,311 4,590,339 - - The accompanying Notes form an integral part of the Financial Statements. 19
CHIN FOH BERHAD (Incorporated in Malaysia) AND ITS SUBSIDIARY COMPANIES NOTES TO THE FINANCIAL STATEMENTS 1. GENERAL INFORMATION The Company is a public limited liability company, incorporated and domiciled in Malaysia, and listed on the Second Board of Bursa Malaysia Securities Berhad. It is not a subsidiary company of another company. The Company is principally an investment holding company. During the financial year, a subsidiary company disposed off: a) 255,000 ordinary shares of RM1.00 each, representing 51% equity interest in Chin Foh Trading (Melaka) Sdn. Bhd., a company incorporated in Malaysia, for a consideration of RM881,037; b) 350,000 ordinary shares of RM1.00 each, representing 70% equity interest in Chin Foh Trading (Kuantan) Sdn. Bhd., a company incorporated in Malaysia, for a consideration of RM2,066,257; and c) 4,080,000 ordinary shares of RM1.00 each, representing 51% equity interest in Chin Foh Stainless Steel Service Centre Sdn. Bhd., a company incorporated in Malaysia, for a consideration of RM4,334,702. The principal activities of the subsidiary companies are disclosed in Note 12. Other than as stated above, there have been no significant changes in the nature of the activities of the Company and its subsidiary companies during the financial year. The total number of employees of the Group and of the Company as of January 31, 2005 were 892 and 8 (2004 : 723 and 8) respectively. The principal place of business of the Company is located at No. 505, Jalan Tiong, Batu 3, Jalan Ipoh, 51100 Kuala Lumpur. The registered office of the Company is located at Level 5, Menara Milenium, Jalan Damanlela, Pusat Bandar Damansara, 50490 Kuala Lumpur. The financial statements of the Group and of the Company were approved by the Board of Directors for issuance on May 30, 2005. 20
2. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS The financial statements of the Group and of the Company have been prepared in accordance with the provisions of the Companies Act, 1965 and the applicable approved accounting standards of the Malaysian Accounting Standards Board. In 2004, the Group and the Company proposed to undertake a Debt Rationalisation/Settlement scheme ( the Scheme ) as mentioned in Note 34 (a) with its financial institutions, trade and other creditors and certain directors of the Company and its subsidiary companies. As of the date of this report, the Company is in the process of submitting the revised proposals to the relevant regulatory authorities for approval. However, the financial statements of the Group and of the Company have been prepared on the basis of accounting principles applicable to a going concern which assumes that the Scheme will be approved and successfully implemented and that the Group and the Company will be able to operate profitably in the foreseeable future, and consequently, the realisation of assets and settlement of liabilities will occur in the ordinary course of business. 3. SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting The financial statements of the Group and of the Company have been prepared under the historical cost convention. Basis of Consolidation The consolidated financial statements include the audited financial statements of the Company and of the subsidiary companies controlled by the Company made up to January 31, 2005. Subsidiary companies are consolidated using the acquisition method of accounting. On acquisition, the assets and liabilities of the relevant subsidiary companies are measured at their fair values at the date of acquisition. The interest of minority shareholders is stated at the minority s proportion of the fair value of the assets and liabilities recognised. The results of subsidiary companies acquired or disposed off during the financial year are included in the consolidated financial statements from the effective date of acquisition or up to the effective date of disposal. All significant intercompany transactions and balances are eliminated on consolidation. 21
Revenue Revenue of the Group consists of gross invoiced value of goods sold and services provided net of discounts and returns and rental income. Revenue is recognised on the following bases: (i) (ii) Sale of goods or services is recognised upon delivery of products or upon services rendered and when the risks and rewards of ownership have passed; and Rental income is recognised on an accrual basis by reference to the agreements entered. Employee Benefits Wages, salaries, bonuses and non-monetary benefits are accrued for in the period in which the associated services are rendered by the employees of the Group and of the Company. and the Company make statutory contributions to Employees Provident Fund ( EPF ), and the contributions are charged to the income statements when incurred. Once the contributions have been paid, the Group and the Company have no further payment obligations. Foreign Currency Conversion Transactions in foreign currencies are converted into Ringgit Malaysia at the exchange rates prevailing at the transaction dates or where settlement has not yet been made at the end of the financial year, at the approximate exchange rates prevailing at that date. All foreign exchange gains or losses are reflected in the income statements. For the purpose of consolidation, the financial statements of the foreign incorporated subsidiary companies have been translated into Ringgit Malaysia as follows: Assets and liabilities Reserves Revenue and expenses - at closing rate - at historical rate - at average rate 22
The closing rates per unit of Ringgit Malaysia used in the translation of foreign incorporated subsidiary companies financial statements and foreign currency balances as of the end of the financial year are as follows: Foreign currencies: 2005 2004 Hong Kong Dollar 2.0525 2.0456 Australian Dollar 0.3437 0.3445 Chinese Renminbi 2.2167 2.1500 All translation gains or losses are taken up and reflected in the translation adjustment account under shareholders equity. During the period in which the foreign incorporated subsidiary companies are disposed off, all relevant translation gains or losses are recognised in the income statements. Differences in exchange arising from the translation of the opening net investments in foreign subsidiary companies, and from the translation of the results of those companies at the average rate, are recorded in the translation adjustment account. Income Tax Deferred tax is accounted for in respect of temporary differences arising from differences between the carrying amounts of assets and liabilities in the financial statements and their corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are generally recognised for all deductible temporary differences, unused tax losses and unused tax credits to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences, unused tax losses and unused tax credits can be utilised. Impairment of Assets The carrying amounts of property, plant and equipment, investment in subsidiary and associated companies, other investments and goodwill on consolidation 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, which is the higher of net selling price and value in use, is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. All impairment losses are recognised in the income statements. 23
An impairment loss is only reversed 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 had been recognised. All reversals are recognised in the income statements. Property, Plant and Equipment and Depreciation Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses, if any. Gain or loss arising from the disposal of an asset is determined as the difference between the estimated net disposal proceeds and the carrying amount of an asset, and is recognised in the income statements. Freehold land is not depreciated. All other property, plant and equipment is depreciated on a straight-line method at the following annual rates based on the estimated useful lives of the various assets: Leasehold land and buildings Over lease term Freehold buildings 2% - 10% Motor vehicles 10% - 20% Office equipment, furniture and fittings 8% - 50% Renovation 2% - 10% Plant and machinery 6.67% - 33.33% Leased Assets Assets under leases which in substance transfer the risks and benefits of ownership of the assets are capitalised under property, plant and equipment. The assets and the corresponding lease obligations are recorded at the fair values of the leased assets which approximate the present value of the minimum lease payments, at the beginning of the respective lease terms. Finance costs, which represent the difference between the total leasing commitments and the fair value of the assets acquired, are charged to the income statements over the term of the relevant lease period so as to give a constant periodic rate of charge on the remaining balance of the obligations for each accounting period. Leases which do not meet such criteria are classified as operating leases and the related rentals are charged to the income statements as incurred. 24
Property, Plant and Equipment Acquired Under Hire-Purchase Arrangements Property, plant and equipment acquired under hire-purchase arrangements are capitalised in the financial statements and the corresponding obligations are recorded as liabilities. Finance charges are allocated to the income statements to give a constant periodic rate of interest on the remaining hire-purchase liabilities. Investment in Subsidiary Companies Investment in subsidiary companies, which is eliminated on consolidation, is stated at cost in the Company s financial statements. Investment in Associated Companies Investment in associated companies is stated at cost in the Company s financial statements. An associated company is a non-subsidiary company in which the Group holds not less than 20% of the equity voting rights as long-term investment and in which the Group is in a position to exercise significant influence in its management. s investment in associated companies is accounted for under the equity method of accounting based on the management prepared financial statements made up to January 31, 2005. Under this method of accounting, the Group s interest in the post-acquisition profit and reserves of the associated companies is included in the consolidated results unless the Group s share of post acquisition losses has exceeded the cost of the investment. Dividend received is reflected as a reduction against the investment in the consolidated balance sheets and the carrying amount of such investment is reduced to recognise any decline, other than a temporary decline, in the value of the investments. Unrealised profits and losses arising from transactions between the Group and its associated companies are eliminated to the extent of the Group s equity interest in the relevant associated companies except where unrealised losses provide evidence of an impairment of the asset transferred. Other Investments Investments in quoted and unquoted shares and quoted irredeemable convertible unsecured loan stocks are stated at cost in the Company s financial statements. Allowance for diminution in value of the investments is made to recognise any decline, other than a temporary decline, in the value of the investments. 25
Goodwill on Consolidation Goodwill arising on consolidation represents the excess of the Company s cost of investment over the share of the fair values of the identifiable net assets of the subsidiary companies at the date of acquisition. Inventories Inventories are valued at the lower of cost (determined on the first-in, first-out basis) and net realisable value. The costs of raw materials, other consumables and trading merchandise comprise the original purchase price plus the costs incurred in bringing these inventories to their present location and condition. The costs of finished goods and work-in-progress include the costs of raw materials, direct labour and a proportion of the production overheads. Net realisable value represents the estimated selling price in the ordinary course of business less selling and distribution costs and all other estimated costs to completion. Net realisable value is arrived at after considering the allowance for obsolete and slow-moving inventories. Receivables Trade and other receivables are stated at nominal value as reduced by the appropriate allowances for estimated irrecoverable amounts. Allowance for doubtful debts is made based on estimates of possible losses which may arise from non-collection of certain receivable accounts. Provisions Provisions are made when the Group has a present legal or constructive obligation as a result of past events, when it is probable that an outflow of resources will be required to settle the obligation, and when a reliable estimate of the amount can be made. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Reserves on Consolidation Reserves arising on consolidation represents the excess of the fair values attributable to the related net assets of the subsidiary companies at the date of acquisition over the cost of the Company s investment. Reserves arising on consolidation is transferred to income statements upon the disposal of the related investment. Cash Flow Statements and the Company adopt the indirect method in the preparation of the cash flow statements. 26
Cash equivalents are short-term, highly liquid investments with maturities of three months or less from the date of acquisition and are readily convertible to cash without significant risks of changes in value. 4. REVENUE 2005 2004 RM RM Marketing and distribution 182,563,472 200,298,836 Manufacturing and processing 33,084,779 75,051,270 Property and investment holding 350,000 600,000 Servicing 2,494,176 4,577,926 218,492,427 280,528,032 5. OTHER OPERATING INCOME/(EXPENSES) AND STAFF COSTS Included in other operating income/(expenses) are the following: The Company 2005 2004 2005 2004 RM RM RM RM Gain on disposal of property, plant and equipment - net 608,952 555,830 - - Rental income: - Third party 324,887 562,200 - - - Related party (Note 18) 24,000 24,000 - - Allowance for doubtful debts no longer required 74,856 2,272,891 - - Realised gain on foreign exchange - net 44,124 164,749 - - Bad debts recovered 19,691 153,052 - - Interest income on overdue trade debts from: - Third party 6,336 229,775 - - - Associated companies (Note 13) - 329,644 - - (Forward) 27
The Company 2005 2004 2005 2004 RM RM RM RM Dividend income from other investments 396 420 - - Lease rental of factory building and assets waived - 500,000 - - Administrative charges receivable from subsidiary companies (Note 12) - - 45,111 60,383 Impairment loss of investment in associated companies (1,400,000) - (1,400,000) - (Loss)/Gain on disposal of subsidiary companies (1,342,748) 976,737-3,833,870 Allowance for doubtful debts: - Non-trade (1,331,332) (4,653,230) - (4,653,230) - Trade (1,127,949) (3,369,743) - - Allowance for slow-moving inventories (600,000) - - - Rental of premises payable to: - Third parties (581,476) (509,354) - - - Related party (Note 18) - (300,000) - - - A director of the Company (Note 18) (52,637) (60,000) - - - Subsidiary company (Note 12) - - (28,999) (64,908) Goodwill written off (393,245) - - - Inventories written off (171,610) (168,602) - - Auditors remuneration: Current: - Auditors of the Company (81,500) (115,800) (20,000) (9,000) - Other firm of auditors (84,518) (173,949) - - (Over)/Underprovision in prior year (1,900) 1,000 - - (167,918) (288,749) (20,000) (9,000) Bad debts written off (145,258) (1,228,710) - - Lease rental of factory building (22,200) (462,050) - - (Forward) 28
The Company 2005 2004 2005 2004 RM RM RM RM Hire of machinery and equipment (4,366) (7,200) - - Interest expense on overdue trade debts (3,424) (384) - - Property, plant and equipment written off (2,135) (34,861) (2,135) - Amortisation of land use rights - (26,796) - - Staff costs include salaries, contributions to EPF, bonuses and all other staff related expenses. During the financial year, included in staff costs are contributions to EPF made by the Group and the Company amounting to RM1,013,472 and RM46,097 (2004 : RM1,124,642 and RM41,412) respectively. 6. DIRECTORS REMUNERATION The Company 2005 2004 2005 2004 RM RM RM RM Executive directors Company: - Other emoluments 1,096,251 1,181,266 - - - Fees 18,000 18,000 - - 1,114,251 1,199,266 - - Subsidiary companies: - Other emoluments 1,264,278 1,803,443 - - - Fees 218,927 50,000 - - 1,483,205 1,853,443 - - 2,597,456 3,052,709 - - Non-executive directors Company: - Other emoluments 119,454 129,600 46,500 54,000 (Forward) 29
The Company 2005 2004 2005 2004 RM RM RM RM Underprovision in prior year: - Executive directors of the 110,000-110,000 - Company - Fees - Non-executive directors of the Company - Fees 48,000-48,000-158,000-158,000-2,874,910 3,182,309 204,500 54,000 Other than the directors remuneration as disclosed above, the executive directors of the Company also received benefits-in-kind with an estimated cash value of about RM28,825 (2004 : RM45,925) from certain subsidiary companies. During the financial year, included in directors remuneration are contributions to EPF made by the Group amounting to RM206,119 (2004 : RM246,664). 7. FINANCE COSTS The Company 2005 2004 2005 2004 RM RM RM RM Interest on: - Trust receipts and bankers acceptance 4,071,043 4,650,987 - - - Term loans 3,807,008 2,721,734 - - - Bank overdrafts 1,468,815 1,886,832 - - - Advances and loan from directors 555,569 572,337 - - - Hire-purchase 234,117 291,076 4,858 5,075 - Others 50,185 3,276 - - - Finance lease 46,702 45,563 - - 10,233,439 10,171,805 4,858 5,075 30
8. INCOME FROM OTHER INVESTMENT The Company 2005 2004 2005 2004 RM RM RM RM Interest income from fixed deposits 37,187 7,941 - - 9. INCOME TAX EXPENSE The Company 2005 2004 2005 2004 RM RM RM RM Estimated current tax payable: Income tax (1,535,998) (1,518,414) - - Deferred tax (Note 26) 7,000 (257,074) - - (1,528,998) (1,775,488) - - Over/(Under)provision of income tax in prior years 126,235 (11,836) - 11,619 (1,402,763) (1,787,324) - 11,619 31
A reconciliation of income tax expense applicable to loss before tax at the applicable statutory income tax rate to income tax expense at the effective income tax rate of the Group and of the Company is as follows: The Company 2005 2004 2005 2004 RM RM RM RM Loss before tax (6,586,107) (1,175,973) (2,880,049) (2,078,478) Tax at the statutory tax rate of 28% (1,844,110) (329,272) (414,414) (581,974) Differences in tax rates applicable to small and medium scale industries - (264,079) - - Differences in tax rates arising from foreign subsidiary companies (320,909) 236,290 - - Tax effects of: Deferred tax assets not recognised (266,800) 570,601 - - Income not subject to tax - (442,413) - - Expenses that are not deductible in determining taxable profit 3,613,934 1,933,715 - - Utilisation of deferred tax assets previously not recognised (67,531) (511,328) - - Tax losses which cannot be carried forward 414,414 581,974 414,414 581,974 Income tax expense for the year 1,528,998 1,775,488 - - As of January 31, 2005, certain subsidiary companies have tax exempt income amounting to approximately RM5,975,000 arising from chargeable income on which income tax was waived in 1999 in accordance with the Income Tax (Amendment) Act, 1999. These tax exempt income accounts, which are subject to approval by the Inland Revenue Board, are available for the distribution of tax exempt dividends to the shareholders of the subsidiary companies without attracting any additional tax liabilities. 32
10. LOSS PER ORDINARY SHARE 2005 2004 RM RM Net loss attributable to shareholders (12,630,855) (3,274,477) Weighted average number of ordinary shares in issue 47,706,173 41,176,543 Loss per ordinary share - Basic (sen) 26.5 8.0 33
11. PROPERTY, PLANT AND EQUIPMENT Leasehold land and Freehold land and Motor Office equipment, furniture and Plant and buildings Buildings vehicles fittings Renovation machinery Total RM RM RM RM RM RM RM Cost At beginning of year 23,211,360 69,222,390 8,751,815 5,395,269 2,531,049 29,471,206 138,583,089 Translation adjustment - - - 2,268 - - 2,268 Additions 9,706 3,628 1,877,720 808,567 205,378 3,336,799 6,241,798 Disposals (260,686) (1,970,000) (1,683,058) (169,541) (11,140) (597,601) (4,692,026) Disposal of subsidiary companies (2,451,236) (12,204,810) (2,151,101) (927,278) (415,090) (5,879,746) (24,029,261) Write off - - - (5,570) - - (5,570) At end of year 20,509,144 55,051,208 6,795,376 5,103,715 2,310,197 26,330,658 116,100,298 (Forward) 34
Leasehold land and Freehold land and Motor Office equipment, furniture and Plant and buildings buildings vehicles Fittings Renovation Machinery Total RM RM RM RM RM RM RM Accumulated Depreciation At beginning of year 3,312,888 1,981,373 6,186,070 2,902,289 1,120,176 9,478,664 24,981,460 Translation adjustment - - - 999 - - 999 Charge for the year 412,656 1,406,475 854,269 516,111 202,543 1,735,327 5,127,381 Disposals - (11,458) (715,237) (151,485) - - (878,180) Disposal of subsidiary companies (221,661) (1,689,244) (1,253,489) (524,309) (221,756) (1,942,609) (5,853,068) Write off - - - (3,435) - - (3,435) At end of year 3,503,883 1,687,146 5,071,673 2,740,170 1,100,963 9,271,382 23,375,157 Net Book Value As of 31.1.2005 17,005,261 53,364,062 1,723,763 2,363,545 1,209,234 17,059,276 92,725,141 As of 31.1.2004 19,898,472 67,241,017 2,565,745 2,492,980 1,410,873 19,992,542 113,601,629 Depreciation charge for 2004 594,956 403,809 1,077,224 303,292 275,760 3,766,802 6,421,843 35
Office equipment, Motor furniture and vehicles fittings Renovation Total The Company RM RM RM RM Cost At beginning of year 125,386 49,221 244,083 418,690 Write off - (5,570) - (5,570) Balance at end of year 125,386 43,651 244,083 413,120 Accumulated Depreciation At beginning of year 50,155 30,514 83,394 164,063 Charge for the year 25,077 9,016 24,408 58,501 Write off - (3,435) - (3,435) At end of year 75,232 36,095 107,802 219,129 Net Book Value As of 31.1.2005 50,154 7,556 136,281 193,991 As of 31.1.2004 75,231 18,707 160,689 254,627 Depreciation charge for 2004 25,078 9,294 24,408 58,780 As of January 31, 2005, included in property, plant and equipment of the Group and of the Company are the following: (i) Net book value of motor vehicles registered under the names of the following parties for which certain subsidiary companies are the beneficiaries: 2005 2004 RM RM Directors and employees 218,783 245,595 Third parties 62,338 55,650 281,121 301,245 36
(ii) Net book value of property, plant and equipment acquired through hirepurchase and lease arrangements: The Company 2005 2004 2005 2004 RM RM RM RM Plant and machinery 2,372,782 2,366,188 - - Motor vehicles 1,165,696 1,821,023 50,154 75,231 Office equipment, furniture and fittings 905,311 1,166,745 - - 4,443,789 5,353,956 50,154 75,231 (iii) (iii) Titles to certain leasehold land and buildings with net book value totaling RM1,618,101 (2004 : RM1,637,977) are yet to be transferred or issued by the relevant regulatory authorities to the respective subsidiary companies. Cost of fully depreciated assets which are still in use are as follows: 2005 2004 RM RM Motor vehicles 2,549,389 3,348,852 Plant and machinery 973,886 695,610 Office equipment, furniture and fittings 532,301 850,540 Renovation 30,962 28,960 4,086,538 4,923,962 (v) The unexpired lease periods of the leasehold land and buildings of the Group are as follows: 2005 2004 RM RM 1-10 years 143,738 150,070 21-30 years 4,440,628 6,349,799 31-40 years 3,028,634 3,337,814 Short leasehold land and buildings 7,613,000 9,837,683 (Forward) 37
2005 2004 RM RM 51-60 years 2,017,735 2,644,665 71-80 years 1,781,146 2,076,665 81-99 years 5,593,380 5,339,459 Long leasehold land and buildings 9,392,261 10,060,789 Total net book value 17,005,261 19,898,472 (vi) Assets of the Group with net book values amounting to RM59,851,251 (2004 : RM92,323,688) have been pledged as security to certain banks for credit facilities as mentioned in Note 25. 12. INVESTMENT IN SUBSIDIARY COMPANIES The Company 2005 2004 RM RM Unquoted shares - at cost 21,556,031 25,169,059 The subsidiary companies, which are all incorporated in Malaysia, except as otherwise indicated, are as follows: Effective Equity Interest Name of Company Principal Activity 2005 2004 % % Direct Subsidiary Companies Chin Foh Trading Sdn. Bhd. ( CFT ) ** Art Fibre Industry Sdn. Bhd. (Forward) General merchants, importers, exporters, agents and manufacturers of hardware. Manufacturers and dealers in art fibre products. 100 100 60 60 38
Effective Equity Interest Name of Company Principal Activity 2005 2004 % % Direct Subsidiary Companies Irama Langsung Sdn. Bhd.** Investment holding. 80 80 Business Feature Sdn. Bhd. ** Investment holding. 50.1 50.1 Indirect Subsidiary Companies held through CFT Chin Foh Land Sdn. Bhd. Investment holding. 100 100 C.F. Advance Marketing Sdn. Bhd.** General merchants, importers, exporters, agents and manufacturers of hardware. 100 100 Chin Foh Properties Sdn. Bhd. Investment holding. 100 100 Chin Foh Trading (Utara) Sdn. Bhd.** Horne Australia Pte. Ltd. (Incorporated in Australia) Horne Asia Sdn. Bhd. General merchants, importers, exporters, agents and manufacturers of hardware. Trading of hardware equipment. Manufacturing of rotary aluminium ventilators and related components. 51 51 51 51 51 51 Chunsoon Marketing Sdn. Bhd. Investment holding. 51 51 Chunsoon Zinc Industrial Sdn. Bhd. Zhunsoun Manufacturing Sdn. Bhd. (Forward) Industrial zinc and steel work. Manufacturing and fabrication of industrial zinc products. 51 51 51 51 39
Effective Equity Interest Name of Company Principal Activity 2005 2004 % % Okura-Shoji (Malaysia) Sdn. Bhd. General trading. 60 60 Pantech Cladding Sdn. Bhd. Installation of panels. 100 100 Pantech Emco Sdn. Bhd. Pantech Emco Marketing Sdn. Bhd. Sarnaz Sdn. Bhd. CF Aluminium Sdn. Bhd.** Manufacturing of expanded metal and fabrication of steel components. Retailing and marketing of expanded metal and steel related products. General contractor and investment holding. Manufacturing, trading and anodising of aluminium extrusion. 51 51 51 51 100 100 96.40 93.34 CFM Fabrication Sdn. Bhd.** Manufacturing and trading of aluminium products and metal louvers. 51 51 Asaztera Realty Sdn. Bhd. General contractor. 30.6 30.6 CF Webforce Limited (Incorporated in Hong Kong) CF Metal Recycling Sdn. Bhd. ** Chin Foh Trading (Johor Bahru) Sdn. Bhd. ** Provision of trading and other value-added services for participants in the supply of the aluminium industry. Recycling and sales of non-ferrous metal products. General merchants of hardware. 30.6 30.6 70.1 70.1 100 100 (Forward) 40