hexza annual report 2006 - ::hexza corporation berhad::

2

4

5

6

7

10

12

15

20

22

27

28

29

31

32

35

63

63

64

66

HEXZA CORPORATION BERHAD (8705-K) (Incorporated in Malaysia) 2006

CONTENTS

Notice of Annual General Meeting

Statement Accompanying Notice of Annual General Meeting

Corporate Information

Corporate Structure

Chairman’s Statement

Directors’ Profile

Audit Committee Report

Corporate Governance Statement

Statement on Internal Control

Directors’ Report

Report of the Auditors

Income Statements

Balance Sheets

Statements of Changes in Equity

Cash Flow Statements

Notes to the Financial Statements

Statement by Directors

Declaration by the Officer Primarily Responsible for the Financial Management of the Company

Statement of Shareholdings

Properties owned by Hexza Corporation Berhad & its Subsidiaries

Proxy Form

COVERThe newly completed ethanol plant with enhanced quality and capacity.

Annual Report

HEXZA CORPORATION BERHAD (8705-K) (Incorporated in Malaysia)

2006

22

Notice of Annual General Meeting

AGENDA

1. To receive and adopt the Audited Financial Statements for the financial year ended31st January 2006 and the Reports of the Directors and Auditors thereon.

2. To approve the payment of a First and Final Dividend of 4% less income tax of 28%in respect of the financial year ended 31st January 2006.

3. To approve the payment of Directors’ fees of RM155,000 for the financial year ended31st January 2006.

4. To re-elect Tuan Haji Mohd Jali @ Mohd Jalil Bin Sany who retires in accordance withArticle 78 of the Company’s Articles of Association and being eligible, offers himselffor re-election.

5. To pass the following resolution pursuant to Section 129(6) of the Companies Act,1965:

“That pursuant to Section 129(6) of the Companies Act, 1965, Dr. Foong WengCheong be and is hereby re-appointed a Director of the Company to hold office untilthe next Annual General Meeting.”

6. To re-appoint Messrs. Deloitte & Touche as Auditors and to authorise the Directorsto fix their remuneration.

7. As Special Business, to consider and, if thought fit, to pass the following OrdinaryResolution:

Authority to issue shares pursuant to Section 132D of the Companies Act, 1965

“THAT pursuant to Section 132D of the Companies Act, 1965, the Directors be andare hereby empowered to issue shares of the Company at any time until theconclusion of the next Annual General Meeting of the Company upon such terms andconditions and for such purposes as the Directors may, in their absolute discretion, deemfit, provided that the aggregate number of shares issued pursuant to this resolutiondoes not exceed 10% of the issued capital of the Company for the time being and thatthe Directors are also empowered to obtain the approval for the listing of and quotationfor the additional shares so issued on Bursa Malaysia Securities Berhad.”

8. To transact any other business of which due notice shall have been given.

(Resolution 1)

(Resolution 2)

(Resolution 3)

(Resolution 4)

(Resolution 5)

(Resolution 6)

(Resolution 7)

NOTICE IS HEREBY GIVEN that the Thirty-seventh Annual General Meeting of Hexza Corporation Berhad

will be held at Kinta Room, Mezzanine Floor, Casuarina Ipoh, 18 Jalan Raja Dr. Nazrin Shah (Jalan Gopeng),

30250 Ipoh, Perak Darul Ridzuan on Saturday, 22nd July 2006 at 11.30 a.m. for the following purposes:-


2006

A depositor shall qualify for entitlement to the dividend only in respect of:

a) Shares deposited into the Depositor’s Securities Account before 12.30 p.m. on 1st August 2006 (inrespect of shares which are exempted from mandatory deposit);

b) Shares transferred into the Depositor’s Securities Account before 4.00 p.m. on 3rd August 2006 inrespect of ordinary transfers; and

c) Shares bought on Bursa Malaysia Securities Berhad on a cum entitlement basis according to the Rulesof Bursa Malaysia Securities Berhad.

By Order of the Board

CHONG YOKE SENGCompany Secretary

Ipoh31st May 2006

NOTES:

1. A proxy need not be a member of the Company.

2. An instrument appointing a proxy, in the case of an individual, shall be signed by the appointor or his attorney dulyauthorised in writing or in the case of a corporation, shall be either under its Common Seal or signed on its behalfby an attorney or officer of the corporation so authorised.

3. In order for the proxy to be valid, it must be lodged together with the power of attorney or other authority, if any, underwhich it is signed, or a notary certified copy of that power or authority at the registered office of the Company notless than forty-eight (48) hours before the time for holding the meeting or any adjournment thereof.

4. Explanatory Note on Special Business:

The proposed Ordinary Resolution 7, if passed, will empower the Directors to issue shares in the Company up to anamount not exceeding in total 10% of the issued share capital of the Company for the time being for such purposesas the Directors consider would be in the interests of the Company. This authority, unless revoked or varied at ageneral meeting, will expire at the conclusion of the next Annual General Meeting of the Company.

NOTICE OF DIVIDEND ENTITLEMENT AND PAYMENT

NOTICE IS ALSO HEREBY GIVEN that subject to the approval of the shareholders at the Thirty-seventh

Annual General Meeting, the First and Final Dividend of 4% less income tax of 28% in respect of the financial

year ended 31st January 2006 will be paid on 30th August 2006 to members whose names appear in the

Record of Depositors on 3rd August 2006.

3


2006

44

Statement Accompanying Notice of Annual General Meeting

1. Name of the Directors who are standing for re-election/re-appointment

(a) Pursuant to Article 78 of the Company’s Articles of Association:

• Tuan Haji Mohd Jali @ Mohd Jalil Bin Sany

(b) Pursuant to Section 129(6) of the Companies Act, 1965:

• Dr. Foong Weng Cheong

2. Details of attendance of Directors at Board Meetings

There were four (4) Board Meetings held during the financial year ended 31st January 2006:

• 22-03-2005• 18-06-2005• 23-09-2005• 25-11-2005

Details of the attendance of Directors at the Board Meetings are as follows:

Name No. of Meetings Attended

Datuk Dr. Foong Weng Sum 4/4

Dr. Foong Weng Cheong 4/4

Dato’ Richard Ong Guan Seng 4/4

Mr. Leong Keng Yuen 4/4

Tuan Haji Mohd Jali @ Mohd Jalil Bin Sany 4/4

3. Further details of Directors who are standing for re-election/re-appointment

Details of Tuan Haji Mohd Jali @ Mohd Jalil Bin Sany and Dr. Foong Weng Cheong who are standing forre-election/re-appointment are disclosed in the Directors’ Profile and the details of their shareholdings aredisclosed in the Directors’ Report.

4. Thirty-seventh Annual General Meeting

The Thirty-seventh Annual General Meeting of the Company will be held at Kinta Room, MezzanineFloor, Casuarina Ipoh, 18 Jalan Raja Dr. Nazrin Shah (Jalan Gopeng), 30250 Ipoh, Perak Darul Ridzuanon Saturday, 22nd July 2006 at 11.30 a.m.


2006

4

Corporate Information

BOARD OF DIRECTORS

Datuk Dr. Foong Weng SumChairman & Group Chief Executive

Dr. Foong Weng CheongNon-Independent Non-Executive Director

Tuan Haji Mohd Jali @ Mohd Jalil Bin SanyNon-Independent Non-Executive Director

Dato’ Richard Ong Guan SengIndependent Non-Executive Director

Mr. Leong Keng YuenIndependent Non-Executive Director

AUDIT COMMITTEE

Dato’ Richard Ong Guan SengChairman

Datuk Dr. Foong Weng SumMr. Leong Keng Yuen

REMUNERATION COMMITTEE

Mr. Leong Keng YuenChairman

Datuk Dr. Foong Weng SumDr. Foong Weng CheongDato’ Richard Ong Guan Seng

NOMINATING COMMITTEE

Dato’ Richard Ong Guan SengChairman

Dr. Foong Weng CheongMr. Leong Keng Yuen

COMPANY SECRETARYMs. Chong Yoke Seng (MIA 3672)

REGISTERED OFFICELot 6 & 20, Persiaran Tasek, Kawasan Perindustrian Tasek, 31400 Ipoh,Perak Darul Ridzuan.Tel : 05-2917823Fax : 05-2918546

REGISTRARSSymphony Share Registrars Sdn. Bhd.No. 35 Jalan Hussein,30250 Ipoh,Perak Darul Ridzuan.Tel : 05-2415633Fax : 05-2415578

AUDITORSDeloitte & Touche Chartered Accountants 87, Jalan Sultan Abdul Jalil,30450 Ipoh,Perak Darul Ridzuan.

SOLICITORSAkramin San & LoongBenjamin DawsonChan & AssociatesFoong & PartnersShook Lin & BokW.Y. Chan & Roy

PRINCIPAL BANKERSAmBank BerhadHong Leong Bank BerhadHSBC Bank Malaysia BerhadMalayan Banking BerhadRHB Bank Berhad

STOCK EXCHANGE LISTINGBursa Malaysia Securities Berhad (Main Board)

5

Corporate Structure

This chart features operating subsidiaries and associated company only.

As At 31st January 2006


NORSECHEM RESINS SDN. BERHAD100%

CHEMICAL INDUSTRIES(MALAYA) SDN. BHD. 99.91%

SUMMIT DEVELOPMENTCORPORATION SDN. BERHAD100%

BIO-ACETIC PRODUCTSSDN. BHD. 99.91%

NORSECHEM MARKETING SDN. BHD. 100%

HEXZA-MATHER SDN. BHD.100%

HEXZACHEM SARAWAKSDN. BHD. 80%

SUMMIT IMAGING TECHNOLOGIESSDN. BHD. 49%

Subsidiaries

Associated company

2006

26


2006

7

Chairman’s Statement

Dear Fellow Shareholders,

The year under review presented unprecedented challenges. Geo-political instability in the Middle

East re-inforced by the burgeoning economies of China and India caused a substantial rise in the

price of most commodities including crude petroleum from which most of the Group’s raw materials

are derived, causing severe pressures on operating margins.

Nonetheless, the Group prevailed and operated profitably and creditably under these most trying

conditions and I am pleased to present on behalf of the Board of Directors the Annual Report and

Audited Financial Statements of the Group and the Company for the financial year ended 31st

January, 2006.

Financial Review

On a turnover of RM130,097,070 (RM128,454,474 for 2005) the Group made a profit before tax of

RM13,540,417 (RM12,079,185 for 2005), an increase of 12.1%. The profit after tax amounted to

RM11,055,404 compared to RM8,714,416 in the previous year.

Company wise, Hexza Corporation Berhad recorded a profit before tax of RM9,269,497, arising

mainly from dividend income from subsidiaries and associated companies. The profit after tax

amounted to RM8,201,539 compared to RM3,415,635 in the previous year. The substantial increase

in company profits is the result of a substantial increase in dividend received from our associated

company, Summit Imaging Technologies Sdn. Bhd.

Operational Review

The record prices experienced by crude petroleum and liquefied natural gas during the year resulted

in unprecedented prices for methanol, urea, phenol and melamine which are the major raw materials

of the Group’s Resins Division. Over-capacity of the adhesive manufacturers, aggravated by

increasing captivation of demand resulting from in house resin plants owned by large timber

manufacturing groups, limited pricing power and consequently marginal pricing are squeezed to

minimal levels.

Our technical co-operation with Orica Australia Pty. Ltd., of Australia has resulted in some higher

specification products which enabled the Group to compete better and win over some volume from

our competitors.

Under the above most trying and challenging conditions, I am pleased to report that both the resins

plants in Port Klang and Kuching operated profitably.

The Resins Division is one of the Group’s two core businesses and we are cautiously confident that

this division will perform better in the current year.

Chemical Industries (Malaya) Sdn. Bhd., embarked on the construction of a new plant, with an

enhanced capacity of 50%, during the year under review. Ethyl alcohol produced by the new plant is

also of a better quality with lower levels of impurities.


2006

88

Chairman’s Statement (continued)

With the enhanced capacity we are also faced with enhanced challenges amongst which is the

increase in the effluent which has to be treated to the satisfaction of the Department of Environment.

Consultants have been appointed to advise the company which is committed to a clean environment

and sustainable development.

Another challenge is the price and supply of the company’s main raw material – molasses.

The price of molasses has hovered around the previous year’s record high. This, coupled with the

increase in transportation costs both for the receipt of raw materials and delivery of products to

customers, has increased our costs substantially. Nevertheless, we attempt to contain price

increases to our loyal customers.

Malaysia produces 65,000 tons of molasses annually which barely satisfy the requirements of the

local manufacturers of ethanol. If any of the locally produced molasses is exported, a scramble for

the balance will ensue. Malaysia’s production of molasses is miniscule compared to the production

of our neighbouring countries. Indonesia’s annual molasses production is put at almost 1.4 million

tons (8% of Asia’s molasses production). Thailand is contributing about 12% of Asia’s annual

production (circa 2 million tons). We are committed to adding value to raw materials produced in

Malaysia.

Under the most challenging conditions Chemical Industries (Malaya) Sdn. Bhd., managed to perform

satisfactorily.

Hexza-Mather incurred a bigger loss (RM151,690) compared to the previous year (RM90,539).

Bio-Acetic Products Sdn. Bhd., incurred a loss of RM70,963 for the year.

Norsechem Marketing Sdn. Bhd., earned RM641,241 in profit.

Summit Development Corporation Sdn. Bhd., which has no on-going project and no land-bank

incurred a loss of RM64,303 compared to a profit of RM356,132 in the previous year.

Summit Imaging Technologies Sdn. Bhd.

Summit Imaging Technologies Sdn. Bhd. (SIT), an associated joint venture company with Fujicopian

Co., Ltd. (FCL), of Osaka, which is 49% owned by us, had at its Extraordinary General Meeting held

on 24th February, 2006 resolved to voluntarily wind up the Company pursuant to Section 254 (1) of

the Companies Act, 1965. The increasing manufacturing costs in Malaysia were the factors that

propelled FCL to relocate their operation to Vietnam in order to maintain competitiveness. Summit

Imaging Technologies Sdn. Bhd., incurred losses as a result of the cessation of business operations

on 31st December 2005. Our share of the losses for the financial year ended 31st January, 2006

amounted to RM937,731.


2006

9

Dividends

The Board of Directors is recommending a first and final dividend for the current year of 4.0%, less

28% tax amounting to RM1,850,252. This dividend is 60% higher than the dividend paid out in the

previous year.

Prospects

In spite of challenging conditions, we are cautiously optimistic that better and higher specification

products and tighter management controls will enable the Group to maintain the same level of profits

if not improved on it.

Appreciation

On behalf of my fellow Directors, I would like to express our sincere thanks to all our customers,

suppliers, partners and shareholders for their loyal support and understanding.

Last but not least, I wish to express my heartfelt thanks to my fellow Directors of the Company and

its subsidiaries for their advice and guidance and the management and staff for their dedication,

diligence and commitment to continuous improvement resulting in creditable performance under

challenging conditions.


18th May 2006


2006

1010

Directors’ Profile


Datuk Dr. Foong Weng Sum, aged 66, was appointed to the Board on 7th May 1982 as Vice Chairman. On23rd October 1986, he assumed the position of Group Chief Executive. He took over as Chairman of theBoard on 1st December 2000. He is also a member of the Audit Committee, Remuneration Committee andESOS Committee.

Datuk Dr. Foong Weng Sum is a graduate in medicine from the University of London. He has considerablebusiness experience in various business sectors, including manufacturing, property development, financialmanagement and investment.

Dr. Foong Weng CheongNon-Independent Non-Executive Director

Dr. Foong Weng Cheong, aged 73, was appointed to the Board on 7th May 1982. He is also a member ofthe Remuneration Committee and Nominating Committee.

Dr. Foong Weng Cheong is a graduate in medicine from the University of Melbourne, Australia and is a Fellowof the Royal College of Surgeons of Edinburgh and also a Fellow of the Royal College of Surgeons ofEngland. He was appointed Senior Lecturer (1971-1972), Associate Professor (1973-1980) and Professor &Head of Department of Surgery (1981-1988) at the National University of Singapore and Chief of UniversityDepartment of Surgery at Singapore General Hospital and National University Hospital until he retired in1988. Since 1988 he is a Consultant Surgeon at Mount Elizabeth Medical Centre, Singapore.

Dato’ Richard Ong Guan SengIndependent Non-Executive Director

Dato’ Richard Ong, aged 67, was appointed to the Board on 25th March 1994. He is also the Chairman of theAudit Committee, Nominating Committee and ESOS Committee and a member of the RemunerationCommittee.

Dato’ Richard Ong is a member of the Malaysian Institute of Accountants, the Malaysian Institute of CertifiedPublic Accountants, the Institute of Chartered Accountants in Australia and the Institute of CharteredSecretaries and Administrators. He became a Partner of Peat Marwick (now known as KPMG), Malaysia in1971 and was appointed Deputy Senior Partner in 1989 until he retired in 1993. He is also a Non-ExecutiveDirector of Malaysian Mosaics Berhad and Rock Chemical Industries (M) Berhad, companies listed on theMain Board of Bursa Malaysia Securities Berhad (Bursa Securities).


2006

11

Mr. Leong Keng YuenIndependent Non-Executive Director

Mr. Leong Keng Yuen, aged 55, was appointed to the Board on 15th September 2000. He is also the Chairmanof the Remuneration Committee and a member of the Audit Committee and Nominating Committee.

Mr. Leong Keng Yuen was a partner of Ernst & Young Malaysia before retiring at the end of 2005. He has over25 years involvement in the accounting profession with initial emphasis on Company Law and SecretarialPractice and later covering also Tax and Audit. He is a member of the Malaysian Institute of Accountants anda Fellow of the Association of Chartered Certified Accountants. He also holds a Master of Science inManagement from the Massachusetts Institute of Technology U.S.A. and a Bachelor of Engineering (FirstClass Honours) from University of Queensland, Australia. He is also a Non-Executive Director of Choo BeeMetal Industries Berhad, a company listed on the Main Board of Bursa Securities.

Tuan Haji Mohd Jali @ Mohd Jalil Bin SanyNon-Independent Non-Executive Director

Tuan Haji Mohd Jalil Sany, aged 59, was appointed to the Board on 20th November 2000. He is also amember of the ESOS Committee.

Tuan Haji Mohd Jalil Sany is a member of the Malaysian Institute of Accountants, Fellow of the Associationof Chartered Certified Accountants and the British Institute of Management. He has over 30 years of workingexperience in diversified industries which includes unit trust and investment holdings, properties and hotels,banking and insurance, plantation, film distribution and exhibition, commercial agriculture and animalhusbandry. He has more than 20 years exposure in Sarawak and Sabah business operations. He is currentlya Director of Hexzachem Sarawak Sdn. Bhd., an 80% owned subsidiary of the Company.

Other Information

• NationalityAll the Directors are Malaysians.

• Family relationship with any Director and/or substantial shareholderDr. Foong Weng Cheong and Datuk Dr. Foong Weng Sum are brothers. Apart from this, none of theDirectors has any family relationship with the other Directors or substantial shareholders of the Company.

• Conflict of interestSave as disclosed in Note 23 under Notes to the Financial Statements, none of the Directors has anyconflict of interest with the Company.

• Convictions for offencesNone of the Directors has been convicted of any offence within the past ten years.


2006

1212

Audit Committee Report

The Board is pleased to present the Audit Committee Report for the financial year ended 31st January 2006.

The Audit Committee comprises the following members:

Dato’ Richard Ong Guan Seng(Chairman, Independent Non-Executive Director)

Datuk Dr. Foong Weng Sum(Member, Chairman & Group Chief Executive)

Mr. Leong Keng Yuen(Member, Independent Non-Executive Director)

Constitution

The Audit Committee (“the Committee”) was established on 6th April 1994 to serve as a Committee of theBoard. The terms of reference are as follows:

Membership

(a) The Committee shall be appointed by the Board from amongst the Directors of the Company and shall consistof not less than three members of whom the majority shall be Independent Directors. At least one member ofthe Committee must be a member of the Malaysian Institute of Accountants or eligible for membership.

(b) The members of the Committee shall select a Chairman from among their numbers who shall be anIndependent Director.

(c) The term of office and performance of the Committee and each of its members should be reviewed bythe Board at least once every three years to determine whether such Audit Committee and membershave carried out their duties in accordance with their terms of reference.

Authority

The Audit Committee shall, in accordance with a procedure to be determined by the Board of Directors andat the cost of the Company:

(a) have authority to investigate any matter within its terms of reference;

(b) have the resources which are required to perform its duties;

(c) have full and unrestricted access to any information pertaining to the Company;

(d) have direct communication channels with the external auditors and the person(s) carrying out the internalaudit function or activity (if any);

(e) be able to obtain independent professional or other advice; and

(f) be able to convene meetings with the external auditors, excluding the attendance of the executivemembers of the committee, whenever deemed necessary.


2006

13

Responsibilities and duties

The functions of the Audit Committee shall be to:-

(a) review with the external auditors, their audit plans;

(b) review with the external auditors, their evaluation of the system of internal controls;

(c) review with the external auditors, their audit reports;

(d) review the assistance given by the Company’s employees to the external auditors;

(e) review the adequacy of the scope, functions and resources of the internal audit functions and that it hasthe necessary authority to carry out its work;

(f) review the scope and results of the internal audit procedures;

(g) review the quarterly results and year end financial statements, prior to the approval by the Board ofDirectors, focusing particularly on:

(i) changes in or implementation of major accounting policy changes;

(ii) significant and unusual events; and

(iii) compliance with accounting standards and other legal requirements.

(h) review any related party transactions that may arise within the Company or Group;

(i) recommend the appointment of external auditors, audit fee and any question of resignation or dismissal;

(j) undertake such other functions as may be agreed to by the Audit Committee and Board of Directors; and

(k) report its findings to the Board of Directors.

Meetings

(a) The Audit Committee shall meet not less than four (4) times a year.

(b) In order to form a quorum in respect of a meeting of an Audit Committee, the majority of members presentmust be Independent Directors.

(c) The Secretary to the Committee shall be the Company Secretary.

Reporting Procedures

The Secretary shall circulate the minutes of meetings of the Committee to all members of the Board.

Attendance

During the financial year ended 31st January 2006, four (4) Audit Committee meetings were held andattended by all the members of the Audit Committee.


2006

1414

Audit Committee Report (continued)

Summary of activities during the financial year

The activities undertaken by the Audit Committee in accordance with the Terms of Reference were as follows:

(i) Reviewed the audit planning memorandum for the year 2005/2006 with the external auditors.

(ii) Reviewed the Groups’ quarterly results announcement before recommending them to the Board ofDirectors for approval.

(iii) Reviewed the audited financial statements of the Company and of the Group with the external auditorsto ensure compliance with the provisions of the Companies Act, 1965 and the applicable accountingstandards prior to submission to the Board of Directors for consideration and approval.

(iv) Reviewed and discussed the external auditors’ management letter to ensure corrective action has beenundertaken satisfactorily by the management to address any weaknesses in the internal control.

(v) Reviewed and deliberated on the reports on the findings from the internal audit unit on the results of theirinternal audit visits, and management’s response to the recommendations and the implementation ofagreed action plans with request for further actions where appropriate.

(vi) Reviewed and deliberated on the quarterly risk assessment reports from the operating companies of theGroup with request for further actions where appropriate.

(vii) Reported to the Board on significant issues discussed during the Audit Committee meetings andconveyed the Audit Committee’s recommendations, if any, to the Board. The minutes of the AuditCommittee meetings were distributed to all Board members.

(viii) Reviewed and verified the allocation of Options under the Executive Share Options Scheme (ESOS)was in accordance to the ESOS By-laws and the Listing Requirements of Bursa Malaysia SecuritiesBerhad.

(ix) Met with the external auditors of the Company without the presence of the Group Chief Executive andmanagement.

Internal Audit Function

The internal audit unit was established since 2004 to assist the Audit Committee in discharging its duties andresponsibilities. The role of the internal audit is to provide the Audit Committee with independent and objectivereports on the adequacy and integrity of the internal control system of Hexza and its operating subsidiaries. Thefunctions and responsibilities of the internal audit unit are embodied in an Audit Charter approved by the Board.

During the financial year under review, the internal audit unit carried out assignments based on the internal auditplan approved by the Audit Committee. The internal audit unit has adopted the risk-based approach and focusedon the principal risk profiles of the major operating business units. In addition, the internal audit unit alsoperformed special audits and reviews at the request of management and the Audit Committee. Internal auditreports with their recommendations and management responses were tabled at each Audit Committee meetingfor review and deliberation. The internal audit unit also followed up with the management on the implementationof the agreed procedures and controls and reported accordingly in its quarterly reports to the Audit Committee.


2006

15

Corporate Governance Statement

The Board of Directors (“the Board”) of Hexza Corporation Berhad is pleased to report as follows on theapplication of the principles and best practices of the Malaysian Code on Corporate Governance (“Code”) andextent of compliance with the Code as required under the Listing Requirements of Bursa Malaysia SecuritiesBerhad. This statement is made in accordance with a resolution of the Board of Directors dated 18th May 2006.

A. DIRECTORS

The Board

The Board is responsible for the corporate governance practices of the Group. It guides and monitors theaffairs of the Group on behalf of the shareholders and retains full and effective control over the Group.The key responsibilities include the primary responsibilities prescribed under the Code. These cover areview of the strategic direction for the Group, overseeing the business operations of the Group, andevaluating whether these are being properly and effectively managed. The Directors with their differentbackgrounds and specializations, collectively bring with them a wide range of experience and expertiseto enable the Board to lead and guide the Company effectively.

Board Balance

The Group is led and controlled by an effective Board, which consists of five (5) members including two(2) Independent Non-Executive Directors, two (2) Non-Independent Non-Executive Directors and one (1)Executive Director. Therefore, the Board’s composition complies with the Listing Requirements of BursaMalaysia Securities Berhad that one third of its Board consists of Independent Directors. TheIndependent Directors are professionals of credibility and repute who demonstrate independence ofjudgment and objectivity in the Board’s deliberations.

The Board is of the view that its composition fairly reflects the composition of its shareholders. There isa balance of Executive, Non-Executive and Independent Non-Executive Directors. The Board is satisfiedthat the current Board composition fairly reflects the investment of minority shareholders in the Company.

The Group Chief Executive in particular is responsible for implementing the policies and decisions of theBoard, overseeing the operations as well as coordinating the development and implementation ofbusiness and corporate strategies. The Independent Non-Executive Directors bring to bear objective andindependent judgment to the decision making of the Board and provide an effective check and balancefor the other Directors. The Non-Executive Directors contribute significantly in areas such as policy andstrategy, performance monitoring, allocation of resources as well as improving governance and controls.Together with Group Chief Executive who has an intimate knowledge of the business, the Board isconstituted of individuals who are committed to business integrity and professionalism in all its activities.

Dato’ Richard Ong is the Senior Independent Non-Executive Director to whom concerns relating to theaffairs of the Group should be directed.

Board and Board Committee Meetings

There were four (4) meetings held during the financial year ended 31st January 2006 and details of theattendance of the Directors are as follows:

Name No. of Meetings Attended

Datuk Dr. Foong Weng Sum 4/4

Dr. Foong Weng Cheong 4/4

Dato’ Richard Ong Guan Seng 4/4

Mr. Leong Keng Yuen 4/4

Tuan Haji Mohd Jali @ Mohd Jalil Bin Sany 4/4


2006

1616

Corporate Governance Statement (continued)

Board and Board Committee Meetings (continued)

At each Board Meeting, the Board considers the financial results of the Group for the period ended foreach quarter, the year to date financial performance of the Group, operations reports of the majorbusiness divisions, new business venture proposals and strategic issues affecting the Group’s business.The Chairman of the Audit Committee reports to the Board on the internal control issues based on theinternal audit unit’s findings and the results of review of the quarterly risk assessment report.

The Board has also established the following Committees to assist the Board to discharge its fiduciaryduties:

• Audit Committee• Nominating Committee• Remuneration Committee• ESOS Committee

Supply of Information

The Board has unrestricted access to timely and accurate information, necessary in the furtherance oftheir duties. The Chairman ensures that all relevant issues requiring the Board’s deliberation andapproval are on the agenda and senior management is invited to the Board meetings to present therelevant issues. Board papers are distributed at least three (3) days prior to the meeting to allow Directorssufficient time to review the Board papers for effective deliberation at the meeting proper. All proceedingsof Board meetings are minuted and signed by the Chairman. All Directors have access to the advice andservices of the Company Secretary and senior management in carrying out their duties.

Independent Professional Advice

There is a formal procedure sanctioned by the Board for Directors, whether as a full board or in theirindividual capacity, to take independent professional advice at the Group’s expense, where necessaryand in furtherance of their duties.

Appointment to the Board

The Nominating Committee is responsible for establishing a formal and transparent selection process forthe appointment of new Directors to the Board. The Committee will review the required mix of skills andexperience of the Directors of the Board, and determine the appropriate Board balance and number ofnon-executive Directors. The Committee has established the procedures and processes towards anannual assessment of the effectiveness of the Board as a whole, the committees of the Board and forassessing the contribution of each individual Director. The Board is satisfied that the current compositionof the Board brings the required mix of skills and experience required for the Board to function effectively.

Directors’ Training

All the Directors have attended and completed the Mandatory Accreditation Programme (MAP)conducted by the Research Institute of Investment Analysts Malaysia (now known as Bursatra Sdn.Bhd.). The Directors will continue to undergo other relevant training programmes to further enhance theirskills and knowledge so as to keep abreast with developments in the market place and to assist them inthe discharge of their duties as Director. The Board will discuss and determine the training needs of theDirectors and the Directors are encouraged to attend various training on their own and submit thecertificate of attendance to the Company Secretary for record.


2006

17

Re-election

In accordance with the Company’s Articles of Association, all newly appointed Directors are subject toretirement and are entitled for re-election at the first annual general meeting after their appointment. Theother Directors are subject to retire on a rotational basis once every three years and are entitled to offerthemselves for re-election at the Company’s annual general meeting. Directors over seventy years oldare required to submit themselves for re-appointment annually in accordance to Section 129(6),Companies Act, 1965. Directors standing for re-election at the Thirty-seventh Annual General Meetingare detailed in the Notice of the Thirty-seventh Annual General Meeting.

B. DIRECTORS’ REMUNERATION

The Remuneration Committee is responsible for recommending the remuneration package for allDirectors. The individual Directors play no part in deciding their own remuneration.

The policy practised on Directors’ remuneration by the Remuneration Committee is to provide theremuneration packages according to the skills, level of responsibilities, experience and performance ofthe Directors in order to attract, retain and motivate Directors of the quality required to lead and guide thebusiness of the Company and the Group.

The remuneration of the Non-Executive Directors is determined by the Board as a whole. In addition,Non-Executive Directors are paid a meeting allowance for each Board meeting he attended. TheRemuneration Committee met once in 2005 to renew and recommend the remuneration of the ExecutiveDirector for the financial year ended 31st January 2006.

The details of the Directors’ remuneration for the financial year ended 31st January 2006 are as follows:

Executive Non-ExecutiveDirector Directors TotalRM’000 RM’000 RM’000

Fees and allowances 52 192 244Salaries & other emoluments 720 - 720Bonus 115 - 115Estimated monetary value of benefits-in-kind 11 - 11

The number of Directors whose remuneration fall into the following bands are as follows:

Band Executive Non-ExecutivesRM50,000 and below - 4RM850,000 to RM900,000 1 -

The fees payable to the Directors will be recommended by the Board for approval by shareholders at theforthcoming Annual General Meeting.

There are no contracts of service between any Director and the Company or its subsidiaries having anunexpired term of more than one year.

C. SHAREHOLDERS

The Annual General Meeting

All shareholders are welcome to attend the Company’s Annual General Meeting and to activelyparticipate in the proceedings. They are encouraged to give their views and suggestions for the benefitof the Company. Every opportunity is given to shareholders to ask questions and seek clarification on thebusiness and performance of the Company.


2006

18

Corporate Governance Statement (continued)

Shareholders communication and investors relationship policy

The annual reports and the quarterly announcements are the primary modes of communication to reporton the Group’s business, activities and financial performance to all its shareholders. The AGM is theprincipal avenue for dialogue and interaction with the shareholders of the Company. At the AGM, theshareholders are encouraged to ask questions both about the resolutions being proposed or any issuespertaining to the Company. Members of the Board and the external auditors of the Company are presentto answer questions raised at the meeting. Where it is not possible to provide immediate answers, theChairman will undertake to furnish the shareholder with a written answer after the AGM.

D. ACCOUNTABILITY AND AUDIT

Financial Reporting

The Board aims to present a balanced and meaningful assessment of the Group’s financial performanceand prospects at the end of the financial year, primarily through the annual financial statements andquarterly announcement of results to shareholders as well as the Chairman’s statement and review ofoperations in the annual report. The Board is assisted by the Audit Committee to oversee the Group’sfinancial reporting processes and the quality of its financial reporting.

Relationship with the Auditors

The Company has established a transparent and appropriate relationship with the Group’s internal andexternal auditors through the Audit Committee. The Audit Committee meets with the external auditorswithout the presence of any executives of the Group at least once a year.

The role of the Audit Committee in relation to the external auditors is described in the Audit CommitteeReport.

Internal Control

The information on the Group’s internal control is presented in the Statement on Internal Control of thisAnnual Report.

E. COMPLIANCE WITH THE BEST PRACTICES

The Group has taken various steps to ensure compliance with the Best Practices of the Code during thefinancial year save as follows:

Division of Responsibilities

The roles of the Chairman and the Group Chief Executive are combined and are currently held by DatukDr. Foong Weng Sum. The Board is mindful of the combined roles but is of the view that IndependentDirectors who are well qualified professionals provide an element of objectivity, independent judgmentand the necessary check and balance on the Board. All related party transactions, which arose in thenormal course of business involving him, have been disclosed in the notes to the financial statements.

F. DIRECTORS’ RESPONSIBILITY STATEMENT

The Directors are responsible for the preparation of the Annual Audited Accounts and the Board alwaysensures that proper accounting records are kept and the accounts and other financial reports of theGroup are prepared in accordance with the applicable approved accounting standards and complied withthe provisions of the Companies Act, 1965.


2006

19

The Directors also have a general responsibility for taking such steps as are reasonably open to them tocontrol and safeguard the assets of the Group and to prevent and detect fraud and other irregularities.In the opinion of the Directors, the Group has applied the appropriate accounting policies and standardsconsistently in the preparation of the financial statements for the financial year ended 31st January 2006.

G. OTHER INFORMATION

Utilisation of Proceeds

No proceeds were raised by the Company from any corporate exercise during the financial year.

Share Buy-Backs

There were no share buy-backs during the financial year.

Options, Warrants or Convertible Securities

Apart from the allocation of Options under the Executive Options Scheme mentioned in the Directors’Report, there were no other issue of options, warrants or convertible securities during the financial year.

American Depository Receipt (ADR) /Global Depository Receipt (GDR) Programmes

The Company did not sponsor any ADR or GDR programmes during the financial year.

Imposition of Sanctions / Penalties

There were no sanctions and/or penalties imposed on the Company and its subsidiaries, Directors ormanagement by the regulatory bodies during the financial year.

Non-Audit Fees

During the financial year ended 31st January 2006, the non-audit fees paid to the external auditorsamounted to approximately RM9,000.

Profit Estimate, Forecast or Projection

The Company did not release any profit estimate, forecast or projection for the financial year.

Profit Guarantee

The Company did not make any arrangement during the financial year which requires profit guarantee.

Material Contracts and Contracts Relating to Loans

There are no material contracts and contracts relating to loans entered into by the Company and itssubsidiaries which involve the Directors and substantial shareholders entered into since the previousfinancial year.

Recurrent Related Party Transactions of Revenue Nature

Recurrent related party transactions of revenue nature during the year totalled less than RM1.0 millionand hence shareholders’ mandate is not required. The details of related party transactions are stated inNote 23 to the Financial Statements.

Revaluation Policy on Landed Properties

The Group does not adopt a policy on regular revaluation of its landed properties.


2006

20

Statement on Internal Control

The Board of Hexza Corporation Bhd. is pleased to provide the following Statement on Internal Controlpursuant to Paragraph 15.27(b) of the Listing Requirements of the Bursa Malaysia Securities Berhad (BursaSecurities) and the guidelines provided by Bursa Securities on Internal Control – Guidance for Directors ofPublic Listed Companies.

Responsibility

The Board recognizes that it is responsible for the Group’s system of internal controls which includes not onlyfinancial controls but also operational and compliance controls as well as risk management. The internalcontrol systems are designed to meet the Group’s particular needs and to manage the risks to which it isexposed. Due to the limitations that are inherent in any system of internal control, the system is designed tomanage, rather than eliminate, the risk of failure to achieve business objectives. The system can only providereasonable, and not absolute assurance against material misstatement of management and financialinformation and records or against financial losses or fraud. The process of identifying, evaluating andmanaging the risks that matters is on-going throughout the financial year under review and the effectiveness,adequacy and integrity of the processes are reviewed by the Board regularly.

The Board’s primary objective and strategic direction in managing the Group’s business risks are to enhanceits ability to achieve its business objectives.

The role of management is to implement the Board’s policies, procedures and guidelines on risk and controlby identifying and evaluating the risks faced and implement action plans to manage the risks identified.

Enterprise Risk Management Framework

The Board is committed to maintaining a sound system of internal control to safeguard shareholders’investment and the company’s assets. The Board is always striving for continuous improvement to furtherenhance the Group’s system of internal control.

The Group continues to apply the methodologies in accordance with the enterprise risk managementframework, which has been endorsed by the Board. All the operating companies within the Group are givena copy of the manual on the Group’s Risk Management Policy and Procedures to ensure consistent approachis practised. The operating companies maintain a risk register with detailed information on individual riskprofiles which is updated periodically.

During the financial year under review, the Risk Management Units of the operating companies continued toidentify principal risks of the business, assessing the likelihood and impact of the potential risk and evaluateand manage their risks by formulating action plans to mitigate those risks identified. The Risk ManagementCommittee had meetings to discuss the principal risks identified and the action plans to address the risksidentified. Risk assessment reports are submitted on a quarterly basis by the various operating companieswithin the Group to the Audit Committee for review and comments.

Internal Audit Function

The Audit Committee, which is chaired by an Independent Non-Executive Director, has been assigned withthe duty of reviewing and monitoring the effectiveness of the Group’s system of internal control. The AuditCommittee receives independent assurance on the system of internal control from the internal audit unit.


2006

21

Internal Audit Function (continued)

During the financial year under review, the internal audit unit carried out regular and systematic reviews onmajor business operating units of the Group to assess the effectiveness and adequacy of internal control. Theannual audit plan was reviewed and approved by the Audit Committee prior to the commencement of audit.Control issues identified by the internal audit unit had been resolved with the respective management of theoperating subsidiaries. Internal Audit reports are submitted for review by the Audit Committee on a quarterlybasis.

The internal audit unit also checks to ensure that the risk management strategy, framework and methodologyare implemented and consistently applied by the major operating subsidiaries during the internal audit. Theinternal audit unit also ensures that the risk management system of the operating subsidiaries is adequateand effective.

Besides the internal audit reports, the Audit Committee also receives reports from the external auditors onareas of concern and results of their test on various controls during the course of their audit.

The Board reviews the minutes of the Audit Committee meeting on a quarterly basis.

Other Key Control Processes

Apart from the above, the other key control processes of the Group’s internal control include the following:

• Proper organizational structures with well defined lines of responsibility and authority.

• Standard operational procedures, guidelines and limits of approving authorities are documented in theGroup Manual. Additional or revised operational guidelines and procedures are issued from time to timeto meet the operational requirements.

• Management meetings are conducted regularly to review financial and operational performance and riskmanagement issues by the operating units.

• Annual business plan and budget are prepared by the operating units and submitted to the Board forapproval. Actual performance is compared against budget and reviewed by the Board on a quarterlybasis with explanation of variances.

• Management reports are prepared and submitted to Head Office on a monthly basis. Financial andoperational performance reviews which encompass review of key performance indicators, varianceanalysis and compliance to policies and guidelines are performed on a monthly basis.

• The Board is updated on the performance of the operating units together with any significant matters bythe Group Chief Executive at Board Meetings, which are held regularly.

The Board confirms that the system of internal controls with the key control processes highlighted above isin place during the financial year under review and up to the date of issuance of the annual report.

Review of the Statement by External Auditors

The external auditors have reviewed this Statement on Internal Control in accordance with the AuditingTechnical Release 5, Guidance for Auditors on the Review of Directors’ Statement on Internal Controlpursuant to paragraph 15.24 of the Bursa Securities Listing Requirements and reported to the Board that theStatement appropriately reflects the process adopted by the Board in reviewing the adequacy and integrity ofthe system of internal controls.


2006

2222

Directors’ Report

The directors of HEXZA CORPORATION BERHAD have pleasure in submitting their report and the auditedfinancial statements of the Group and of the Company for the financial year ended January 31, 2006.

PRINCIPAL ACTIVITIES

The Company is principally involved in investment holding.

The principal activities of the subsidiary companies are disclosed in Note 14 to the Financial Statements.

There have been no significant changes in the nature of the principal activities of the Company and its subsidiarycompanies during the financial year.

RESULTS OF OPERATIONS

The results of operations of the Group and of the Company for the financial year are as follows:

The Group The CompanyRM RM

Profit before tax 13,540,417 9,269,497Tax expense (2,485,013) (1,067,958)

Profit after tax 11,055,404 8,201,539Minority interests (653,088) -

Net profit for the year 10,402,316 8,201,539

In the opinion of the directors, the results of operations of the Group and of the Company during the financialyear have not been substantially affected by any item, transaction or event of a material and unusual nature.

DIVIDENDS

A first and final dividend of 2.5%, less 28% tax, amounting to RM1,156,407 proposed in respect of ordinaryshares in the previous financial year and dealt with in the previous directors’ report was paid by the Companyduring the financial year.

The directors proposed a first and final dividend of 4.0%, less 28% tax, amounting to RM1,850,252 in respect ofthe current financial year. The dividend is subject to approval by the shareholders at the forthcoming AnnualGeneral Meeting of the Company and has not been included as a liability in the financial statements.

RESERVES AND PROVISIONS

There were no material transfers to or from reserves or provisions during the financial year other than thosedisclosed in the financial statements.

ISSUE OF SHARES AND DEBENTURES

The Company has not issued any new shares or debentures during the financial year.


2006

2323

EXECUTIVE SHARE OPTION SCHEME

Under the Company’s Executive Share Option Scheme (“ESOS”) approved by shareholders at an ExtraordinaryGeneral Meeting held on January 4, 1999 which became effective on February 19, 1999, options were grantedto eligible executives and full-time executive directors of the Company and its subsidiary companies. TheCompany amended its ESOS Bye-Laws which were approved by the shareholders on June 21, 2003.

The salient features of the ESOS are as follows:

(a) Eligible employees including Executive Directors are those who have been confirmed as a full timeemployee in a company not being a dormant company within the Group;

(b) At any one time during the duration of the ESOS, the number of shares to be offered under the ESOS shallnot exceed 10% of the issued and paid-up share capital of the Company;

(c) The ESOS shall be in force for a period of ten (10) years from February 19, 1999;

(d) The option price shall be based on the five (5) day weighted average market price of the shares of theCompany at the date of offer with a discount of not more than 10% if deemed appropriate or at the par valueof the shares, whichever is the higher;

(e) The maximum allowable allotment shall be determined at the discretion of the committee as follows:

(i) not more than 50% of the shares under the options are to be allocated in aggregate to ExecutiveDirectors and senior management of the Group; and

(ii) not more than 10% of the shares under the options are to be allocated to any individual ExecutiveDirector or employee who, either singly or collectively through his/her associates, hold 20% or more inthe issued and paid-up capital of the Company; and

(f) The new shares to be allotted upon any exercise of an option will upon issue and allotment rank pari passuin all respect with the then existing issued ordinary shares of the Company.

The movements in the options during the financial year are as follows:

Number of optionsAs of February 1, 2005 5,620,000Granted and accepted during the financial year 2,116,000

7,736,000Lapsed (869,000)Exercised -

As of January 31, 2006 6,867,000

The Company has been granted exemption from the Companies Commission of Malaysia from having todisclose the list of option holders and their holdings to take up unissued shares below 150,000.

The following executives were granted share options for and in excess of 150,000 during the year:

Number of optionsLim Sing Hock 280,000Pragalatha a/l Valaitham 150,000Audrey Liew Mei Yen 150,000

The options granted to these option holders expire on February 18, 2009.


2006

2424

Directors’ Report (continued)

OTHER FINANCIAL INFORMATION

Before the income statements and the balance sheets of the Group and of the Company were made out, thedirectors took reasonable steps:

(a) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making ofallowance for doubtful debts and have satisfied themselves that all known bad debts have been written offand that adequate allowance had been made for doubtful debts; and

(b) to ensure that any current assets which were unlikely to realise their book values in the ordinary course ofbusiness have been written down to their estimated realisable values.

At the date of this report, the directors are not aware of any circumstances:

(a) which would render the amount written off as bad debts or the amount of allowance for doubtful debts in thefinancial statements of the Group and of the Company inadequate to any substantial extent; or

(b) which would render the values attributed to current assets in the financial statements of the Group and ofthe Company misleading; or

(c) which have arisen which render adherence to the existing method of valuation of assets or liabilities of theGroup and of the Company misleading or inappropriate; or

(d) not otherwise dealt with in this report or financial statements which would render any amount stated in thefinancial statements of the Group and of the Company misleading.

At the date of this report, there does not exist:

(a) any charge on the assets of the Group and of the Company which has arisen since the end of the financialyear and secures the liability of any other person; or

(b) 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 oftwelve months after the end of the financial year which, in the opinion of the directors, will or may substantiallyaffect the ability of the Group and of the Company to meet their obligations as and when they fall due.

In the opinion of the directors, no item, transaction or event of a material and unusual nature has arisen in theinterval between the end of the financial year and the date of this report which is likely to affect substantially theresults of operations of the Group and of the Company for the financial year in which this report is made.

DIRECTORS

The following directors served on the Board of the Company since the date of the last report:

Datuk Dr. Foong Weng SumDr. Foong Weng CheongDato’ Richard Ong Guan Seng Mr. Leong Keng Yuen Tuan Haji Mohd Jali @ Mohd Jalil Bin Sany

In accordance with Article 78 of the Company’s Articles of Association, Tuan Haji Mohd Jali @ Mohd Jalil BinSany retires by rotation and, being eligible, offers himself for re-election.

In accordance with Section 129 (6) of the Companies Act, 1965, Dr. Foong Weng Cheong retires at theforthcoming Annual General Meeting and, being eligible, offers himself for re-appointment.


2006

2525

DIRECTORS’ INTERESTS

The shareholdings in the Company of those who were directors at the end of the financial year, as recorded inthe Register of Directors’ Shareholdings kept by the Company under Section 134 of the Companies Act, 1965,are as follows:

No. of ordinary shares of RM0.50 each Balance as of Balance as of

1.2.2005 Bought Sold 31.1.2006Shares in the Company

Registered in the name of directors

Datuk Dr. Foong Weng Sum 122,152 - - 122,152Dr. Foong Weng Cheong 1,775,000 - - 1,775,000Dato’ Richard Ong Guan Seng 50,000 - - 50,000Mr. Leong Keng Yuen 60,000 90,000 - 150,000Tuan Haji Mohd Jali @

Mohd Jalil Bin Sany 750,000 - - 750,000

Indirect interest by virtue of sharesheld by a company in which thedirectors have interest

Datuk Dr. Foong Weng Sum 33,203,805 4,660,700 - 37,864,505Dr. Foong Weng Cheong 33,203,805 4,660,700 - 37,864,505

No. of options over ordinary shares of RM0.50 each Balance as of Balance as of

1.2.2005 Granted Lapsed 31.1.2006

Datuk Dr. Foong Weng Sum 500,000 - - 500,000Tuan Haji Mohd Jali @

Mohd Jalil Bin Sany 90,000 - (90,000) -

By virtue of their interests in the Company, Datuk Dr. Foong Weng Sum and Dr. Foong Weng Cheong are alsodeemed to have an interest in the shares of all the subsidiary companies to the extent that the Company hasinterest.


2006

2626

Directors’ Report (continued)

DIRECTORS’ BENEFITS

Since the end of the previous financial year, none of the directors of the Company has received or becomeentitled to receive any benefit (other than the benefit included in the aggregate amount of emoluments receivedor due and receivable by directors as disclosed in the financial statements or the fixed salary of a full-timeemployee of the Company) by reason of a contract made by the Company or a related corporation with thedirector or with a firm of which he is a member, or with a company in which he has a substantial financial interestexcept for any benefit which may be deemed to have arisen by virtue of the transactions between the Companyand certain companies in which certain directors of the Company are also directors and/or shareholders asdisclosed in Notes 23, 24 and 25 to the Financial Statements.

During and at the end of the financial year, no arrangement subsisted to which the Company was a partywhereby directors of the Company might acquire benefits by means of the acquisition of shares in, or debenturesof, the Company or any other body corporate except for the Company’s ESOS as disclosed.

AUDITORS

The auditors, Messrs. Deloitte & Touche, have indicated their willingness to continue in office.

Signed on behalf of the Boardin accordance with a resolution of the Directors,

DATUK DR. FOONG WENG SUM

DATO’ RICHARD ONG GUAN SENG

Ipoh,May 18, 2006


2006

2727

Repor t of the Auditorsto the Members of Hexza Corporation Berhad

We have audited the accompanying balance sheets as of January 31, 2006 and the related statements ofincome, changes in equity and cash flows for the year then ended. These financial statements are theresponsibility of the Company’s directors. It is our responsibility to form an independent opinion, based on ouraudit, on these financial statements and to report our opinion to you, as a body, in accordance with Section 174of the Companies Act, 1965 and for no other purpose. We do not assume responsibility towards any other personfor the content of this report.

We conducted our audit in accordance with approved standards on auditing in Malaysia. These standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by the directors, as well as evaluating the overall financialstatements 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 theCompanies Act, 1965 and the applicable Malaysian Accounting Standards Board approved accountingstandards 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, 2006 and of the results and thecash 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 Companies Act, 1965 to be dealt with in the financialstatements and consolidated financial statements; and

(b) the accounting and other records and the registers required by the Companies Act, 1965 to be kept by theCompany and by the subsidiary companies have been properly kept in accordance with the provisions ofthe Companies Act, 1965.

We are satisfied that the financial statements of the subsidiary companies that have been consolidated with thefinancial statements of the Company are in form and content appropriate and proper for the purposes of thepreparation of the consolidated financial statements, and we have received satisfactory information andexplanations as required by us for these purposes.

The auditors’ reports on the financial statements of the subsidiary companies were not subject to anyqualification and did not include any comment made under Sub-section (3) of Section 174 of the Companies Act,1965.

DELOITTE & TOUCHEAF 0834Chartered Accountants

WONG GUANG SENG787/03/07(J/PH) Partner

May 18, 2006


2006

2828

Income Statementsfor the year ended January 31, 2006

The Group The Company2006 2005 2006 2005

Note RM RM RM RM

Revenue 4 130,097,070 128,454,474 8,382,344 4,848,650

Other operating income 1,610,642 2,370,338 1,635,895 120,568Changes in inventories of finished

goods and work-in-progress 3,424,234 28,547 - -Finished goods purchased (46,699) (68,991) - -Raw materials and

consumables used (81,513,334) (80,271,088) - -Property development

expenditure recognised (289,703) (1,704,000) - -Directors’ remuneration 6 (1,079,375) (1,182,186) (179,000) (154,500)Staff costs 7 (7,440,936) (7,415,819) (145,048) (116,900)Depreciation of property,

plant and equipment 13 (5,418,724) (5,286,005) (32,851) (36,395)Amortisation of goodwill

on consolidation 18 (142,780) (142,780) - -Other operating expenses (24,288,242) (23,903,379) (236,541) (252,541)

Profit from operations 8 14,912,153 10,879,111 9,424,799 4,408,882Finance costs 9 (229,094) (218,159) (10,235) (2,439)Interest income 10 426,089 340,505 572,087 428,565Share of (loss)/profit in

associated company (937,731) 792,077 - -Investment in subsidiary

company written off - - (86,154) -Allowance for diminution

in value of other investments 16 (631,000) - (631,000) -Allowance for diminution in value of

other investments no longer required - 283,651 - 283,651

Profit before tax 13,540,417 12,077,185 9,269,497 5,118,659Tax expense 11 (2,485,013) (3,362,769) (1,067,958) (1,703,024)

Profit after tax 11,055,404 8,714,416 8,201,539 3,415,635Minority interests (653,088) (492,522) - -

Profit attributable toshareholders 10,402,316 8,221,894 8,201,539 3,415,635

Earnings per ordinary shareof RM0.50 each

Basic (sen) 12 8.1 6.4

Diluted (sen) 12 N/A N/A

The accompanying Notes form an integral part of the Financial Statements.


2006

2929

Balance SheetsAs of January 31, 2006


Note(s) RM RM RM RM

ASSETS

Property, plant andequipment 13 79,633,839 70,360,851 1,174,361 2,027,422

Investment insubsidiary companies 14 - - 65,363,663 59,718,663

Investment inassociated company 15 5,938,328 11,751,620 3,394,936 3,394,936

Other investments 16 16,195,885 16,855,733 16,219,123 16,878,971Land held for

property development 17 2,134,106 2,134,106 - -Goodwill arising on

consolidation 18 2,193,403 2,336,183 - -Deferred tax assets 30 1,142,000 818,000 - -

Current AssetsInventories 19 23,720,033 12,698,770 - -Trade receivables 21 23,651,705 25,494,936 - -Other receivables, deposits

and prepaid expenses 22&23 870,006 1,914,459 65,993 52,141Amount owing by

subsidiary companies 24 - - 5,714,996 5,720,105Amount owing by

associated company 25 7,112 750 7,112 750Tax recoverable 1,304,421 1,120,866 89,173 125,100Cash, cash equivalents

and bank balances 26 24,216,173 26,128,689 15,840,952 12,849,242

Total Current Assets 73,769,450 67,358,470 21,718,226 18,747,338

Current LiabilitiesTrade payables 27 8,681,707 13,607,004 - -Other payables and

accrued expenses 23&27 5,180,937 4,410,758 285,615 225,441Amount owing to

subsidiary company 24 - - 82,269 84,596Bank borrowings 28 3,200,000 - - -Tax liabilities 15,600 394,586 - -

Total Current Liabilities 17,078,244 18,412,348 367,884 310,037

Net Current Assets 56,691,206 48,946,122 21,350,342 18,437,301


2006

3030

Balance SheetsAs of January 31, 2006 (continued)


Note RM RM RM RM

Long-term and Deferred Liabilities

Bank borrowings -non-current portion 28 683,060 - - -

Gratuity and retirementbenefits 29 872,000 915,000 - -

Deferred tax liabilities 30 13,152,257 12,615,242 - -

Total Long-term andDeferred Liabilities (14,707,317) (13,530,242) - -

Minority interests (7,600,735) (7,306,098) - -

Net Assets 141,620,715 132,366,275 107,502,425 100,457,293

EQUITY

Issued capital 31 64,244,845 64,244,845 64,244,845 64,244,845

Reserves 32 77,375,870 68,121,430 43,257,580 36,212,448

Shareholders’ Equity 141,620,715 132,366,275 107,502,425 100,457,293

Net tangible assets perordinary share of RM0.50 each 1.09 1.01



2006

3131

Statement Of Changes In Equityfor the year ended January 31, 2006

Non-distributable DistributableReserves Reserve

TotalIssued Share Reserve on Unappropriated Shareholders’

The Group Capital Premium Consolidation Profit Equity Note RM RM RM RM RM

Balance as ofFebruary 1, 2004 64,244,845 15,032,856 790,506 45,181,185 125,249,392

Net profit for the year - - - 8,221,894 8,221,894Dividend 33 - - - (1,105,011) (1,105,011)

Balance as of January 31, 2005 64,244,845 15,032,856 790,506 52,298,068 132,366,275

Arising from subscriptionof shares in a subsidiary company - - 8,531 - 8,531

Net profit for the year - - - 10,402,316 10,402,316Dividend 33 - - - (1,156,407) (1,156,407)

Balance as ofJanuary 31, 2006 64,244,845 15,032,856 799,037 61,543,977 141,620,715

Non-distributable DistributableReserve Reserve Total

Issued Share Unappropriated Shareholders’The Company Capital Premium Profit Equity

Note RM RM RM RMBalance as of

February 1, 2004 64,244,845 15,032,856 18,868,968 98,146,669Net profit for the year - - 3,415,635 3,415,635Dividend 33 - - (1,105,011) (1,105,011)

Balance as of January 31, 2005 64,244,845 15,032,856 21,179,592 100,457,293

Net profit for the year - - 8,201,539 8,201,539Dividend 33 - - (1,156,407) (1,156,407)

Balance as of January 31, 2006 64,244,845 15,032,856 28,224,724 107,502,425



2006

32

Cash Flow Statementfor the year ended January 31, 2006

The Group2006 2005

Note RM RM

CASH FLOWS FROM/(USED IN) OPERATING ACTIVITIESProfit before tax 13,540,417 12,077,185Adjustments for:

Depreciation of property, plant and equipment 13 5,418,724 5,286,005Allowance for doubtful debts 337,471 11,198Amortisation of goodwill arising on consolidation 142,780 142,780Provision for gratuity and retirement benefits 80,818 28,704Inventories written off 63,973 31,498Property, plant and equipment written off 29,007 1Bad debt written off 16,237 3,880Bad debts recovered (628) -Allowance for doubtful debts no longer required (9,226) (1,967,340)Rental income (11,400) (11,400)Interest income from operating activities (32,682) (54,749)Gain on disposal of other investments (35,427) (2,788)Gain on disposal of property, plant and equipment (1,219,561) (5,000)Dividend income (1,499,623) (699,650)Finance costs 229,094 218,159Interest income from investing activities (426,089) (340,505)Share of loss/(profit) in associated company 937,731 (792,077)Allowance for diminution in value of other investments 631,000 -Allowance for diminution in value of other investments

no longer required - (283,651)

Operating Profit Before Working Capital Changes 18,192,616 13,642,250Decrease/(Increase) in:

Inventories (11,085,236) (490,383)Property development costs - 1,395,942Trade receivables 1,499,377 (2,024,177)Other receivables, deposits and prepaid expenses 1,043,295 (567,419)

Increase/(Decrease) in:Trade payables (4,925,297) (380,146)Other payables and accrued expenses 713,908 865,505

Cash From Operations 5,438,663 12,441,572Dividends received from associated company 4,906,724 490,000Dividends received from other investments 1,108,206 536,437Interest received 471,641 389,368Rental received 11,400 11,400Gratuity and retirement benefits paid 29 (123,818) (59,356)Interest paid (229,094) (218,159)Income tax (paid)/refunded (2,418,066) 454,475

Net Cash From Operating Activities 9,165,656 14,045,737


2006

3333

The Group2006 2005

Note RM RM

CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIESProceeds from disposal of property, plant

and equipment 2,007,854 5,002Proceeds from disposal of other investments 35,949 3,203Redemption of bonds 16,666 -Purchase of property, plant and equipment 13 (15,509,012) (3,635,949)(Advances to)/Repayment from associated company (6,362) 750Purchase of other investments - (2,194,742)

Net Cash Used In Investing Activities (13,454,905) (5,821,736)

CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIESProceeds from bankers’ acceptances 2,500,000 -Proceeds from term loan 1,383,060 -Dividend paid on share capital 33 (1,156,407) (1,105,011)Dividend paid to minority interests (349,920) (438,552)

Net Cash From/(Used In) Financing Activities 2,376,733 (1,543,563)

NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (1,912,516) 6,680,438

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 26,128,689 19,448,251

CASH AND CASH EQUIVALENTS AT END OF YEAR 26 24,216,173 26,128,689



2006

3434

Cash Flow Statementfor the year ended January 31, 2006

The Company2006 2005

Note RM RM

CASH FLOWS FROM/(USED IN) OPERATING ACTIVITIESProfit before tax 9,269,497 5,118,659Adjustments for:

Allowance for diminution in value of other investments 631,000 -Depreciation of property, plant and equipment 13 32,851 36,395Finance costs 10,235 2,439Investment in subsidiary company written off 86,154 -Dividend income 4 (8,382,344) (4,848,650)Gain on disposal of property, plant and equipment (1,182,158) -Interest income from investing activities (572,087) (428,565)Allowance for doubtful debts no longer required (282,728) -Gain on disposal of other investments (35,427) (2,788)Interest income from operating activities (4,481) (5,279)Allowance for diminution in value of other investments

no longer required - (283,651)

Operating Loss Before Working Capital Changes (429,488) (411,440)Decrease/(Increase) in other receivables, deposits and

prepaid expenses 31,562 (22,182)Increase/(Decrease) in:

Other payables and accrued expenses 3,903 (60,290)Amount owing to a subsidiary company (2,327) (1,348)

Cash Used In Operations (396,350) (495,260)Dividends received from subsidiary companies 1,399,680 2,634,480Dividends received from other investments 1,108,206 536,437Dividends received from associated company 4,906,724 490,000Interest received 576,711 427,958Income tax (paid)/refunded (8,077) 1,461,694Interest paid (10,235) (2,439)

Net Cash From Operating Activities 7,576,659 5,052,870

CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIESProceeds from disposal of property, plant

and equipment 2,003,012 -Capital distribution from a subsidiary company 380,000 -Repayment of advances by subsidiary companies 287,837 1,581,336Proceeds from disposal of other investments 35,949 3,203Redemption of bonds 16,666 -Subscription of shares in a subsidiary company (6,145,000) -(Advances to)/Repayment from associated company (6,362) 750Purchase of property, plant and equipment 13 (644) (10,486)Purchase of other investments - (2,194,742)Advances to subsidiary companies - (557,237)

Net Cash Used In Investing Activities (3,428,542) (1,177,176)

CASH FLOWS USED IN FINANCING ACTIVITIESDividend paid on share capital 33 (1,156,407) (1,105,011)

NET INCREASE IN CASH AND CASH EQUIVALENTS 2,991,710 2,770,683

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 12,849,242 10,078,559

CASH AND CASH EQUIVALENTS AT END OF YEAR 26 15,840,952 12,849,242



2006

3535

Notes To The Financial Statements

1. GENERAL INFORMATION

The Company is a public limited company, incorporated and domiciled in Malaysia and listed on the MainBoard of Bursa Malaysia Securities Berhad.

The Company is principally involved in investment holding.

The principal activities of the subsidiary companies are disclosed in Note 14.

There have been no significant changes in the nature of the principal activities of the Company and itssubsidiary companies during the financial year.

The total number of employees of the Group and of the Company at year end were 227 (2005: 227) and 3(2005: 3) respectively.

The registered office and principal place of business of the Company is located at Lot 6 & 20, PersiaranTasek, Kawasan Perindustrian Tasek, 31400 Ipoh, Perak Darul Ridzuan.

The financial statements of the Group and of the Company were authorised for issue by the Board ofDirectors in accordance with a resolution of the directors on May 18, 2006.

2. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS

The financial statements of the Group and of the Company have been prepared in accordance with theprovisions of the Companies Act, 1965 and the applicable Malaysian Accounting Standards Board approvedaccounting standards in Malaysia.

3. SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting

The financial statements of the Group and of the Company have been prepared under the historical costconvention, unless stated otherwise, modified to include the revaluation of land under long-term lease,buildings and improvements.

Basis of Consolidation

The consolidated financial statements incorporate the financial statements of the Company and of thesubsidiary companies controlled by the Company made up to January 31, 2006.

A subsidiary company is a company where the Group has control through the power to govern the financialand operating policies of the company. Control is presumed to exist when the Group owns, directly orindirectly through subsidiary companies, more than one half of the voting rights of the company.

Subsidiary companies are consolidated using the acquisition method of accounting. On acquisition, theassets and liabilities of the relevant subsidiary companies are measured at their fair values at the date ofacquisition. The interest of minority shareholders is stated at the minority’s proportion of the fair values ofthe assets and liabilities recognised.

The results of subsidiary companies acquired or disposed of during the financial year are included in theconsolidated 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. Unrealised lossesare eliminated on consolidation unless costs cannot be recovered.


2006

3636


Associated Company

An associated company is a non-subsidiary company in which the Group or the Company holds not less than20% of the voting rights as long-term investment and in which the Group or the Company is in a position toexercise significant influence in its management.

The Group’s investment in associated company is accounted for under the equity method of accounting basedon the latest management financial statements of the associated company made up to January 31, 2006. Underthis method of accounting, the Group's interest in the post-acquisition profit of the associated company is includedin the consolidated results while dividend received is reflected as a reduction of the investment in the consolidatedbalance sheet.

Unrealised profits and losses arising on transactions between the Group and its associated company areeliminated to the extent of the Group’s equity interest in the associated company except where unrealised lossesprovide evidence of an impairment of the asset transferred.

Revenue Recognition

Dividend income represents gross dividends from subsidiary companies and from quoted and unquotedinvestments and is recognised when the shareholders’ right to receive payment is established.

Sales of goods are recognised upon delivery of products and when the risks and rewards of ownership havepassed to the customers. Sales represent gross invoiced value of goods sold net of sales tax, tradediscounts and allowances.

Income relating to property development projects is recognised upon signing of the individual sale andpurchase agreements, commencement of development and when the financial outcome of the developmentactivities can be reliably estimated.

Interest income is accrued on a time basis, by reference to the principal outstanding and interest rateapplicable.

Rental income is accrued by reference to the agreement entered.

Foreign Currency

Transactions in foreign currencies are converted into Ringgit Malaysia at exchange rates prevailing at thetransaction dates or, where settlement has not yet been made at the end of the financial year, the assetsand liabilities are converted at approximate exchange rates prevailing at that date. All foreign exchangegains or losses are taken up in the income statements.

The closing rate per unit of Ringgit Malaysia used in the translation of foreign monetary items are as follows:

Currency 2006 2005

Singapore Dollar 0.4332 -US Dollar 0.2625 0.2632

Employee Benefits

Short-term benefits

Wages, salaries, bonuses and social security contributions are recognised as an expense in the year inwhich the associated services are rendered by employees of the Group and of the Company. Short-termaccumulating compensated absences such as paid annual leave are recognised when services arerendered by employees that increase their entitlement to future compensated absences, and short-termnon-accumulating compensated absences such as sick leave are recognised when the absences occur.


2006

3737


Defined contribution plan

The Group and the Company are required by law to make monthly contributions to the Employees’ ProvidentFund (“EPF”), a statutory defined contribution plan for all their eligible employees based on certainprescribed rates of the employees’ salaries. The Group’s and the Company’s contributions to the EPF aredisclosed separately. The employees’ contributions to the EPF are included in salaries and wages.

Gratuity and retirement benefits

One of the subsidiary companies is obliged to pay gratuity and retirement benefits under the collectivebargaining agreement to certain employees who retire or leave the Company’s employment after fulfillingcertain conditions. Full provision for the unfunded and non-contributory gratuity and retirement benefits ismade for employees who have served for ten years and above based on the length of service and aproportion of the basic salary of the employees in each particular year of service.

The provisions are charged to the income statements on a systematic basis over the expected remainingworking lives of the employees covered by the retirement benefits scheme. No actuarial valuation has beenconducted on the retirement benefits provision, as the amount is insignificant to the Group.

Employee equity compensation benefits

The Company has an Executive Share Option Scheme whereby options to subscribe for ordinary shares inthe Company were granted to eligible executives, including full time executive directors of the Company andits subsidiary companies. No compensation cost is recognised upon granting or the exercise of the options.When the options are exercised, the proceeds received net of any transaction costs are credited to sharecapital and share premium accordingly.

Deferred Taxation

Deferred tax is accounted for in respect of temporary differences arising from differences between thecarrying amounts of assets and liabilities in the financial statements and their corresponding tax bases usedin the computation of taxable profit.

Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assetsare generally recognised for all deductible temporary differences, unused tax losses and unused tax creditsto the extent that it is probable that future taxable profit will be available against which the deferred taxassets can be utilised.

Property, Plant and Equipment

Property, plant and equipment are stated at cost or valuation less accumulated depreciation andaccumulated impairment losses.

Land under long-term lease is amortised evenly over the related remaining lease periods ranging from 47to 84 years while freehold land and capital work-in-progress are not depreciated. Other property, plant andequipment are depreciated on the straight-line method at the rates based on the estimated useful lives ofthe various assets.

The annual depreciation rates are as follows:

Buildings and improvements 2%Plant, machinery and equipment 5% to 10%Furniture, fixtures and office equipment 10% to 33 1/3%Motor vehicles and forklifts 20%


2006

3838


Property, Plant and Equipment (continued)

The Group does not have a policy on revaluation of property, plant and equipment at regular intervals. Theland under long-term lease and buildings of the Group have not been revalued since they were first revaluedin 1988 based on a revaluation carried out in 1985 by a firm of professional valuers. As permitted under thetransitional provisions of International Accounting Standard (“IAS”) 16 (Revised): Property, Plant andEquipment adopted by the Malaysian Accounting Standards Board (“MASB”) before the coming into effectof Financial Reporting Standard (“FRS”) 116: Property, Plant and Equipment, these assets continue to bestated at their 1988 valuation less accumulated depreciation.

Investments

Investment in subsidiary companies and investment in an associated company are stated at cost lessaccumulated impairment losses.

Other investment in quoted shares are stated at the lower of cost and market value on an aggregate basis.

Other investment in unquoted shares are stated at cost less allowance for diminution in value of investmentto recognise any decline, other than a temporary decline, in the value of the investments.

Property Development Activities

Property development revenue is recognised for all units sold using the percentage of completion method,by reference to the stage of completion of the property development projects at the balance sheet date asmeasured by the proportion that development costs incurred for work performed to-date bear to theestimated total property development costs on completion.

When the outcome of a property development activity cannot be estimated reliably, property developmentrevenue is recognised to the extent of property development costs incurred that is probable of recovery.

Any anticipated loss on a property development project (including costs to be incurred over the defectsliability period), is recognised as an expense immediately.

Inventories of unsold completed development units are stated at the lower of cost and net realisable value.

Accrued billings represent the excess of property development revenue recognised in the incomestatements over the billings to purchasers while progress billings represent the excess of billings topurchasers over property development revenue recognised in the income statements.

Goodwill/Reserve on Consolidation

Goodwill arising from consolidation represents the excess of the purchase consideration over the share ofthe fair values of the identifiable net assets of a subsidiary company at the date of acquisition.

Goodwill is recognised as an asset and amortised on a systematic basis following an assessment of theeconomic useful life of the assets of 25 years.

Reserve on consolidation represents the excess of the fair values of the identifiable net assets of thesubsidiary companies over the purchase consideration at the date of acquisition and is realised in incomestatements upon disposal of the subsidiary companies.


2006

3939


Impairment of Assets

At each balance sheet date, the Group and the Company review the carrying amounts of assets (other thaninventories, assets arising from construction contracts, deferred tax assets, assets from employee benefitsand financial assets, which are dealt with in their respective policies) to determine if there is any indicationthat those assets may be impaired. If any such indication exists, the asset’s recoverable amount, which isthe higher of net selling price and value in use, is estimated.

Whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss isrecognised in the income statements, unless the asset is carried at revalued amount, in which case, theimpairment loss is treated as a revaluation decrease.

An impairment loss in respect of goodwill is not reversed unless the loss is caused by a specific externalevent of an exceptional nature that is not expected to recur and subsequent external events have occurredthat reverse the effect of that event. In respect of other assets, an impairment loss is reversed if there hasbeen a change in the estimate used to determine the recoverable amount.

An impairment loss is only reversed to the extent that the asset’s carrying amount does not exceed thecarrying amount that would have been determined, net of depreciation or amortisation, if no impairment losshad been recognised. A reversal is recognised in the income statements, unless it reverses an impairmentloss on revalued assets, in which case, the reversal is treated as a revaluation increase.

Inventories

Inventories are valued at the lower of cost and net realisable value. Cost is determined on the weightedaverage method. The cost of raw materials comprises the original purchase price plus cost incurred inbringing the inventories to their present location. The cost of finished goods comprises the cost of rawmaterials, direct labour and a proportion of the production overheads. Net realisable value represents theestimated selling price in the ordinary course of business less selling and distribution costs and all otherestimated costs to completion.

Receivables

Receivables are reduced by the appropriate allowances for estimated irrecoverable amounts. Allowance fordoubtful debts is made based on estimates of possible losses which may arise from non-collection of certainreceivable accounts.

Borrowing Costs

Borrowing costs directly attributable to construction of assets which require a substantial period of time toget them ready for their intended use are capitalised and included as part of the related assets.Capitalisation of borrowing costs will cease when the assets are ready for their intended use.

All other borrowing costs are recognised as an expense in the year in which they are incurred.

Provisions

Provisions for liabilities are recognised when the Group has a present obligation (legal or constructive) as aresult of a past event and it is probable that an outflow of resources embodying economic benefits will berequired to settle the obligation, and when a reliable estimate of the amount can be made. Provisions arereviewed at each balance sheet date and adjusted to reflect the current best estimate. Where the effect ofthe time value of money is material, the amount of a provision is the present value of the expenditureexpected to be required to settle the obligation.

Cash Flow Statements

The Group and the Company adopt the indirect method in the preparation of the cash flow statements.

Cash equivalents are short-term, highly liquid investments with maturities of three months or less from thedate of acquisition and are readily convertible to cash with insignificant risks of changes in value.


2006

4040


4. REVENUE


RM RM RM RM

Dividend income:Subsidiary companies - - 1,944,000 3,659,000Associated company - - 4,938,721 490,000Shares quoted in Malaysia 818,751 504,555 818,751 504,555Shares quoted outside Malaysia 1,732 1,055 1,732 1,055Unquoted shares 679,140 194,040 679,140 194,040

Manufacturing and trading 125,126,542 125,598,824 - -Sales of development properties 3,470,905 2,156,000 - -

130,097,070 128,454,474 8,382,344 4,848,650

5. SEGMENT REPORTING

Business Segments

For management purposes, the Group is organised into the following operating divisions:- Investment holding- Manufacture and sales of formaldehyde based adhesives and resins for timber related industries, ethyl

alcohol, natural vinegar, cooler, liquefied carbon dioxide and kaoliang wine - Others (Trading, property development, dormant and pre-operating companies)

InvestmentThe Group holding Manufacturing Others Eliminations Consolidated2006 RM RM RM RM RM

RevenueExternal sales 1,499,623 125,126,542 3,470,905 - 130,097,070Inter-segment sales 6,882,721 2,028,571 - (8,911,292) -

8,382,344 127,155,113 3,470,905 (8,911,292) 130,097,070

ResultsSegment result 7,769,914 12,054,377 559,814 (7,040,683) 13,343,422

Finance costs (229,094)Interest income 426,089

Profit before tax 13,540,417Tax expense (2,485,013)

Profit after tax 11,055,404


2006

4141


5. SEGMENT REPORTING


Other informationCapital additions 644 15,501,904 6,464 - 15,509,012Depreciation and amortisation 32,851 5,513,115 15,538 - 5,561,504Non-cash expenses other

than depreciation 631,000 526,425 1,081 - 1,158,506

Consolidated Balance Sheet

AssetsSegment assets 39,549,240 131,800,732 7,210,618 - 178,560,590Unallocated corporate assets 2,446,421

Consolidated total assets 181,007,011

LiabilitiesSegment liabilities 285,615 17,979,858 352,231 - 18,617,704Unallocated corporate liabilities 13,167,857

Consolidated total liabilities 31,785,561

2005

RevenueExternal sales 699,650 123,074,985 4,679,839 - 128,454,474Inter-segment sales 4,149,000 1,840,695 1,704 (5,991,399) -

4,848,650 124,915,680 4,681,543 (5,991,399) 128,454,474

ResultsSegment result 5,484,610 9,922,241 718,762 (4,170,774) 11,954,839

Finance costs (218,159)Interest income 340,505

Profit before tax 12,077,185Tax expense (3,362,769)

Profit after tax 8,714,416


2006

4242


5. SEGMENT REPORTING (continued)


Other informationCapital additions 10,486 3,621,457 4,006 - 3,635,949Depreciation and amortisation 36,395 5,358,006 34,384 - 5,428,785Non-cash expenses other

than depreciation 243,973 71,401 - - 315,374

Consolidated Balance Sheet

AssetsSegment assets 43,844,082 117,018,586 8,813,429 - 169,676,097Unallocated corporate assets 1,938,866

Consolidated total assets 171,614,963

LiabilitiesSegment liabilities 225,441 18,202,206 505,115 - 18,932,762Unallocated corporate liabilities 13,009,828

Consolidated total liabilities 31,942,590

Information on the Group's operations by geographical segment has not been provided as the Group operatespredominantly in Malaysia.

The directors are of the opinion that all inter-segment transactions have been entered into in the normal course ofbusiness and have been established on terms and conditions that are not materially different from that obtainable intransactions with unrelated parties.

6. DIRECTORS’ REMUNERATION


RM RM RM RM

Executive directors:Fees 52,000 80,500 35,000 55,000Other emoluments 835,000 937,696 - -EPF contributions - 34,740 - -

887,000 1,052,936 35,000 55,000Non-executive directors:

Fees 160,500 101,000 120,000 75,000Other emoluments 31,875 28,250 24,000 24,500

192,375 129,250 144,000 99,500

1,079,375 1,182,186 179,000 154,500

The estimated monetary value of benefits-in-kind received and receivable by a director otherwise than in cash from theGroup amounted to RM10,500 (2005: RM4,000).

7. STAFF COSTS

Staff costs include contributions made by the Group and by the Company to the EPF of RM654,861 (2005: RM607,596)and RM14,940 (2005: RM12,227) respectively.


2006

4343


8. PROFIT FROM OPERATIONS

Profit from operations is arrived at after crediting/(charging):


RM RM RM RMGain on disposal of:

Property, plant and equipment 1,219,561 5,000 1,182,158 -Other investments 35,427 2,788 35,427 2,788

Interest received on:Overdue accounts 27,000 49,361 - -Staff loan 759 109 - -Loan stock 4,481 5,279 4,481 5,279Others 442 - - -

Rental income 11,400 11,400 - -Allowance for doubtful

debts no longer required 9,226 1,967,340 282,728 -Realised gain/(loss) on

foreign exchange 2,132 (2,520) - -Bad debt recovered 628 - - -Allowance for doubtful debts (337,471) (11,198) - -Provision for gratuity and retirement benefits (80,818) (28,704) - -Auditors ' remuneration:

Statutory audit:Current year (70,200) (66,500) (17,000) (15,000)Previous year (3,700) (1,700) (2,000) -

Others (9,000) (9,000) (9,000) (9,000)Inventories written off (63,973) (31,498) - -Property, plant and equipment written off (29,007) (1) - -Bad debt written off (16,237) (3,880) - -Rental of premises (7,200) (7,200) - -

9. FINANCE COSTSThe Group The Company

2006 2005 2006 2005RM RM RM RM

Bank charges 207,022 128,374 10,235 2,439Interest on:

Bankers' acceptances 16,368 71,284 - -Bank overdrafts 5,704 15,478 - -Others - 3,023 - -

229,094 218,159 10,235 2,439

10. INTEREST INCOMEThe Group The Company

2006 2005 2006 2005RM RM RM RM

Interest received from:Fixed and short-term deposits 328,114 281,168 187,848 212,602Investment fund 97,975 59,337 97,975 59,337Subsidiary companies - - 286,264 156,626

426,089 340,505 572,087 428,565


2006

4444


11. TAX EXPENSE


RM RM RM RM

Current income tax expense 2,306,283 1,692,787 1,030,000 1,320,000Deferred tax expense:

Relating to origination and reversal of temporary differences 303,655 1,232,809 - -

Relating to revaluationof property, plant and equipment (13,264) (13,264) - -

290,391 1,219,545 - -Share of income tax

(credit)/expense of an associated company (31,163) 213,150 - -(Over)/Underprovision in prior year:

Income tax (59,393) 154,096 (18,313) 383,024Deferred tax (77,376) 83,191 - -

Real Property Gains Tax 56,271 - 56,271 -

2,485,013 3,362,769 1,067,958 1,703,024

As of January 31, 2006, certain subsidiary companies have tax-exempt accounts arising from its claimfor reinvestment incentives under Schedule 7A of the Income Tax Act, 1967 and a special tax-exemptaccount arising from waiver of chargeable income for the Year of Assessment 2000 (Preceding YearBasis) of approximately RM10,722,000 (2005: RM6,490,000).

As of January 31, 2006, certain subsidiary companies have unutilised reinvestment allowanceamounting to RM8,408,000 (2005: RM7,319,000) which is available for set-off against future taxableincome.

These tax-exempt accounts and balance of reinvestment allowance are subject to approval by the taxauthorities.


2006

4545


11. TAX EXPENSE (continued)

A numerical reconciliation of income tax expense at the applicable income tax rate to income tax expenseat the effective income tax rate is as follows:


RM RM RM RM

Profit before tax 13,540,417 12,077,185 9,269,497 5,118,659

Tax at the applicable tax rate of 20% / 28% 3,813,000 3,354,000 2,595,000 1,433,000Tax effects of:

Expenses that are not deductible in determining taxable profit 818,605 370,596 251,000 204,000

Income that are not taxable in determining taxable profit (397,000) (317,000) (1,816,000) (317,000)

Deferred tax asset recognised (324,000) (186,000) - -Utilisation of reinvestment allowances claimed (1,184,667) (102,000) - -Utilisation of brought forward unabsorbed

capital allowances and unutilised tax lossespreviously not recognised (116,000) (194,000) - -

Crystallisation of deferred tax liability on surplus on revaluation of long-term leaseholdland and building (13,264) (13,264) - -

Share of tax of an associated company (31,163) 213,150 - -

2,565,511 3,125,482 1,030,000 1,320,000Income tax - prior year (59,393) 154,096 (18,313) 383,024Deferred tax - prior year (77,376) 83,191 - -Real Property Gains Tax 56,271 - 56,271 -

Tax expense for the year 2,485,013 3,362,769 1,067,958 1,703,024

12. EARNINGS PER ORDINARY SHARE OF RM0.50 EACH - GROUP

The basic and diluted earnings per ordinary share of RM0.50 each are calculated as follows:

2006 2005Basic

Net profit attributable to ordinary shareholders RM 10,402,316 RM 8,221,894

Number of ordinary shares in issue as of February 1 128,489,691 128,489,691Effect of exercise of ESOS - -

Weighted average number of ordinary shares of RM0.50 each in issue 128,489,691 128,489,691

Basic earnings per ordinary share ofRM0.50 each (sen) 8.1 6.4

The fully diluted earnings per ordinary share of the Company in 2006 and 2005 have not been presented asthe average fair value of the shares of the Company is lower than the exercise price for the conversion ofESOS to ordinary shares. The effect would be anti-dilutive to the earnings per ordinary share.


2006

4646


13. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment in 2006 consist of the following:

Cost (Unless otherwise stated) The Group At

beginning Disposals/ At endof year Additions Write off Reclassification of year

RM RM RM RM RM

Freehold land 15,385 - - - 15,385Land under long-term lease

At 1988 valuation 3,267,001 - - - 3,267,001At cost 5,098,903 2,050,000 (887,310) - 6,261,593

Land under short-term leaseAt cost 519,938 - - - 519,938

Buildings and improvementsAt 1988 valuation 1,342,653 - - - 1,342,653At cost 22,180,641 22,750 - 1,767,199 23,970,590

Plant, machinery andequipment 82,187,133 1,681,365 (57,298) 8,747,024 92,558,224

Furniture, fixtures andoffice equipment 4,004,327 151,732 (169,058) 72,289 4,059,290

Motor vehicles and forklifts 1,734,681 432,021 - - 2,166,702Capital work-in-progress 1,341,419 11,171,144 - (10,586,512) 1,926,051

Total 121,692,081 15,509,012 (1,113,666) - 136,087,427

Accumulated Depreciation Net Book Value At

beginning Charge for Disposals/ At endof year the year Write off Reclassification of year 2006 2005

RM RM RM RM RM RM RM

Freehold land - - - - - 15,385 15,385Land under long-term lease

At 1988 valuation 842,197 42,177 - - 884,374 2,382,627 2,424,804At cost 492,980 58,315 (105,812) - 445,483 5,816,110 4,605,923

Land under short-term leaseAt cost 134,785 10,399 - - 145,184 374,754 385,153

Buildings and improvementsAt 1988 valuation 664,786 23,175 - - 687,961 654,692 677,867At cost 5,059,167 508,246 - (1) 5,567,412 18,403,178 17,121,474

Plant, machinery andequipment 40,230,885 4,092,668 (43,256) 1,593 44,281,890 48,276,334 41,956,248

Furniture, fixtures andoffice equipment 2,566,831 493,202 (147,298) (1,594) 2,911,141 1,148,149 1,437,496

Motor vehicles andforklifts 1,339,599 190,542 - 2 1,530,143 636,559 395,082

Capital work-in-progress - - - - - 1,926,051 1,341,419

Total 51,331,230 5,418,724 (296,366) - 56,453,588 79,633,839 70,360,851


2006

4747


13. PROPERTY, PLANT AND EQUIPMENT (continued)

CostThe Company At

beginning At endof year Additions Disposals Reclassification of year

RM RM RM RM RM

Land under long-term lease 1,762,690 - (874,046) - 888,644Building and improvements 495,984 - - - 495,984Furniture, fixtures and

office equipment 69,580 644 - 3,575 73,799Capital work-in-progress 3,575 - - (3,575) -

Total 2,331,829 644 (874,046) - 1,458,427

Accumulated Depreciation Net Book Value At

beginning Charge for At endof year the year Disposals Reclassification of year 2006 2005

RM RM RM RM RM RM RM

Land under long-term lease 100,460 14,169 (53,192) - 61,437 827,207 1,662,230Building and improvements 148,796 9,920 - - 158,716 337,268 347,188Furniture, fixtures and

office equipment 55,151 8,762 - - 63,913 9,886 14,429Capital work-in-progress - - - - - - 3,575

Total 304,407 32,851 (53,192) - 284,066 1,174,361 2,027,422

The land under long-term lease and buildings of the Group were revalued by the directors in 1988 based ona valuation carried out in 1985 by a firm of professional valuers. The revalued amounts were based on openmarket values.

The historical costs and carrying values of the revalued land under long-term lease and buildings are asfollows:

The Group2006 2005

RM RMCostLand under long-term lease 320,711 320,711Buildings 696,395 696,395

Total 1,017,106 1,017,106

Accumulated DepreciationLand under long-term lease (138,250) (135,010)Buildings (477,084) (463,156)

Net book value at end of year 401,772 418,940

Included in property, plant and equipment of the Group and of the Company are fully depreciated assetswhich are still in use, with a cost of approximately RM7,084,178 (2005: RM6,716,890) and RM46,244 (2005:RM46,244) respectively.

Interest expense on borrowing specifically related to plant and machinery under capital work-in-progressthat has been capitalised within additions of the Company during the financial year amounted to RM13,281(2005: RM Nil) at a capitalisation rate of 6.75% (2005: Nil%) per annum.


2006

4848


14. INVESTMENT IN SUBSIDIARY COMPANIES


RM RM

Unquoted shares - at cost 85,159,446 79,014,446Less: Capital distribution (413,846) -

84,745,600 79,014,446Less: Allowance for diminution in value (19,295,783) (19,295,783)

Written off (86,154) -

65,363,663 59,718,663

The subsidiary companies, all of which are incorporated in Malaysia are as follows:

EffectiveEquity Interest

2006 2005Name of Company % % Principal Activities

Bio-Acetic Products Sdn. Bhd. #99.91 #99.87 Manufacture of natural vinegar.

Chemical Industries (Malaya)Sdn. Bhd. 99.91 99.87 Manufacture and sale of ethyl alcohol,

liquefied carbon dioxide and kaoliang wine.

Hexza-Mather Sdn. Bhd. 100.00 100.00 Manufacture of alcoholic and non-alcoholic beverages.

Hexzachem Sarawak Sdn. Bhd. 80.00 80.00 Manufacture and sale of formaldehyde and formaldehyde based adhesive and resins for timber related industries.

Hexza Marketing Services Sdn. Bhd.(1) - 100.00 Marketing and distribution of consumer products.

Norsechem Marketing Sdn. Bhd. 100.00 100.00 Marketing and distribution of consumer products and industrial chemicals.

Norsechem Resins Sdn. Berhad 100.00 100.00 Manufacture and sale of formaldehyde and formaldehyde based adhesive and resins for timber related industries.

Summit Development CorporationSdn. Berhad 100.00 100.00 Property development.

Synthetic Bakelites (Malaysia)Sdn. Bhd. 96.92 96.92 Dormant.

Trizenith Sdn. Bhd. 100.00 100.00 Dormant.

Hexza World Trade Sdn. Bhd. 70.00 70.00 Dormant.


2006

4949


14. INVESTMENT IN SUBSIDIARY COMPANIES (continued)

EffectiveEquity Interest

2006 2005Name of Company % % Principal Activities

NC Management ServicesSdn. Bhd. 100.00 100.00 Pre-operating.

Norsechem Alkali Sdn. Bhd. 100.00 100.00 Pre-operating.

Norse-Med Devices Sdn. Bhd. 100.00 100.00 Pre-operating.

Norsechem Polymer Sdn. Bhd. 100.00 100.00 Pre-operating.

Norsechem Laminates Sdn. Bhd. 100.00 100.00 Pre-operating.

# Indirect investment via investment in Chemical Industries (Malaya) Sdn. Bhd.

(1) On November 17, 2005, Hexza Marketing Services Sdn. Bhd. (“HMS”) was placed under Members’Voluntary Liquidation. Accordingly, the financial statements of HMS have been deconsolidated.

15. INVESTMENT IN ASSOCIATED COMPANY


RM RM RM RM

Unquoted shares - at cost 3,394,936 3,394,936 3,394,936 3,394,936Share of post acquisition results,

net of dividends received and tax 2,543,392 8,356,684 - -

5,938,328 11,751,620 3,394,936 3,394,936

The Group’s interest in the associated company is analysed as follows:2006 2005

RM RM

Share of net tangible assets 5,938,328 11,751,620

The associated company is Summit Imaging Technologies Sdn. Bhd., a company incorporated in Malaysia,in which the Company has an equity interest of 49.00% (2005: 49.00%). The principal activity of theassociated company is in the manufacture of imaging products and its financial year end is October 31.


2006

5050


16. OTHER INVESTMENTS


RM RM RM RMAt cost:Shares quoted in Malaysia 12,866,060 12,851,399 12,889,298 12,874,637Warrants, loan stocks,

bonds quoted in Malaysia 75,300 118,809 75,300 118,809Shares quoted outside

Malaysia 4,725 4,725 4,725 4,725

12,946,085 12,974,933 12,969,323 12,998,171

Allowance for diminution in value (631,000) - (631,000) -

Net 12,315,085 12,974,933 12,338,323 12,998,171

Unquoted shares, at cost 3,880,800 3,880,800 3,880,800 3,880,800

16,195,885 16,855,733 16,219,123 16,878,971

Market value of quoted investments:Within Malaysia 12,311,765 13,046,359 12,311,765 13,046,359Outside Malaysia 26,620 26,279 26,620 26,279

12,338,385 13,072,638 12,338,385 13,072,638

17. LAND HELD FOR PROPERTY DEVELOPMENT

The Group2006 2005

RM RMAt cost:

Freehold land 859,029 859,029Property development costs 1,275,077 1,275,077

2,134,106 2,134,106

Land held for property development is classified as non-current asset where development work has notcommenced and is not expected to be completed within the normal operating cycle of one to two years.


2006

5151


18. GOODWILL ARISING ON CONSOLIDATIONThe Group

2006 2005RM RM

Cost 10,290,219 10,290,219

Amortisation:At beginning of year 7,954,036 7,811,256Charge for the year 142,780 142,780

At end of year (8,096,816) (7,954,036)

2,193,403 2,336,183

19. INVENTORIESThe Group

2006 2005RM RM

At cost:Raw materials and consumables 15,464,905 7,578,172Finished goods 6,061,309 2,636,460Completed development units for sale 2,184,734 2,474,438Work-in-progress 9,085 9,700

23,720,033 12,698,770

20. PROPERTY DEVELOPMENT COSTS

Property development costs comprise the following:The Group

2006 2005RM RM

Property development costs:At beginning of year:

Land - 967,139Development costs - 2,167,023

- 3,134,162Development costs incurred during the year - 308,058

- 3,442,220Costs recognised as an expense in income statement - (1,704,000)Transferred to inventories - (1,738,220)

- -


2006

5252


21. TRADE RECEIVABLESThe Group

2006 2005RM RM

Trade receivables 26,205,576 28,287,161Less: Allowance for doubtful debts (2,553,871) (2,792,225)

23,651,705 25,494,936

Trade receivables comprise amounts receivable for sales of goods and progress billings to house buyerswhich is under end financing. The credit period granted on sales of goods ranged from 15 to 90 days (2005:15 to 90 days) whilst progress billings to house buyers is 14 days (2005: 14 days). An allowance has beenmade for estimated irrecoverable amounts from the sales of goods. This allowance has been determined byreference to past default experience.

The currency profile of trade receivables is as follows:The Group

2006 2005RM RM

Ringgit Malaysia 25,729,432 27,947,968Singapore Dollar 476,144 -US Dollar - 339,193

26,205,576 28,287,161

22. OTHER RECEIVABLES, DEPOSITS AND PREPAID EXPENSES


RM RM RM RM

Other receivables 416,226 357,535 51,329 8,167Refundable deposits 103,303 1,144,837 3,780 4,780Prepaid expenses 376,296 423,285 10,884 39,194

895,825 1,925,657 65,993 52,141Less: Allowance for doubtful debts (25,819) (11,198) - -

870,006 1,914,459 65,993 52,141

Deposits of the Group in 2005 comprised mainly a downpayment for acquisition of a piece of industrial land.

Amount receivable from related parties are disclosed in Note 23.

23. RELATED PARTY TRANSACTIONS

Other than as disclosed in Notes 24 and 25, the related parties and their relationships with the Companyand its subsidiary companies are as follows:

Names of related parties Relationship

Summit Holdings Sdn. Bhd. ) Companies in which Datuk Dr. Foong Weng Sum and Dr. Foong SP&G Insurance Brokers Sdn. Bhd. ) Weng Cheong, directors of the Company, have substantial

) financial interests.


2006

5353


23. RELATED PARTY TRANSACTIONS (continued)

During the financial year, the related party transactions excluding transactions disclosed in Notes 24 and 25are as follows:


RM RM RM RM

Insurance premium paid/payableSP&G Insurance Brokers Sdn. Bhd. 593,874 560,898 1,006 1,513

Rental paidSummit Holdings Sdn. Bhd. 7,200 7,200 - -

Directors’ remuneration are as disclosed in Note 6 and in the Corporate Governance Statement.

Outstanding balances arising from the above transactions at the end of the financial year are as follows:

The Group2006 2005

RM RM

ReceivablesOther receivables - 819Refundable deposits 1,000 1,000Prepaid expenses 3,629 2,051

4,629 3,870

PayablesOther payables 6,411 7,695

The directors of the Company are of the opinion that the above transactions have been entered into in thenormal course of business and have been established under terms that are no less favourable than thosearranged with independent third parties.

24. AMOUNT OWING BY/(TO) SUBSIDIARY COMPANIESThe Company

2006 2005RM RM

Amount owing by subsidiary companies:Current accounts 13,324,106 14,981,140Dividend receivable 105,000 105,000Loan accounts 4,994,999 3,625,802

18,424,105 18,711,942Allowance for doubtful debts (12,709,109) (12,991,837)

5,714,996 5,720,105

Amount owing to a subsidiary company:Current account (82,269) (84,596)


2006

5454


24. AMOUNT OWING BY/(TO) SUBSIDIARY COMPANIES (continued)

The amount owing by/(to) subsidiary companies under current account arose mainly from expenses paid onbehalf which are unsecured, interest-free and have no fixed terms of repayment.

The amount owing by subsidiary companies under loan account bears interest rate at 6.40% (2005: 6.40%)per annum.

During the financial year, transactions undertaken by the Company with its subsidiary companies are asfollows:


RM RM

Dividends (gross) received/receivable 1,944,000 3,659,000Interest received 286,264 156,626Professional services rendered 117,600 103,500

The directors are of the opinion that the above transactions have been entered into in the normal course ofbusiness and have been established under terms that are no less favourable than those arranged withindependent third party.

25. AMOUNT OWING BY ASSOCIATED COMPANY

The amount owing by associated company relates to professional services rendered and expenses paid onbehalf which are unsecured, interest-free and have no fixed terms of repayment.

During the financial year, transactions between the Company and its associated company are as follows:


RM RM RM RM

Dividends (gross) received - - 4,938,721 490,000Professional services rendered 9,000 9,000 9,000 9,000

The directors are of the opinion that the above transactions have been entered into in the normal course ofbusiness and have been established under terms that are no less favourable than those arranged withindependent third party.

26. CASH, CASH EQUIVALENTS AND BANK BALANCES


RM RM RM RM

Investment fund 9,763,667 3,477,388 9,763,667 3,477,388Fixed deposits with licensed banks 9,103,171 15,874,393 5,603,171 8,874,393Cash and bank balances 5,349,335 6,776,908 474,114 497,461

24,216,173 26,128,689 15,840,952 12,849,242


2006

5555


26. CASH, CASH EQUIVALENTS AND BANK BALANCES (continued)

Cash and bank balances include bank balance held under Housing Development Account maintained inaccordance with Section 7A of the Housing Development (Control and Licensing) Act, 1966.

The above balances also represent cash and cash equivalents of the Group and of the Company.

The interest rates are as follows:The Group The Company

2006 2005 2006 2005% % % %

Fixed deposits 2.35 - 3.00 2.50 - 3.00 2.60 - 3.00 2.50 - 3.00Investment fund 1.61 - 2.85 1.71 - 3.31 1.61 - 2.85 1.71 - 3.31Housing Development Account 2.00 2.00 - -

Deposits of the Group and of the Company have an average maturity of 30 days (2005: 30 days).

27. TRADE PAYABLES, OTHER PAYABLES AND ACCRUED EXPENSES

Trade and other payables comprise amounts outstanding for trade purchases and ongoing costs. The creditperiod granted to the Group for trade purchases ranged from 1 to 90 days (2005: 1 to 90 days).

The currency profile of trade payables is as follows:The Group

2006 2005RM RM

Ringgit Malaysia 7,108,224 9,531,387US Dollar 1,573,483 4,075,617

8,681,707 13,607,004

Other payables and accrued expenses consist of:The Group The Company

2006 2005 2006 2005RM RM RM RM

Other payables 2,829,192 1,835,447 85,574 56,416Accrued expenses 2,351,745 2,556,800 200,041 164,025Deposit received - 18,511 - 5,000

5,180,937 4,410,758 285,615 225,441

Amount payable to related party is disclosed in Note 23.

The currency profile of other payables is as follows:The Group

2006 2005RM RM

Ringgit Malaysia 2,389,099 1,835,447US Dollar 426,842 -Singapore Dollar 13,251 -

2,829,192 1,835,447


2006

5656


28. BANK BORROWINGSThe Group

2006 2005RM RM

Secured:Bankers’ acceptances 2,500,000 -Term loans 1,383,060 -

3,883,060 -Less: Amount due within 12 months

(shown under current liabilities) (3,200,000) -

Non-current portion 683,060 -

The non-current portion is repayable as follows:

Financial year ending January 31, 2008 683,060 -

One of the subsidiary companies has a term loan of RM6,000,000 from a local licensed bank, which wasdrawndown to the extent of RM1,383,060 as of January 31, 2006. The term loan bears interest at the rateof 6.75% (2005: Nil%) per annum and is repayable by 60 equal monthly instalments of RM100,000(excluding interest) with the first instalment commencing on July 21, 2006. The term loan is secured by acorporate guarantee from the Company.

Certain subsidiary companies have bank overdraft and other credit facilities obtained from licensed banksto the extent of RM27,261,000 (2005: RM28,061,000). Of this amount, RM23,100,000 (2005:RM17,800,000) is guaranteed by the holding company and a negative pledge on the assets of the subsidiarycompanies. The credit facilities bear interest rates ranging from 7.00% to 8.75% (2005: 7.00% to 8.50%) perannum. The other credit facilities bear interest at rates ranging from 3.30% to 3.88% (2005: 2.98% to2.99%) per annum.

29. GRATUITY AND RETIREMENT BENEFITSThe Group

2006 2005RM RM

Provision:At beginning of year 915,000 945,652Additions 80,818 28,704Paid (123,818) (59,356)

At end of year 872,000 915,000

The principal assumptions used in computing the estimated contributions are as follows:

Discount rate at January 31 4.0% 4.0%Future monthly salary increment RM40-RM70 RM40-RM70


2006

5757


30. DEFERRED TAX ASSETS/(LIABILITIES)The Group

2006 2005RM RM

Deferred tax liabilities:

At beginning of year (12,615,242) (11,135,506)Transfer from income statements (537,015) (1,479,736)

At end of year (13,152,257) (12,615,242)

The deferred tax liabilities are in respect of the following:

Tax effects of:Temporary differences arising from:

Property, plant and equipment (13,658,517) (13,187,278)Revaluation surplus on long-term leasehold land and building (753,900) (767,164)Unabsorbed capital allowances and unutilised tax losses 1,001,000 1,083,000Provision for retirement benefits 244,160 256,200Allowance for doubtful debts 15,000 -

(13,152,257) (12,615,242)

Deferred tax assets:

At beginning of year 818,000 641,000Transfer to income statements 324,000 177,000

At end of year 1,142,000 818,000

The deferred tax assets are in respect of the following:

Tax effects of:Temporary differences arising from:

Property, plant and equipment (53,000) (72,000)Unabsorbed capital allowances and unutilised tax losses 1,195,000 890,000

1,142,000 818,000

At balance sheet date, deferred tax assets have not been recognised in respect of the following items:

Unabsorbed capital allowances and unutilised tax losses 4,834,000 5,284,000

As of January 31, 2006, subject to agreement by the tax authorities, the Group has unutilised tax losses andunabsorbed capital allowances amounting to RM4,880,000 (2005: RM5,351,000) which are available for set-off against future taxable profits. Deferred tax assets have been recognised in respect of RM46,000 (2005:RM67,000) of such losses. No deferred tax assets has been recognised in respect of the remainingRM4,834,000 (2005: RM5,284,000).


2006

5858


31. SHARE CAPITAL

The Group and The Group andThe Company The Company

2006 2005 2006 2005No. of No. of RM RM

shares shares

Authorised:Ordinary shares of RM0.50 each 400,000,000 400,000,000 200,000,000 200,000,000

Issued and fully paid:Ordinary shares of RM0.50 each: 128,489,691 128,489,691 64,244,845 64,244,845

The salient features and movements of the ESOS are as disclosed in the directors’ report.

Share Option Plan

The Group offers vested share options, to eligible employees, including Executive Directors, who areconfirmed full time employees in a company within the Group. Movements in the number of share optionsheld by employees are as follows:

2006 2005

Outstanding at February 1 5,620,000 6,660,000Granted 2,116,000 -Lapsed (869,000) (1,040,000)

Outstanding at January 31 6,867,000 5,620,000

Details of share options granted during the year:

Expiry date 18.2.2009 -

Exercise price per share (RM) 0.50 -

Aggregate proceeds if shares are issued (RM) 1,058,000 -

Details of share options held by the Company’s directors and the Group’s key management personnel duringthe year are as follows:

2006 2005

At February 1 2,460,000 2,616,000Granted during the year 405,000 -Exercised during the year - -Lapsed during the year (361,000) (156,000)

At January 31 2,504,000 2,460,000


2006

5959


32. RESERVES


RM RM RM RM

Non-distributable reserves: Share premium 15,032,856 15,032,856 15,032,856 15,032,856Reserve on consolidation 799,037 790,506 - -

15,831,893 15,823,362 15,032,856 15,032,856Distributable reserve:

Unappropriated profit 61,543,977 52,298,068 28,224,724 21,179,592

77,375,870 68,121,430 43,257,580 36,212,448

Share premium

Share premium represents the excess of issue prices over the par value of the ordinary shares of theCompany at the dates of allotment.

Unappropriated profit

As of January 31, 2006, subject to agreement with the Inland Revenue Board, the Company has tax-exemptaccounts and Section 108 tax credit as follows:


RM RM

Tax-exempt accounts 32,415,000 27,583,000

Section 108 tax credit 16,426,000 17,242,000

Based on the prevailing tax rate applicable to dividend and the estimated tax credit and the exempt accountbalance available, the unappropriated profit of the Company, as of January 31, 2006 is available fordistribution by way of cash dividends without additional tax liabilities being incurred.

33. DIVIDENDS The Group andThe Company

2006 2005RM RM

First and final dividend paid:2.5% for 2005 (1.0% for 2004) less 28% tax 1,156,407 462,563Nil% for 2005 (1.0% for 2004) tax-exempt - 642,448

1,156,407 1,105,011


2006

6060


33. DIVIDENDS (continued)

The directors proposed a first and final dividend of 4.0%, less 28% tax, amounting to RM1,850,252 inrespect of the current financial year. The dividend is subject to approval by the shareholders at theforthcoming Annual General Meeting of the Company and has not been included as a liability in thefinancial statements. Dividend per share is 1.4 sen (2005: 0.9 sen).

34. MATERIAL LITIGATION

(a) The High Court has dismissed the Company’s claim for alleged misrepresentation and negligence by aformer executive. However, the Company has filed an appeal against the High Court decision.

(b) A subsidiary company had filed a claim against a trade debtor for the principal sum of RM1,679,892 andall interest accruing thereon being balance of purchase price for goods sold and delivered.

35. CAPITAL COMMITMENTSThe Group

2006 2005RM RM

Capital expenditure:Contracted but not provided for 999,000 8,110,000Approved but not contracted for 1,920,000 -

2,919,000 8,110,000

36. FINANCIAL INSTRUMENTS

Financial instruments are contracts that give rise to both a financial asset of one enterprise and a financialliability or equity instrument of another enterprise.

Financial Risk Management Objectives and Policies

The operations of the Group are subject to a variety of financial risks, including foreign exchange risk,market risk, liquidity risk and cash flow risk. The Group has formulated a financial risk managementframework whose principal objective is to minimise the Group’s exposure to risks and/or costs associatedwith the financing, investing and operating activities of the Group.

Various risk management policies are made and approved by the Board for observation in the day-to-dayoperations for the controlling and management of the risks associated with financial instruments.

Foreign currency exchange risk

The Group enters into foreign currency forward contracts in the normal course of business to manage itsexposure against foreign exchange fluctuations on purchases and capital goods transactions denominatedin foreign currencies. There were no outstanding forward contract amounts as at year end.

Market risk

The Group has in place policies to manage the Group’s exposure in fluctuation in the prices of the key rawmaterials used in the operations. For marketable securities, the Group uses an investment committee tomonitor fluctuations in market prices and to establish suitable cut loss procedures.


2006

6161


36. FINANCIAL INSTRUMENTS (continued)

Credit risk

The Group is exposed to credit risk mainly from trade receivables. The Group extends credit to its customersbased upon careful evaluation of the customer’s financial condition and credit history. The Group alsoensures a large number of customers so as to limit high credit concentration in a customer or customersfrom a particular market. The directors are of the opinion that the risk of incurring material losses related toits credit risk is remote.

Liquidity risk

The Group practises prudent liquidity risk management to minimise the mismatch of financial assets andliabilities and to maintain sufficient credit facilities for contingent funding requirement of working capital.

Cash flow risk

The Group reviews its cash flow position regularly to manage its exposure to fluctuations in future cash flowsassociated with its monetary financial instruments.

Financial Assets

The Group’s principal financial assets are fixed deposits, cash and bank balances, trade and otherreceivables, amount owing by associated company and equity investments.

The accounting policies applicable to the major financial assets are as disclosed in Note 3.

Financial Liabilities and Equity Instruments

Significant financial liabilities include trade and other payables.

Fair Values

The carrying amounts and the estimated fair values of the Group’s and the Company’s financial instrumentsas of January 31, 2006 are as follows:

The Group The CompanyCarrying Fair Carrying FairAmount Value Amount Value

Note RM RM RM RM

Other investments- unquoted shares 16 3,880,800 * 3,880,800 *- quoted shares 16 12,315,085 12,338,385 12,338,323 12,338,385

The market value of quoted shares as of balance sheet date approximates the fair values.

* It is not practical to estimate the fair value of unquoted investments. As at year end, based on themanagement financial statements, the Group’s and the Company’s share of the net tangible assets of theunquoted investments amounted to approximately RM5,072,000.


2006

6262


The carrying amounts of the short-term financial assets and liabilities such as cash and cash equivalents,trade and other receivables, inter-company indebtedness, trade and other payables, with the exception ofunsecured advances included in inter-company indebtedness, approximate their fair values due to the short-term maturity of these instruments.

Carrying FairAmount Value

RM RM

Financial LiabilityTerm loan 1,383,060 1,255,151

The fair value of long-term loans is estimated using discounted cash flow analysis based on currentborrowing rates for similar types of borrowing arrangements.

It is not practical to determine the fair values of unsecured advances included in inter-companyindebtedness with sufficient reliability given that these balances have no fixed terms of repayment.

37. COMPARATIVE FIGURES

Certain comparative figures in the financial statements have been reclassified to conform with current year’spresentation.

The GroupAs previously As

reported restatedRM RM

Income Statement:Changes in inventories of finished goods and work-in-progress (178,806) 28,547Other operating expenses (23,696,026) (23,903,379)

Balance Sheet:Inventories 12,491,417 12,698,770Other receivables, deposits and prepaid expenses 2,121,812 1,914,459

Cash Flow Statement:Cash Flow From/(Used In) Operating Activities Increase in:

Inventories (283,030) (490,383)Other receivables, deposits and prepaid expenses (774,772) (567,419)

38. SUBSEQUENT EVENTS

Subsequent to the balance sheet date, Summit Imaging Technologies Sdn. Bhd., an associated company ofthe Company, was placed under members’ voluntary liquidation on February 24, 2006.


2006

6363

Statement By Directors

The directors of HEXZA CORPORATION BERHAD state that, in their opinion, the accompanying balance sheetsand the related statements of income, changes in equity and cash flows are drawn up in accordance with theprovisions of the Companies Act, 1965 and the applicable Malaysian Accounting Standards Board approvedaccounting standards in Malaysia so as to give a true and fair view of the state of affairs of the Group and of theCompany as of January 31, 2006 and of the results of their businesses and the cash flows of the Group and ofthe Company for the year ended on that date.

Signed in accordance with a resolution of the Directors,

DATUK DR. FOONG WENG SUM

DATO’ RICHARD ONG GUAN SENGIpoh,May 18, 2006

Declaration By The OfficerPRIMARILY RESPONSIBLE FOR THE FINANCIAL MANAGEMENT OF THE COMPANY

I, CHONG YOKE SENG, the officer primarily responsible for the financial management of HEXZACORPORATION BERHAD, do solemnly and sincerely declare that the accompanying balance sheets and therelated statements of income, changes in equity and cash flows are, in my opinion, correct and I make thissolemn declaration conscientiously believing the same to be true, and by virtue of the provisions of the StatutoryDeclarations Act, 1960.

CHONG YOKE SENG

Subscribed and solemnly declared by the abovenamedCHONG YOKE SENG at IPOH this 18th day of May, 2006.

Before me,

CHOW MIN YEECOMMISSIONER FOR OATHSIpoh


2006

6464

Statement of ShareholdingsAs At 15th May 2006

1. Authorised Capital : RM200,000,000Issued and Fully Paid-Up Capital : RM64,244,845.50Class of Shares : Ordinary Shares of 50 sen eachVoting Rights : One vote per Ordinary Share

2. Distribution of Shareholdings

No. of % of No. of 50 sen % of IssuedRange of Shareholdings Holders Holders Shares Capital

Less than 100 68 0.57 2,568 0.00100 — 1,000 3,447 28.81 3,255,284 2.531,001 — 10,000 7,067 59.08 30,179,556 23.4910,001 — 100,000 1,299 10.86 35,513,696 27.64100,001 — 6,424,483 80 0.67 20,949,582 16.316,424,484 and above 1 0.01 38,589,005 30.03

TOTAL 11,962 100.00 128,489,691 100.00

3. Substantial Shareholders As Per the Register of Substantial Shareholders

Direct Interest Deemed InterestNo. of % of Issued No. of % of Issued

Substantial Shareholders Shares Held Capital Shares Held Capital

Summit Holdings Sdn. Bhd. 38,589,005 30.03 - -Dr. Foong Weng Cheong 1,775,000 1.38 38,589,005 30.03Datuk Dr. Foong Weng Sum 122,152 0.10 38,589,005 30.03

4. Directors’ Shareholdings As Per the Register of Directors’ Shareholdings

Direct Interest Deemed InterestNo. of % of Issued No. of % of Issued

Directors Shares Held Capital Shares Held Capital

Datuk Dr. Foong Weng Sum 122,152 0.10 38,589,005 30.03Dr. Foong Weng Cheong 1,775,000 1.38 38,589,005 30.03Dato' Richard Ong Guan Seng 50,000 0.04 - -Mr. Leong Keng Yuen 150,000 0.12 - -Tuan Haji Mohd Jali @ Mohd Jalil 750,000 0.58 - -

Bin Sany


2006

6565

Statement of ShareholdingsAs At 15th May 2006

5. Thirty Largest Shareholders As Per the Record of Depositors

No. of % of IssuedShareholders Shares Capital

1. Summit Holdings Sdn. Bhd. 38,589,005 30.032. Dr. Foong Weng Cheong 1,775,000 1.383. Cimsec Nominees (Asing) Sdn. Bhd. 1,770,086 1.38

Exempt An for CIMB-GK Securities Pte. Ltd.

4. Lim Shiu Ho 1,085,200 0.845. Lim Seng Chee 820,500 0.646. Mohd Jali @ Mohd Jalil Bin Sany 750,000 0.587. Menteri Kewangan Malaysia 627,242 0.498. Khoo Seng Miau 626,000 0.499. Yap Shing @ Yap Sue Kim 402,000 0.3110. HDM Nominees (Asing) Sdn. Bhd. 370,000 0.29

Kim Eng Securities Pte. Ltd. for Mardjuki Widjaja

11. Lew Yuen Kee @ Lew Ah Kee 370,000 0.2912. EB Nominees (Tempatan) Sendirian Berhad 351,200 0.27

Pledged Securities Account for Chee Sai Mun

13. Chai Beng Hwa 350,000 0.2714. Ooi Say Hup 344,400 0.2715. ECM Libra Securities Nominees (Tempatan) Sdn. Bhd. 329,000 0.26

Petroleum Research Fund

16. TCL Nominees (Asing) Sdn. Bhd. 318,000 0.25OCBC Securities Private Limited for Lim Hsu Hsien

17. Sing Kong Wey 314,000 0.2418. Minister of Finance 300,000 0.23

Akaun Jaminan Pinjaman Kerajaan Persekutuan

19. Seshan Lim Tee Heng 300,000 0.2320. Euro Chemo-Pharma Sdn. Bhd. 279,000 0.2221. Sing Kong Hum 277,000 0.2222. Inter-Pacific Equity Nominees (Asing) Sdn. Bhd. 261,500 0.20

Kim Eng Securities Pte. Ltd. for Tan Ban Kau

23. Lau Sam Siong 261,200 0.2024. Tan Yong Hui 250,500 0.1925. Xiang Ling Capital Sendirian Berhad 250,000 0.1926. Citigroup Nominees (Tempatan) Sdn. Bhd. 237,400 0.18

Pledged Securities Account for Khor Keng Saw @ Khaw Ah Soay

27. MIDF Sisma Holdings Sdn. Bhd. 225,000 0.1828. Leow Hong Yen 220,000 0.1729. United Overseas Nominees (Tempatan) Sdn. Bhd. 211,000 0.16

Pledged Securities Account for Chee Sai Mun

30. HDM Nominees (Asing) Sdn. Bhd. 206,000 0.16UOB Kay Hian Pte. Ltd. for Low Yen Mei


2006

6666

Properties Owned by Hexza Corporation Berhad& its Subsidiaries as at 31st January 2006

Year ofAcquisition(A)/

Approximate Approximate Net Book Completion(C)/Area in Age of Value Last Existing

Location Tenure sq. meter Buildings 31.1.2006 Revaluation Usage- Years RM'000 (R)

Lot 6, Tasek Industrial Estate, Leasehold 28,338 46 4,126 R:1988 FactoryTasek Drive, Ipoh, Expiry 2062Perak Darul Ridzuan. 3 2,498 C:2004 Office

1 1,764 C:2006 Factory

Lot 20,Tasek Industrial Estate, Leasehold 12,145 - 719 R:1988 FactoryTasek Drive, Ipoh, Expiry 2064Perak Darul Ridzuan.

Lot 1017, Tasek Industrial Estate, Leasehold 12,145 - 1,291 A:2004 VacantTasek Drive, Ipoh, Expiry 2069 industrialPerak Darul Ridzuan. land

Lot 5, North Klang Straits Leasehold 28,095 12 6,732 A:1987 FactoryIndustrial Area, Port Klang, Expiry 2086Selangor Darul Ehsan.

16-18, Dataran Perajurit 7, Leasehold 256 19 352 A:1994 VacantTaman Kemuncak, Expiry 2083 shophousesIpoh, Perak Darul Ridzuan.

Lot 799, Block 7, Leasehold 39,870 12 7,330 A:1992 FactorySejingkat Industrial Estate, Expiry 2052Muara Tebas Land District,Kuching, Sarawak.

Lot 181630 & 181641, Leasehold 16,586 - 775 A:1993 VacantIGB International Industrial Expiry 2089 industrialPark, Jalan Kuala Kangsar, landIpoh, Perak Darul Ridzuan.

Lot 3057, Block 26, Leasehold 20,235 - 2,047 A:2006 VacantKemena Land District, Expiry 2063 industrialBintulu, Sarawak. land


2006

6767

Proxy Form

I/We ................................................................................................................................................(Full Name in Block Capitals)

NRIC No. ....................................................................of .................................................................

being a member/members of HEXZA CORPORATION BERHAD, hereby appoint..........................

.............................................of........................................................................................................

or failing him ...................................................................................................................................

of.....................................................................................................................................................

or failing him, the CHAIRMAN OF THE MEETING as my/our proxy to vote for me/us on my/our behalf at

the Thirty-seventh Annual General Meeting of the Company to be held at Kinta Room, Mezzanine Floor,

Casuarina Ipoh, 18 Jalan Raja Dr. Nazrin Shah (Jalan Gopeng), 30250 Ipoh, Perak Darul Ridzuan on

Saturday, 22nd July 2006 at 11.30 a.m. and at any adjournment thereof. My/Our proxy is to vote as

indicated below:

For Against

Resolution 1

Resolution 2

Resolution 3

Resolution 4

Resolution 5

Resolution 6

Resolution 7

(Please indicate with an ‘X’ in the spaces provided how you wish your vote to be cast. In the absence

of specific directions, your proxy will vote or abstain from voting at his discretion.)

Date:...................................................................................

Signature/Seal.........................................................................

NOTES:

1. A proxy need not be a member of the Company.

2. An instrument appointing a proxy, in the case of an individual, shall be signed by the appointor or his attorney duly authorised inwriting or in the case of a corporation, shall be either under its Common Seal or signed on its behalf by an attorney orofficer of the corporation so authorised.

3. In order for the proxy to be valid, it must be lodged together with the power of attorney or other authority, if any, under which it is signed,or a notary certified copy of that power or authority at the registered office of the Company not less than forty-eight (48) hours beforethe time for holding the meeting or any adjournment thereof.

No. ofShares held

THE COMPANY SECRETARY

HEXZA CORPORATION BERHAD

LOT 6 & 20, PERSIARAN TASEK

KAWASAN PERINDUSTRIAN TASEK

31400 IPOH

PERAK DARUL RIDZUAN

MALAYSIA

STAMP

Fold here

Fold here

hexza annual report 2006 - ::hexza corporation berhad::

Documents