Scomi Engineering Bhd (111633-M) Level 17, 1 First Avenue Bandar Utama 47800 Petaling Jaya Selangor Darul Ehsan Malaysia

Telephone +603 7717 3000 Facsimile +603 7728 5258 www.scomiengineering.com.my

CONTENTS

002 041 Key Financial Highlights Audit and Risk Management Committee Report 003 Corporate Structure 044 Additional Information 004 Corporate Statement 045 Statement of Directors’ 005 Responsibility Corporate Information 048 008 Financial Statements Board of Directors 126 014 Analysis of Shareholdings Chairman’s Statement 129 018 List of Property Management Review of Operations 130 Corporate Directory 024 Corporate Social 131 Responsibility Notice of Annual General Meeting

028 Form of Proxy Statement on Corporate Governance 036 Statement on Risk Management and Internal Control

Annual Report 2015 001 KEY FINANCIAL HIGHLIGHTS

Revenue Total Assets (RM Million) (RM Million)

2015 2015 996.3 12 months 238.3

2014 2014 956.6 12 months 236.9

2013 15 months 450.3

2011 Earnings/(Loss) per share (Basic)(sen) 12 months 246.8 2015 2010 0.11 12 months 400.8 2014 (11.04)

Net Pro t/(Loss) (RM Million) Net Tangible Assets (RM Million) 2015 12 months 0.4 2015 110.7

2014 12 months (37.8) 2014 113.4

2013 15 months (21.1)

2011 12 months (81.6) Shareholders' fund (RM Million) 2010 12 months (11.2) 2015 269.7

2014 270.3

Pro t/(Loss) Before Tax (RM Million) Net Assets per share (Attributable to owners of the Company)(sen) 2015 12 months (2.0) 2015 78.8 2014 12 months (34.6) 2014 79.0 2013 15 months (33.0)

2011 12 months (74.4)

2010 12 months (21.2)

002 Scomi Engineering Bhd CORPORATE STRUCTURE

SCOMI ENGINEERING BHD

British Virgin Islands India Malaysia Brazil

Scomi OMS Oil eld Urban Transit Urban Transit Servicos Services Ltd Pvt Ltd* Do Brasil Ltda **

Scomi Special Vehicles Scomi Transportation Scomi Transit Projects Sdn Bhd Systems Sdn Bhd Brazil Sdn Bhd Scomi Transit Projects Scomi Transit Projects Sdn Bhd Brazil (Sao Paulo) Sdn Bhd

Scomi Trading Sdn Bhd

Scomi Coach Sdn Bhd Scomi Rail Bhd

Scomi Coach Marketing Sdn Bhd

Notes: (i) Except as otherwise expressly stated, all companies in this structure are incorporated in Malaysia. (ii) Except as otherwise expressly stated, all companies in this structure are wholly owned by their respective holding companies. * includes 0.0004% held by Scomi Rail Bhd ** includes 1 quota (“share”) held by Scomi Rail Bhd

Annual Report 2015 003 CORPORATE STATEMENT

With a presence in 5 locations across 3 countries, the Scomi Engineering group of companies is a global technology enterprise in the energy and logistics industries.

We are a global technology enterprise. We aim to realise potential for our stakeholders.

Our global reach, capabilities and talent Our customers: provide us with the necessary resources to We will develop and offer customers innovative and develop and own new technology in all areas competitive products and services that help them grow of our business. their business.

We focus on Energy & Logistics. Our shareholders: We are committed to providing long-term superior All our businesses are focused on the Energy returns to our shareholders. and/or Logistics sectors with the ability to compete globally. All of us in the Scomi family Our people: should remember that any new initiatives we We aim to provide our employees with developmental undertake will focus on these areas of business. opportunities so they can succeed on personal and professional levels. We provide innovative solutions. Our suppliers: We innovate to respond to an evolving We will treat our suppliers as our partners in the mutual environment. Our products and operations interest of business growth. meet today’s needs while anticipating tomorrow’s. We are committed to developing Our society / environment: competitive and innovative solutions to create As a good corporate citizen, we will give back to the efficiency, add value and grow with communities we operate in, worldwide. our customers to shape our future.

004 Scomi Engineering Bhd CORPORATE INFORMATION

DIRECTORS REGISTRAR COMPANY SECRETARY Datuk Zainun Aishah Binti Ahmad (Chairman) Symphony Share Registrars Sdn Bhd Ong Wei Leng (MAICSA 7053539) YM Tunku Alizan Bin Raja Muhammad Alias Level 6, Symphony House Dato’ Ikmal Hijaz Bin Hashim Pusat Dagangan Dana 1 AUDITORS Shah Hakim @ Shahzanim Bin Zain Jalan PJU 1A/46, 47301 Petaling Jaya KPMG (AF 0758) Lee Chun Fai Selangor Darul Ehsan, Malaysia Chartered Accountants Tel : +603-7841 8000 Level 10, KPMG Tower Fax : +603-7841 8008 8, First Avenue, Bandar Utama AUDIT AND RISK MANAGEMENT 47800 Petaling Jaya COMMITTEE Selangor Darul Ehsan, Malaysia Dato’ Ikmal Hijaz Bin Hashim (Chairman) ADVOCATES & SOLICITORS YM Tunku Alizan Bin Raja Muhammad Alias Paul Ong & Associates PRINCIPAL BANKERS Unit No. B-2-8 NOMINATION AND REMUNERATION Block B 2nd Floor United Overseas Bank (Malaysia) Berhad COMMITTEE Megan Avenue 1 Menara UOB, Jalan Raja Laut Datuk Zainun Aishah Binti Ahmad (Chairman) No.189, Jalan Tun Razak P.O. Box 11212 YM Tunku Alizan Bin Raja Muhammad Alias 50400 Kuala Lumpur 50738 Kuala Lumpur, Malaysia Shah Hakim @ Shahzanim Bin Zain Malaysia Malayan Banking Berhad Skrine Menara Maybank OPTIONS COMMITTEE Unit No. 50-8-1, 8th Floor 100, Jalan Tun Perak Dato’ Ikmal Hijaz Bin Hashim (Chairman) Wisma UOA Damansara 50050 Kuala Lumpur, Malaysia Shah Hakim @ Shahzanim Bin Zain 50, Jalan Dungun Lee Chun Fai Damansara Heights OCBC Bank (Malaysia) Berhad 50490 Kuala Lumpur Menara OCBC Malaysia 18, Jalan Tun Perak REGISTERED OFFICE 50050 Kuala Lumpur, Malaysia Level 17, 1 First Avenue Rajah & Tann Singapore LLP Bandar Utama 9 Battery Road #25-01 Standard Chartered Bank Malaysia Berhad 47800 Petaling Jaya Straits Trading Building Standard Chartered Saadiq Berhad Selangor Darul Ehsan Singapore 049910 Menara Standard Chartered Malaysia 30 Jalan Sultan Ismail Tel : +603-7717 3000 Khaitan & Co. 50250 Kuala Lumpur, Malaysia Fax : +603-7728 5258 One Indiabulls Centre, 13th Floor, Tower 1 841 Senapati Bapat Marg Export-Import Bank of Malaysia Berhad Mumbai (Bombav) 400 013 Level 1, EXIM Bank ADMINISTRATIVE AND CORRESPONDENCE India Jalan Sultan Ismail ADDRESS 50250 Kuala Lumpur, Malaysia Level 17, 1 First Avenue Rajani, Singhania & Partners Bandar Utama Krishna Chambers 47800 Petaling Jaya 59 New Marine Lines STOCK EXCHANGE LISTING Selangor Darul Ehsan Mumbai 400020 Main Market of Bursa Malaysia Securities Berhad Malaysia India Stock Name : Scomien Tel : +603-7717 3000 Stock Code : 7366 Fax : +603-7728 5258 Trench, Rossi e Watanabe Advogados Website : www.scomiengineering.com.my Rua Arq. Olavo Redig de Campos Email : [email protected] 105 – 31st floor, EZ Towers Building CURRENCY Tower A, 04711-904 Ringgit Malaysia (RM) São Paulo - SP - Brasil

Annual Report 2015 005 Driven by vision and conviction Driven by vision and conviction board of directors

Datuk Zainun Aishah binti Ahmad Chairman, Independent Non-Executive Director

Datuk Zainun Aishah, a Malaysian, aged 69, was appointed to the Board on 15 December 2005. She is also the Chairman of the Company’s Nomination and Remuneration Committee.

Datuk Zainun Aishah graduated from University of Malaya with an Datuk Zainun Aishah was a Director of Tenaga Nasional Berhad, Kulim Hi- Honours Degree in Economics. Datuk Zainun Aishah began her career Tech Park and Malayan Banking Berhad. with Malaysian Industrial Development Authority (“MIDA”), the Malaysian government’s principal agency for the promotion and coordination of Currently Datuk Zainun Aishah’s other directorships in public companies industrial development in the country where she worked for 35 years. are, Degem Bhd, Berjaya Food Bhd, Shell Refinery Company (Federation of In her years of service, she held various key positions in MIDA as well Malaya) Bhd and British American Tobacco (Malaysia) Berhad. as in some of the country’s strategic council, notably her pivotal role as National Project Director in the formulation of Malaysia’s first Industrial Datuk Zainun Aishah attended all six (6) Board Meetings held during the Master Plan. She was the Director-General of MIDA for 9 years and Deputy financial year ending 31 March 2015. Director-General for 11 years.

Ym Tunku Alizan bin Raja Muhammad Alias Independent Non-Executive Director

YM Tunku Alizan bin Raja Muhammad Alias, a Malaysian, aged 49 was appointed to the Board as an Independent Non-Executive Director on 20 August 2014. He was appointed as a member of the Audit and Risk Management Committee and the Nomination and Remuneration Committee on 11 November 2014.

YM Tunku Alizan holds a LLM in Construction Law from the University of YM Tunku Alizan is also a Director of KUB Malaysia Berhad, a public listed Bristol and LLB (Hons) University of Malaya. In 1991, he was admitted as company. an Advocate & Solicitor of the High Court of Malay and in 1999 together with Dato’ Zulkifly bin Rafique and several other partners formed Zul YM Tunku Alizan attended all three (3) Board Meetings of the Company Rafique & Partners. since his appointment in August 2014 for the financial year ending 31 March 2015. He has been exposed to a wide range of legal experience in his 23 years post-qualification, specializing in the areas of Corporate and Construction Law. He is also a qualified company secretary and is a joint company secretary of a public listed company in Malaysia. He is currently sits on the board of nine (9) private companies.

008 Scomi Engineering Bhd Dato’ Ikmal Hijaz bin Hashim Independent Non-Executive Director

Dato’ Ikmal Hijaz bin Hashim, a Malaysian, aged 62 was appointed to the Board as an Independent Non-Executive Director on 29 October 2013. Dato’ Ikmal is the Chairman of the Audit and Risk Management Committee (“ARMC”) and the Options Committee. He also performed the role of a Senior Independent Director.

Dato’ Ikmal graduated with a Bachelor of Arts with Honours from Dato’ Ikmal was also appointed as President of the Property Division of University Malaya. Dato’ Ikmal also obtained an Mphil. in Land the Renong Group while maintaining his position as Managing Director Management from University of Reading, United Kingdom. of Prolink. He then held the position of Managing Director at Renong Berhad from 2002 until October 2003. Dato’ Ikmal began his career by serving in the Administrative and Diplomatic Service of the Government from 1976 to 1991 in various Dato’ Ikmal subsequently was appointed as Managing Director/Chief capacities in the District Office, Regional Development Authorities and Executive Officer of Pos Malaysia Berhad and also as Group Managing under various Ministries. Dato’ Ikmal then joined United Engineers (M) Director of Pos Malaysia & Services Holdings Berhad (“PMSHB”). He served Berhad in 1991 as the General Manager of the Malaysia-Singapore Second as the Chief Executive of Iskandar Regional Development (“IRDA”) from Crossing Project. February 2007 until end of February 2009 and as Chairman of Faber Group Berhad from 1 March 2009 until 26 June 2014. On 1 January 1993, he became the Chief Operating Officer of Projek Lebuhraya Utara-Selatan Berhad (“PLUS”) and was subsequently appointed Dato’ Ikmal is currently a Director of EP Manufacturing Bhd, a public listed as Managing Director from 1 January 1995 to 30 June 1999. He resigned company. as Managing Director of PLUS in 1999, and was appointed as the Managing Director of Prolink Development Sdn Bhd (“Prolink”). Dato’ Ikmal attended five (5) out of six (6) Board Meetings held during the financial year ending 31 March 2015.

Shah Hakim @ Shahzanim bin Zain Non-Independent Non-Executive Director

Encik Shah Hakim, a Malaysian, aged 50, was appointed to the Board as Non-Independent Executive Director on 15 December 2005 and was re-designated as Non-Executive Director on 11 November 2014. He is also a member of the Company’s Options Committee, and, the Nomination and Remuneration Committee.

Encik Shah Hakim started his career as an auditor with Ernst & Young Encik Shah Hakim attended all six (6) Board Meetings held during the and was subsequently promoted as Consulting Manager, responsible for financial year ending 31 March 2015. servicing large corporations. He went on to be appointed as Executive Director of a regional packaging manufacturer in 1992, with direct operational responsibility. He currently sits on the Board of Scomi Group Bhd, Scomi Energy Services Bhd and KMCOB Capital Berhad.

Annual Report 2015 009 BOARD OF DIRECTORS |

Lee Chun Fai Non-Independent Non-Executive Director

Mr. Lee Chun Fai, a Malaysian, aged 44, was appointed to the Board as a Non-Independent Non-Executive Director on 17 May 2013. He became a member of the Options Committee on 31 March 2015.

He holds a Bachelor of Accountancy (Honours) degree from University His directorships of other public companies include Scomi Group Bhd, Utara Malaysia (1995) and a Master of Business Administration from Scomi Energy Services Bhd and Kumpulan Europlus Berhad and IJM Land Northwestern University (Kellogg) and The Hong Kong University of Berhad. He is also an Alternate Director in Road Builder (M) Holdings Bhd. Science & Technology (2012). Mr. Lee attended Four (4) out of Six (6) Board Meetings held during the He started his career with a public accounting firm. In October 1995, he financial year ending 31 March 2015. joined Road Builder (M) Holdings Bhd (“RBH Group”) and was the Head of Corporate Services Division of RBH Group prior to the acquisition of RBH Group by IJM Corporation Berhad (“IJM”) in 2007. Currently, he is the Deputy Chief Executive Officer and Deputy Managing Director of IJM and has served as the Deputy Chief Financial Officer and Head of Corporate Strategy & Investment of the IJM Group.

Loong Chun Nee (Resigned on 29 July 2015) Non-Independent Non-Executive Director

Mdm Loong Chun Nee, a Malaysian, aged 57, was a Non-Independent Non-Executive Director. She was a member of the Audit and Risk Management Committee.

Mdm Loong graduated with a Bachelor of Arts in Economics and Social Madam Loong has extensive experience in financial advisory matters Studies from the University of Manchester, United Kingdom. specializing in the areas of corporate debt restructuring, corporate finance and project financing for privatization projects. Mdm Loong was previously with the Renong Group of Companies for a total of 11 years covering companies including Projek Lebuhraya Madam Loong attended all Six (6) Board Meetings of the Company held Utara-Selatan Berhad (PLUS) (1988-1992), United Engineers (Malaysia) during the financial year ending 31 March 2015. Berhad (1993-1996) and HBN Management Sdn Bhd (Group Management Office)(1997-1999). She left the Renong Group in late 1999 to join YBhg Tan Sri Dato’ (Dr) Rozali Ismail as Financial Advisor for Puncak Group of Companies before being appointed as the Finance Director to the Board of Puncak Niaga Holdings Bhd in January 2005 (2000-June 2005). She then joined Scomi Group Bhd as Senior Vice President of Corporate Finance Division / Chief Financial Officer of Scomi Energy Services Bhd since July 2005. Thereafter, she was transferred to Scomi Group Bhd as Group Chief Financial Officer in August 2006. In early 2008, she was re-designated as Chief Investment and Performance Officer.

010 Scomi Engineering Bhd | BOARD OF DIRECTORS

Kanesan A/L Veluppillai Chief Executive Officer

Mr Kanesan Veluppillai, a Malaysian, aged 54, was appointed as the Chief Executive Officer on 21 January 2013.

Mr. Kanesan holds a Bachelor of Economics with honours in Business Mr. Kanesan does not hold any shares in SEB and its subsidiaries and nor is Administration from the University of Malaya. he a Director of any public listed companies.

Mr. Kanesan has over 30 years experience in the financial services, automotive, property and infrastructure, transportation and oil and gas sectors and has served with companies such as RHB Bank, DRB-HICOM, Credit Corporation (Malaysia) Berhad, Master-Carriage and Scomi. He also holds the position of Group Chief Operating Officer of Scomi Group Bhd and has served Scomi as its Senior Vice President, Global Marketing, President, Scomi International and Country President, Scomi India.

Notes:

Save as disclosed, none of “the Directors” and CEO have: • any family relationship with any other Director and/or major shareholder of the Company; • any conflict of interest with the Company; and • any conviction for offences within the past ten (10) years (other than traffic offences, if any).

Annual Report 2015 011 Transforming challenges into solutions solutions CHAIRMAN’S STATEMENT

Dear Stakeholders,

The financial year ended 31 March 2015 (FY2015) was a momentous one for Scomi Engineering Bhd (SEB or the Company). The Company weathered the challenges and managed to turn around the financial performance to achieve profitability.

In FY2015, the Company was awarded a third monorail contract in CREATING STAKEHOLDER VALUE Brazil, the Public Private Partnership (PPP) project for the São Paulo Line 18. In Mumbai, we celebrated the first anniversary of the successful The nature of our business – namely the provision of integrated transport commissioning of Phase 1 of the Mumbai Monorail, which was first solutions – in itself affords great value to the communities that we launched on 2 February 2014. After a year of operations, as at 1 February serve. As populations continue to grow and the process of urbanisation 2015, the Mumbai Monorail has transported more than 5.1 million intensifies, the need for efficient urban public transport becomes more passengers along the 8.9-kilometre line. Together with our partner, we are critical. The rail solutions that SEB offer is one of the most efficient currently operating and maintaining Phase 1 of the Mumbai Monorail and responses to the status quo. The Company is one of the leaders in the simultaneously working on completing Phase 2. monorail segment and its growing engineering expertise has enabled it to expand its product portfolio to include other means of urban rail transport For Commercial Vehicles, which comprises our Coach and Special Purpose such as metro trains and light rail trains. Vehicle (SPV) units, SEB continued to deliver on our projects. We are also pleased with our new relationship with UK-based coach manufacturer SEB’s trains also satisfy increasing demand for environment-friendly Alexander Dennis Limited (ADL), with whom we are assembling transport. According to a study by the International Union of Railways coach chassis for export. The Coach unit is currently involved with the (UIC), headquartered in France, rail systems emit three to 10 times less manufacturing of buses for various clients and the bus leasing contract carbon dioxide than other modes of transport. To minimise carbon with the Malacca state government. Meanwhile, the SPV unit has been foot-print, the Company’s research and development (R&D) team at working on new projects secured in FY2015 from clients in Malaysia, Hong the Engineering, Technology and Innovation Centre (ETIC) in the North Kong, Macau and Brunei. Kuala Lumpur Facility (NKLF) is driven to continuously enhance SEB’s technologies for further efficiencies and sustainability.

FINANCIAL OVERVIEW In an ideal megacity, the public would have access to an integrated transport system in which cost-effective “green” rail systems are SEB turned its financial performance around in FY2015, recording a profit complemented by cost-effective electric or hybrid buses. This is a scenario of RM0.4 million compared to losses in the previous year. Operational SEB would like to be able to help its customers translate into reality. expenditure (“Opex”) reduced from RM48.04 million in FY2014 to RM20.21 million, while revenue increased from RM236.90 million to RM238.32 million. DEVELOPING LOCAL CAPABILITIES

As one of the few Malaysian urban transport technology companies to SEB has always practised the philosophy of hiring talent from the countries go global, SEB possesses research and development abilities, world-class we are in, to develop local capabilities and technological competencies. manufacturing facilities, experienced leadership and strong support by On average, no less than 90% of the Company’s employees in Brazil and our key stakeholders. The Board is extremely heartened by this result and India are citizens of these nations, whom we train so they have the skills- believes that the Company will continue to build on this fundamental sets required to carry out their functions effectively. strength and sustain its financial performance in the years to come.

014 Scomi Engineering Bhd Annual Report 2015 015 CHAIRMAN’S STATEMENT |

The Company also invests in our host nations and provides additional For further details of our activities, please refer to the Corporate Social employment opportunities as well as transfer of technology through Responsibility section on pages 024 to 027. joint ventures. In Brazil, we have set up a manufacturing plant in Rio de Janeiro with our consortium partner for the production of monorail trains. Launched in 2013, the plant employs 150 local hands. BOARD DEVELOPMENTS

We feel proud to be able to spur economic growth via the localisation The Board of Directors of SEB maintains a keen and objective interest of manufacturing, which serves the added function of mitigating our in the management of the Company, ensuring all governance issues foreign exchange risk. Together, our economic and social integration into are taken into consideration in key decisions while also guiding the local communities enables us to build strong relationships with our host Company’s strategic direction. nations which, in turn, enhances the sustainability of our operations. In FY2015, together with the Management Team, various policies were established to streamline operations for enhanced efficiencies. These CORPORATE SOCIAL RESPONSIBILITY include:

SEB has always been supportive of programmes which contribute • Global Finance Policy; positively to our stakeholders. The Company believes in giving back to • Global ICT Policy; uplift underserved communities, enhance environmental conservation, • Global People Policy; create conducive workspaces for employees and ensure that we maintain • Procurement Management Policy; utmost integrity in the marketplace. • Global QHSE Policy; • Workplace Management Policy; and Throughout the year, SEB has organised a series of stakeholder • Anti-Corruption Policy. engagement activities in Malaysia, India and Brazil including community clean-up sessions, health, safety and environmental awareness programmes as well as publication and dissemination of communication material on corporate developments. In addition, the Company also ensures that its products incorporate environmentally-friendly features to minimise carbon footprint.

016 Scomi Engineering Bhd | CHAIRMAN’S STATEMENT

BOARD CHANGES ACKNOWLEDGEMENTS

On 29 July 2015, Madam Loong Chun Nee resigned from the Board of On behalf of the Board of Directors, I would like to take this opportunity Directors. On behalf of the Board, I would like to take this opportunity to to thank the Governments of Malaysia, India and Brazil; the various express gratitude to Madam Loong for her invaluable contribution to the government bodies related to transport; our clients, business partners, Company. investors, shareholders and customers; as well as members of the media for your highly valued support.

OUTLOOK I would also like to express my heartfelt appreciation to everyone in SEB for all your hard work and commitment. To my fellow Board members, SEB will intensify work on its existing projects in Malaysia, India and Brazil. thank you for your wise counsel which has helped SEB stay the course We are looking to introduce and aggressively market enhanced solutions throughout the ebbs and flows of the financial landscape. To the for both the Rail and Commercial Vehicle segments. This will allow us to Management, let me express my deep appreciation of your vision and entrench our business as a global enterprise, recognised for providing capable leadership in overcoming all manner of adversity and making the world-class transport solutions with the highest service quality. most of opportunities. As for our employees, I speak for the Board when I say that we recognise and value the contribution to the Company. Over the years, SEB has built a reputable track record reflecting our capabilities. We will also leverage on our strong network of contacts to Moving forward, let us continue to work together to unleash the immense expand our market share. The Company’s overall strategy of growing our potential of SEB which all of you have helped to build. business via an expanded product range and more integrated service offerings, will facilitate business sustainability in the best interest of our shareholders and other stakeholders.

Datuk Zainun Aishah Binti Ahmad Chairman

Annual Report 2015 017 MANAGEMENT REVIEW OF OPERATIONS

Dear Stakeholders,

The financial year ended 31 March 2015 (“FY2015”) was a challenging one for emerging markets as they faced a slowdown in economic growth. For Scomi Engineering Bhd (“SEB” or “the Company”) the year continued to be challenging in the several markets we are operating in. In the face of these challenges, the Company managed to attain numerous achievements that have further strengthened our position in the urban rail and commercial vehicles sectors. Most notably, the Company showed an improved financial performance from making a loss to a small profit this year.

OVERVIEW During the year, we continued to make progress on each of our ongoing projects while submitting bids for more systems in Latin America focusing SEB offers integrated urban transit solutions in the form of monorail specifically on highly populated cities where there is a growing need for solutions, coaches and special purpose vehicles (SPV). There are two integrated urban transport. Although most of these typically emerging integrated monorail system providers in the world, offering end-to-end markets underperformed in terms of economic growth in FY2015, our solutions from design, fabrication and integration of the rolling stock track record in Brazil led to the award of a new contract there. (the travelling component in a rail system) to related electro-mechanical systems. Meanwhile, in Asia, we continue to pursue monorail proposals in Chennai and Kolkata (India); Bangkok (Thailand); Istanbul and Izmir (Turkey); We are currently involved in five monorail projects – the fleet expansion Palembang, Surabaya and South Sumatera (Indonesia), Colombo (Sri of the existing monorail system in Malaysia; a new monorail system Lanka) as well as new projects in Brazil and Malaysia. in Mumbai, India; and three monorail lines in Brazil, one of which was acquired during the financial year. Our coach and SPV business supplies The Coach and SPV businesses – which were merged to form the both local and regional markets with various types of coaches/buses as Commercial Vehicles division – provides SEB with steady turnover. As a well as mounted trucks, hazardous material apparatus (HAZMAT) vehicles, result of investing more energy and focus into this division in recent years, decontamination vehicles, petrol tankers, refuse compactors, vacuum/ we have been able to build a substantial business in the provision of desludging compactors and aircraft refuellers. vehicles for sales and leasing, as well as for operations and maintenance (O&M). We have been supplying buses to the Malacca State Government In February 2014, when Phase 1 of the Mumbai Monorail system was since 2013, and are now providing maintenance services under the commissioned – our role expanded from being a monorail systems contract. A number of other projects for the manufacture of SPVs such provider to also include being a monorail operator. We have completed as mounted trucks, hazardous material apparatus (HAZMAT) vehicles, one and a half years of Operations and Maintenance (O&M) in Mumbai decontamination vehicles as well as airport refuellers – are also phased and to date met all the standards and Key Performance Indicators required over a period of years, thus offering us a steady annual income. We intend of the client. to grow this business rapidly over the next few years.

018 Scomi Engineering Bhd At the same time, we are actively looking to further tap regional markets In Malaysia, we continued to make progress on the Kuala Lumpur by partnering with leading global original equipment manufacturers Monorail Fleet Expansion Project (KLMFEP). On 21 December 2014, the (OEMs), thereby increasing our own technological capabilities and further first four-car train developed by SEB was introduced to commercial building our name as an integrated transport solutions provider. operations. By end of July, we have delivered 4 more sets to the client. This is the world’s first monorail system which operates a mixed fleet operations consisting of both two-car and four-car trains. We expect to FINANCIAL PERFORMANCE deliver the balance trains in 2016.

FY2015 saw our revenue increase from RM236.90 million to RM238.32 For the Mumbai Monorail project, we have continued to work on Phase million. The Rail segment contributed RM191.9 million and the remaining 2 of the Mumbai Monorail system, a 10.76km line connecting Wadala to RM46.4 million was derived from Commercial Vehicles. Revenue from Jacob Circle with 10 stations. Despite several delays due to government Rail was RM4.5 million less than in the previous financial year, mainly and approval from authorities, civil works are over 85% complete. due to lower value of work done due to project delays. Revenue from Construction is expected to be completed in the first quarter of 2016 with Commercial Vehicles increased by RM5.9 million from the previous year, commercial operations anticipated to start by mid 2016. as a result of an expanded product base and more aggressive marketing initiatives. Meanwhile, the operations and maintenance of Phase 1 of the Mumbai project has been progressing well since it was commissioned on 2 Most encouragingly, we turned around our after-tax loss of RM37.7 million February 2014. Operations initially started for eight hours a day but in FY2014 to a positive profit of RM0.4 million for the financial year under within 10 weeks had increased to 14 hours per day. Since August 2014, review. This was contributed in part by lower unrealised foreign exchange operations have been running 16 hours daily, from 6am to 10pm, with an losses as well as concerted efforts to optimise costs. average service reliability of 98.49% and an equally impressive punctuality level of 99.17%. At the corporate level, the creation of a single unit for our Coach and SPV businesses effective 1 December 2014 enables us to derive the In its first year of operations, as at 1 February 2015, the monorail benefits of shared resources. Operationally, we have also restructured our system had transported over five million passengers. Ridership on the manufacturing processes and sequencing to be leaner and more efficient line averaged 14,000 passengers a day and increases to over 20,000 while implementing changes to further increase the quality of our end passengers on weekends and holidays. We are also extremely pleased products. with our safety record of zero passenger safety incidents to date.

The Mumbai Monorail project is one of our key success stories. We OPERATIONS REVIEW brought the monorail to a nation that has a high risk earthquakes as well as extreme weather conditions with its annual monsoon. In June 2015, at A definite highlight of the year was winning our third monorail project the start of the monsoon season, Mumbai experienced its wettest month in Brazil. In early July 2014, the Companhia Do Metro in São Paulo since 1971. And on 19 June, after continuous torrential rains where the announced that the Public Private Partnership Project (PPP) for the São financial capital came to a standstill as transport networks were inoperable Paulo Line 18 had been awarded to a consortium, Concessionaria do due to flooding, the Mumbai Monorail reliably continued its services with Monotrilho Linha 18 Bronze S/A, for a period of 25 years. The consortium, 100% punctuality. meanwhile, appointed SEB to design and manufacture the rolling stock and track switches; supply the vehicle management system and bogies as An important development in our Commercial Vehicles division, was well as system integration. the establishment of a new business unit focusing on leasing and maintenance. Following the successful delivery of 42 buses to the Melaka Various aspects of the project make it significant for SEB. Prior to this, State Government which we are now maintaining till year 2020, we have all our monorail projects were government-owned and funded. By been in discussions on similar projects with other state governments as successfully managing a joint public-private monorail project, we are well as private enterprises. opening the doors to collaborations with the private sector, broadening the range of potential customers we will be able to work with in future. We are also pleased with our new business with a UK-based customer, for Line 18 will span 14.35km to connect the municipalities of Santo André, whom we are assembling bus chassis for export. São Bernardo do Campo and São Caetano do Sul to the metropolitan region of São Paulo.

Annual Report 2015 019 MANAGEMENT REVIEW OF OPERATIONS |

020 Scomi Engineering Bhd | MANAGEMENT REVIEW OF OPERATIONS

The positive momentum continued for the Group’s SPV unit with new The key for the growth and profitability of the Company will be the projects secured in FY2015 from clients in Malaysia, Hong Kong, Macau drive to maintain the lower costs of operations achieved so far and to and Brunei. Notable orders secured include mounted trucks, hazardous continue process improvements to multiply the efficiency of operations material apparatus (HAZMAT) vehicles, decontamination vehicles, petrol and project management. The funding structure of the Company is being tankers, refuse compactors, vacuum/desludging compactors and five improved to match the long term nature of the projects and receivables. aircraft refuellers, eight aluminium alloy tankers, six vacuum tanks and 13 We will endeavour to match the project funding with longer term aluminium alloy tanks. funding structure to match the projects progress.

In summary, we are very pleased to have expanded our range of products SEB will actively pursue various monorail bids in Brazil, India, Indonesia, requiring specialist technology while keeping our operations lean and Malaysia, Sri Lanka, Thailand and Turkey. We are particularly confident costs down. We have achieved this via a combination of increasingly of acquiring more contracts in Brazil, India and Malaysia, where we have efficient processes and better utilisation of our human and technical established our expertise and level of professionalism as a provider of resources. As we focus on efficiency and productivity, service and urban transport solutions. The governments of these three nations, manufacturing quality remains top of mind for all of us. recognise the value of monorail as part of integrated urban transport networks and have indicated their interest in developing more of such systems in the near future. TECHNOLOGY UPDATES In Malaysia, the government has announced a number of urban rail Our research team at the Engineering, Technology and Innovation Centre projects as part of the Greater Kuala Lumpur/Klang Valley National Key (ETIC) at the North Kuala Lumpur Facility (NKLF) in Malaysia, has been Economic Area (NKEA) under the Economic Transformation Programme. working intently to continuously improve our rail prototypes. One area These include the 36km LRT 3 project linking Bandar Utama to Johan that the team has been focusing on is the train’s passenger capacity, Setia, Klang and the 59.5km MRT2 project linking Selayang with Putrajaya. with very positive results. From our first prototype of two-car trains with In addition, we have submitted bids for monorail proposals in Selangor, a capacity of 3,200 passengers per hour per direction (PPHPD), we now Johor, Melaka, Kota Kinabalu and Putrajaya. offer a current model comprising five or six-car trains with the capacity of transporting 36,000 PPHPD. This puts our monorails at par with, or even As part of our product expansion strategy, we also intend to broaden at a higher level than light rail transit (LRT) trains, which typically have a our development capabilities. In focusing purely on monorail, we have capacity of just under 30,000 PPHPD. produced an Mass Rail Train (MRT) and intend to collaborate with a global partner to tender for LRT and MRT projects internationally.

SHOWCASING OUR TECHNOLOGY Towards growing our core business, we actively seek to upsell products to our current monorail clients. In the Commercial Vehicles division, we The best showcase of our technology are our monorail systems are also looking into expanding horizontally by venturing into the hybrid/ themselves. Since its commissioning, the Mumbai Monorail line has electric bus market as we believe that energy efficient vehicles represent attracted much attention from town planners, government officials, the way forward. engineering students and university faculty members from India as well as neighbouring countries. Many have visited our site to observe how we While building on our core business and expanding our product range, manage operations. we will continue to enhance our manufacturing processes and systems for greater cost-efficiency. We have made significant progress in FY2015 In Malaysia, we continue to receive interest from local and foreign visitors and intend to accelerate our growth in FY2016 and beyond. to our North Kuala Lumpur Facility (NKLF). This year, we hosted close to 200 guests to our facility which has a one-kilometre monorail test track. Among our visitors was a delegation from the Nigerian Transportation Secretariat and students from Coventry University in the United Kingdom. We also had among others, a team of local bankers who got on at the KL Sentral station in Brickfields to experience a ride on the latest monorail.

OUTLOOK

Economic growth in the calendar year 2015 is expected to be moderate, with developed nations accounting for the pick-up. Developing nations, which form the bulk of our target markets, will also see increased gross domestic product (GDP) but at slower rates. Despite the uneven growth, we are confident of building on our momentum to set SEB well on the Kanesan Veluppillai path of continued profitability. Chief Executive Officer

Annual Report 2015 021 Driving positive and dynamic change positive and dynamic change CORPORATE SOCIAL RESPONSIBILITY

Scomi Engineering Bhd (SEB or the Company) has always valued our stakeholders for the support they provide to the Company both directly and indirectly. In recognition of their role in our long-term success, we constantly strive to build strong and lasting relationships with each group of stakeholders based on integrity, honesty and respect. Guided by principles of corporate governance, we are transparent with our activities which help to foster continued trust.

As a responsible public listed company, every decision we make takes into As a technology enterprise, we invest significantly in research and consideration the interests of our stakeholders. Our employees are our development (R&D), which takes place in a number of different most valuable assets, and we firmly believe in the importance of investing locations around the world. We have a team of engineers housed at in their career growth to help them realise their true potential. the Engineering, Technology and Innovation Centre (ETIC) at the North Kuala Lumpur Facility (NKLF) in Malaysia to further develop our rail and Given our operating presence at various locations, we are committed commercial vehicle technologies. Among the team’s many achievements, to several localised community programmes. We are driven by a desire it has successfully increased the passenger capacity of our monorail to make a meaningful difference to communities where we operate trains. While the first prototype of two-car trains had a capacity of 3,200 via educational, environmental conservation as well as disaster relief passengers per hour per direction (PPHPD), the current model of five or programmes. six-car trains can carry up to 36,000 PPHPD.

With growing concerns over climate change, we believe every The Company also regularly receives visitors – from overseas as well as organisation has a duty to reduce its carbon footprint, and to promote locally – who seek to understand more about our offerings in Transport greater environmental awareness among its employees and communities. Solutions. Among its visitors during the year were a delegation from the As such, we consciously promote green products and actively implement Nigerian Transportation Secretariat; engineering students from Coventry green projects where possible. University in the UK as well as Taylor’s College Malaysia; and a group of local bankers. All the efforts alluded to above are integral to our Corporate Social Responsibility (CSR) programme. Our initiatives have been categorised We also greatly value our shareholders and seek to maintain their trust in broadly in terms of efforts targeted at the marketplace, workplace, our operations by keeping them abreast of our performance. Towards this community and the environment. end, we regularly post our quarterly results, relevant news releases and annual reports on our website. In addition, we have an investor relations team that meets regularly with analysts, fund managers and members of MARKETPLACE: CREATING GREATER BRAND VALUE the media to share important corporate updates.

In an increasingly competitive marketplace, SEB maintains our edge by reinforcing our brand as one that delivers quality products and excellent service.

024 Scomi Engineering Bhd WORKPLACE: BUILDING OUR PEOPLE, GROWING THE GROUP

To grow SEB as a global technology enterprise, we are working to ensure that our people upskill and have the capabilities to deliver this mission. We also look at innovative ways to provide our talent with conducive work environments to stimulate the kind of ideas and innovation that will be required to grow the Company.

The professional development of employees comes under the purview of our Global Learning and Development (GLaD) unit, which caters to the training needs for soft skills and technical competencies of all business units Group-wide. Its extensive range of progammes cover every level – from induction programmes for new recruits to Management Trainee Programmes, Executive Management Programmes and highly personalised Mentoring & Coaching Programmes for mid-level management who demonstrate leadership potential.

As the Company’s needs evolve, GLaD continuously introduces new course modules to ensure our employees have the appropriate balance of skills that would enable them to execute their functions optimally. During the year under review, eight new programmes were introduced: Constructive Feedback, Imagineering, Problem Solving with SCORE, 7 Habits of Highly Effective People, Grammar with Laughter, Individual Financial Planning, Contract Management and Negotiation Skills.

Performance Management & Evaluation

As part of our commitment to develop a high-performance organisation, we have instituted a transparent performance management system called PACE. With PACE, employees are engaged in a discussion on One of the most effective communication channels used for employees their individual strengths and weaknesses during their annual appraisal. globally is our intranet. During the year, we re-launched a new and Subsequently, an individualised career plan is mapped out to allow them improved VENGO+ Intranet which serves as a one-stop information centre to realise their potential. Our structured PACE framework aligns the career for staff. Hosted on the Google Sites Application, the site is accessible development of employees with the Company’s business strategies anytime and anywhere, and allows us to disseminate information and targets. High performers – those who consistently exceed their key in a timely manner. The intranet not only promotes cross-sharing of performance indicators (KPIs) – are rewarded by career advancement. information (on company and industry news) but also encourages sharing For those earmarked in our succession plan, they would be mentored between employees. to enhance their people, personal and business leadership skills and will eventually grow to become leaders of the Company. At the senior-most level, our leadership meets annually at the Global Executive Meeting (GEM) during which the Group and operating Employee Engagement companies’ performance is analysed, plans going forward are discussed, and new performance targets are set. Key to employee satisfaction is a feeling of being relevant and recognised by an organisation. At SEB, we demonstrate the importance of every The leadership also meets regularly with employees at informal sessions employee by engaging in constant communication and keeping them such as staff townhalls, and at numerous fun events organised to foster updated on corporate developments. better staff relations. These include office celebrations during the festive seasons, staff engagement activities both at the workplace and at external locations, as well as via sporting events such as bowling competitions and futsal tournaments.

Annual Report 2015 025 CORPORATE SOCIAL RESPONSIBILITY |

Safety at Work To keep safety procedures at top of mind among our staff, our ’Scomi 12 Safety Rules‘ posters and buntings are prominently displayed at various Given the industries we are in, safety is of paramount importance. To locations throughout our premises, globally. Applicable to contractors as ensure that our people and assets are safe at all times, the Company’s well as employees, the 12 rules are to: Quality & Health, Safety and Environment (Q&HSE) initiatives are given high priority. During the year, SEB reviewed and approved its Global QHSE 1) Ensure a valid work permit is secured and managed Policy, which looks to ensure that our safety standards and procedures are 2) Ensure all confined space entries are authorised and managed now the same in every country where we operate, and meet global best 3) Follow the lock-out tag-out procedure practices. 4) Ensure job safety analysis is done before work commences 5) Use only approved personal protective equipment At the ground level, Q&HSE teams at our different business units regularly 6) Prevent hand, arm and finger injuries organise safety and health programmes and briefings. These include basic 7) Follow and adhere to tobacco, alcohol and drug policies and safety rules and techniques such as cardiopulmonary resuscitation (CPR) requirements and using firefighting equipment to more specialised programmes for 8) Observe road traffic safety rules those in high-risk roles. During the year, the teams also introduced the 9) Report all incidents/accidents/near misses immediately Hazard Hunt Card system which aims to educate employees on how to 10) Ensure all working at height rules are followed identify and eliminate hazards in the workplace. 11) Ensure that vehicles and mobile equipment are checked and maintained before use 12) Avoid walking under suspended loads

026 Scomi Engineering Bhd | CORPORATE SOCIAL RESPONSIBILITY

COMMUNITY: CARING FROM THE HEART The target communities we support are not restricted to just those in markets where we operate. In May 2015, we supported the work of the Various community outreach programmes are undertaken every year, World Food Programme through the UN Humanitarian Response Depots managed and led by individual departments on their own or as joint to raise funds for victims of the earthquake in Nepal. collaborations. Employees are required to participate in at least two initiatives a year. Most of our projects focus on marginalised communities Over and above these efforts, we raised RM2,436 via a charity car wash – the hard core poor, homeless, chronically ill as well as orphans and the for the Sri Pritchard Old Folks Home in Kinarut, Kota Kinabalu, Sabah; disabled community. and collected another RM10,808 from a charity bazaar organised at our headquarters in 1 First Avenue, Petaling Jaya in support of ‘Teach for As with the previous financial year, a number of programmes in FY2015 Malaysia’. targeted children. In July 2014, during the month of Ramadan, our staff took a total of 49 children on two separate Hari Raya shopping sprees. Our foundation, Yayasan Scomi, meanwhile continued to provide The children came from Rumah Titian Kasih in Setiawangsa, Kuala scholarships for tertiary education to deserving students and also other Lumpur and Rumah Amal Al-Firdaus in Denai Alam, Shah Alam. We also worthy causes in disadvantaged communities throughout Malaysia. organised a futsal game with a group of orphans, and visited children at the Orthopedics Ward of Sungai Buloh Hospital as well as children at the Society of the Severely Mentally Handicapped Malaysia. ENVIRONMENT: GREEN PRODUCTS AND PROJECTS

In addition, our volunteers lent a helping hand at the Pertiwi Soup As a responsible organisation, SEB has traditionally invested in Kitchen, distributing food, drinks, snacks and hygiene packs to the hungry environmentally-friendly products. Our monorail trains run on electricity and homeless on Jalan Tuanku Abdul Rahman in Kuala Lumpur. The team and therefore represent an energy efficient means of public transport, also carried out several ‘gotong royong’ (clean-up) sessions at: especially in crowded and densely built cities. Our team at ETIC is continuously improving on the trains’ mechanical parameters to further • a beach and a ‘surau’ (prayer hall) on Perhentian island, Malaysia; enhance efficiency, which will further contribute to the reduction of our • an orphanage, where our staff also donated and installed a new and our customers’ carbon footprint. water pump in addition to new furniture, curtains and other necessities; We also look to increase our efforts in spreading greater awareness on the • the Dyslexia Association of Malaysia’s centre; and importance of caring for our environment among members of the public, • a centre for the poor in Serendah, Malaysia. especially children. Various programmes have been organised by our teams globally, towards this end. During the year under review, our team At the corporate level, SEB mobilises our resources and contributes funds spent a day planting mangrove trees and cleaning the beach at Bagan in the event of natural disasters. During the financial year under review, Lalang, Malaysia. we supported work by the Ministry of Youth and Sports Malaysia in providing aid to victims of the year-end floods which affected not only We truly believe these initiatives both at corporate and as business unit Kelantan, Pahang and Terengganu in the East Coast of Peninsular Malaysia levels do make a positive difference. For both the recipients and those but also Perak and certain parts of Selangor. More than 200,000 people who lent a helping hand. Moving forward, we look to having more hands were affected by the floods, which is widely acknowledged as the worst and hearts coming together to create even more positive, desired results. to have hit the country in decades.

On 3 January 2015, a contingent of volunteers from SEB, together with their family and friends, gathered at the Royal Malaysian Air Force base in Subang to help sort and pack clothes and food parcels for flood victims. The team also distributed breakfast and lunch to Air Force personnel and approximately 300 other volunteers.

Annual Report 2015 027 STATEMENT ON CORPORATE GOVERNANCE

The Board of Directors (the “Board”) of Scomi Engineering Bhd (the “Company”) is committed to governing, guiding and monitoring the direction of the Company with the objective of enhancing long term sustainable value creation aligned to the interests of shareholders and other stakeholders. Towards this end, the Board strives to ensure that the highest standards of corporate governance are practiced by the Company and its group of companies (the “Group”) and views this as a fundamental part of discharging its roles and responsibilities.

This statement sets out how the Group has applied and complied with • reviewing the adequacy and the integrity of the Group’s risk the principles and recommendations of the Malaysian Code on Corporate management and internal control systems; Governance and the Main Market Listing Requirements of Bursa Malaysia • succession planning of the Company; Securities Berhad (“Bursa Malaysia”) (“MMLR”) for the financial year ended • providing input and overseeing the development and 31 March 2015. implementation of the investor relations and shareholder communications policy for the Company and the Group; and • reviewing the adequacy and the integrity of management Principle 1 – Establish Clear Roles and Responsibilities information produced and used by the Company and the Group.

The Board’s role is to govern and set the strategic direction of the The Board has implemented a system of internal controls which allows Company, whilst the Management’s role is to manage the Company and for efficiency and effectiveness, sound internal and external reporting the Group in accordance with the strategic direction and delegations and compliance. The system includes formally defined delegation of the of the Board. The Board oversees the activities of the Management in Board’s authority to Management. Full details of this system are set out in carrying out these duties. the Statement on Risk Management and Internal Controls on pages 036 to 040 of this report. The Group is led and controlled by an effective Board which assumes, amongst others, the following principal responsibilities in discharging its The Board has established and assigned specific responsibilities to three stewardship, fiduciary and leadership functions: (3) committees of the Board, which operate within clearly defined written terms of reference (published on the Company’s website at • reviewing and adopting a strategic plan for the Company and the www.scomiengineering.com.my. The Board reviews the Board Group, and subsequently monitoring the implementation of the Committees’ authority and terms of reference from time to time to ensure strategic plan by the Management to ensure sustainable growth of their relevance. The Board Committees deliberate issues on a broad the Company and the Group; and in-depth basis before making recommendations to the Board for • overseeing the conduct of the Company and the Group’s business; approval. The ultimate responsibility for decision making lies with the • evaluating principal risks of the Company and the Group and Board. ensuring the implementation of appropriate risk management and internal control systems to manage these risks;

028 Scomi Engineering Bhd The Board Committees are: The Group takes into consideration its impact on the environment and • the Audit and Risk Management Committee (“ARMC”); society in general; balancing the environment, social and governance • the Nomination and Remuneration Committee (“NRC”); and aspects with the interest of various stakeholders is essential to enhancing • the Options Committee (“OC”). investor and public trust. The Group acknowledges its responsibility for all the lives touched, either directly or indirectly, and is committed With the exception of the OC, and, the ARMC (in respect of certain to making a positive impact in the many communities in which it has internal audit matters), none of these Board Committees have the a presence. Over the years, the Group’s approach towards corporate power to act on behalf of the Board and are required to review and social responsibility (CSR) has become progressively more holistic, evaluate particular issues which are to be tabled to the Board with evolving from individual acts of philanthropy to becoming a mindset that recommendations. influences every decision and strategy. Driven by these values, the Group invests significantly in research and development in ‘green’ products that The minutes of Board Committee meetings and circular resolutions are efficient, cost-effective and environmentally friendly. passed are presented to the Board for information. The Chairman of the relevant Board Committees will also report to the Board on the key Every Director has full and unrestricted access to information within issues deliberated by the Board Committees at its meetings. The Board the Group. Where required, the Board and its Committees are provided Committees are described in more detail below. with independent professional advice, the cost of which is borne by the Company. The Board may also seek advice from the Management To enhance the Board and the Management’s accountability to the or request further explanation, information or update on any aspect Company and its shareholders, the Board has established clear of the Group’s operations or business concerns. The Board is supplied division between functions reserved for the Board and those delegated with quality and timely information, which allows it to discharge its to the Management. The Board has established a Board Charter. responsibilities effectively and efficiently. The agenda for each meeting The Board Charter is available on the Company’s website at together with a set of comprehensive Board Papers for each agenda www.scomiengineering.com.my. item are delivered to each Director in advance of meetings, to enable the Board sufficient time to review the matters to be deliberated for The Board’s authority is delegated to Management through clear and effective discussion and decision making during the meeting, and where formally defined Delegated Authority Limits (“DAL”). Whilst the objective necessary, to obtain supplementary information before the meeting. of the DAL are to empower Management, this is done in the context of a system of internal controls based on checks and balances. The DAL are The Directors have full and unrestricted access to the advice and implemented in accordance with the Group’s policies and procedures dedicated support services of the company secretary appointed by the and in compliance with the applicable statutory and regulatory Board. The Company Secretary, who is qualified and experienced, advises requirements. The DAL are continuously reviewed and updated to ensure the Board on procedural and regulatory requirements thus ensuring relevance to the Group’s operations. adherence to the board policies, procedures and regulatory requirements.

A Code of Conduct, adopted from the Scomi Group Bhd’s Code of Conduct has been implemented within the Group to provide a Principle 2 - Strengthen Composition framework for conducting the affairs of the Group with reference to applicable laws and ethical values. The Board and all employees of the The success of the Board in fulfilling its responsibilities depends on its size, Group are committed to best practices in corporate governance and the composition and leadership qualities. Currently, the Board is comprised of highest standards of integrity and behaviour in all activities, including six (6) Non-Executive Directors three (3) of whom are Independent. in the interaction with customers, suppliers, shareholders, employees and business partners, and within the community and environment The composition of the Board reflects a diversity of backgrounds, skills in which the Group operates. Compliance is monitored through a and experience in the areas of business, economics, finance, legal, Confirmation of Compliance declaration process where all employees of general management and strategy. Given the calibre and integrity of its the Group of grades 15 and above are required to confirm their receipt members and the objectivity and independent judgment brought by the and understanding of the Code of Conduct and further to certify their Independent Directors, the Board is of the opinion that its current size continued compliance with the Code of Conduct on an annual basis. and composition contribute to an effective Board. The Code of Conduct is available on the Company’s website at www.scomiengineering.com.my.

Annual Report 2015 029 STATEMENT ON CORPORATE GOVERNANCE |

The Board has recently appointed an Independent Non-Executive Mail : SCOMI ENGINEERING BHD Director as the Senior Independent Director (“SID”). He will act as a Level 17, 1 First Avenue designated contact to whom shareholders’ concerns and queries may Bandar Utama be raised, as an alternative to the formal channel of communication with 47800 Petaling Jaya shareholders. For any concerns or queries regarding the Company, the Selangor Darul Eshan, Malaysia. shareholders may convey to the SID of the Company via the following Attention: YBhg Dato’ Ikmal Hijaz bin Hashim channels: Fax : +603 7728 5258

Email : [email protected]

Composition of the Board and its Committees are as follow:

Board of ARMC NRC OC Directors

Chairman/Independent Non-Executive Directors

YBhg Datuk Zainun Aishah binti Ahmad C - C -

YBhg Dato’ Ikmal Hijaz bin Hashim(1) M C - C

Independent Non-Executive Directors

YM Tunku Alizan bin Raja Muhammad Alias(2) M M M -

YBhg Dato’ Abdul Rahim bin Abu Bakar(3) M - M M

Encik Edlin bin Ghazaly(4) M M M C

Non-Independent Non-Executive Directors

Encik Shah Hakim @ Shahzanim bin Zain(5) M - M M

Mr. Lee Chun Fai(6) M - - M

Mdm Loong Chun Nee M M - -

Notes: C - Chairman M - Member

(1) Appointed as Member and Chairman of the ARMC on 6 May 2014 and 15 May 2014 respectively. On 31 March 2015 was appointed as a Chairman of the OC. (2) Appointed as Independent Non-Executive Director on 20 August 2014 and appointed as member of the ARMC on 11 November 2014 and NRC on 31 March 2015. (3) Retired as Independent Non-Executive Director on 23 September 2014. (4) Resigned as Independent Non-Executive Director on 18 September 2014. (5) Re-designated as Non-Independent Non-Executive Director on 11 November 2014. (6) Appointed as member of the OC on 31 March 2015.

A brief description of the background of each Director is presented within the Profile of Directors section as set out on pages 008 to 011 of this Annual Report.

Article 80 of the Company’s Articles of Association provides that at least one third of the Board must retire by rotation at each Annual General Meeting (“AGM”). During the period under review, YBhg Datuk Zainun Aishah binti Ahmad retired and was re-elected at the 30th AGM held on 23 September 2014. YBhg Dato’ Abdul Rahim bin Abu Bakar did not seek re-election and retired at the AGM. The following Directors will be retiring pursuant to Article 80 at the AGM in September 2015:

(a) Encik Shah Hakim @ Shahzanim bin Zain; and (b) Mr. Lee Chun Fai.

030 Scomi Engineering Bhd | STATEMENT ON CORPORATE GOVERNANCE

The Board takes pleasure in proposing the re-election of Encik Shah Principle 3 – Reinforce Independence Hakim @ Shahzanim bin Zain and Mr. Lee Chun Fai at the forthcoming AGM. The role of the Chairman of the Board (“the Chairman”) and the CEO are separated with each having a clear scope of duties, functions and A Non-Executive Directors’ remuneration is based on standard agreed responsibilities. The distinct and separates roles of the Chairman and fees and allowances for attendance at Board and Board Committee the CEO ensures a balance of power and authority, such that no one meetings. The Directors are also entitled to options under the Company’s individual has unfettered powers of decision making. ESOS as approved by the shareholders of the Company. The Chairman plays a crucial and pivotal leadership role in ensuring that All Non-Executive Directors who served in the current financial year are the Board works effectively, whilst the CEO has the overall responsibility to be paid an annual Directors’ fee upon shareholders’ approval at the for the operational and business units, organisational effectiveness and forthcoming AGM. The aggregate remuneration paid to the Directors of implementation of Board policies, directives, strategies and decisions. A the Group who served during the financial year under review is set out periodical review of the CEO’s Balanced Scorecard is undertaken by the below: NRC and Board. The CEO is supported by the Key Management Team, for the day-to-day management of the business and operations of the Group. Non- During the period under review, the Independent Directors made up Executive Executive 62.50% of the Board. The Independent Directors currently make up 50% Directors Directors Total of the composition of the Board. Hence, the composition of the Board (RM’000) (RM’000) (RM’000) fulfilled and currently fulfils the prescribed requirement that one-third Salaries - - - (1/3) of the number of Directors on the Board be independent. The appointment of the independent directors is to ensure that the Board Fees - 314.2 314.2 includes directors who can effectively exercise their independent and objective judgment to the Board deliberations and to mitigate risks Allowances - 43.9 43.9 arising from conflict of interest or undue influence from interested parties. Bonuses - - - The Company does not have term limits for Directors. Independent Estimated - - - Directors (other than the Chairman) are treated as independent unless value of they have served for a cumulative period exceeding nine (9) years.The benefit-in-kind NRC makes recommendations to the Board as to the Independence of Total - 358.1 358.1 Directors on the following basis: (a) they have no interest or ties in the company that could adversely The aggregate remuneration above is broadly categorized into the affect independent and objective judgement and place the interest following bands: of the company above all other interests; (b) they have met the criteria for independence set out in Chapter 1 of Non- the MMLR; and Executive Executive (c) they continue to be able to exercise independent judgement and to Directors Directors Total act in the best interest of the Company.

Up to RM50,000 - 4 4 The Board is of the opinion that the current Independent Directors RM50,001 to RM100,000 - 4 4 remain objective and independent in expressing their respective views and in participating in deliberations and decision-making of the Board RM100,001 to RM1,000,000 - - - and the Board Committees. Hence, based on the recommendation by the NRC, the Board is of the view that the current Independent Directors are RM1,000,001 to RM1,200,000 - - - Independent and should be designated as such. Above RM1,200,000 - - -

Annual Report 2015 031 STATEMENT ON CORPORATE GOVERNANCE |

Principle 4 – Fostering Commitment

The Board meets a minimum of six (6) times a year, with special meetings convened as and when necessary. The Board is responsible for setting the corporate goals of the Group and for mapping medium and long term strategic plans, which are reviewed on a regular basis. Regular periodic review of the Group’s performance and implementation of the management’s action plans are conducted by the Board to assess the progress made towards achieving the overall goals of the Group.

A schedule of meetings of the Board and its Committees as well as the annual general meeting (“AGM”) is prepared and circulated to the Board before the beginning of the calendar year to facilitate the Directors in planning ahead. Special meetings of the Board and its Committees are convened between the scheduled meetings as and when urgent and important direction and/or decisions of the Board and/or its Committees are required.

During the financial year ended 31 March 2015, Six (6) Board Meetings were held. The attendance record of the Directors at Board meetings, together with their attendance at Board Committee meetings is as follows:

Board of ARMC NRC OC Directors

Chairman/ Independent Non-Executive Directors

YBhg Datuk Zainun Aishah binti Ahmad 6/6 - 1/1 -

YBhg Dato’ Ikmal Hijaz bin Hashim(1) 5/6 6/6 - -

Independent Non-Executive Directors

YM Tunku Alizan bin Raja Muhammad Alias(2) 3/3 2/2 - -

YBhg Dato’ Abdul Rahim bin Abu Bakar(3) 2/3 - - -

Encik Edlin bin Ghazaly(4) 2/3 4/4 1/1 1/1

Non-Independent Non-Executive Directors

Encik Shah Hakim @ Shahzanim bin Zain(5) 6/6 - - 1/1

Mr. Lee Chun Fai(6) 4/6 - - -

Mdm Loong Chun Nee 6/6 5/6 - -

Notes: C - Chairman M - Member

(1) Appointed as Member and Chairman of the ARMC on 6 May 2014 and 15 May 2014 respectively. On 31 March 2015 was appointed as a Chairman of the OC. (2) Appointed as Independent Non-Executive Director on 20 August 2014 and appointed as member of the ARMC on 11 November 2014 and NRC on 31 March 2015. (3) Retired as Independent Non-Executive Director on 23 September 2014. (4) Resigned as Independent Non-Executive Director on 18 September 2014. (5) Re-designated as Non-Independent Non-Executive Director on 11 November 2014. (6) Appointed as member of the OC on 31 March 2015.

The Directors are supplied with quality and timely information which allows them to discharge their responsibilities effectively and efficiently. The meeting agenda together with a set of concise and comprehensive Board Papers for each agenda item are delivered to each Director in advance to enable the Directors to review the matters to be deliberated.

032 Scomi Engineering Bhd | STATEMENT ON CORPORATE GOVERNANCE

At Board meetings, the Chairman encourages constructive, open disclosures of the performance of the Group. This is also channelled and healthy debate and ensures that resolutions are circulated and through the audited financial statements, quarterly announcements of deliberated so that all Board decisions reflect the collective view of the the Group’s unaudited results as well as the Chairman’s Statement and Board. Directors freely express their views or share information with their Management’s Review of Operations in the Annual Report. peers in the course of deliberation at the Board. Any Director who has a direct and/or indirect interest in the subject matter to be deliberated will The Statement of Directors’ Responsibility in respect of the preparation abstain from deliberation and voting on the same during the meeting. of the annual audited financial statements for the financial period under Deliberations at the meetings of the Board and its Committees are review is set out on page 045 of this Annual Report. recorded by the Company Secretary in minutes of meetings. In discharging its fiduciary responsibility, the Board is assisted by the The Board also complied with Paragraph 15.06 of the MMLR on the ARMC to oversee the financial reporting processes and the quality of the restriction on the number of directorships in listed companies held by the Group’s financial statements. Directors. The Company Secretary monitors the number of directorships held by each Director to ensure compliance at all times. The list of The primary objective of the ARMC is to assist the Board in reviewing directorships of each Director is updated regularly and is tabled for the the adequacy and integrity of the Group’s financial administration and notation of the Board on a quarterly basis. The Board is satisfied that reporting, internal control and risk management systems, management the external directorships of the Board members have not impaired information systems, and, systems for compliance with applicable laws, their ability to devote sufficient time in discharging their roles and regulations, rules, directives and guidelines. responsibilities effectively as well as regularly updating and enhancing their knowledge and skills. The Board, through the ARMC maintains an appropriate, formal and transparent relationship with the Group’s internal and external All Directors have attended the Mandatory Accreditation Programme as auditors. The ARMC is also tasked by the Board, to consider and make required under the MMLR. To remain relevant in the rapidly changing recommendations as to the appointment of the external auditor, the and complex modern business environment, our Directors are committed audit fee, any questions of resignation or dismissal and all non-audit to continuing education and lifelong learning to fulfil their responsibilities services to be provided by the external auditors to the Company. to the Company and enhance their contributions to board deliberations. The ARMC has received confirmation from the external auditors that for In addition to the NRC’s evaluation and determination of the training the audit of the financial statements of the Group and Company for the needs for each of the Directors, the Directors may also request attendance financial year ended 31 March 2015, the auditors have maintained their at training courses according to their needs as a Director or member of independence in accordance with their firm’s requirements and with the the respective Board Committees on which they serve. Throughout the provisions of the By-Laws on Professional Independence of the Malaysian period under review, the Directors were also invited to attend a series of Institute of Accountants. The external auditors also reaffirmed their talks on Corporate Governance organised by Bursa Malaysia together with independence at the completion of the audit. various professional associations and regulatory bodies.

During the financial year ended 31 March 2015, all members of the Board Principle 6 - Recognise and Managing Risks attended training programmes, conferences, seminars and courses organised by the relevant regulatory authorities and professional bodies The Board firmly believes in maintaining a sound risk management on areas relevant to the Group’s business, Directors’ roles, responsibilities, framework and internal control system to safeguard the shareholders’ effectiveness and/or corporate governance issues. investment and the assets of the Group. The framework and system are described in detail in the Statement of Risk Management and Internal Apart from attending the training programmes, conferences and seminars Control. organised by the relevant regulatory authorities and professional bodies, the Directors also visited key operating units of the Group and regularly The Statement on Risk Management and Internal Control is set out on received briefings and updates on regulatory and industry development, pages 036 to 040 of this Annual Report. including information on the Group’s businesses and operations, risk management activities and other initiatives undertaken by the Group. Principle 7 – Ensure Timely and High Quality Disclosure

Principle 5 – Uphold Integrity in Financial Reporting The Board recognises the importance of maintaining transparency and accountability to its shareholders. The Board ensures that all the The Board is committed to provide a balanced and true view of shareholders of the Company are treated equitably and the rights of all the Group’s financial performance and prospects in all its reports investors are protected. The Board provides its shareholders and investors to stakeholders and regulatory authorities. Prompt release of with comprehensive, accurate and quality information on a timely basis announcements of the quarterly financial statements and press releases to keep them abreast of all material business matters affecting the Group. reflect the Board’s commitment to provide timely and transparent

Annual Report 2015 033 STATEMENT ON CORPORATE GOVERNANCE |

Timely disclosure of material information is critical towards building Board Committees and maintaining corporate creditability and investor confidence. Recognising the importance of accurate and timely public disclosures The roles of the three Board Committees are described below. of corporate information in order for the shareholders to exercise their ownership rights on an informed basis, the Board has established a Group The Audit and Risk Management Committee Communication Policy with the following intention: At the commencement of the period under review, the ARMC was (a) to provide guidance and structure in disseminating corporate comprised of two (2) Non-Executive Independent Directors and one information to, and in dealing with investors, analysts, media (1) Non-Executive Non-Independent Director. Currently the ARMC is representatives, employees and the public; comprised of two (2) Non-Executive Independent Directors and one (b) to raise management and employees’ awareness on the disclosure Non-Executive Non-Independent Director. The ARMC meets as and when requirements and practices; required but no less than four (4) times during a financial year. (c) to ensure compliance with legal and regulatory requirements on disclosure; and The ARMC Report, enumerating its membership, Terms of Reference, its (d) to protect the brand equity of the Group by managing the risk roles and relationship with both the internal and external auditors and associated with the brand i.e. exposures to the brand that can activities during the financial year ended 31 March 2015 is set out on undermine its ability to maintain its desired differentiation and pages 041 to 043 of this Annual Report. competitive advantage. The Nominations and Remuneration Committee (NRC) The Board through the Management oversees the Group’s corporate disclosure practices and ensures implementation and adherence to the The Nomination and Remuneration Committee (“the NRC”) was relevant rules. comprised of 3 Independent Non-Executive Directors. During the financial period, two (2) Independent Non-Executive Directors were The Group also maintains a corporate website, www.scomiengineering. appointed to the Committee to replace the resigned Committee. com.my to disseminate information and enhance its investor relations. Currently the NRC is comprised of two (2) Independent Non-Executive and one (1) Non-Independent Non-Executive Director. The terms of reference of the NRC include: Principle 8 – Strengthen Relationship between Company and Shareholders (a) To: • recommend to the Board potential candidates for Shareholders are encouraged to attend the AGM and other shareholders’ directorships to be filled by the shareholders or the Board, meetings. The Company dispatches notices of shareholder meetings at giving consideration to: least twenty one (21) days before the meeting or as otherwise permitted - the requirements of the Group; under the applicable rules. Annual Reports or shareholder circulars are - the candidates’ skills, knowledge, expertise and similarly dispatched in advance. experience; - the candidates’ professionalism; Shareholder resolutions are put to vote by show of hands, unless - the candidates’ integrity; and otherwise permitted under the applicable rules. The Board encourages - in the case of candidates for the position of Independent poll voting. The outcomes are announced to Bursa Malaysia on the day of Non-Executive Directors, their ability to discharge such the meeting. responsibilities/functions as expected from Independent Non-Executive Directors; The Board, the Management Team, the External Auditors of the Company, - the Board Composition Policy approved by the Board. and, if required, advisors as may be relevant, are present at shareholder • consider, in making its recommendations, candidates for meetings. Before the commencement of a shareholder meeting, the directorships proposed by the Management, any Director or Directors and the Management take the opportunity to engage directly shareholder; and with shareholders to account for their stewardship of the Company. Such • recommend to the Board, Directors to fill the seats on Board direct engagement provides shareholders with a better appreciation of Committees. the Company’s objectives, quality of its management and the challenges (b) To conduct an annual review of the required mix of skills and faced, and, allows the Directors and Management to become aware of experience and other qualities, including core competencies which the expectations and concerns of shareholders. non-executive directors should bring to the Board. (c) To assess, on an annual basis, the effectiveness of the Board as During AGMs, the CEO makes a presentation on the operations and a whole, the Committees of the Board and the contributions of financial performance of the Company and the Group, the prospects each individual director, including Independent Non-Executive of the Group and any other subject matter tabled for decision at the Directors, as well as the CEO and to ensure that all assessments and meeting. The Chairman also invites shareholders to raise questions evaluations carried out in the discharge of this function are properly before putting a resolution to vote. The Chairman, in addition, presents documented. the Board’s responses to questions submitted in advance of the meeting (d) From time to time, to examine the size of the Board with a view to by the Minority Shareholder Watchdog Group. present recommendations to the Board on the optimum number of Directors on the Board to ensure its effectiveness.

034 Scomi Engineering Bhd | STATEMENT ON CORPORATE GOVERNANCE

(e) To ensure that new appointees to the Board undergo an orientation (d) assessed the effectiveness of the Board and the Committees of the and education programme. Board; (f) To make recommendations to the Board concerning the re-election (e) reviewed the skills, experience and competencies of non-executive by shareholders of any Directors under the retirement by rotation Directors; provisions in the Company’s Articles of Association. (f) assessed the adequacy of the size and composition of the Board; (g) Annually, to review and assess the training needs of individual (g) reviewed the proposed remuneration for the Non-Executive Directors and propose suitable training programs to be attended. Directors of the Company; (h) To develop the CEO’s mission and objectives, succession for the CEO (h) reviewed the retirement and re-election of the Directors pursuant to and annual evaluation of the performance of the CEO. the Articles of Association of the Company; (i) To establish and recommend to the Board a fair and transparent (i) evaluated and recommended to the Board the CEO’s Balanced Remuneration Policy framework for Executive Directors designed Scorecard for the financial period under review; to attract, retain and motivate individuals of the highest quality. (j) reviewed and recommended to the Board the CEO’s Balanced The key elements of this framework, which would form the basis of Scorecard for the new financial year; deliberations on the remuneration to be awarded, are: (k) recommended to the Board the appointment of a new Director. • The Company’s financial performance which may include financial indicators such as turnover, profitability, market The Options Committee (OC) capitalisation and achievement of these indicators vis-à-vis pre- determined goals; The OC is entrusted with the responsibility of overseeing the • The skills, knowledge, expertise, performance and relative administration of the Company’s Employees’ Share Option Scheme experience of the Executive Directors; (“ESOS”) in accordance with the ESOS By-Laws (“By-Laws”). The OC is • The duties and responsibilities borne by the Executive Director; comprised of two (2) Independent Non-Executive Directors and one and (1) Non-Independent Non-Executive Director. The Options Committee • The nature of the Company’s business e.g. international / meets as and when required, and at least once during the financial year. regional business presence. (j) To conduct, on an annual basis (or when the need arises as in the case The salient Terms of Reference of the OC are as follows: of proposing remuneration for a new Executive Director), a review and thereon provide advice and recommendations to the Board on all (a) to determine participation eligibility and to decide on the number aspects of reward structure accorded to Executive Directors in terms of options to be offered to eligible employees and/or persons as of the following components: stipulated in the By-Laws, throughout the duration of the scheme; • Basic salaries and basis of increment applied (as a percentage of (b) to ensure the maximum number of new options that may be basic salary, fixed quantum or merit increment); offered to eligible employees and/or persons shall not exceed the • Annual bonuses (in the form of contractual, discretionary or limits set against their respective categories and subject to the lump sum payment); criteria for allocation as set out in the By-Laws; • Directors’ fee (fixed and/or supplementary); (c) to evaluate and decide on the eligible employees’ and/or eligible • Long term incentive scheme including Employees’ Share Option persons’ periodic entitlement to exercise their options as stipulated Scheme (“ESOS”) with conditional terms for exercising options; in the By-Laws; • Fringe benefits in kind which include among others club (d) to make offers to eligible employees and/or persons who are membership, company car, medical and insurance benefits, entitled to participate in the scheme, after taking into consideration outstation/overseas allowance etc; and the performance, seniority, number of years in service, employee • Other terms of employment/directorship. grading and/or the potential contribution of the eligible employees (k) To determine the Company’s policy on the duration of contracts with and/or persons; and Executive Directors, and notice periods and termination payments (e) to recommend to the Board, when necessary, any amendments to under such contracts, with a view to ensuring that any termination be made to all or any of the provisions of the scheme, subject to the payments are fair to the individual and the Company, that failure is approvals of all relevant authorities and the Company’s shareholders not rewarded and the duty to mitigate loss is fully recognised. at a general meeting. (l) To consider any published guidelines or recommendations regarding (f) In the event of a dispute between the Committee and eligible the remuneration of Directors of listed companies which it considers employee and/or persons, as to any matter or thing of any nature relevant or appropriate. arising out of the Scheme, the Committee shall determine such (m) To review and, where necessary, update these terms of reference dispute or difference by a written decision (without the obligation annually or when it deems appropriate. to give any reason thereof) given to the eligible employee and/or (n) To consider other matters as defined by the Board of Directors. person, as the case may be.

In accordance with the approved Terms of Reference of the NRC, during The ESOS came into effect on 26 January 2006 for a period of 10 years. the financial year ending 31 March 2015, the NRC: OC has reviewed the status of the ESOS and made recommendations to the Board indicating that the allocation of options have not exceeded the (a) assessed the annual performance of each individual Director; limits set out in the By-Laws. (b) assessed the independence of each Independent Director; (c) reviewed the skills, experience and competencies of each individual This Statement is made in accordance with the resolution of the Board Director and based thereupon, to assess the training needs of each dated 7 July 2015. individual Director; Annual Report 2015 035 STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL

INTRODUCTION

The Board of Directors maintains a sound risk management and internal control system to safeguard shareholders’ investments and the assets of Scomi Engineering Bhd. In compliance with Paragraph 15.26(b) of the Main Market Listing Requirements (“Listing Requirements”), Practice Note 9 of Bursa Malaysia Securities Berhad (“Bursa Malaysia”) and the Statement on Risk Management and Internal Control: Guidance for Directors of Listed Issuers (SRMICG) issued by the Task Force on Internal Control in December 2012, the Board is pleased to present the Statement on Risk Management and Internal Control which outlines the nature and scope of risk management and internal control of the Group during the financial period under review and up to the date of approval of this statement for inclusion in the annual report.

RESPONSIBILITY OF THE BOARD Whilst the Board has overall responsibility for the Group’s system of internal controls, it has delegated the implementation of the system to the The Board is responsible for ensuring the existence of an effective system Management who reports on the risks identified and the steps taken to of internal control and risk management within the Group. It, therefore, mitigate and/or minimise the risks. Reports are made to the Audit and Risk continuously reviews and evaluates the adequacy and integrity of its Management Committee (ARMC) of the Board which also reviews internal internal control systems and risk management processes. However, control systems and the adequacy of these systems at least on a quarterly the Board recognises that such systems and processes are designed basis. The ARMC reports to the Board on these matters and makes to manage risks to acceptable levels – where such risks are within the recommendations to the Board that can be reasonably implemented. control of the Company. Therefore, it is acknowledged that the system Such recommendations assist the Board to comply with its responsibilities and processes implemented within the Group provide only reasonable, taking into account the guidance set out in the SRMICG. but not absolute, assurance against the occurrence of any material misstatement and/or loss.

036 Scomi Engineering Bhd RISK MANAGEMENT Risk Management Process

A company’s business strategies and activities involve risks. With the The Group risk management process is a systematic application of increasingly global and dynamic business environment, proactive management policies, procedures and practices to the activities of management of the overall business risks is a prerequisite in ensuring risk identification, assessment, treatment, monitoring and reporting as that the organisation achieves its strategic objectives. The Board has depicted in the diagram below: implemented well-defined processes for the management of risk and for ensuring that strategic and daily decision making takes risk information into account.

The management of risks is aimed at achieving an appropriate balance between realising opportunities for gains while avoiding or minimising Identification losses to the Group.

Assessment

Risk Management Framework

Risk Management The Group’s Enterprise Risk Management Framework (“Framework”) Reporting Process serves to inform and provide guidance to Directors, senior management, functional line management and staff in managing risk in the Group. Monitoring Treatment Towards this end, the Framework sets out:

• the fundamentals and principles of risk and risk management that are to be applied in all situations and throughout all levels of the organisation; • the process for identifying, assessing, responding, monitoring and The Enterprise Risk Management process comprises the reporting of risks and controls; following steps: • the roles and responsibilities of each level of management in the Group; and • IDENTIFY risks • the mechanisms, tools and techniques for managing risk in the Group. • ASSESS the potential impact and likelihood of the risk occurring These elements are summarised in the diagram below: • TREAT risk by assigning relevant risk owner to consider existing controls and selecting, prioritising and implementing appropriate actions in a given Policy timeline

• MONITOR the internal and external environment Identification for potential changes to risks and ensure that risk responses continue to operate effectively

Assessment Objectives Entity Level • REPORT on risks and the status of risk responses Strategic Subsidiary Risk adopted Operational Management Business Unit Reporting Process Reporting Business Line Compliance Hemisphere Unit Monitoring Treatment Country Unit Entity Unit Support Unit

Risk Reporting Structure

Infrastructure

Annual Report 2015 037 STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL |

Risks are viewed from their ability to create opportunity, uncertainty or Progress of RAPs is monitored by the Management. The Management hazard and then given a rating depending on likelihood of occurrence. is required to (and during the review period did) report to the ARMC The potential impact of the risk is then also rated depending on on a quarterly basis. Such reports address whether, and, the extent to the relative significance of impact. Risk Action Plans (RAP) are then which, the risk management framework has been implemented across established for the high risk profiles after which the implementation of the Group’s activities. A number of high risk profile RAPs are selected by these plans are monitored by priority and status rating. Since the last management each quarter (on the basis of significance of impact) for AGM, the matters raised by the quarterly Internal Audit reports are also detailed monitoring. Progress of these RAPs is specifically addressed with taken into account when establishing RAPs. the ARMC.

A quarterly review of risks is undertaken by the ARMC to ensure that the The ARMC reports to the Board on risk related matters. risk profile is kept up to date. This review includes a review of the risk register and RAPs together with any indicators of changes in risk levels. Qualitative information, such as customer satisfaction and supplier INTERNAL CONTROL SYSTEM relationships, is also addressed. The risk management process is applied with the objective of establishing accountability for both risks and Internal control is a system prescribed by the Board and implemented by mitigation at the source of the risk. Management.

The Group seeks to accept only a commercial level of risk that will, if the The Group’s system of internal control comprises various policies, situation permits, reasonably assure long term profitability and survival. procedures and frameworks, amongst which are: New risks are identified on an ongoing basis or during the quarterly risk assessments process. They are immediately registered in the relevant risk Clear and Structured Organisational Reporting Lines and Effective register and are reported and managed. Performance Evaluation

Risk Reporting Structure The Group has a well defined organisation structure that is aligned to business requirements and assigns authority and responsibility. The Every individual in the Group plays a role in the effective management structure, which is reviewed as and when necessary, is designed to of risks. The risk management reporting structure adopted by the Group ensure the presence of checks and balances in decision making, achieved to assign responsibility for risk management and facilitate the process for through the segregation of duties, clear reporting lines and clear approval assessing and communicating risk issues from transactional levels to the processes (all reflected in the Delegated Authority Limits described Board is summarised as follows: below). In addition, the Group employs a performance management process for all employees known as Performance Assessment and Capability Enhancement (“PACE”) which assesses competency Board of Directors and leadership skills of all employees and also measures executive performance against key performance indicators that are aligned with business objectives and strategies.

Audit & Risk The Board approves all strategic, business and investment plans and Management monitors the implementation of these plans. The Board is supported in Committee Internal Audit this effort by three (3) Board Committees that provide focus and counsel in the areas of:

1. Audit and Risk Management; Ad-hoc Risk Management Risk Management 2. Employees’ Share Option Scheme; and Working Committee Working Committee 3. Nomination and Remuneration of Directors and CEO.

Further details on the Board Committees are contained in the Statement on Corporate Governance on pages 028 to 035.

Enterprise Assurance Department

Business Units Corporate Functions

038 Scomi Engineering Bhd | STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL

Delegated Authority Limits (“DAL”) Management, under the supervision of the ARMC, has implemented additional policies and tools to minimise the likelihood of gaps in the The Board’s authority is delegated to the Management in line with clearly system of internal controls. To this end, Management has established a defined DAL. These DAL govern the business decision making process Subcontract/Procurement Management Policy and related procedures within the Group. DAL empowers Management and ensures that a that define how subcontracting and procurement activities should be system of checks and balances are in place as a matter of good internal managed. The SAP system of financial control has been implemented as control. The DAL are reviewed as necessary and updated by the Board to relevant throughout the Group’s business units. ensure that DAL are always relevant to the Group’s current operations. Information and Communication Clear Objectives Comprehensive Board papers, which include financial and non-financial New corporate goals for each financial year are developed and presented information covering risk, product and service quality, project updates, to the Board for approval. market development plans, operational issues and other relevant issues are provided to the Board for monitoring as well as to facilitate decision The execution strategy towards achieving the corporate goals is flowed making. Managers are also required to document, disseminate and down through PACE at a corporate and individual level under the archive, as appropriate, decisions made pursuant to the DAL. four dimensions of finance, markets, internal process and learning and development, resulting in a strategy map that provides a framework for Independent Assurance Mechanism the measurement of performance. Regular assessments on the adequacy and integrity of the internal An annual business plan and budget is developed, presented and controls and monitoring of compliance with policies and procedures are approved by the Board before implementation. carried out through internal audits. Currently, the internal audit function is carried out by the Scomi Group Bhd Internal Audit Department of The performance of the Group against budget is reviewed, where there Scomi Group Bhd (“Group Internal Audit” or “GIA”). During the financial are significant variances, appropriate corrective actions are taken. The year ending 31 March 2015, the Internal Audit was outsourced to an results of such performance reviews are reported to the Audit and Risk external firm. The internal audit plan which sets out the internal audit Management Committee (“ARMC”) and the Board on a quarterly basis. coverage and scope of work is presented for ARMC and the Board’s consideration and approval annually before its implementation. The Policies and Procedures GIA functions in accordance with the Internal Audit Charter has been approved by the Board for implementation. The Board and employees of the Group are committed to adhering to the best practice in corporate governance and observing the highest Internal audit reports, which encompass audit findings together with standards of integrity and behaviour in all activities conducted by recommendations thereon, are presented to the ARMC during its the Group, including the interaction with its customers, suppliers, quarterly meetings. The GIA, senior and functional line management are shareholders, employees and business partners, and within the tasked to ensure management action plans are carried out effectively and community and environment in which the Group operates. The Board regular follow-up audits are performed to monitor continued compliance. has set out its expectations in this regard in the following codes and policies: In addition to this internal assurance mechanism, the Group also received extensive and detailed ARMC reports and the management letter from its A. Corporate Governance Code of Conduct; External Auditors that primarily focuses on financial controls. The ARMC B. Supplier Code of Conduct; reports and the management letter were also presented to the ARMC for C. Whistleblower Framework and Policy; deliberations. In the event of any non-compliance, appropriate corrective D. Global Finance Policy; actions have been taken in addition to amendments to the relevant E. Global ICT Policy; procedures, if required. F. Global People Policy; G. Global Procurement Policy; Besides that, the ARMC also conducted at least two private meetings H. Global QHSE Policy; and with the External Auditors, to give opportunity to the External Auditors to I. Workplace Management Policy. raise any matters without executive board members or the Management present.

Annual Report 2015 039 STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL |

ADEQUACY AND EFFECTIVENESS OF RISK MANAGEMENT AND REVIEW OF THIS STATEMENT INTERNAL CONTROL The External Auditors have reviewed this Statement on Risk Management The CEO and the Group Financial Controller, have assured the Board that and Internal Control pursuant to the scope set out in RPG 5 for inclusion the Group’s risk management and internal control system is operating in the annual report of the Group for the year ended 31 March 2015, adequately and effectively, in all material aspects, and that all lapses and reported to the Board that nothing has come to their attention that identified during the period under review have been reported to the causes them to believe that this statement, in all material respects: ARMC. (a) has not been prepared in accordance with the disclosures required The External Auditors provide the ARMC with audit finding reports and by paragraphs 41 and 42 of the Statement on Risk Management and the Management with a management letter which amongst other Internal Control: Guidelines for Directors of Listed Issuers, or matters addresses internal controls, their adequacy and effectiveness focussing primarily on financial controls. (b) is factually inaccurate.

Taking into consideration the assurance from the management team RPG 5 does not require the External Auditors to consider whether and the report provided to the Board by the External Auditors as required the Directors’ Statement on Risk Management and Internal Control by the Recommended Practice Guide 5 (revised) (RPG-5), issued by the covers all risks and controls, or to form an opinion on the adequacy Malaysian Institute of Accountants, the Board is of the view that the and effectiveness of the Group’s risk management and internal Group’s risk management and internal control system is adequate to control system including the assessment and opinion by the Board safeguard shareholders’ investment and the Group’s assets, and, that of Directors and management thereon. The auditors are also not lapses identified and reported during the period under review are being required to consider whether the processes described to deal addressed. with material internal control aspects of any significant problems disclosed in the annual report will, in fact, remedy the problems.

This statement is made in accordance with the resolution of the Board dated 24 July 2015.

040 Scomi Engineering Bhd audit and RISK MANAGEMENT committee report

The Board of Directors of Scomi Engineering Bhd (the “Company” or “SEB”) (the “Board”) is pleased to present the Report of the Audit and Risk Management Committee (the “ARMC” or “Committee”) for the financial year ended 31 March 2015.

TERMS OF REFERENCE A total of six (6) ARMC meetings were held during the year under review:on 19 May 2014, 8 July 2014, 18 August 2014, 29 August 2014, 17 November 2014 and 11 The Terms of Reference of the ARMC are available for February 2015. A quorum, established by the presence of a majority of members who reference on the Company’s website at are Independent Directors, was always met. www.scomiengineering.com.my. The members of the ARMC and their attendance are as follow:

MEMBERSHIP AND MEETINGS NAME ARMC DESIGNATION ATTENDANCE (attended/held) During the year under review, the ARMC was comprised of three (3) members, two (2) Independent Non-Executive YBhg Dato’ Ikmal Chairman Independent Non- 6/6 Directors and one (1) Non-Independent Non-Executive Hijaz bin Hashim* Executive Director Director. The current composition of the ARMC complies with paragraph 15.09 of the Main Market Listing YM Tunku Alizan bin Member Independent Non- 2/2 Requirements of Bursa Malaysia Securities Berhad. Raja Muhammad Executive Director Alias# The members of the Committee are financially literate Mdm Loong Chun Member Non-Independent Non- 5/6 with sufficient financial experience and ability to assist the Nee Executive Director Board to discharge its fiduciary duties with respect to the ARMC’s the following: Encik Edlin bin Member Independent Non- 4/4 (i) the financial administration and reporting process Ghazaly@ Executive Director and ensuring that the financial results of the Group and the Company are truly and fairly presented in its Notes: financial statements; * Appointed as a member of the ARMC on 6 May 2014 and Re-designated from a (ii) the adequacy and effectiveness of the risk member of the ARMC to the Chairman of the ARMC on 15 May 2014. management and internal control systems; # Appointed as a member of the ARMC on 11 November 2014. (iii) the performance of the external and internal audit @ Resigned as a member of the ARMC on 18 September 2014. functions; and (iv) the fairness and reasonableness of the related party The Board, through its Nomination and Remuneration Committee, has reviewed and transactions (“RPTs”) entered into by the Group with assessed the performance of the ARMC and the skills, experience and competencies related parties. possessed by the members of the ARMC. The Board is satisfied with the performance of the ARMC and its members, and, that the ARMC has carried out its duties and responsibilities in accordance with the Terms of Reference of the ARMC.

Annual Report 2015 041 audit and RISK MANAGEMENT committee report |

SUMMARY OF ACTIVITIES FOR THE FINANCIAL YEAR 12. reviewed and recommended to the Board the appointment of an in-house internal audit for the financial year ending 31 March 2016 In accordance with the approved Terms of Reference of the ARMC, the and the audit plan for the Group; ARMC carried out the following activities during the financial year ended 31 March 2015: 13. reviewed and evaluated enterprise risk and monitor adequacy and implementation of mitigation plans; 1. reviewed the quarterly and annual financial reports of the Group and the Company prior to submission to the Board for consideration 14. reviewed and verified the related party transactions and conflicts of and approval; interest and provide recommendations on the same to the Board;

2. reviewed and recommended to the Board the re-appointment of 15. reviewed and verified that the allocation of options pursuant to the the external auditors and the audit fee; Company’s ESOS, is in compliance with the criteria for allocation of options as disclosed to employees of the Company for the financial 3. reviewed and discussed with the external auditor the nature and year; scope of their audit and ensure that the audit is comprehensive; 16. reviewed the annual Statements on Corporate Governance, Internal 4. reviewed the external auditor’s ARMC report, management letter Control and ARMC report to be published in the Annual Report; and management’s response thereto; 17. tabled the approved Minutes of the ARMC meetings to the Board 5. considered the major findings by the external auditors and for notation on a quarterly basis; and management’s responses thereto; 18. reported to the Board on significant matters and resolutions 6. reviewed the performance and effectiveness of the external auditor deliberated by the ARMC at each Board meeting. for the statutory audit services provided;

7. reviewed the independence and objectivity of the external auditors; INTERNAL AUDIT FUNCTION

8. conducted private meetings with the external auditors, to give During the financial year under review, the internal audit function of the opportunity to the external auditors to raise any matters without the Group was outsourced to an external service provider of internal audit presence of the executive board members and management; services (the “Internal Auditors”). The Internal Auditors carried out their functions according to the standards set by recognized professional 9. reviewed the annual internal audit plan and scope of work for bodies. Currently, the function is provided by the Scomi Group Bhd. the Group and the Company to ensure adequacy of resources and competencies to carry out the internal audit functions on all The Internal Auditors provide the ARMC with independent and objective significant businesses and support functions based on identification assessments of the adequacy and effectiveness of the governance, risk and evaluation of the respective risks and control environment; management and internal control processes within the Group, with a view to providing reasonable assurance that such processes operates 10. reviewed the internal audit reports comprising audit findings, satisfactorily and effectively. recommendations and management responses for the Group and the Company by the external service provider for internal audit The Internal Auditors report directly to the ARMC to ensure impartiality services; and independence. The ARMC reviews the risk based internal audit plans and scope of work for the year for the Group and the Company as well 11. reviewed the performance of the external service provider for as the performance of the Internal Auditors in undertaking their internal internal audit services provided; audit function. The ARMC maintains direct communication channels with, and full access to, the Internal Auditors.

042 Scomi Engineering Bhd | audit and RISK MANAGEMENT committee report

During the financial year under review, the Internal Auditors conducted various internal audit engagements in accordance with the approved risk-based internal audit plans that are consistent with the corporate goal of the Group. Details of the internal audit activities carried out by the Internal Auditors are as follow:

1. prepared and presented the risk-based audit plan, audit strategy, scope of work and resource requirements to the ARMC and the Board for deliberation and approval;

2. evaluated and appraised the soundness, adequacy and application of accounting, financial and other controls and promoting effective controls in the Group and the Company at reasonable cost;

3. ascertained the level of operational and business compliance with established policies, procedures and statutory requirements;

4. ascertained the extent to which the Group’s and the Company’s assets are accounted for, verification of their existence and safeguarding assets from losses;

5. appraised the reliability and usefulness of information developed within the Group and the Company for management;

6. identified and recommended opportunities for improvements to the existing system of internal control, operations and processes in the Group and the Company; and

The Group incurred approximately Ringgit Malaysia Two Hundred and One Thousand (RM201,000) on the Internal Audit function during the period under review.

This Statement is made in accordance with the resolution of the Board dated 7 July 2015.

Annual Report 2015 043 additional information

1. Material Contracts of the Company and its Subsidiaries, involving Directors’ and Major Shareholders’ Interests

There were no material contracts involving Directors’ and major shareholders’ interests, either still subsisting at the end of the financial year or if not then subsisting, entered into since the end of the previous financial year.

2. Non-Audit Fees

The non-audit fees incurred for services rendered to the Company and its subsidiaries by the external auditors and corporations affiliated to the auditors’ firm for the financial year ended 31 March 2015 was RM114,000.

3. Share Buy-back

During the financial year, there was no share buy-back by the Company.

There has been no resale of the Company’s treasury shares nor has there been any cancellation of shares during the period under review. As at 31 March 2015, a total of 121,800 ordinary shares were held as treasury shares.

4. Options

No Employee Share Options Scheme (“ESOS”) Options were granted to Directors and Senior Management during the financial year ended 31 March 2015. 24.98% of options under the ESOS have been granted to Directors and Senior Management since commencement of the ESOS.

5. Recurrent Related Party Transactions of a Revenue Nature

There were no materials recurrent related party transactions of a revenue nature during the financial year ended 31 March 2015 other than those disclosed in the financial statements.

6. Sanctions And/Or Penalties

There were no material sanctions and/or penalties imposed on the Company or its subsidiaries, or on Directors or management of the Company by regulatory bodies.

044 Scomi Engineering Bhd STATEMENT Of directors’ responsibility

The Directors are required by the Companies Act, 1965 (“the Act”) to prepare the financial statements of Scomi Engineering Bhd (“the Company”) and its subsidiaries (“the Group”) for each financial year in accordance with the provisions of the Act, the Bursa Malaysia Securities Berhad Main Market Listing Requirements (“the Listing Requirements”) and the applicable Malaysian Accounting Standards Board Approved Accounting Standards (“the AAS”).

The Directors are responsible for ensuring that the financial statements The Directors are responsible for taking such steps as are reasonably give a true and fair view of the: open to them to preserve the interests of stakeholders and to safeguard a) state of affairs of the Group and the Company as at the end of the the assets of the Group and to detect and prevent fraud and other financial year; and irregularities. b) financial results and cash flows of the Group and the Company during the financial year. The financial statements of the Company and the Group for the financial year ended 31 March 2015 are set out on pages 048 to 125 of this annual In preparing the financial statements, the Directors have: report. a) adopted appropriate accounting policies and applied them consistently; b) made judgments and estimates that are reasonable and prudent; and c) prepared the financial statements on a going concern basis.

The Directors are responsible for ensuring that the Company and the Group maintain accounting records which disclose with reasonable accuracy the financial position of the Company and the Group. These financial records are used to ensure that the financial statements of the Group and the Company are compliant with the Act, the Listing Requirements and the AAS.

Annual Report 2015 045 Delivering on our promises our promises FINANCIAL STATEMENTS

049 061 Directors’ Report Notes to the Financial Statements 054 Statements of Financial Position 121 Supplementary 055 Financial Information Statements of Profit or Loss and Other Comprehensive Income 122 Statement by Directors 056 Consolidated Statement of 123 Changes in Equity Statutory Declaration 057 124 Statement of Independent Auditors’ Report Changes in Equity 058 Statements of Cash Flows DIRECTORS’ REPORT for the year ended 31 March 2015

The Directors hereby submit their report and the audited financial statements of the Group and of the Company for the financial year ended 31 March 2015.

Principal activities

The Company is principally engaged in investment holding activities, provision of management services to subsidiaries and the design, manufacture and supply of monorail trains and related services, whilst the principal activities of the subsidiaries are stated in Note 5 to the financial statements.

There has been no significant change in the nature of these activities during the financial year.

Results

Group Company RM’000 RM’000

Profit/(loss) for the year attributable to: Owners of the Company 378 (31,325)

Reserves and provisions

There were no material transfers to or from reserves and provisions during the financial year under review.

Dividends

No dividend was paid during the financial year and the Directors do not recommend any dividend to be paid for the financial year under review.

Directors of the Company

Directors who served since the date of the last report are:

Datuk Zainun Aishah binti Ahmad Shah Hakim @ Shahzanim bin Zain Lee Chun Fai Loong Chun Nee Dato’ Ikmal Hijaz bin Hashim Tunku Alizan bin Raja Muhammad Alias (appointed w.e.f. 20 August 2014) Dato’ Abdul Rahim bin Abu Bakar (retired w.e.f. 23 September 2014) Edlin bin Ghazaly (resigned w.e.f. 18 September 2014)

Annual Report 2015 049 directors’ report |

Directors’ interests in shares

The interests and deemed interests in the shares and options over shares of the Company and of its related corporations (other than wholly-owned subsidiaries) of those who were Directors at financial year end (including the interests of the spouses or children of the Directors who themselves are not Directors of the Company) as recorded in the Register of Directors’ Shareholdings are as follows:

Number of ordinary shares of RM0.10 each

At At 1.4.2014 Bought Sold 31.3.2015 ’000 ’000 ’000 ’000

Ultimate holding company Scomi Group Bhd Direct interest Shah Hakim @ Shahzanim bin Zain 13,850(1) - (11,900) 1,950(2) Loong Chun Nee 951 - - 951

Indirect interest Shah Hakim @ Shahzanim bin Zain 175,917(3) - - 175,917

Number of ordinary shares of RM0.45 each

At At 1.4.2014 Bought Sold 31.3.2015 ’000 ’000 ’000 ’000

Fellow subsidiary company Scomi Energy Services Bhd Direct interest Shah Hakim @ Shahzanim bin Zain 2,108(4) - - 2,108 Loong Chun Nee 70 - - 70

Indirect interest Shah Hakim @ Shahzanim bin Zain 57(5) - - 57

Number of ordinary shares of RM1.00 each

At At 1.4.2014 Bought Sold 31.3.2015 ’000 ’000 ’000 ’000

Company Scomi Engineering Bhd Direct interest Datuk Zainun Aishah binti Ahmad 250 - - 250 Shah Hakim @ Shahzanim bin Zain 623(6) - - 623 Loong Chun Nee 25 - - 25

Indirect interest Shah Hakim @ Shahzanim bin Zain 282 256 - 538(7)

050 Scomi Engineering Bhd | directors’ report

Directors’ interests in shares (continued)

(1) 13,321,000 shares held through Maybank Securities Nominees (Tempatan) Sdn. Bhd. (margin) and Maybank Nominees (Tempatan) Sdn. Bhd. (pledged Securities Account for Shah Hakim @ Shahzanim bin Zain).

(2) 1,421,000 shares held through Maybank Securities Nominees (Tempatan) Sdn. Bhd. (margin) and Maybank Nominees (Tempatan) Sdn. Bhd. (pledged Securities Account for Shah Hakim @ Shahzanim bin Zain).

(3) Deemed interested by virtue of Section 6A(4) of the Companies Act, 1965 through shareholding in Kaspadu Sdn. Bhd. and Rentak Rimbun Sdn. Bhd. which in turn is deemed interested in Scomi Group Bhd.

(4) Held through Maybank Securities Nominees (Tempatan) Sdn. Bhd. (margin) (pledged Securities Account for Shah Hakim @ Shahzanim bin Zain).

(5) Deemed interested by virtue of Section 6A(4) of the Companies Act, 1965 through shareholding in Rentak Rimbun Sdn. Bhd. which in turn is deemed interested in Scomi Energy Services Bhd. KAF Nominees (Tempatan) Sdn. Bhd. pledged securities Account for Rentak Rimbun Sdn. Bhd.

(6) 123,000 shares held through Maybank Securities Nominees (Tempatan) Sdn. Bhd. (margin) (pledged Securities Account for Shah Hakim @ Shahzanim bin Zain).

(7) 255,500 shares deemed interested by virtue of Section 6A(4) of the Companies Act, 1965 through shareholding in Rentak Rimbun Sdn. Bhd. which in turn is deemed interested in Scomi Engineering Bhd. 282,000 shares held through KAF Nominees (Tempatan) Sdn. Bhd. (pledged Securities Account for Rentak Rimbun Sdn. Bhd.).

Number of options over ordinary shares of RM1.00 each

Exercise At At price 1.4.2014 Granted Forfeited 31.3.2015 RM/Share ’000 ’000 ’000 ’000

Company Scomi Engineering Bhd Datuk Zainun Aishah binti Ahmad 1.00 500 - - 500 Shah Hakim @ Shahzanim bin Zain 1.00 1,500 - - 1,500

None of the other Directors holding office at 31 March 2015 had any interest in the shares and options over shares of the Company and of its related corporations during the financial year.

Directors’ benefits

Since the end of the previous financial year, no Director of the Company has received nor become entitled to receive any benefit(other than a benefit included in the aggregate amount of emoluments received or due and receivable by Directors as shown in the financial statements or the fixed salary of a full time employee of the Company or of related corporations) by reason of a contract made by the Company or a related corporation with the Director or with a firm of which the Director is a member, or with a company in which the Director has a substantial financial interest, other than those disclosed in Note 28 to the financial statements.

There were no arrangements during and at the end of the financial year which had the object of enabling Directors of the Company to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate apart from the issue of the Employees’ Share Option Schemes (“ESOS”).

Annual Report 2015 051 directors’ report |

Issue of shares and debentures

There were no changes in the authorised, issued and paid-up capital of the Company during the financial year. There were no debentures issued during the financial year.

Treasury shares

There was no purchase of treasury shares during the financial year.

Details of the treasury shares are set out in Note 12 to the financial statements.

Options granted over unissued shares

No options were granted to any person to take up unissued shares of the Company during the financial year apart from the issue of options pursuant to the Employees’ Share Option Scheme (“ESOS”).

On 10 November 2005, the Company’s shareholders approved the establishment of an ESOS governed by the By-Laws which came into effect on 26 January 2006 for a period of 10 years.

The salient features of the ESOS scheme are, inter alia, are as disclosed in Note 14.

The Company has been granted an exemption by the Companies Commission of Malaysia from having to disclose names of option holders who were granted less than 100,000 options under the ESOS. This information has been separately filed with the Companies Commission of Malaysia.

Details of options granted under the ESOS over the ordinary shares of RM1.00 each in the Company, which are in respect of 100,000 options and above, are as follows:

Number of options over ordinary shares of RM1.00 each

Exercise At At price 1.4.2014 Granted Forfeited 31.3.2015 RM/Share ’000 ’000 ’000 ’000

Name of options holders Hilmy Zaini Zainal 1.00 2,840 - - 2,840 Zubaidi Harun 1.00 2,100 - - 2,100 Rohaida Ali Badaruddin 1.00 1,885 - - 1,885 Mansor Tahir 1.00 1,620 - - 1,620 Shah Hakim @ Shahzanim bin Zain 1.00 1,500 - - 1,500 Wan Azmi bin Wan Yusoff 1.18 540 - - 540 Datuk Zainun Aishah binti Ahmad 1.00 500 - - 500 Leong Hee Koon 1.00 224 - - 224

Other statutory information

Before the financial statements of the Group and of the Company were made out, the Directors took reasonable steps to ascertain that: i) all known bad debts have been written off and adequate provision made for doubtful debts, and ii) any current assets which were unlikely to be realised in the ordinary course of business have been written down to an amount which they might be expected so to realise.

052 Scomi Engineering Bhd | directors’ report

Other statutory information (continued)

At the date of this report, the Directors are not aware of any circumstances: i) that would render the amount written off for bad debts or the amount of the provision for doubtful debts in the Group and in the Company inadequate to any substantial extent, or ii) that would render the value attributed to the current assets in the financial statements of the Group and of the Company misleading, or iii) which have arisen which render adherence to the existing method of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate, or iv) not otherwise dealt with in this report or the financial statements that would render any amount stated in the financial statements of the Group and of the Company misleading.

At the date of this report, there does not exist: i) any charge on the assets of the Group or of the Company that has arisen since the end of the financial year and which secures the liabilities of any other person, or ii) any contingent liability in respect of the Group or of the Company that has arisen since the end of the financial year.

No contingent liability or other liability of any company in the Group has become enforceable, or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the Directors, will or may substantially affect the ability of the Group and of the Company to meet their obligations as and when they fall due.

In the opinion of the Directors, the financial performance of the Group and of the Company for the financial year ended 31 March 2015 have not been substantially affected by any item, transaction or event of a material and unusual nature nor has any such item, transaction or event occurred in the interval between the end of that financial year and the date of this report.

Auditors

The auditors, Messrs KPMG, have indicated their willingness to accept re-appointment.

Signed on behalf of the Board of Directors in accordance with a resolution of the Directors:

Datuk Zainun Aishah binti Ahmad

Shah Hakim @ Shahzanim bin Zain

Petaling Jaya

Date: 24 July 2015

Annual Report 2015 053 Sstatement of financial position as at 31 March 2015

Group Company

Note 2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Assets Property, plant and equipment 3 72,181 79,073 150 402 Intangible assets 4 158,922 156,851 - - Investments in subsidiaries 5 - - 361,697 393,509 Deferred tax assets 7 31,036 28,295 4,693 4,693 Available-for-sale financial assets 8 104 104 - -

Total non-current assets 262,243 264,323 366,540 398,604

Inventories 9 9,901 12,547 - - Current tax assets 2,845 3,502 85 87 Receivables, deposits and prepayments 10 688,959 631,287 227,061 186,910 Cash and bank balances 11 32,325 44,952 728 1,587

Total current assets 734,030 692,288 227,874 188,584

Total assets 996,273 956,611 594,414 587,188

Equity Share capital 342,080 342,080 342,080 342,080 Share premium 46,605 46,605 46,605 46,605 Reserves (119,021) (118,394) (57,164) (26,198)

Total equity attributable to owners of the Company 12 269,664 270,291 331,521 362,487

Liabilities Loans and borrowings 13 13,669 23,590 - - Trade and other payables 15 55,141 52,255 55,047 51,961 Deferred tax liabilities 7 - 1,051 - -

Total non-current liabilities 68,810 76,896 55,047 51,961

Loans and borrowings 13 506,949 476,061 5,000 5,000 Trade and other payables 15 143,164 127,581 202,846 167,740 Current tax liabilities 6,698 4,435 - - Deferred Government grant 16 988 1,347 - -

Total current liabilities 657,799 609,424 207,846 172,740

Total liabilities 726,609 686,320 262,893 224,701

Total equity and liabilities 996,273 956,611 594,414 587,188

The notes on pages 061 to 120 are an integral part of these financial statements.

054 Scomi Engineering Bhd Sstatement of profit or loss and other comprehensive income for the year ended 31 March 2015

Group Company

Note 2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Revenue 17 238,321 236,898 53,131 47,681 Cost of sales/services 18 (214,365) (222,222) (62,678) (65,610)

Gross profit/(loss) 23,956 14,676 (9,547) (17,929) Other income 1,405 5,263 650 1,775 Selling and distribution expenses (1,222) (1,185) - - Administrative expenses (17,440) (35,020) (4,867) (6,063) Other expenses (1,549) (11,835) (17,105) (3,590)

Results from operating activities 5,150 (28,101) (30,869) (25,807) Finance costs 19 (7,198) (6,541) (456) (442)

Loss before tax (2,048) (34,642) (31,325) (26,249) Tax credit/(expense) 20 2,426 (3,116) - -

Profit/(loss) for the year 21 378 (37,758) (31,325) (26,249)

Other comprehensive (expense)/income, net of tax Items that are or may be reclassified subsequently to profit or loss Foreign currency translation differences for foreign operations (1,005) (477) 359 23

Other comprehensive (expense)/income for the year, net of tax (1,005) (477) 359 23

Total comprehensive expense for the year (627) (38,235) (30,966) (26,226)

Profit/(loss) attributable to: Owners of the Group/Company 378 (37,758) (31,325) (26,249)

Total profit/(loss) for the year 378 (37,758) (31,325) (26,249)

Total comprehensive expense attributable to: Owners of the Group/Company (627) (38,235) (30,966) (26,226)

Total comprehensive expense for the year (627) (38,235) (30,966) (26,226)

Basic earnings/(loss) per ordinary share (sen): from continuing operations 22 0.11 (11.04)

The notes on pages 061 to 120 are an integral part of these financial statements.

Annual Report 2015 055 Consolidated statement of changes in equity for the year ended 31 March 2015

Attributable to owners of the Company Non-distributable

Foreign Merger currency Share Share Share Treasury relief translation option Accumulated Total Group capital premium shares reserve reserve reserve losses equity RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

At 1 April 2013 342,080 46,605 (103) 21,260 (7,517) 4,768 (98,567) 308,526

Foreign currency translation differences for foreign operations - - - - (477) - - (477)

Total other comprehensive expense for the year - - - - (477) - - (477) Loss for the year ------(37,758) (37,758)

Total comprehensive loss for the year - - - - (477) - (37,758) (38,235) Contributions by owners of the Company

Share options: - net options granted and forfeited - - - - - (250) 250 -

Total transactions with owners of the Company - - - - - (250) 250 -

At 31 March 2014 342,080 46,605 (103) 21,260 (7,994) 4,518 (136,075) 270,291

At 1 April 2014 342,080 46,605 (103) 21,260 (7,994) 4,518 (136,075) 270,291

Foreign currency translation differences for foreign operations - - - - (1,005) - - (1,005)

Total other comprehensive expense for the year - - - - (1,005) - - (1,005) Profit for the year ------378 378

Total comprehensive (loss)/income for the year - - - - (1,005) - 378 (627) Contributions by owners of the Company

Share options: - net options granted and forfeited - - - - - (144) 144 -

Total transactions with owners of the Company - - - - - (144) 144 -

At 31 March 2015 342,080 46,605 (103) 21,260 (8,999) 4,374 (135,553) 269,664

The notes on pages 061 to 120 are an integral part of these financial statements.

056 Scomi Engineering Bhd statement OF changes in equity for the year ended 31 March 2015

Attributable to owners of the Company Non-distributable

Foreign Merger currency Share Share Share Treasury relief translation option Accumulated Total Company capital premium shares reserve reserve reserve losses equity RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

At 1 April 2013 342,080 46,605 (103) 21,260 7 4,101 (25,237) 388,713

Foreign currency translation differences for foreign operations - - - - 23 - - 23

Total other comprehensive income for the year - - - - 23 - - 23 Loss for the year ------(26,249) (26,249)

Total comprehensive income/(loss) for the year - - - - 23 - (26,249) (26,226) Contributions by owners of the Company

Share options: - net options granted and forfeited - - - - - (216) 216 -

Total transactions with owners of the Company - - - - - (216) 216 -

At 31 March 2014 342,080 46,605 (103) 21,260 30 3,885 (51,270) 362,487

At 1 April 2014 342,080 46,605 (103) 21,260 30 3,885 (51,270) 362,487

Foreign currency translation differences for foreign operations - - - - 359 - - 359

Total other comprehensive income for the year - - - - 359 - - 359 Loss for the year ------(31,325) (31,325)

Total comprehensive income/(loss) for the year - - - - 359 - (31,325) (30,966) Contributions by owners of the Company

Share options: - net options granted and forfeited - - - - - (144) 144 -

Total transactions with owners of the Company - - - - - (144) 144 -

At 31 March 2015 342,080 46,605 (103) 21,260 389 3,741 (82,451) 331,521

The notes on pages 061 to 120 are an integral part of these financial statements.

Annual Report 2015 057 Sstatement of cash flows for the year ended 31 March 2015

Group Company

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Cash flows from operating activities Loss before tax (2,048) (34,642) (31,325) (26,249) Adjustments for: Allowance for inventory obsolescence, net 302 363 - - Amortisation of Government grant (359) (359) - - Intangible assets - amortisation 2,877 1,928 - - - write-off - 15 - - Interest expense 33,251 37,878 456 442 Interest income (996) (2,334) (36) (402) Reversal of fair value adjustment - - 31,230 - Property, plant and equipment - depreciation 6,741 6,618 252 347 - write-off 24 7 - - Net unrealised foreign exchange (gain)/loss (4,533) 6,207 (17,793) (321) Gain on disposal of asset held for sales - (1,211) - (1,211) Receivables - (reversal)/allowance for impairment (1,213) 913 - - - write back - (72) - - - write-off 4,297 1,947 - -

Operating profit/(loss) before changes in working capital 38,343 17,258 (17,216) (27,394) Changes in inventories 2,344 2,197 - - Changes in trade and other receivables, prepayments and other financial assets (42,629) 10,723 (29,659) 28,134 Changes in intercompany balances (2,057) - 20,972 (34,302) Changes in trade and other payables 19,090 (23,323) 22,017 3,452

Cash generated from/(used in) operations 15,091 6,855 (3,886) (30,110) Interest received 996 2,334 36 402 Tax (paid)/refunded (445) (1,846) 2 5

Net cash generated from/(used in) operating activities 15,642 7,343 (3,848) (29,703)

058 Scomi Engineering Bhd Group Company

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Cash flows from investing activities Acquisition of property, plant and equipment (770) (4,412) - (7) Proceed from disposal of asset held for sale - 2,000 - 2,000 Development expenditure incurred (4,037) (1,738) - -

Net cash (used in)/from investing activities (4,807) (4,150) - 1,993

Cash flows from financing activities Drawdown of borrowings 120,942 20,448 - - Repayment of finance lease liabilities (2,048) (810) - - Interest paid (33,251) (37,878) (456) (442) Net utilisation/(settlement) of trade facilities 1,505 (100,143) - - Withdrawal/(addition) of short-term deposits pledged as security for bank facilities 3,007 (4,650) - - Receipt of advance from ultimate holding company 3,086 23,288 3,086 23,288 Repayment of borrowings (9,565) (4,500) - (4,500)

Net cash from/(used in) financing activities 83,676 (104,245) 2,630 18,346

Net increase/(decrease) in cash and cash equivalents 94,511 (101,052) (1,218) (9,364) Effect of exchange rate fluctuations on cash held (8,391) 26 359 23

Cash and cash equivalents at 1 April (155,910) (54,884) 1,587 10,928

Cash and cash equivalents at 31 March (69,790) (155,910) 728 1,587

Annual Report 2015 059 Statements of cash flows for the year ended 31 March 2015 |

Notes to Statements of cash flows i) Cash and cash equivalents

Cash and cash equivalents included in the statements of cash flows comprise the following statements of financial position amounts:

Group Company

Note 2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Short term deposits with licensed banks 11 25,914 36,122 - - Less: Pledged deposits 11 (21,953) (24,960) - - Cash and bank balances 11 6,411 8,830 728 1,587

10,372 19,992 728 1,587 Bank overdrafts 13 (80,162) (175,902) - -

(69,790) (155,910) 728 1,587

ii) Acquisition of property, plant and equipment

During the financial year, the Group acquired property, plant and equipment with an aggregate cost of RM770,000 (2014: RM12,363,000), of which Nil (2014: RM7,951,000) were acquired by means of finance leases.

The notes on pages 061 to 120 are an integral part of these financial statements.

060 Scomi Engineering Bhd Noteso t the financial statements

Scomi Engineering Bhd is a public limited liability company, incorporated and domiciled in Malaysia and is listed on the Main Market of Bursa Malaysia Securities Berhad. The address of the principal place of business and registered office of the Company is as follows:

Level 17, 1 First Avenue Bandar Utama 47800 Petaling Jaya Selangor Darul Ehsan

The consolidated financial statements of the Company as at and for the financial year ended 31 March 2015 comprise the Company and its subsidiaries (together referred to as the “Group” and individually referred to as “Group entities”) and the Group’s interest in joint arrangements. The financial statements of the Company as at and for the financial year ended 31 March 2015 also include joint operation.

The Company is principally engaged in investment holding activities, provision of management services to subsidiaries and the design, manufacture and supply of monorail trains and related services, whilst the principal activities of the subsidiaries are stated in Note 5 to the financial statements.

The ultimate holding company is Scomi Group Bhd., a public limited liability company incorporated and domiciled in Malaysia and is listed on the Main Market of Bursa Malaysia Securities Berhad.

These financial statements were authorised for issue by the Board of Directors on 24 July 2015.

1. Basis of preparation

(a) Statement of compliance

The financial statements of the Group and the Company have been prepared in accordance with Malaysian Financial Reporting Standards (“MFRSs”), International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia.

The following are accounting standards, amendments and interpretations of the MFRS framework that have been issued by the Malaysian Accounting Standards Board (“MASB”) but have not been adopted by the Group and the Company:

MFRSs, Interpretations and amendments effective for annual periods beginning on or after 1 July 2014 • Amendments to MFRS 1, First-time Adoption of Malaysian Financial Reporting Standards (Annual Improvements 2011-2013 Cycle) # • Amendments to MFRS 2, Share-based Payment (Annual Improvements 2010-2012 Cycle) • Amendments to MFRS 3, Business Combinations (Annual Improvements 2010-2012 Cycle and 2011-2013 Cycle) • Amendments to MFRS 8, Operating Segments (Annual Improvements 2010-2012 Cycle) • Amendments to MFRS 13, Fair Value Measurement (Annual Improvements 2010-2012 Cycle and 2011-2013 Cycle) • Amendments to MFRS 116, Property, Plant and Equipment (Annual Improvements 2010-2012 Cycle) • Amendments to MFRS 119, Employee Benefits – Defined Benefit Plans: Employee Contributions • Amendments to MFRS 124, Related Party Disclosures (Annual Improvements 2010-2012 Cycle) • Amendments to MFRS 138, Intangible Assets (Annual Improvements 2010-2012 Cycle) • Amendments to MFRS 140, Investment Property (Annual Improvements 2011-2013 Cycle) #

MFRSs, Interpretations and amendments effective for annual periods beginning on or after 1 January 2016 • Amendments to MFRS 5, Non-current Assets Held for Sale and Discontinued Operations (Annual Improvements 2012-2014 Cycle) ## • Amendments to MFRS 7, Financial Instruments: Disclosures (Annual Improvements 2012-2014 Cycle) • Amendments to MFRS 10, Consolidated Financial Statements and MFRS 128, Investments in Associates and Joint Ventures – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture • Amendments to MFRS 10, Consolidated Financial Statements, MFRS 12, Disclosure of Interests in Other Entities and MFRS 128, Investments in Associates and Joint Ventures – Investment Entities: Applying the Consolidation Exception • Amendments to MFRS 11, Joint Arrangements – Accounting for Acquisitions of Interests in Joint Operations • MFRS 14, Regulatory Deferral Accounts ## • Amendments to MFRS 101, Presentation of Financial Statements – Disclosure Initiative

Annual Report 2015 061 Notes to the financial statements |

1. Basis of preparation (continued)

(a) Statement of compliance (continued)

MFRSs, Interpretations and amendments effective for annual periods beginning on or after 1 January 2016 (continued) • Amendments to MFRS 116, Property, Plant and Equipment and MFRS 138, Intangible Assets – Clarification of Acceptable Methods of Depreciation and Amortisation • Amendments to MFRS 116, Property, Plant and Equipment and MFRS 141, Agriculture – Agriculture: Bearer Plants ## • Amendments to MFRS 119, Employee Benefits (Annual Improvements 2012-2014 Cycle) • Amendments to MFRS 127, Separate Financial Statements – Equity Method in Separate Financial Statements ## • Amendments to MFRS 134, Interim Financial Reporting (Annual Improvements 2012-2014 Cycle)

MFRSs, Interpretations and amendments effective for annual periods beginning on or after 1 January 2017 • MFRS 15, Revenue from Contracts with Customers

MFRSs, Interpretations and amendments effective for annual periods beginning on or after 1 January 2018 • MFRS 9, Financial Instruments (2014)

The Group & Company plan to apply the abovementioned accounting standards, amendments and interpretations:

• from the annual period beginning on 1 April 2015 for those accounting standards, amendments or interpretations that are effective for annual periods beginning on or after 1 July 2014, except for those marked “#” which are not applicable to the Group.

• from the annual period beginning on 1 April 2016 for those accounting standards, amendments or interpretations that are effective for annual periods beginning on or after 1 January 2016, except for those marked “##” which are not applicable to the Group.

• from the annual period beginning on 1 April 2017 for those accounting standards, amendments or interpretations that are effective for annual periods beginning on or after 1 January 2017.

• from the annual period beginning on 1 April 2018 for those accounting standards, amendments or interpretations that are effective for annual periods beginning on or after 1 January 2018.

The initial application of the accounting standards, amendments or interpretations are not expected to have any material financial impacts to the current period and prior period financial statements of the Group and of the Company except as mentioned below:

MFRS 15, Revenue from Contracts with Customers

MFRS 15 replaces the guidance in MFRS 111, Construction Contracts, MFRS 118, Revenue, IC Interpretation 13, Customer Loyalty Programmes, IC Interpretation 15, Agreements for Construction of Real Estate, IC Interpretation 18, Transfers of Assets from Customers and IC Interpretation 131, Revenue - Barter Transactions Involving Advertising Services.

The Group is currently assessing the financial impact that may arise from the adoption of MFRS 15.

MFRS 9, Financial Instruments

MFRS 9 replaces the guidance in MFRS 139, Financial Instruments: Recognition and Measurement on the classification and measurement of financial assets and financial liabilities, and on hedge accounting.

The Group is currently assessing the financial impact that may arise from the adoption of MFRS 9.

062 Scomi Engineering Bhd | Notes to the financial statements

1. Basis of preparation (continued)

(b) Basis of measurement

The financial statements have been prepared on the historical cost basis other than as disclosed in Note 2.

In determining the appropriate basis of preparation of the financial statements, the Directors are required to consider whether the Group can continue in operational existence for the foreseeable future; that is for at least 12 months from the date of signing of this report. The Directors have considered the appropriateness of the accounting estimates and judgements set out in Note 1(d) and considered the following:

(i) On 7 November 2008, the Company had been awarded a monorail design, development and construction contract for RM720 million (“the Project I”). Due to various circumstances, Project I continued to encounter delays and certain key milestones stated in the contract have not been met as at 31 March 2015. The Company has continuously appraised the customer of the status of the project and sought extensions of time as allowed under the contract. In the prior years, a subsidiary had secured financing facilities totalling RM205.3 million for working capital and trade financing purposes to fund Project I.

As at 6 June 2014, the lender, subject to conditions, extended the financing facilities period up to 26 September 2015 with a revised limit on the use of the financing facilities totalling to RM205.3 million. On 14 August 2014, the lender revised the limit on use of het financing facilities to RM231.9 million with no change to the conditions and expiry date of the facility. The Company, together with the ultimate holding company’s management, is currently in the midst of fulfilling the conditions set by the bank. The Company will seek further extensions from both the customer and lender in view of the further delays towards the expiry of the extended date in September 2015. Based on past experience with Mumbai Metropolitan Region Development Authority (“MMRDA”), the Company believes that they will continue to be able to obtain the Extension of Time (“EOT”). During the year, the Project I activities and work continued normally, with the customer approving claims, billings and making payments accordingly.

(ii) On 10 December 2010, a subsidiary had been awarded a monorail expansion contract for RM494 million (“the Project II”). Due to various circumstances, Project II continued to encounter delays and certain key milestones stated in the contract have not been met as at 31 March 2015. The subsidiary has continuously appraised the customer of the status of the project and sought extensions of time as allowed under the contract. In the prior years, the subsidiary had secured financing facilities totalling RM264.7 million for working capital and trade financing purposes to fund the Project II.

In view of the continuing delays, as at 28 February 2015, the lender has, subject to conditions, further extended the financing facilities period up to 31 December 2015. The Company, together with the ultimate holding company’s management, is currently in the midst of fulfilling the conditions set by the bank to continue the extension of financing facilities. During the year, the Project II activities and work continued normally, with the customer approving claims, billings and making payments accordingly.

(iii) On 30 July 2011, the Metro Company of Sao Paulo awarded a contract for the implementation of a monorail system, including design, civil works, manufacture, supply of systems and rolling stock material, including a fleet of 24 trains (3 cars per train) for the Line 17 - Gold - of Metro Sao Paulo (“the Project III”) for a lump sum amount of BRL1,396 million (RM2,380 million) to the Monotrilho Integracao Consortium, for which the Company’s share of the value of the Contract is BRL132 million (RM226 million) based on its scope of works. In the prior years, a subsidiary had secured financing facilities totalling RM34.7 million for working capital and project financing purposes to fund the Project III.

Due to changes in the scope of work from the initial 24 trains (3 cars per train) to 18 trains (5 cars per train) and various circumstances, the Project III had encountered delays. The Consortium has continuously appraised Metro Company of the status of the project and sought extensions of time as allowed under the contract terms.

During the year, Metro Company of Sao Paulo announced delays in the projects to 2019 due to various circumstances. As such, the lender, on 3 June 2015, has extended the project financing facilities totalling RM22.5 million to 30 July 2017.

Annual Report 2015 063 Notes to the financial statements |

1. Basis of preparation (continued)

(b) Basis of measurement (continued)

The Directors have also reviewed current operational cash flow projections as part of their assessment, and after making enquiries and carefully considering the matters described above, the Directors have a reasonable expectation that the Group and Company will be able to meet their liabilities as they fall due and will have adequate resources to continue in operational existence for the foreseeable future.

In view of the foregoing, the Directors consider that it is appropriate to prepare the financial statements on a going concern basis.

Accordingly, the financial statements do not include any adjustments relating to the reclassification and recoverability of recorded assets amounts or the reclassification and additional amounts of liabilities that may be necessary if the Group and the Company were unable to continue as a going concern.

(c) Functional and presentation currency

These financial statements are presented in Ringgit Malaysia (“RM”), which is the Company’s functional currency. All financial information is presented in RM and has been rounded to the nearest thousand, unless otherwise stated.

(d) Critical accounting estimates and judgements

Estimates and judgements are continually evaluated by the Directors and are based on historical experience, Directors’ best knowledge of current events and actions, and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions involving a higher degree of judgement or complexity, or area where estimates and assumptions have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.

(i) Assessment of penalties payable

Provision for liquidated ascertained damages (“LAD”) are possible penalties that may arise from the late delivery of contract deliverables. In assessing the probability that an outcome of resources will be required to settle the obligation, management considers the outcome of the Extension of Time application based on circumstances of the projects, specific past experiences with the employer and expert advice as detailed below:

(a) Contract with Mumbai Metropolitan Region Development Authority

On 7 November 2008, the MMRDA of India awarded a contract for the Design, Development and Construction of a Monorail System (“the Project I” or “the Contract”) for a lump sum amount of Rs 2,460 crores (RM1.7 billion) to the unincorporated consortium of Larsen & Toubro Ltd and Scomi Engineering Bhd (“the Consortium”), for which Scomi Engineering Bhd’s (“SEB” or “the Company”) share of the value of the Contract is Rs 1,097 crores (RM720 million) based on its scope of works. The design, development, construction/ manufacture/supply, testing and commissioning of the system including safety certification for commercial operations are to be completed within 30 months from the award of the Contract.

The Consortium has continuously appraised MMRDA of the status of the project and sought extensions of time as allowed under the Contract terms. Following discussions, MMRDA had on 31 May 2011 granted the Consortium with an EOT for each of the Phase 1 and Phase 2 works completion key-dates to 31 December 2011 and 22 November 2012 respectively.

As the Project I encountered further delays, certain Phase 1 key milestones stated in the Contract were not met as at 31 December 2011. The Consortium has requested for a further EOT for Phase 1 up to 14 July 2012 vide its letter dated 30 December 2011 and the Company engaged specialist advisors to assist in the assessment of delay events, submission of claims for extension of time and assessing the Consortium’s contractual obligations.

A specialist advisor via an EOT claim report dated 8 November 2012 has stated that the Consortium has grounds to apply for a further extension of time for both Phase 1 and Phase 2 up to July 2014.

064 Scomi Engineering Bhd | Notes to the financial statements

1. Basis of preparation (continued)

(d) Critical accounting estimates and judgements (continued)

(i) Assessment of penalties payable (continued)

(a) Contract with Mumbai Metropolitan Region Development Authority (continued)

Based on the specialist advisors assessment, the Consortium vide its letter dated 9 November 2012 requested for a further EOT for Phase 1 and Phase 2 until 26 July 2014. Subsequent to the above submissions, MMRDA vide a letter dated 4 December 2012 had granted the Consortium a further EOT of up to 31 March 2013 for Phase 1 and up to 31 December 2013 for Phase 2.

Subsequent to the submissions for a further EOT by the Consortium vide its letter dated 20 November 2013, MMRDA vide a letter dated 13 December 2013 had granted the Consortium a further EOT of up to 30 June 2014 for the project and vide a letter dated 17 April 2014, had further granted the Consortium an EOT of up to 26 September 2015 for the project. On 1 February 2014, Phase 1 has been officially commissioned.

Due to further delays, certain Phase 2 key milestones stated in the Contract were not met as at 31 March 2015. Based on management’s internal assessment, Phase 2 is expected to be completed in 2016. The Consortium is currently assessing and compiling the appropriate supporting documents for further EOT submission to MMRDA.

The EOT granted by MMRDA is notwithstanding its rights to recover liquidated damages, if any, at the end of the project.

In reliance of the past experience with MMRDA in granting EOTs and the advice received from the specialist advisor, the Directors are of the opinion that no provision for potential penalties is required as at 31 March 2015 as the likelihood of any penalties to be borne by the Company is remote.

(b) Contract with Prasarana Malaysia Berhad

On 10 December 2010, Scomi Transit Projects Sdn Bhd, a wholly owned subsidiary of the Company, was awarded a monorail expansion contract for RM494 million (“the Project II”). The Project II is to be completed on 31 July 2013. Due to various circumstances, the Project II has encountered delays and certain key milestones stated in the contract have not been met as at 31 March 2015.

The subsidiary has continuously appraised the customer of the status of the project and sought extension of time as allowed under the contract terms. Following discussions, the customer had on 19 December 2012 granted the subsidiary with EOT for the first four key milestones to 30 April 2013 but the overall completion date remained at 31 July 2013. This has led to further claim submissions by the subsidiary.

Subsequent to the submissions, the customer vide a letter dated 2 October 2013 had granted the subsidiary a further EOT of up to 27 December 2013. As the Project II encountered further delays, the customer vide a letter dated 14 March 2014 had granted the subsidiary a further EOT of up to 25 April 2014.

The Project II’s activities and work continue normally, with the customer approving claims, billings and making payments accordingly.

A specialist advisor via an EOT claim report dated 22 May 2014 has stated that the subsidiary has grounds to apply for a further extension of time up to 18 September 2015. On 15 April 2015, the customer vide a supplemental letter granted the Company a further EOT up to 15 June 2016.

In reliance of the EOT granted by the customer on 15 April 2015 and the advice received from the specialist advisor, the Directors are of the opinion that no provision for potential penalties is required as at 31 March 2015 as the likelihood of any penalties to be borne by the Company is remote.

Annual Report 2015 065 Notes to the financial statements |

1. Basis of preparation (continued)

(d) Critical accounting estimates and judgements (continued)

(i) Assessment of penalties payable (continued)

(c) Contract with Metro Company of Sao Paulo

On 30 July 2011, the Metro Company of Sao Paulo (“Metro Company”) awarded a contract for the implementation of a monorail system, including design, civil works, manufacture, supply of systems and rolling stock material, including a fleet of 24 trains (3 cars per train) for the Line 17 - Gold - of Metro Sao Paulo (“Project III”) for a lump sum amount of BRL1,396 million (RM2,380 million) to the Monotrilho Integracao Consortium, for which the Company’s share of the value of the Contract is BRL132 million (RM226 million) based on its scope of works. The Project III is to be completed by January 2015.

Due to changes in the scope of work from the initial 24 trains (3 cars per train) to 18 trains (5 cars per train) and various circumstances, the Project III had encountered delays. The Consortium has continuously appraised Metro Company of the status of the project and sought extensions of time as allowed under the contract terms. Following discussions, Metro Company had on 30 August 2013 granted the Consortium with an EOT to 28 September 2015.

During the year, Metro Company announced delays in Project III with the expected completion in 2019 due to various circumstances and as such, granted the Consortium an EOT to December 2019 vide a letter dated 24 April 2015.

In reliance of the EOT granted by Metro Company on 24 April 2015 and the advice received from the specialist advisor, the Directors are of the opinion that no provision for potential penalties is required as at 31 March 2015 as the likelihood of any penalties to be borne by the Company is remote.

(ii) Assessment of indirect taxes payable

During the course of execution of the Project I described in Note 1(d)(i)(a) above, the Company and its wholly-owned subsidiary, Scomi Rail Bhd (“SRB”), will supply goods and services which would typically attract various indirect taxes in India. The tax consultants of the Company have assessed the potential indirect taxes payable to the Central Government, State Government and Local Municipality of that country and are of the view that:

(a) There are certain legislations empowering the Central Government, State Government and Local Authority to grant exemptions/ concessions in cases where the respective Governments and authorities are satisfied that the project is in the interest of the public;

(b) Past precedents indicated that the respective Governments and Authorities have exercised their discretionary powers to grant exemptions/concessions for specific projects in the interest of the public; and

(c) Given the legal provisions, and past precedents, a reasonable case for tax exemptions/concessions can be made, subject to discretions of the respective Governments and Authorities.

Applications and representations have been made by management to the respective Governments and Authorities and the matter is under consideration at the respective authorities.

Following the Central Government of India budget in March 2012, the custom duty rates have been reduced. As a result, the total imputed value of custom duties based on delivery of 15 trains and applying the revised applicable tax rates have reduced indirect taxes by RM13.1 million (Rs 22 crores). The Central Government of India Budget announced in March 2013 that the custom duty rates have been reduced further from 16% to 13% which have reduced indirect taxes exposure by RM2.8 million (Rs 5 crores). In addition, with effect from 1 January 2014, under the India-Malaysia Comprehensive Economic Cooperation Agreement, the basic custom duties for rolling stocks will be reduced to 0%, which will further reduce the exposure by RM1 million (Rs 2 crores). Based on the above, there is no residual financial exposure on the indirect taxes payable, as the impact of any remaining indirect taxes payable can be offset against the maximum amount contractually reimbursable by MMRDA.

066 Scomi Engineering Bhd | Notes to the financial statements

1. Basis of preparation (continued)

(d) Critical accounting estimates and judgements (continued)

(ii) Assessment of indirect taxes payable (continued)

The Company has also issued a writ of summons against the Local Authority to recover indirect taxes paid to date and is confident of a successful outcome based on past legal precedents. The hearing date on 3 March 2015 has been postponed and there is currently no fixed hearing date as of the date of this report.

Based on the above, the Directors are of the opinion that:

(a) There is a reasonable case for claim of tax exemptions/concessions;

(b) A reasonable estimate of the likely outcome of additional indirect taxes payable, if any, cannot be ascertained at this stage; and

(c) A full recovery of indirect taxes paid in advance amounting to RM34 million as disclosed in Note 10 is expected.

(iii) Estimated impairment of intangible assets

The Group tests goodwill and capitalised development costs work-in-progress for impairment annually and has also tested capitalised development costs for impairment due to certain impairment indicators. The recoverable amounts of cash generating units (“CGUs”) were determined based on value in use calculations. For the value in use calculations, significant judgement is required in the estimation of the present value of future cash flows generated, which involve uncertainties and are significantly affected by assumptions used and judgement made regarding estimates of future cash flows and discount rates as set out in Note 4 to the financial statements, which resulted in no impairment arising.

The Directors are of the opinion that any reasonably expected change in the key assumptions used to determine the recoverable amounts of the CGUs, would not result in any impairment.

(iv) Recognition of deferred tax assets

Deferred tax assets are recognised to the extent that it is probable that taxable income will be available against which the temporary differences can be utilised. Significant judgement is required in determining the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable income. Based on projections of future taxable income, the Company and subsidiaries have recognised deferred tax assets on tax losses and unabsorbed capital allowances incurred amounting to approximately RM4.7 million (2014: RM4.7 million) and RM26.3 million (2014: RM23.6 million) respectively.

(v) Construction contracts profits

The Group recognises contracts profits based on the percentage of completion method. The percentage of completion of a construction contract is determined based on the proportion that the contract costs incurred for work performed to-date bear to the estimated total costs for the contract. When it is probable that the estimated total contract costs of a contract will exceed the total contract revenue of the contract, the expected loss of the contract is recognised as an expense immediately.

Significant judgement is required in the estimation of total contract costs. Where the actual total contract costs is different from the estimated total contract costs, such differences will impact the contract profits recognised.

Annual Report 2015 067 Notes to the financial statements |

1. Basis of preparation (continued)

(d) Critical accounting estimates and judgements (continued)

(vi) Construction contracts revenue

The Group has estimated total contracts revenue based on the initial amount of revenue agreed in the contract, variations in the contract work and claims that can be measured reliably based on the latest available information and reliance on work of specialist. In the absence of such information, the Directors’ best estimates are derived from reasonable assumptions, experience and judgement. During the financial year, variation orders were recognised based on percentage of completion less related costs in respect of additional work scope instructions by the customers and additional interest costs and overheads incurred due to delays, which have been granted EOTs or based on legal advice and independent assessments by specialist advisors.

The claims for EOT and variation orders (“VO”) supporting the recognition of revenue are subject to significant risks and uncertainties in light of the nature of the projects. In estimating the amounts of claims for EOT and VO, estimates and judgements applied included expectation of future events. Negotiations and final actual acceptance of the claims by the customers could be significantly different from the Directors’ estimates of the future profitability or outcomes since anticipated events may not occur as expected and the variation could be material.

Where the actual approved variations and claims differ from the estimates, such difference will impact the contract revenue, profit/(losses) recognised and the amount due from customers on contract.

(vii) Amortisation and impairment of intangible assets

Capitalised development expenditure is recognised when the criteria for recognition is met and amortised based on an estimated sales unit method. Significant judgement is required in determining the estimated sales units, which is based on technological obsolescence, secured contracts, projects tendered and expectations of market growth, which determine the amount of amortisation recognised. During the current financial year, the Directors re-assessed and determined that the estimated sales units for monorail are 750 units (2014: 750 units).

The Directors are of the opinion that any reasonably expected change in the key assumptions used to determine the recoverable amounts of the CGUs, would not result in any impairment.

(viii) Impairment of trade receivables

The Group recognises impairment of trade receivables when there is objective evidence that the Group will not be able to collect all amounts receivable according to the original terms. Significant judgement is required in the assessment of the recoverability of trade receivables to estimate the amount and timing of future cash flows to determine the impairment amount required. To the extent that actual recoveries deviate from management’s estimates, such variances may have a material impact on the profit or loss. Based on Directors’ assessment, they believe that the current level of impairment of trade receivables is adequate.

2. Significant accounting policies

The accounting policies set out below have been applied consistently to the periods presented in these financial statements and have been applied consistently by Group entities, unless otherwise stated.

(a) Basis of consolidation

(i) Subsidiaries

Subsidiaries are entities, including structured entities, controlled by the Company. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

The Group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Potential voting rights are considered when assessing control only when such rights are substantive. The Group considers it has de facto power over an investee when, despite not having the majority of voting rights, it has the current ability to direct the activities of the investee that significantly affect the investee’s return.

Investments in subsidiaries are measured in the Company’s statement of financial position at cost less any impairment losses, unless the investment is classified as held for sale or distribution. The cost of investments includes transaction costs.

068 Scomi Engineering Bhd | Notes to the financial statements

2. Significant accounting policies (continued)

(a) Basis of consolidation (continued)

(ii) Business combinations

Business combinations are accounted for using the acquisition method from the acquisition date, which is the date on which control is transferred to the Group.

For new acquisition, the Group measures the cost of goodwill at the acquisition date as: • the fair value of the consideration transferred; plus • the recognised amount of any non-controlling interests in the acquiree; plus • if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less • the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.

For each business combination, the Group elects whether it measures the non-controlling interests in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets at the acquisition date.

Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred.

As part of the transition to MFRS in 2012, the Group elected not to restate the business combinations that occurred before the date of transition to MFRS ie, 1 January 2011. Under the merger method of accounting, the results of the subsidiaries are presented as if the subsidiaries had been combined throughout the current and previous financial years. The differences between the cost of acquisition and the nominal value of the share capital and reserves of the merged subsidiaries is taken to merger reserve.

(iii) Acquisitions of non-controlling interests

The Group accounts for all changes in its ownership interest in a subsidiary that do not result in a loss of control as equity transactions between the Group and its non-controlling interest holders. Any difference between the Group’s share of net assets before and after the change, and any consideration received or paid, is adjusted to or against Group reserves.

Business combinations arising from transfers of interests in entities that are under the control of the shareholder that controls the Group are accounted for as if the acquisition had occurred at the beginning of the earliest comparative period presented, or, if later, at the date that common control was established; for this purpose comparatives are restated. The assets and liabilities acquired are recognised at the carrying amounts recognised previously in the Group controlling shareholder’s consolidated financial statements. The components of equity of the acquired entities are added to the same components within Group equity and any resulting gain/loss is recognised directly in equity.

(iv) Loss of control

Upon the loss of control of a subsidiary, the Group derecognises the assets and liabilities of the former subsidiary, any non-controlling interests and the other components of equity related to the former subsidiary from the consolidated statement of financial position. Any surplus or deficit arising on the loss of control is recognised in profit or loss. If the Group retains any interest in the subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently, it is accounted for as an equity accounted investee or as an available-for-sale financial asset depending on the level of influence retained.

(v) Joint arrangements

Joint arrangements are arrangements of which the Group has joint control, established by contracts requiring unanimous consent for decisions about the activities that significantly affect the arrangements’ returns.

Annual Report 2015 069 Notes to the financial statements |

2. Significant accounting policies (continued)

(a) Basis of consolidation (continued)

(v) Joint arrangements (continued)

Joint arrangements are classified and accounted for as follows:

• A joint arrangement is classified as “joint operation” when the Group or the Company has rights to the assets and obligations for the liabilities relating to an arrangement. The Group and the Company account for each of its share of the assets, liabilities and transactions, including its share of those held or incurred jointly with the other investors, in relation to the joint operation.

• A joint arrangement is classified as “joint venture” when the Group has rights only to the net assets of the arrangements. The Group accounts for its interest in the joint venture using the equity method. Investments in joint venture are measured in the Company’s statement of financial position at cost less any impairment losses, unless the investment is classified as held for sale or distribution. The cost of investment includes transaction costs.

(vi) Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.

Unrealised gains arising from transactions with equity-accounted jointly controlled entity are eliminated against the investment to the extent of the Group’s interest in the investees. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

(b) Foreign currency

(i) Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions.

Monetary assets and liabilities denominated in foreign currencies at the end of the reporting period are retranslated to the functional currency at the exchange rate at that date.

Non-monetary assets and liabilities denominated in foreign currencies are not retranslated at the end of the reporting date, except for those that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined.

Foreign currency differences arising on retranslation are recognised in profit or loss, except for differences arising on the retranslation of available-for-sale equity instruments or a financial instrument designated as a hedge of currency risk, which are recognised in other comprehensive income.

(ii) Operations denominated in functional currencies other than Ringgit Malaysia

The assets and liabilities of operations denominated in functional currencies other than RM, including goodwill and fair value adjustments arising on acquisition, are translated to RM at exchange rates at the end of the reporting period. The income and expenses of foreign operations, excluding foreign operations in hyperinflationary economies, are translated to RM at exchange rates at the dates of the transactions.

Foreign currency differences are recognised in other comprehensive income and accumulated in the foreign currency translation reserve (“FCTR”) in equity. However, if the operation is a non-wholly-owned subsidiary, then the relevant proportionate share of the translation difference is allocated to the non-controlling interests. When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the FCTR related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal.

070 Scomi Engineering Bhd | Notes to the financial statements

2. Significant accounting policies (continued)

(b) Foreign currency (continued)

(ii) Operations denominated in functional currencies other than Ringgit Malaysia (continued)

When the Group disposes of only part of its interest in a subsidiary that includes a foreign operation, the relevant proportion of the cumulative amount is reattributed to non-controlling interests. When the Group disposes of only part of its investment in an associate or joint venture that includes a foreign operation while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss.

In the consolidated financial statements, when settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign exchange gains and losses arising from such a monetary item are considered to form part of a net investment in a foreign operation and are recognised in other comprehensive income, and are presented in the FCTR in equity.

(c) Financial instruments

(i) Initial recognition and measurement

A financial asset or a financial liability is recognised in thestatement of financial position when, and only when, the Group or the Company becomes a party to the contractual provisions of the instrument.

A financial instrument is recognised initially, at its fair value plus, in the case of a financial instrument not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial instrument.

An embedded derivative is recognised separately from the host contract and accounted for as a derivative if, and only if, it is not closely related to the economic characteristics and risks of the host contract and the host contract is not categorised at fair value through profit or loss. The host contract, in the event an embedded derivative is recognised separately, is accounted for in accordance with policy applicable to the nature of the host contract.

(ii) Financial instrument categories and subsequent measurement

The Group and the Company categorise financial instruments as follows:

Financial assets

(a) Loans and receivables

Loans and receivables category comprises debt instruments that are not quoted in an active market.

Financial assets categorised as loans and receivables are subsequently measured at amortised cost using the effective interest method.

(b) Available-for-sale financialassets

Available-for-sale category comprises investment in equity and debt securities instruments that are not held for trading.

Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost. Other financial assets categorised as available-for-sale are subsequently measured at their fair values with the gain or loss recognised in other comprehensive income, except for impairment losses, foreign exchange gains and losses arising from monetary items and gains and losses of hedged items attributable to hedge risks of fair value hedges which are recognised in profit or loss. On derecognition, the cumulative gain or loss recognised in other comprehensive income is reclassified from equity into profit or loss. Interest calculated for a debt instrument using the effective interest method is recognised in profit or loss.

Annual Report 2015 071 Notes to the financial statements |

2. Significant accounting policies (continued)

(c) Financial instruments (continued)

(ii) Financial instrument categories and subsequent measurement (continued)

All financial assets are subject to review for impairment (see note 2(j)(i)).

Financial liabilities

All financial liabilities are subsequently measured at amortised cost other than those categorised as fair value through profit or loss.

(iii) Financial guarantee contracts

A financial guarantee contractis a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument.

Financial guarantee contracts are recognised as a financial liability at the time the guarantee is issued. The liability is initially measured at fair value and subsequently at the higher of the amount determined in accordance with MFRS 137 “Provisions, Contingent Liabilities and Contingent Assets” and the amount initially recognised less cumulative amortisation where appropriate.

The fair value of financial guarantees is determined as the present value of the difference in net cash flows between the contractual payments under the debt instrument and the payments that would be required without the guarantee, or the estimated amount that would be payable to a third party for assuming the obligations.

Where financial guarantees in relation to loans or payables of subsidiaries are provided by the Company for no compensation, the fair values are accounted for as contributions and recognised as part of the cost of investment in subsidiaries.

(iv) Derecognition

A financial asset or part of it is derecognised when, and only when the contractual rights to the cash flows from the financial asset expire or control of the asset is not retained or substantially all of the risks and rewards of ownership of the financial asset are transferred to another party. On derecognition of a financial asset, the difference between the carrying amount and the sum of the consideration received (including any new asset obtained less any new liability assumed) and any cumulative gain or loss that had been recognised in equity is recognised in profit or loss.

A financial liability or a part of it is derecognised when, and only when, the obligation specified in the contract is discharged, cancelled or expires. On derecognition of a financial liability, the difference between the carrying amount of the financial liability extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss.

(v) Offsetting financial instruments

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

(d) Property, plant and equipment

(i) Recognition and measurement

Items of property, plant and equipment are measured at cost less any accumulated depreciation and any accumulated impairment losses.

Cost includes expenditures that are directly attributable to the acquisition of the asset and any other costs directly attributable to bringing the asset to working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. The cost of self-constructed assets also includes the cost of materials and direct labour. Cost also may include transfers from equity of any gain or loss on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment.

072 Scomi Engineering Bhd | Notes to the financial statements

2. Significant accounting policies (continued)

(d) Property, plant and equipment (continued)

(i) Recognition and measurement (continued)

Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.

When significant partsof an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

The gain or loss on disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and is recognised net within “other income” and “other expenses” respectively in profit or loss.

(ii) Subsequent costs

The cost of replacing a component of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the component will flow to the Group or the Company, and its cost can be measured reliably. The carrying amount of the replaced component is derecognised to profit or loss. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.

(iii) Depreciation

Depreciation is based on the cost of an asset less its residual value. Significant components of individual assets are assessed, and if a component has a useful life that is different from the remainder of that asset, then that component is depreciated separately.

Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each component of an item of property, plant and equipment from the date that they are available for use. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Freehold land is not depreciated. Property, plant and equipment under construction are not depreciated until the assets are ready for their intended use.

The estimated useful lives for the current and comparative periods are as follows:

• Freehold buildings 50 years • Rental equipment 8 years • Furniture, fixtures and equipment 3 – 10 years • Motor vehicles 5 – 7 years • Plant and machinery 5 – 12 years • Monorail test track 33 years

Depreciation methods, useful lives and residual values are reviewed at the end of the reporting period and adjusted as appropriate.

(e) Leased assets

(i) Finance lease

Leases in terms of which the Group or the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.

Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed.

Leasehold land which in substance is a finance lease is classified as property, plant and equipment.

Annual Report 2015 073 Notes to the financial statements |

2. Significant accounting policies (continued)

(e) Leased assets (continued)

(ii) Operating leases

Leases, where the Group or the Company does not assume substantially all the risks and rewards of ownership are classified as operating leases and, the leased assets are not recognised on the statement of financial position.

Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised in profit or loss as an integral part of the total lease expense, over the term of the lease. Contingent rentals are charged to profit or loss in the reporting period in which they are incurred.

(f) Intangible assets

(i) Goodwill

Goodwill arises on business combinations is measured at cost less any accumulated impairment losses. In respect of equity-accounted joint venture, the carrying amount of goodwill is included in the carrying amount of the investment and an impairment loss on such an investment is not allocated to any asset, including goodwill, that forms part of the carrying amount of the equity-accounted joint venture.

(ii) Research and development

Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in profit or loss as incurred.

Expenditure on development activities, whereby the application of research findings are applied to a plan or design for the production of new or substantially improved products and processes, is capitalised only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable and the Group intends to and has sufficient resources to complete development and to use or sell the asset.

The expenditure capitalised includes the cost of materials, direct labour and overheads costs that are directly attributable to preparing the asset for its intended use. For qualifying assets, borrowing costs are capitalised in accordance with the accounting policy on borrowing costs. Other development expenditure is recognised in profit or loss as incurred.

Capitalised development expenditure is measured at cost less any accumulated amortisation and any accumulated impairment losses.

(iii) Other intangible assets

Intangible assets, other than goodwill, that are acquired by the Group, which have finite useful lives, are measured at cost less any accumulated amortisation and any accumulated impairment losses.

(iv) Subsequent expenditure

Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit or loss as incurred.

(v) Amortisation

Goodwill and intangible assets with indefinite useful lives are not amortised but are tested for impairment annually and whenever there is an indication that they may be impaired.

Other intangible assets are amortised from the date that they are available for use. Amortisation is based on the cost of an asset less its residual value.

Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets.

074 Scomi Engineering Bhd | Notes to the financial statements

2. Significant accounting policies (continued)

(f) Intangible assets (continued)

(v) Amortisation (continued)

The basis for amortisation for the current and comparative periods are as follows:

• Monorail 750 units • Bus 5 years

Amortisation methods, useful lives and residual values are reviewed at the end of each reporting period and adjusted, if appropriate.

(g) Inventories

Inventories are measured at the lower of cost and net realisable value.

The cost of inventories is measured based on weighted average method, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of work-in- progress and finished goods, cost includes an appropriate share of production overheads based on normal operating capacity.

Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.

(h) Construction work-in-progress

Construction work-in-progress represents the gross unbilled amount expected to be collected from customers on contract work performed to date. It is measured at cost plus profit recognised to date less progress billings and recognised losses. Cost includes all expenditure related directly to specific projects and an allocation of fixed and variable overheads incurred in the Group’s contract activities based on normal operating capacity.

Construction work-in-progress is presented as part of trade and other receivables as amount due from contract customers in the statement of financial position for all contracts in which costs incurred plus recognised profits exceed progress billings. If progress billings exceed costs incurred plus recognised profits, then the difference is presented as amount due to customers on contract which is part of the deferred income in the statement of financial position.

(i) Cash and cash equivalents

Cash and cash equivalents consist of cash on hand, balances and deposits with banks and highly liquid investments which have an insignificant risk of changes in fair value with original maturities of three months or less, and are used by the Group and the Company in the management of their short term commitments. For the purpose of the statement of cash flows, cash and cash equivalents are presented net of bank overdrafts and pledged deposits.

(j) Impairment

(i) Financial assets

All financial assets (except for investments in subsidiaries and investments in joint arrangements) are assessed at each reporting date whether there is any objective evidence of impairment as a result of one or more events having an impact on the estimated future cash flows of the asset. Losses expected as a result of future events, no matter how likely, are not recognised. For an investment in an equity instrument, a significant or prolonged decline in the fair value below its cost is an objective evidence of impairment. If any such objective evidence exists, then the financial asset’s recoverable amount is estimated.

An impairment loss in respect of loans and receivables is recognised in profit or loss and is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account.

Annual Report 2015 075 Notes to the financial statements |

2. Significant accounting policies (continued)

(j) Impairment (continued)

(i) Financial assets (continued)

An impairment loss in respect of available-for-sale financial assets is recognised in profit or loss and is measured as the difference between the asset’s acquisition cost (net of any principal repayment and amortisation) and the asset’s current fair value, less any impairment loss previously recognised. Where a decline in the fair value of an available-for-sale financial asset has been recognised in the other comprehensive income, the cumulative loss in other comprehensive income is reclassified from equity to profit or loss.

An impairment loss in respect of unquoted equity instrument that is carried at cost is recognised in profit or loss and is measured as the difference between the financial asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset.

Impairment losses recognised in profit or loss for an investment in an equity instrument classified as available for sale is not reversed through profit or loss.

If, in a subsequent period, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed, to the extent that the asset’s carrying amount does not exceed what the carrying amount would have been had the impairment not been recognised at the date the impairment is reversed. The amount of the reversal is recognised in profit or loss.

(ii) Other assets

The carrying amounts of other assets (except for inventories, amount due from customers on contracts, deferred tax asset and assets arising from employee benefits) are reviewed at the end of each reporting period to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill, and intangible assets that have indefinite useful lives or that are not yet available for use, the recoverable amount is estimated each period at the same time.

For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or cash-generating units. Subject to an operating segment ceiling test, for the purpose of goodwill impairment testing, cash-generating units to which goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal reporting purposes. The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to a cash-generating unit or a group of cash-generating units that are expected to benefit from the synergies of the combination.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs of disposal. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash-generating unit.

An impairment loss is recognised if the carrying amount of an asset or its related cash-generating unit exceeds its estimated recoverable amount.

Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (group of cash-generating units) and then to reduce the carrying amounts of the other assets in the cash-generating unit (groups of cash-generating units) on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at the end of each reporting period for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount since the last impairment loss was recognised. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Reversals of impairment losses are credited to profit or loss in the financial year in which the reversals are recognised.

076 Scomi Engineering Bhd | Notes to the financial statements

2. Significant accounting policies (continued)

(k) Equity instruments

Instruments classified as equity are measured at cost on initial recognition and are not remeasured subsequently.

(i) Issue expenses

Costs directly attributable to the issue of instruments classified as equity are recognised as a deduction from equity.

(ii) Ordinary shares

Ordinary shares are classified as equity.

(iii) Repurchase, disposal and reissue of share capital (treasury shares)

When share capital recognised as equity is repurchased, the amount of the consideration paid, including directly attributable costs, net of any tax effects, is recognised as a deduction from equity. Repurchased shares that are not subsequently cancelled are classified as treasury shares in the statement of changes in equity.

Where treasury shares are sold or reissued subsequently, the difference between the sales consideration net of directly attributable costs and the carrying amount of the treasury shares is recognised in equity.

(l) Employee benefits

(i) Short-term employee benefits

Short-term employee benefit obligations in respect of salaries, annual bonuses, paid annual leave and sick leave are measured on an undiscounted basis and are expensed as the related service is provided.

A liability is recognised for the amount expected to be paid under short term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

(ii) State plans

The Group’s contributions to statutory pension funds are charged to profit or loss in the financial year to which they relate. Once the contributions have been paid, the Group has no further payment obligations.

(iii) Share-based payment transactions

The grant date fair value of share-based payment granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non- market performance conditions at the vesting date.

For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.

The fair value of employee share options is measured using a trinomial valuation model. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments (based on historical experience and general option holder behaviour), expected dividends, and the risk-free interest rate (based on government bonds). Service and non- market performance conditions attached to the transactions are not taken into account in determining fair value.

Annual Report 2015 077 Notes to the financial statements |

2. Significant accounting policies (continued)

(m) Provisions

A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost.

(i) Warranties

A provision for warranties is recognised when the underlying products or services are sold. The provision is based on historical warranty data and a weighting of all possible outcomes against their associated probabilities.

(n) Revenue and other income

(i) Goods sold

Revenue from the sale of goods in the course of ordinary activities is measured at fair value of the consideration received or receivable, net of returns and allowances, trade discount and volume rebates. Revenue is recognised when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the customer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, and there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognised as a reduction of revenue as the sales are recognised.

(ii) Services

Revenue from services rendered is recognised in profit or loss in proportion to the stage of completion of the transaction at the end of the reporting period. The stage of completion is assessed by reference to surveys of work performed.

(iii) Construction contracts

Contract revenue includes the initial amount agreed in the contract plus any variations in contract work, claims and incentive payments, to the extent that it is probable that they will result in revenue and can be measured reliably. As soon as the outcome of a construction contract can be estimated reliably, contract revenue and contract cost are recognised in profit or loss in proportion to the stage of completion of the contract. Contract expenses are recognised as incurred unless they create an asset related to future contract activity.

The stage of completion is assessed by reference to the proportion that contract costs incurred for work performed to-date bear to the estimated total contract costs.

When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred that are likely to be recoverable. An expected loss on a contract is recognised immediately in profit or loss.

(iv) Commissions

When the Group acts in the capacity of an agent rather than as the principal in a transaction, the revenue recognised is the net amount of commission made by the Group.

(v) Rental income

Rental income from operating leases is recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease. Rental income from subleased property is recognised as other income.

078 Scomi Engineering Bhd | Notes to the financial statements

2. Significant accounting policies (continued)

(n) Revenue and other income (continued)

(vi) Government grants

Government grants that compensate the Group for the cost of an asset are recognised initially as deferred income at fair value when there is reasonable assurance that they will be received and that the Group will comply with the conditions associated with the grant and are then recognised in profit or loss as other income on a systematic basis over the useful life of the asset.

Grants that compensate the Group for expenses incurred are recognised in profit or loss as other income on a systematic basis in the same periods in which the expenses are recognised.

(vii) Interest income

Interest income is recognised as it accrues using the effective interest method in profit or loss except for interest income arising from temporary investment of borrowings taken specifically for the purpose of obtaining a qualifying asset which is accounted for in accordance with the accounting policy on borrowing costs.

(viii) Management fees

Management fees are recognised on an accrual basis by reference to completion of the specific transaction, assessed on the basis of the actual services provided as a proportion of the total services to be provided.

(o) Borrowing costs

Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method.

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the cost of those assets.

The capitalisation of borrowing costs as part of the cost of a qualifying asset commences when expenditure for the asset is being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation of borrowing costs is suspended or ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are interrupted or completed.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

(p) Income tax

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognised in profit or loss except to the extent that it relates to a business combination or items recognised directly in equity or other comprehensive income.

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted by the end of the reporting period, and any adjustment to tax payable in respect of previous financial years.

Deferred tax is recognised using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities in the statement of financial position and their tax bases. Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the end of the reporting period.

Annual Report 2015 079 Notes to the financial statements |

2. Significant accounting policies (continued)

(p) Income tax (continued)

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at the end of each reporting period and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

(q) Earnings per ordinary share

The Group presents basic and diluted earnings per share data for its ordinary shares (“EPS”).

Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period, adjusted for own shares held.

Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding adjusted for own shares held for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees.

(r) Operating segments

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. Operating segment’s operating results are reviewed regularly by the chief operating decision maker, which in this case is the Chief Executive Officer of the Group, to make decisions about resources to be allocated to the segment and to assess its performance, and for which discrete financial information is available.

(s) Contingencies

Contingent liabilities

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is not recognised in the statements of financial position and is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events, are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

(t) Fair value measurement

Fair value of an asset or a liability, except for share-based payment and lease transactions, is determined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The measurement assumes that the transaction to sell the asset or transfer the liability takes place either in the principal market or in the absence of a principal market, in the most advantageous market.

For non-financial asset, the fair value measurement takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

When measuring the fair value of an asset or a liability, the Group uses observable market data as far as possible. Fair value are categorised into different levels in a fair value hierarchy based on the input used in the valuation technique as follows:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group can access at the measurement date. Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3: unobservable inputs for the asset or liability.

The Group recognises transfers between levels of the fair value hierarchy as of the date of the event or change in circumstances that caused the transfers.

080 Scomi Engineering Bhd | Notes to the financial statements

3. Property, plant and equipment

Furniture, Freehold Freehold Rental fixtures and Motor Plant and Monorail Work-in- land buildings equipment equipment vehicles machinery test track progress Total Group RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Cost At 1 April 2013 8,020 36,601 6,730 13,067 1,306 23,765 14,795 - 104,284 Additions - - 14 631 8,201 3,448 - 69 12,363 Write-off - - - (4,724) - - - - (4,724) Effect of movements in exchange rates - - - (47) - - - - (47)

At 31 March 2014/ 1 April 2014 8,020 36,601 6,744 8,927 9,507 27,213 14,795 69 111,876 Additions - - - 381 11 374 - 4 770 Write-off - - - (53) - - - - (53) Reclassification - - (483) 2,775 - (2,292) - - - Effect of movements in exchange rates - - - 67 - - - - 67

At 31 March 2015 8,020 36,601 6,261 12,097 9,518 25,295 14,795 73 112,660

Depreciation At 1 April 2013 - 3,703 3,497 9,501 906 8,901 3,436 - 29,944

Recognised in profit/(loss) - 716 276 2,426 1,165 2,035 - -6,618 Capitalised under development costs - - - 178 - 308 493 - 979

Depreciation for the year - 716 276 2,604 1,165 2,343 493 - 7,597 Write-off - - - (4,717) - - - - (4,717) Effect of movements in exchange rates - - - (21) - - - - (21)

At 31 March 2014/ 1 April 2014 - 4,419 3,773 7,367 2,071 11,244 3,929 - 32,803

Recognised in profit/(loss) - 717 - 2,126 1,869 2,029 - - 6,741 Capitalised under development costs - - - 100 - 318 493 - 911

Depreciation for the year - 717 - 2,226 1,869 2,347 493 - 7,652 Write-off - - - (29) - - - - (29) Reclassification - - (292) 2,141 - (1,849) - - - Effect of movements in exchange rates - - - 53 - - - - 53

At 31 March 2015 - 5,136 3,481 11,758 3,940 11,742 4,422 - 40,479

Carrying amounts At 1 April 2013 8,020 32,898 3,233 3,566 400 14,864 11,359 - 74,340

At 31 March 2014 8,020 32,182 2,971 1,560 7,436 15,969 10,866 69 79,073

At 31 March 2015 8,020 31,465 2,780 339 5,578 13,553 10,373 73 72,181

Annual Report 2015 081 Notes to the financial statements |

3. Property, plant and equipment (continued)

Furniture, fixtures and Motor equipment vehicles Total Company RM’000 RM’000 RM’000

Cost At 1 April 2013 1,567 256 1,823 Additions 7 - - 7

At 31 March 2014/1 April 2014/31 March 2015 1,574 256 1 ,830

Depreciation At 1 April 2013 825 256 1,081 Depreciation for the year 347 - 347

At 31 March 2014/1 April 2014 1,172 256 1,428 Depreciation for the year 252 - 252

At 31 March 2015 1,424 256 1,680

Carrying amounts At 1 April 2013 742 - 742

At 31 March 2014 402 - 402

At 31 March 2015 150 - 150

3.1 Impairment

Certain property, plant and equipment of a subsidiary of the Group were tested for impairment due to losses incurred. The recoverable amounts were assessed based on a valuation report by an independent professional valuer which resulted in no impairment arising.

The recoverable amount of property, plant and equipment of the Company and another subsidiary were tested together with goodwill as disclosed in Note 4.2.

3.2 Leased equipment and motor vehicles

The net book value of equipment and motor vehicles acquired under finance lease arrangements by the Group as at the balance sheet date was RM9,341,000 (2014: RM11,163,000).

3.3 Security

Certain land and building of the Group with net book value of RM16,837,000 (2014: RM17,074,000) are charged as security for banking facilities as disclosed in Note 13 to the financial statements.

082 Scomi Engineering Bhd | Notes to the financial statements

4. Intangible assets

Development cost work- Capitalised development cost in-progress

Mass Rapid Transit/ Note Goodwill Monorail Bus Propulsion Total Group RM’000 RM’000 RM’000 RM’000 RM’000

Cost At 1 April 2013 27,914 111,549 1,016 21,024 161,503 Additions - 2,529 - 188 2,717 Write-off - (15) - - (15)

At 31 March 2014/1 April 2014 27,914 114,063 1,016 21,212 164,205 Additions - 1,198 3,750 - 4,948

At 31 March 2015 27,914 115,261 4,766 21,212 169,153

Amortisation At 1 April 2013 - 4,990 436 - 5,426 Amortisation for the year 4.1 - 1,740 188 - 1,928

At 31 March 2014/1 April 2014 - 6,730 624 - 7,354 Amortisation for the year 4.1 - 2,686 191 - 2,877

At 31 March 2015 - 9,416 815 - 10,231

Carrying amount

At 1 April 2013 27,914 106,559 580 21,024 156,077

At 31 March 2014 27,914 107,333 392 21,212 156,851

At 31 March 2015 27,914 105,845 3,951 21,212 158,922

4.1 Amortisation

Monorail The amortisation of capitalised development costs is allocated to the cost of inventory and is recognised in cost of sales when inventory is sold. Amortisation included within construction contract costs during the financial year amounted to RM2,686,000 (2014: RM1,740,000).

Bus The remaining useful life for bus capitalised in development cost is 1 year (2014: 2 years).

The additional development cost capitalised is for the development of the bus chassis during the financial year and amortisation will commence upon delivery of the bus chassis.

Annual Report 2015 083 Notes to the financial statements |

4. Intangible assets (continued)

4.2 Impairment

Rail Operations

The recoverable amounts of Rail Operations goodwill are based on “value in use” calculations.

The projections over a five-year period were based on an approved business plan and reflect the expectation of usage, revenue growth, operating costs and margins based on past experience and current assessment of market share, expectations of market growth and industry growth.

The key assumptions used in the value in use calculations for the Rail Operations cash generating unit are as follows:

Pre-tax Profit Terminal Value in use basis discount rate margin range growth rate

2015 Rail operations Existing secured projects and anticipated 10% 3% - 30% Not applicable projects over the remaining useful life of the current monorail technology

2014 Rail operations Existing secured projects and anticipated 10% 3% - 20% Not applicable projects over the remaining useful life of the current monorail technology

Development cost work-in-progress

Development cost work-in-progress have been tested for impairment based on expectations of market growth and industry growth.

Pre-tax Profit Terminal Value in use basis discount rate margin range growth rate

2015 Mass Rapid Transit Anticipated projects over the expected 10% 14% Not applicable (MRT) useful life of the current MRT technology

Propulsion Existing secured projects and anticipated 10% 3% - 30% Not applicable projects over the remaining useful life of the current propulsion technology

2014 Mass Rapid Transit Anticipated projects over the expected 10% 14% Not applicable (MRT) useful life of the current MRT technology

Propulsion Existing secured projects and anticipated 10% 3% - 20% Not applicable projects over the remaining useful life of the current propulsion technology

A reasonable possible change in the assumptions used will not result in any change to the impairment conclusion.

084 Scomi Engineering Bhd | Notes to the financial statements

5. Investments in subsidiaries

Company

Note 2015 2014 RM’000 RM’000

At cost Unquoted shares 115,743 115,743 Less: Impairment loss 5.2 (2,246) (2,246)

113,497 113,497 Amounts receivable from subsidiaries 248,200 280,012

At 31 March 361,697 393,509

5.1 Details of subsidiaries are as follows:

Country of Effective ownership Name of entity incorporation Principal activities interest

2015 2014 % %

Scomi Special Vehicles Sdn Bhd Malaysia Manufacture and fabrication of road 100 100 transport equipment, material handling equipment and provision of related engineering support services

Scomi Transportation Systems Malaysia Investment holding 100 100 Sdn Bhd

Scomi Transit Projects Sdn Bhd Malaysia Development, manufacture and 100 100 supply of monorail transportation infrastructure systems equipment and services

Scomi Transit Projects Brazil Malaysia Development, manufacture and 100 100 Sdn Bhd supply of monorail transportation infrastructure systems equipment and services

Scomi Transit Projects Brazil Malaysia Development, manufacture and 100 100 (Sao Paulo) Sdn Bhd supply of monorail transportation infrastructure systems equipment and services

Urban Transit Private Limited * India Supply of transportation infrastructure 100 100 system equipments and services

Urban Transit Servicos Do Brazil Brazil Supply of transportation infrastructure 100 100 LTDA# systems equipments and services

Scomi OMS Oilfield Services Ltd# British Dormant 100 100 Virgin Island

Annual Report 2015 085 Notes to the financial statements |

5. Investments in subsidiaries (continued)

5.1 Details of subsidiaries are as follows (continued):

Country of Effective ownership Name of entity incorporation Principal activities interest

2015 2014 % %

Subsidiary of Scomi Special Vehicles Sdn Bhd

Scomi Trading Sdn Bhd Malaysia Marketing agent for road transport 100 100 equipment and related products

Subsidiaries of Scomi Transportation Systems Sdn Bhd

Scomi Rail Bhd Malaysia Design, manufacture and supply of 100 100 monorail trains and related services

Scomi Coach Sdn Bhd Malaysia Manufacturing, fabrication and 100 100 assembly of commercial coaches and truck vehicle bodies

Subsidiary of Scomi Coach Sdn Bhd

Scomi Coach Marketing Sdn Bhd Malaysia Undertake the business of 100 100 management and marketing agent to purchase, take on lease, hire or otherwise acquire, maintain, repair of coaches and vehicles bodies

* Audited by a member firm of KPMG International. # Not required to be audited under local legislation.

5.2 Impairment loss

The recoverable amounts of investment in subsidiaries are based on “value in use” calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by the Directors covering a five-year period.

The projections over these periods were based on an approved business plan and reflect the expectation of usage, revenue growth, operating costs and margins based on past experience and current assessment of market share, expectations of market growth and industry growth.

086 Scomi Engineering Bhd | Notes to the financial statements

5. Investments in subsidiaries (continued)

5.2 Impairment loss (continued)

The key assumptions used in the value in use calculations are as follows:

Pre-tax Profit Terminal Value in use basis discount rate margin range growth rate

2015 Investment in Scomi Existing secured contracts and 6% 8% - 20% Not applicable Special Vehicles anticipated contracts over the next five Sdn Bhd years

Investment in Scomi Existing secured projects and anticipated 10% 3% - 27% Not applicable Transportation projects over the remaining useful life of Systems Sdn Bhd the current monorail technology

2014 Investment in Scomi Existing secured projects and anticipated 10% 3% - 20% Not applicable Transportation Systems projects over the remaining useful life of Sdn Bhd the current monorail technology

A reasonable possible change in the assumptions used will not result in any change to the impairment conclusion.

6. Investments in joint arrangements

6.1 Jointly controlled entity

The results of joint operation which is included in the Group’s financial statements are as follows:

Group

2015 2014 RM’000 RM’000

Revenue 2,132 4,135 Cost of sales (11,084) (9,784)

Gross loss (8,952) (5,649)

Receivables 7,186 6,065 Payables 17,248 6,164

Annual Report 2015 087 Notes to the financial statements |

6. Investments in joint arrangements (continued)

6.1 Jointly controlled entity (continued)

Details of the joint operation are as follows:

Country of Group’s effective Jointly controlled entity operation Principal activities equity interest

2015 2014 % %

Larsen & Toubro and Scomi India Design, civil construction, manufacture 50 50 Engineering Bhd and supply of monorail trains, (unincorporated consortium) provision of related engineering support services and engineering works involving the design, construction, installation, testing and commissioning of electrical and mechanical systems in relation to the Mumbai monorail project

6.2 Investment in joint venture

Group Company

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Share of net assets of joint venture - - - -

Details of the joint venture are as follows:

Country of Group’s effective Investment in joint venture incorporation Principal activities equity interest

2015 2014 % %

Quark Fabricacao de Equipamentos Brazil Dormant 37.75 37.75 Ferroviarios e Servicos de Engenharia Ltda

088 Scomi Engineering Bhd | Notes to the financial statements

7. Deferred tax assets/(liabilities)

Recognised deferred tax assets/(liabilities)

Deferred tax assets and liabilities are attributable to the following:

Assets Liabilities Net

2015 2014 2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Group Tax losses and capital allowance 64,946 64,946 - - 64,946 64,946 Property, plant and equipment - - (38,035) (38,035) (38,035) (38,035) Others 4,125 1,384 - (1,051) 4,125 333

Deferred tax assets/(liabilities) 69,071 66,330 (38,035) (39,086) 31,036 27,244 Set off (38,035) (38,035) 38,035 38,035 - -

Net deferred tax assets/(liabilities) 31,036 28,295 - (1,051) 31,036 27,244

Company Tax losses and capital allowance 4,693 4,693 - - 4,693 4,693

Net deferred tax assets 4,693 4,693 - - 4,693 4,693

Movements in temporary differences during the year are as follows:

Recognised Effect of Recognised Effect of in profit movements At in profit movements At or loss in exchange 31.3.2014/ or loss in exchange At 1.4.2013 (Note 20) rates 1.4.2014 (Note 20) rates 31.3.2015 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Group Tax losses and capital allowance 64,235 711 - 64,946 - - 64,946 Property, plant and equipment (38,035) - - (38,035) - - (38,035) Others 1,300 (992) 25 333 4,418 (626) 4,125

27,500 (281) 25 27,244 4,418 (626) 31,036

Company Tax losses and capital allowance 4,693 - - 4,693 - - 4,693

4,693 - - 4,693 - - 4,693

Annual Report 2015 089 Notes to the financial statements |

7. Deferred tax assets/(liabilities) (continued)

Unrecognised deferred tax assets

Deferred tax assets have not been recognised in respect of the following items (stated at gross):

Group Company

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Unabsorbed tax losses 124,408 123,302 28,370 27,075 Unabsorbed capital allowances 15,129 13,166 222 198 Reinvestment allowance 11,493 11,493 - - Other temporary differences 8,269 4,007 - -

159,299 151,968 28,592 27,273

Deferred tax assets not recognised at 24% (2014: 25%) 38,232 37,992 6,862 6,818

Deferred tax assets have not been recognised in respect of the above items because it is not probable that future taxable profit will be available against which the Group and the Company can utilise the benefits therefrom.

8. Available-for-sale financial assets.

Group

2015 2014 RM’000 RM’000

At fair value: Quoted shares in Malaysia 104 104

9. Inventories

Group

2015 2014 RM’000 RM’000

At cost: Work in progress 5,068 7,577 Consumables 1,517 801

At net realisable value: Raw materials 3,316 4,169

9,901 12,547

090 Scomi Engineering Bhd | Notes to the financial statements

10. Receivables, deposits and prepayments

Group Company

Note 2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Trade receivables 157,116 85,575 9,345 8,085 Less: Allowance for impairment 24.4 (7,570) (8,834) - -

149,546 76,741 9,345 8,085 Amount due from customers on contract 10.1 458,353 459,839 186,503 139,725 Amounts receivable from: - Subsidiaries - - 2,358 8,064 - Related corporations 3,702 6,666 3,184 4,779 - Ultimate holding company - 422 - -

10.2 3,702 7,088 5,542 12,843

Other receivables 10.3 30,578 38,406 13,763 14,834 Deposits 3,485 6,224 946 946 Prepayments 10.4 9,601 4,384 - 389 Indirect tax recoverable 10.5 33,694 38,605 10,962 10,088

77,358 87,619 25,671 26,257

688,959 631,287 227,061 186,910

10.1 Amount due from customers on contract

Group Company

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Construction contract costs incurred to date and attributable profits 1,564,340 1,384,356 615,186 562,055 Less: Progress billings (1,105,987) (924,517) (428,683) (422,330)

Amount due from customers on contract 458,353 459,839 186,503 139,725

Retention receivable on contract, included in “trade receivables” 21,500 12,152 - -

Advance received on contract, included under “other payables” (21,343) (11,225) (21,343) (11,225)

Annual Report 2015 091 Notes to the financial statements |

10. Receivables, deposits and prepayments (continued)

10.1 Amount due from customers on contract (continued)

Amount due from customers on contract have been collateralised for borrowings. In the event the Company defaults under the loan agreements, the banks have the right to receive the cash flows from these amounts. Without default, the Company will bill and collect these amounts and allocate new amounts as collateral.

10.2 For current year, amounts due from subsidiaries, related corporations and ultimate holding company are unsecured, interest free and repayable on demand.

For prior year, amounts due from subsidiaries, related corporations and ultimate holding company are unsecured, interest free and repayable on demand, except for certain amount due from a related company of Nil (2014: RM2,608,000) that bears interest at a rate of 6% per annum.

10.3 Included in other receivables is an amount of RM7.7 million (2014: RM11.4 million) of business development charges recoverable from future monorail projects.

10.4 Included in prepayments in the prior year are amounts of RM3.1 million relating to advances to suppliers in respect of the propulsion technology development work in progress and an operation and maintenance contract respectively.

10.5 Indirect tax recoverable relates to the Mumbai Monorail project as disclosed in Note 1(d)(ii).

11. Cash and bank balances

Group Company

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Short term deposits with licensed banks 25,914 36,122 - - Cash and bank balances 6,411 8,830 728 1,587

32,325 44,952 728 1,587

Included in the deposits placed with licensed banks of the Group is RM21,953,000 (2014: RM24,960,000) pledged for bank facilities granted to a subsidiary, of which the maturity term exceeded 3 months.

092 Scomi Engineering Bhd | Notes to the financial statements

12. Capital and reserves

12.1 Ordinary shares capital

Group and Company

2015 2014

Number Number of shares Amount of shares Amount ’000 RM’000 ’000 RM’000

Authorised: Ordinary shares of RM1.00 each At beginning and end of the financial year 400,000 400,000 400,000 400,000

Issued and fully paid: Ordinary shares of RM1.00 each At the beginning and end of the financial year 342,080 342,080 342,080 342,080

12.2 Share premium

Share premium comprises the premium paid on subscription of shares in the Company over and above the par value of the shares.

12.3 Treasury shares

The shareholders of the Company renewed their approval for the Company to repurchase its own shares through a special resolution passed in a general meeting held on 25 September 2013. The Directors of the Company are committed to enhancing the value of the Company to its shareholders and believe that the repurchase plan can be applied in the best interests of the Company and its shareholders.

During the current and previous financial year, there were no repurchase of the Company’s shares.

The shares repurchased are being held as treasury shares in accordance with Section 67A of the Companies Act, 1965. As treasury shares, the rights attached as to voting, dividends and participation in other distribution are suspended. None of the treasury shares repurchased has been sold as at 31 March 2015.

As at the balance sheet date, 121,800 (2014: 121,800) ordinary shares are held as treasury shares at a carrying value of RM103,333 (2014: RM103,333), and the number of outstanding shares in issue after setting off against treasury shares is 341,957,703 (2014: 341,957,703).

12.4 Merger relief reserve

The merger relief reserve is not distributable as cash dividends.

Merger relief reserve represents the excess of the fair value of shares over the nominal value of the shares issued as consideration in an acquisition of subsidiaries which meets the requirements of subsection (4) of Section 60 of the Companies Act, 1965.

12.5 Translation reserve

The translation reserve represents the cumulative translation differences arising from translation of foreign operations and branch.

12.6 Share option reserve

The share option reserve comprises the cumulative value of employee services received for the issue of share options. When the option is exercised, the amount from the share option reserve is transferred to share premium. When the share options expire, the amount from the share option reserve is transferred to retained earnings. Details of the share option scheme are disclosed in Note 14.

Annual Report 2015 093 Notes to the financial statements |

13. Loans and borrowings

Group Company

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Secured Non-current Revolving credits 7,252 14,357 - - Finance lease liabilities 6,417 9,233 - -

13,669 23,590 - -

Secured Current Bank overdrafts 80,162 175,902 - - Term loans 151,406 34,037 - - Bankers’ acceptances 3,884 2,092 - - Trust receipts 17,730 518 - - Revolving credits 250,896 261,409 5,000 5,000 Finance lease liabilities 2,871 2,103 - -

506,949 476,061 5,000 5,000

Total loans and borrowings 520,618 499,651 5,000 5,000

Bank overdrafts 80,162 175,902 - - Term loans 151,406 34,037 - - Bankers’ acceptances 3,884 2,092 - - Trust receipts 17,730 518 - - Revolving credits 258,148 275,766 5,000 5,000 Finance lease liabilities 9,288 11,336 - -

Total loans and borrowings 520,618 499,651 5,000 5,000

13.1 Security

The loans and borrowings of the Group and Company are secured as follows:

(i) the term loan drawn down by a subsidiary company is secured by a corporate guarantee from the Company and a standby letter of credit from the financial institution;

(ii) bank overdrafts, bankers’ acceptances and trust receipts drawn down by subsidiaries are secured by way of a negative pledge over the present and future, fixed and floating assets of the respective subsidiaries, assignment of contract proceeds and escrow account, all insurance policies taken, performance guarantee received, and a corporate guarantee from the Company;

(iii) the revolving credit drawn down by subsidiaries are secured by way of assignment of contract proceeds and charge over a subsidiary’s land and building as disclosed in Note 3, assignment over rental agreement, charge over escrow account and debentures over its machinery, and a corporate guarantee from Danajamin of up to 80% of the facility amount.

The management continues to appraise and have discussions with the banks on the additional collaterals that were provided for the project’s banking facilities.

094 Scomi Engineering Bhd | Notes to the financial statements

13. Loans and borrowings (continued)

13.2 Loan covenant

The Group and Company have various financial covenants based on debt service coverage ratio, debt to equity ratio and total net worth, all of which were complied with as at 31 March 2015.

13.3 Finance lease liabilities

Finance lease liabilities are payable as follows:

Present Present Future value of Future value of minimum minimum minimum minimum lease lease lease lease payments Interest payments payments Interest payments

2015 2015 2015 2014 2014 2014 Group RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Less than one year 3,485 614 2,871 2,923 820 2,103 Between one and five years 7,057 640 6,417 10,488 1,255 9,233

10,542 1,254 9,288 13,411 2,075 11,336

The finance lease liabilities are secured against the respective assets acquired.

14. Employee benefits

Share-based payments arrangement

Share option programme (equity settled)

The Company implemented an Employees’ Share Option Scheme (“ESOS”) which came into effect on 26 January 2006 for a period of 10 years. The ESOS is governed by the By-Laws which were approved by the shareholders on 10 November 2005.

The number and weighted average exercise prices of share options are as follows:

Weighted Number Weighted Number average of options average of options exercise price (’000) exercise price (’000) RM/Share 2015 RM/Share 2014

Outstanding at beginning of financial year 1.05 16,153 1.05 16,883 Forfeited during the year 1.10 (3,920) 1.08 (730)

Outstanding at end of financial year 12,233 16,153

Exercisable at 31 March 4,615 5,915

Annual Report 2015 095 Notes to the financial statements |

14. Employee benefits (continued)

Share-based payments arrangement (continued)

Share option programme (equity settled) (continued)

The options outstanding at 31 March 2015 have an exercise price in the range of RM1.00 to RM1.18 (2014: RM1.00 to RM1.18) and a remaining contractual life at year end of 0.8 year (2014: 1.8 years).

There were no options exercised during the current and previous financial year.

All options granted under the scheme will expire on 25 January 2016.

The significant inputs into the model for options granted are as follows:

2015 2014

Weighted average share price at date of grant (RM/share) 1.06 1.06 Exercise price (RM) - 1st tranche 1.00 1.00 - 2nd tranche 1.18 1.18 - 3rd tranche 1.00 1.00 - 4th tranche 1.00 1.00 Valuation assumptions: Expected volatility of share prices 41% 28% Expected option life (year) 0.83 1.83 Risk free interest rate (per annum) 3.82% 3.45% Expected dividend yield 5% 5% Weighted average fair value of option granted (RM/option) (using Trinomial valuation model) 0.05 0.04

The expected volatility of the share price was based on the expected share price volatility of the Company measured based on statistical analysis of monthly share prices over the last 4 years. The expected life of options is based on historical data and is not necessarily indicative of exercise patterns that may occur.

During the financial year, the Group recognised an expense of Nil (2014: Nil) in respect of share based payment transactions, all of which are in respect of the ESOS.

The salient features of the ESOS scheme are, inter alia, as follows:

i) The total number of shares comprising options exercised, options remaining exercisable and unexercised offers pending acceptance under the ESOS shall not exceed 15% of the total issued and paid-up share capital of the Company, such that not more than fifty percent (50%) of the shares available under the ESOS are allocated, in aggregate, to the Directors and senior management of the Group.

ii) Not more than ten percent (10%) of the shares available under the ESOS is allocated to any individual Director or employee who, either singly or collectively through his/her associates, holds twenty percent (20%) or more in the issued and paid-up capital of the Company.

iii) Options shall lapse if the Director ceases his/her directorship with the Company or employee ceases his/her employment with the Company or its subsidiaries prior to the full exercise of his/her options, except when such cessation occurs by reasons as provided by the Company’s ESOS By-Laws such as retirement, ill health, injury, physical or mental disability, and subjected always to the discretion and written approval of the Options Committee of the Company.

096 Scomi Engineering Bhd | Notes to the financial statements

14. Employee benefits (continued)

Share-based payments arrangement (continued)

Share option programme (equity settled) (continued)

The salient features of the ESOS scheme are, inter alia, as follows (continued):

iv) The option price under the ESOS is the volume weighted average market price quoted on Bursa Malaysia for the past five (5) consecutive market days prior to the date of grant, save that a discount of not more than 10% may be given at the absolute discretion of the Options Committee for options granted. The option price shall not be lower than the par value of the shares of the Company of RM1.00.

v) Options granted under the ESOS carry no dividend or voting rights. Upon exercise of the options, shares issued rank pari passu in all respect with the existing ordinary shares of the Company.

15. Trade and other payables

Group Company

Note 2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Non-current liabilities Trade payables 94 294 - - Amount payable to ultimate holding company 15.1 55,047 51,961 55,047 51,961

55,141 52,255 55,047 51,961

Current liabilities Trade payables 75,365 81,072 15,546 6,167 Other payables 56,179 32,832 24,111 12,518

Amounts payable to: - penultimate holding company 300 - - - - joint venture 15.2 1,243 5,835 - - - subsidiaries 15.2 - - 154,085 142,476 - related corporations 15.2 10,077 7,842 9,104 6,579

143,164 127,581 202,846 167,740

198,305 179,836 257,893 219,701

15.1 The Group and Company have received unsecured and interest free advances amounting to RM55,047,000 (2014: RM51,961,000) at balance sheet date from its ultimate holding company. The ultimate holding company has expressed its intention not to recall these amounts due within a period of 12 months from the date of approval of these financial statements.

15.2 Amounts due to subsidiaries, related corporations and joint venture are unsecured, interest free and repayable on demand.

Annual Report 2015 097 Notes to the financial statements |

16. Deferred Government grant

Group

2015 2014 RM’000 RM’000

Deferred Government grant 988 1,347

The Group received a Government grant of RM2,155,000 in 2008 to execute and develop new technology for a monorail bogie design and development program with improvement to the design of the current monorail bogie and development of a commercially ready prototype bogie.

Amortisation over the expected life of the related assets mirrors the pattern of consumption of the related intangible asset which is estimated to be 6 years (2014: 6 years).

17. Revenue

Group Company

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Construction contract income 179,984 172,876 53,131 47,108 Sale of goods 33,237 29,594 - - Sale of services 24,709 32,418 - - Rental and commission income 363 1,861 - 424 Others 28 149 - 149

238,321 236,898 53,131 47,681

18. Cost of sales/services

Group Company

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Raw materials, consumables and factory overheads used in construction contracts 139,520 156,946 62,678 65,610 Raw materials and consumables used for sale of goods 19,176 13,671 - - Raw materials and consumables used for sale of services 22,554 1,542 - - Staff cost 31,223 45,502 - - Others 1,892 4,561 - -

214,365 222,222 62,678 65,610

098 Scomi Engineering Bhd | Notes to the financial statements

19. Finance costs

Group Company

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Interest expense - bank overdrafts 14,024 18,534 - - - term loans 4,998 2,634 - 108 - finance lease liabilities 1,125 1,650 - - - bankers’ acceptances/trust receipts 1,190 1,170 - - - revolving credits 10,656 13,168 456 334 - others 1,258 722 - -

33,251 37,878 456 442

Recognised in profit or loss 7,198 6,541 456 442 Capitalised into construction contract cost 26,053 31,337 - -

33,251 37,878 456 442

20. Tax (credit)/expense

Recognised in profit or loss

Group Company

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Current tax - Malaysian income tax 917 861 - - - Foreign tax 1,156 1,272 - -

2,073 2,133 - -

(Over)/under provision in prior years (81) 702 - -

1,992 2,835 - -

Deferred tax Under provision in prior year 346 1,054 - - Relating to previously unrecognised tax losses (4,764) (773) - -

(4,418) 281 - -

Total tax (credit)/expense (2,426) 3,116 - -

Annual Report 2015 099 Notes to the financial statements |

20. Tax (credit)/expense (continued)

Reconciliation of tax expense

A reconciliation of income tax expense applicable to loss before tax at the statutory tax rate to income tax expense at the effective income tax rate of the Group (using the weighted average tax rate applicable to profits of het consolidated entities) and Company is as follows:

Group Company

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Loss before tax (2,048) (34,642) (31,325) (26,249)

Income tax calculated using Malaysian tax rate of 25% (2014: 25%) (512) (8,661) (7,831) (6,562) Tax effects of: - expenses not deductible for tax purposes 180 2,566 7,502 484 - temporary differences recognised from previously unrecognised deferred tax assets (4,764) (773) - - - deferred tax assets not recognised in respect of tax losses and unabsorbed capital allowances 240 10,840 44 6,078 - (over)/under provision of tax expense in prior years (81) 702 - - - effect of different tax rates in foreign jurisdictions 1,340 (2,612) - - - effect at changes in tax rate* 825 - 285 - - under provision of deferred tax expense in prior year 346 1,054 - -

(2,426) 3,116 - -

* The corporate income tax rate is 25% for the year of assessment 2013 to 2015 and will be reduced to 24% for year of assessment 2016 (“YA 2016”) onwards. Consequently, any temporary differences expected to eb reversed in YA 2016 onwards are measured using this rate.

100 Scomi Engineering Bhd | Notes to the financial statements

21. Profit/(Loss) for the year

Group Company

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Profit/(Loss) for the year is arrived after charging/(crediting) Auditors remuneration: Audit fees KPMG Malaysia 435 435 125 125 Overseas affiliates of KPMG Malaysia 101 101 - - Non-audit fees KPMG Malaysia 5 5 5 5 Local affiliates of KPMG Malaysia 109 102 14 13 Amortisation for Government grant (359) (359) - - Gain on disposal of asset held for sales - (1,211) - (1,211) Intangible assets - amortisation 2,877 1,928 - - - write-off - 15 - - Interest income (996) (2,334) (36) (402) Impairment on receivables from subsidiary - - 6,086 - Net allowance for inventory obsolescence 302 363 - - Net foreign exchange (gain)/loss - realised (1,404) 6,854 (476) 3,911 - unrealised (4,533) 6,207 (17,793) (321) Net (reversal)/impairment of trade receivables (1,213) 913 - - Property, plant and equipment - depreciation 6,741 6,618 252 347 - write-off 24 7 - - Rental expenses - premises 1,910 699 674 215 - equipment 262 21 - - Reversal of fair value adjustment - - 31,230 - Write-off of other receivables 4,297 1,947 - - Write back of receivables - (72) - -

Group Company

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Staff costs (including Executive Director) Wages, salaries and bonuses 45,034 52,105 1,473 1,983 Defined contribution plan 3,867 4,397 221 286 Other employee benefits 7,191 8,817 1,043 254

56,092 65,319 2,737 2,523

Annual Report 2015 101 Notes to the financial statements |

22. Earnings/(loss) per ordinary share

Basic earnings/(loss) per ordinary share

The calculation of basic earnings/(loss) per ordinary share at 31 March 2015 was based on the profit/(loss) attributable to ordinary shareholders and a weighted average number of ordinary shares in issue, calculated as follows:

Group

As at As at 31.3.2015 31.3.2014

Profit/(loss) attributable to owners of the Company (RM’000) 378 (37,758)

Weighted average number of ordinary shares in issue (’000) 342,080 342,080

Basic earnings/(loss) per share (sen) 0.11 (11.04)

Diluted earnings/(loss) per ordinary share

In respect of share options granted to employees, a calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average share price of the Company’s shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated above is compared with the number of shares that would have been issued assuming the exercise of the share options. The difference is added to the denominator as an issue of ordinary shares for no consideration. This calculation serves to determine the ‘bonus’ element in the ordinary shares outstanding for the purpose of computing the dilution. The average share price of the Company’s shares is below the exercise price, therefore, the ESOS has no dilutive effect to earnings per share as at 31 March 2015 and 31 March 2014.

23. Segment information

Management has determined the operating segments based on reports reviewed by the Chief Operating Decision Maker (“CODM”) which are used for allocating resources and assessing performance of the operating segments.

The Chief Operating Decision Maker considers the business from the industry perspective and the service rendered. The following reportable segments have been identified:

(i) Rail - development, design, manufacture and supply of monorail transportation infrastructure systems equipments and services, and related engineering support services.

(ii) Commercial Vehicles - manufacture, fabrication and assembly of commercial coaches, truck vehicle bodies and special purpose vehicles (“Coaches and Special Purpose Vehicles”)

Unallocated costs represent corporate expenses. Segment assets consist of property, plant and equipment, prepaid land lease payments, intangible assets, inventories, receivables and cash and cash equivalents, and mainly excludes investments, deferred tax assets and tax recoverable. Segment liabilities comprise payables and exclude taxation and deferred tax liabilities.

Capital expenditure comprises additions to property, plant and equipment, prepaid land lease payments and intangible assets.

102 Scomi Engineering Bhd | Notes to the financial statements

23. Segment information (continued)

Commercial Rail vehicles Group 2015 RM’000 RM’000 RM’000

Revenue External sales 191,912 46,409 238,321

Revenue from continuing operations 191,912 46,409 238,321

Results Segment results 28,928 2,310 31,238 Unallocated expenses (1,031) Interest income 996 Interest expense (33,251)

Loss before tax (2,048) Tax credit 2,426

Profit after tax for the financial year 378

Assets Segment assets 905,797 56,595 962,392 Unallocated corporate assets 33,881

Consolidated total assets 996,273

Liabilities Segment liabilities 671,669 48,242 719,911 Unallocated corporate liabilities 6,698

Consolidated total liabilities 726,609

Other information Depreciation and amortisation (7,143) (2,475) (9,618) Unrealised foreign exchange gain/(loss) 4,724 (191) 4,533

Annual Report 2015 103 Notes to the financial statements |

23. Segment information (continued)

Commercial Rail vehicles Group 2014 RM’000 RM’000 RM’000

Revenue External sales 196,404 40,494 236,898

Revenue from continuing operations 196,404 40,494 236,898

Results Segment results 2,791 (1,316) 1,475 Unallocated expenses (573) Interest income 2,334 Interest expense (37,878)

Loss before tax (34,642) Tax expenses (3,116)

Loss after tax for the financial year (37,758)

Assets Segment assets 839,070 85,744 924,814 Unallocated corporate assets 31,797

Consolidated total assets 956,611

Liabilities Segment liabilities 586,125 94,709 680,834 Unallocated corporate liabilities 5,486

Consolidated total liabilities 686,320

Other information Depreciation and amortisation (6,738) (1,808) (8,546) Unrealised foreign exchange loss (5,158) (1,049) (6,207)

The Group operates in the following geographical areas:

Malaysia* - Design, manufacture and supply of monorail, urban transportation (including buses, special purpose vehicles and coaches), rail solutions and related engineering support services.

India and Brazil - Supply of transportation infrastructure systems, equipments and services.

* Company’s home country.

104 Scomi Engineering Bhd | Notes to the financial statements

23. Segment information (continued)

Total revenue Total non-current assets

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Malaysia 131,141 119,290 258,206 263,706 India 45,792 84,794 659 533 Brazil 61,388 32,814 3,378 84

238,321 236,898 262,243 264,323

With the exception of the countries disclosed above, no other individual country contributed more than 10% of consolidated revenue or assets.

Revenue is disclosed based on the location of the rail project or sale of goods. Total non-current assets are determined based on where the assets are located.

Revenue for 3 (2014: 2) major customers constitutes 81% (2014: 69%) of total consolidated revenue.

24. Financial instruments

24.1 Categories of financial instruments

The table below provides an analysis of financial instruments categorised as follows:

(a) Loans and receivables (“L&R”); (b) Available-for-sale financial assets (“AFS”); and (c) Other financial liabilities measured at amortised cost (“FL”).

Carrying amount L&R AFS 2015 RM’000 RM’000 RM’000

Financial assets Group Available-for-sale financial assets 104 - 104 Trade and other receivables excluding prepayments 679,358 679,358 - Cash and bank balances 32,325 32,325 -

711,787 711,683 104

Company Trade and other receivables excluding prepayments 227,061 227,061 - Cash and bank balances 728 728 -

227,789 227,789 -

Annual Report 2015 105 Notes to the financial statements |

24. Financial instruments (continued)

24.1 Categories of financial instruments (continued)

Carrying amount FL 2015 RM’000 RM’000

Financial liabilities Group Loans and borrowings 511,330 511,330 Finance lease liabilities 9,288 9,288 Trade and other payables 198,305 198,305

718,923 718,923

Company Loans and borrowings 5,000 5,000 Trade and other payables 257,893 257,893

262,893 262,893

Carrying amount L&R AFS 2014 RM’000 RM’000 RM’000

Financial assets Group Available-for-sale financial assets 104 - 104 Trade and other receivables excluding prepayments 626,903 626,903 - Cash and bank balances 44,952 44,952 -

671,959 671,855 104

Company Trade and other receivables excluding prepayments 186,521 186,521 - Cash and bank balances 1,587 1,587 -

188,108 188,108 -

106 Scomi Engineering Bhd | Notes to the financial statements

24. Financial instruments (continued)

24.1 Categories of financial instruments (continued)

Carrying amount FL 2014 RM’000 RM’000

Financial liabilities Group Loans and borrowings 488,315 488,315 Finance lease liabilities 11,336 11,336 Trade and other payables 179,836 179,836

679,487 679,487

Company Loans and borrowings 5,000 5,000 Trade and other payables 219,701 219,701

224,701 224,701

24.2 Net gains and losses arising from financial instruments

Group Company

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Loans and receivables 2,445 (6,733) 18,411 723 Financial liabilities measured at amortised cost (33,251) (37,878) (456) (442)

(30,806) (44,611 ) 17,955 281

24.3 Financial risk management

The Group has exposure to the following risks from its use of financial instruments:

• Credit risk • Liquidity risk • Market risk

24.4 Credit risk

Credit risk is the risk of a financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group’s exposure to credit risk arises principally from its receivables from customers. The Company’s exposure to credit risk arises principally from receivables from customers, loans and advances to subsidiaries and financial guarantees given to banks for credit facilities granted to subsidiaries.

Annual Report 2015 107 Notes to the financial statements |

24. Financial instruments (continued)

24.4 Credit risk (continued)

Receivables

Risk management objectives, policies and processes for managing the risk

Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Normally financial guarantees given by banks, shareholders or directors of customers are obtained, and credit evaluations are performed on customers requiring credit over a certain amount.

Exposure to credit risk, credit quality and collateral

As at the end of the reporting period, the maximum exposure to credit risk arising from receivables is represented by the carrying amounts in the statement of financial position.

Customer credit risk arises when services are rendered and sales are made on credit terms. Default by customers may lead to material loss but risks are mitigated by ensuring sales and services are made to customers with appropriate credit history. The Group monitors exposure to credit risk on an on-going basis. The Group considers the risk of its main customers defaulting in payments to be unlikely in view that its credit exposure is mainly to government bodies. At the reporting date, approximately 60% (2014: 80%) of the Group’s trade receivables and amounts due from customer on contracts were due from one individual customer each in India and Brazil who are Government bodies and one individual customer in Malaysia who is a Government related agency.

Impairment losses

Trade receivables that were past due their contractual payment date but not impaired relate to a number of external parties where there are no expectation of default and relate to slow paying but long outstanding customers. The ageing of receivables (excluding prepayments and intra-group balances) as at the end of the reporting period was:

Individual Gross impairment Net Group RM’000 RM’000 RM’000

2015 Not past due 634,508 - 634,508 Past due 1 – 90 days 14,127 - 14,127 Past due 90 – 180 days 2,199 - 2,199 Past due 180 – 365 days 8,834 - 8,834 Past due more than 365 days 23,558 (7,570) 15,988

683,226 (7,570) 675,656

2014 Not past due 586,510 - 586,510 Past due 1 – 90 days 13,380 - 13,380 Past due 90 – 180 days 4,965 - 4,965 Past due 180 – 365 days 9,634 (2,129) 7,505 Past due more than 365 days 14,160 (6,705) 7,455

628,649 (8,834) 619,815

108 Scomi Engineering Bhd | Notes to the financial statements

24. Financial instruments (continued)

24.4 Credit risk (continued)

Receivables (continued)

Impairment losses (continued)

Individual Gross impairment Net Company RM’000 RM’000 RM’000

2015 Not past due 221,519 - 221,519 Past due 1 – 90 days - - - Past due 90 – 180 days - - - Past due 180 – 365 days - - -

221,519 - 221,519

2014 Not past due 168,707 - 168,707 Past due 1 – 90 days - - - Past due 90 – 180 days 1,490 - 1,490 Past due 180 – 365 days 3,481 - 3,481

173,678 - 173,678

As at 31 March 2015, the amount of allowance for impairment of trade receivables was RM7,570,000 (2014: RM8,834,000). The individually impaired receivables mainly relate to trade receivables that were past due their contractual payment which are facing unexpectedly difficult economic situations. The other classes within trade and other receivables do not contain impaired assets.

The movements in the allowance for impairment losses of receivables during the financial year were:

Group

2015 2014 RM’000 RM’000

At 1 April 8,834 8,185 Impairment loss recognised 916 991 Impairment loss reversed (2,129) (78) Impairment loss written off (51) (264)

At 31 March 7,570 8,834

The allowance account in respect of trade receivables is used to record impairment losses. Unless the Group is satisfied that recovery of the amount is possible, the amount considered irrecoverable is written off against the receivable directly.

Annual Report 2015 109 Notes to the financial statements |

24. Financial instruments (continued)

24.4 Credit risk (continued)

Financial guarantees

Risk management objectives, policies and processes for managing the risk

The Company provides unsecured financial guarantees to banks in respect of banking facilities granted to certain subsidiaries. The Company monitors on an ongoing basis the results of the subsidiaries and repayments made by the subsidiaries.

Exposure to credit risk, credit quality and collateral

The maximum exposure to credit risk amounts to RM506,330,000 (2014: RM483,315,000) representing the outstanding banking facilities of the subsidiaries as at end of the reporting period.

As at the end of the reporting period, there was no indication that any subsidiary would default on repayment.

The financial guarantees have not been recognised since the fair value on initial recognition was not material.

Intercompany loans and advances

Risk management objectives, policies and processes for managing the risk

The Company provides unsecured loans and advances to subsidiaries. The Company monitors the results of the subsidiaries regularly.

Exposure to credit risk, credit quality and collateral

As at the end of the reporting period, the maximum exposure to credit risk is represented by their carrying amounts in the statement of financial position.

Loans and advances are only provided to subsidiaries which are wholly owned by the Company.

Impairment losses

As at the end of the reporting period, there was no indication that the loans and advances to the subsidiaries are not recoverable. The Company does not specifically monitor the ageing of current advances to the subsidiaries. Nevertheless, these advances have been overdue for less than a year. Non-current loans to subsidiaries are not overdue.

24.5 Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s exposure to liquidity risk arises principally from its various payables, loans and borrowings.

The Group maintains a balance between continuity of funding and flexibility through the use of the stand-by credit facilities. The Group manages its debt maturity profile, operating cash flow and the availability of funding, including advance from its ultimate holding company as stated in Note 15 and obtaining extension from the lenders for funding facilities as disclosed in Note 1(b), so as to ensure that refinancing and funding needs are met.

It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts.

110 Scomi Engineering Bhd | Notes to the financial statements

24. Financial instruments (continued)

24.5 Liquidity risk (continued)

Maturity analysis

The table below summarises the maturity profile of the Group’s financial liabilities as at the end of the reporting period based on undiscounted contractual payments:

Contractual Carrying interest Contractual Under 1 1 - 2 2 - 5 More than amount rate cash flows year years years 5 years

Group RM’000 % RM’000 RM’000 RM’000 RM’000 RM’000

2015 Non-derivative financial liabilities Loans and borrowings 511,330 4.13 to 13.15 511,330 504,078 7,252 - - Finance lease liabilities 9,288 2.60 to 4.98 10,542 3,485 7,057 - - Trade and other payables 198,305 - 198,305 198,305 - - -

718,923 720,177 705,868 14,309 - -

2014 Non-derivative financial liabilities Loans and borrowings 488,315 6.35 to 8.10 488,315 473,958 7,105 7,252 - Finance lease liabilities 11,336 2.70 to 4.98 13,411 2,923 2,924 7,564 - Trade and other payables 179,836 - 179,836 179,836 - - -

679,487 681,562 656,717 10,029 14,816 -

The table below summarises the maturity profile of Company’s financial liabilities as at the end of the reporting period based on undiscounted contractual payments:

Contractual Carrying interest Contractual Under 1 1 - 2 2 - 5 More than amount rate cash flows year years years 5 years

Company RM’000 % RM’000 RM’000 RM’000 RM’000 RM’000

2015 Non-derivative financial liabilities Loans and borrowings 5,000 8.10 - 8.35 5,000 5,000 - - - Trade and other payables 257,893 - 257,893 257,893 - - - Financial guarantee - - 506,330 506,330 - - -

262,893 769,223 769,223 - - -

2014 Non-derivative financial liabilities Loans and borrowings 5,000 6.25 - 8.10 5,000 5,000 - - - Trade and other payables 219,701 - 219,701 219,701 - - - Financial guarantee - - 483,315 483,315 - - -

224,701 708,016 708,016 - - -

Annual Report 2015 111 Notes to the financial statements |

24. Financial instruments (continued)

24.6 Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and other prices that will affect the Group’s financial position or cash flows.

24.6.1 Currency risk

The Group is exposed to foreign currency risk on sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of Group entities. The currencies giving rise to this risk are primarily U.S. Dollar (USD), Indian Rupee (INR), Brazilian Real (BRL) and Euro (EUR).

Risk management objectives, policies and processes for managing the risk

The Group does not have a fixed policy to hedge its sales and purchases via forward contracts. However, the exposure to foreign currency risk is monitored from time-to-time by management.

Exposure to foreign currency risk

The Group’s exposure to foreign currency (a currency which is other than the functional currency of the Group entities) risk, based on carrying amounts as at the end of the reporting period was:

Denominated in

USD INR BRL EUR Group RM’000 RM’000 RM’000 RM’000

2015 Receivables, deposits and prepayments - 272,545 90,898 2,508 Cash and bank balances - 1,995 7,388 - Trade payables (41,551) (8,197) (22,427) (12,693) Loans and borrowings (58,966) (59,841) - -

(100,517) 206,502 75,859 (10,185)

2014 Receivables, deposits and prepayments - 271,018 53,038 - Cash and bank balances 32 344 14,596 - Trade payables (39,493) (7,953) (12,114) (13,126 ) Loans and borrowings (48,568) (60,790) - -

(88,029) 202,619 55,520 (13,126)

112 Scomi Engineering Bhd | Notes to the financial statements

24. Financial instruments (continued)

24.6 Market risk (continued)

24.6.1 Currency risk (continued)

Exposure to foreign currency risk (continued)

Denominated in

INR BRL Company RM’000 RM’000

2015 Receivables, deposits and prepayments 141,987 53,860 Cash and bank balances - 693 Trade payables - (21,351)

141,987 33,202

2014 Receivables, deposits and prepayments 128,492 25,066 Cash and bank balances - 228 Trade payables - (11,234)

128,492 14,060

Currency risk sensitivity analysis

A 5% (2014: 5%) strengthening of the Ringgit Malaysia against the following currencies at the end of the reporting period would have increased (decreased) post-tax profit or loss by the amounts shown below. This analysis is based on foreign currency exchange rate variances that the Group considered to be reasonably possible at the end of the reporting period. This analysis assumes that all other variables, in particular interest rates, remained constant and ignores any impact of forecasted sales and purchases.

Profit and Loss Profit and Loss Group Company

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

USD (3,769) (3,301) - - INR 7,744 7,598 5,325 4,819 BRL 2,845 2,082 1,245 527 EUR (382) (492) - -

A 5% (2014: 5%) weakening of Ringgit Malaysia against the above currencies at the end of the reporting period would have had equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remained constant.

Annual Report 2015 113 Notes to the financial statements |

24. Financial instruments (continued)

24.6 Market risk (continued)

24.6.2 Interest rate risk

The Group’s fixed rate borrowings are exposed to a risk of change in their fair value due to changes in interest rates. The Group’s variable rate borrowings are exposed to a risk of change in cash flows due to changes in interest rates. Short term receivables and payables are not significantly exposed to interest rate risk.

Risk management objectives, policies and processes for managing the risk

The Group manages its interest rate exposure by obtaining financing at competitive rates, which is a mix of fixed and floating interest rates borrowing instruments. The Group reviews its debt portfolio, taking into account the investment holding period and nature of its assets.

Exposure to interest rate risk

The interest rate profile of the Group’s and the Company’s significant interest-bearing financial instruments, based on carrying amounts as at the end of the reporting period were:

Group Company

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Floating rate instruments Financial liabilities Bank overdrafts 80,162 175,902 - - Term loans 151,406 34,037 - - Bankers’ acceptances 3,884 2,092 - - Trust receipts 17,730 518 - - Revolving credits 258,148 275,766 5,000 5,000

511,330 488,315 5,000 5,000

Fixed rate instruments Financial liabilities Finance lease liabilities 9,288 11,336 - -

114 Scomi Engineering Bhd | Notes to the financial statements

24. Financial instruments (continued)

24.6 Market risk (continued)

24.6.2 Interest rate risk (continued)

Interest rate risk sensitivity analysis

(a) Fair value sensitivity analysis for fixed rate instruments

The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss, and the Group does not designate derivatives as hedging instruments under a fair value hedge accounting model. Therefore, a change in interest rates at the end of the reporting period would not affect profit or loss.

(b) Cash flow sensitivity analysis for variable rate instruments

A change of 100 basis points (“bp”) in interest rates at the end of the reporting period would have increased (decreased) post- tax profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remained constant.

Profit or loss Profit or loss

100 bp 100 bp 100 bp 100 bp increase decrease increase decrease 2015 2015 2014 2014 RM’000 RM’000 RM’000 RM’000

Group Floating rate instruments (3,835) 3,835 (3,662) 3,662

24.6.3 Other price risk

Equity price risk arises from the Group’s investments in equity securities.

The Group is not significantly impacted by an increase or decrease in the fair value of these instruments.

Annual Report 2015 115 Notes to the financial statements |

24. Financial instruments (continued)

24.7 Fair value information

The carrying amounts of cash and bank balances, short term receivables and payables and short term borrowings reasonably approximate fair values due to the relatively short term nature of these financial instruments.

The table below analyses financial instruments carried at fair value and those not carried at fair value for which fair value is disclosed, together with their fair values and carrying amounts shown in the statement of financial position.

Fair value of financial instruments Fair value of financial instruments Total carried at fair value not carried at fair value fair Carrying Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total value amount Group RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

2015 Financial assets Available-for-sale financial assets 104 - - 104 - - - - 104 104

Financial liabilities Revolving credits ------13,000 13,000 13,000 13,000 Trade payables ------94 94 94 94 Finance lease liabilities ------9,288 9,288 9,288 9,288 Amount due to ultimate holding company ------55,047 55,047 55,047 55,047

2014 Financial assets Available-for-sale financial assets 104 - - 104 - - - - 104 104

Financial liabilities Revolving credits ------14,357 14,357 14,357 14,357 Trade payables ------294 294 294 294 Finance lease liabilities ------9,233 9,233 9,233 9,233 Amount due to ultimate holding company ------51,961 51,961 51,961 51,961

Fair value of financial instruments Fair value of financial instruments Total carried at fair value not carried at fair value fair Carrying Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total value amount Company RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

2015 Financial liabilities Amount due to ultimate holding company ------55,047 55,047 55,047 55,047

2014 Financial liabilities Amount due to ultimate holding company ------51,961 51,961 51,961 51,961

116 Scomi Engineering Bhd | Notes to the financial statements

24. Financial instruments (continued)

24.7 Fair value information (continued)

Level 3

Level 3 fair value is estimated using unobservable inputs for the financial assets and liabilities.

Fair values of finance lease liabilities, borrowings, payables and amount due to ultimate holding company have been generally erivedd using discounted cash flow approach.

25. Capital management

The Group’s objectives when managing capital is to maintain a strong capital base and safeguard the Group’s ability to continue as a going concern, so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Directors monitor and are determined to maintain an optimal debt-to-equity ratio that complies with debt covenants and regulatory requirements.

The debt-to-equity ratios at 31 March 2015 and 31 March 2014 were as follows:

Group

2015 2014 RM’000 RM’000

Total loans and borrowings (Note 13) 520,618 499,651 Less: Cash and bank balances (Note 11) (32,325) (44,952)

Net debt 488,293 454,699

Debt-to-equity ratios 1.81 1.68

There was no change in the Group’s approach to capital management during the financial year.

Under the requirement of Bursa Malaysia Practice Note No. 17/2005, the Company is required to maintain a consolidated shareholders’ equity equal to or not less than the 25 percent of the issued and paid-up capital (excluding treasury shares) and such shareholders’ equity is not less than RM40 million. The Company has complied with this requirement.

The Group is also required to comply with various financial covenants, details of which are set out in Note 13.

Annual Report 2015 117 Notes to the financial statements |

26. Operating leases

Leases as lessee

Non-cancellable operating lease rentals are payable as follows:

Group Company

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Less than one year 1,546 1,046 591 615 Later than 1 year and not later than 2 years 1,054 197 - - Later than 2 years and not later than 5 years 321 612 - - More than 5 years - 345 - -

2,921 2,200 591 615

The Group and the Company lease a number of factory facilities and equipment under operating leases. The leases typically run for a period of 2 to 7 years, with an option to renew the lease after that date. None of the leases includes contingent rentals.

Leases as lessor

The Group lease out their fleet of coaches under operating leases. The future minimum lease receivables under non-cancellable leases are as follows:

Group

2015 2014 RM’000 RM’000

Less than one year 5,520 5,026 Later than 1 year and not later than 2 years 5,520 5,520 Later than 2 years and not later than 5 years 14,912 16,034 More than 5 years 1,577 5,957

27,529 32,537

The Group’s operating leases are for a remaining term of 6 years (2014: 7 years).

118 Scomi Engineering Bhd | Notes to the financial statements

27. Capital and other commitments

Future capital expenditure

Capital expenditure not provided for in the financial statements is as follows:

Group

2015 2014 RM’000 RM’000

Approved and contracted for 112 - Approved but not contracted for 5,096 7,227

5,208 7,227

Analysed as follows: - Property, plant and equipment 5,208 4,545 - Development costs - 110 - Others - 2,572

5,208 7,227

28. Related parties

Identity of related parties

For the purposes of these financial statements, parties are considered to be related to the Group if the Group or the Company has the ability, directly or indirectly, to control or jointly control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group or the Company and the party are subject to common control. Related parties may be individuals or other entities.

Related parties also include key management personnel defined as those persons having authority and responsibility for planning, directing and controlling the activities of the Group either directly or indirectly. Key management personnel includes all the Directors of the Group, and certain members of senior management of the Group.

The Group has related party relationship with its holding company, fellow subsidiary, subsidiaries, joint operations and key management personnel.

Significant related party transactions

Related party transactions have been entered into in the normal course of business under normal trade terms. The significant related party transactions of the Group and the Company are shown below. The balances related to the below transactions are shown in Note 10 and 15.

Group Company

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Subsidiaries Contract costs charged - - 50,896 50,618

Lintas Travel & Tours Sdn. Bhd., a company connected to a Director Airline ticketing services 139 737 20 6

Annual Report 2015 119 Notes to the financial statements |

28. Related parties (continued)

Significant related party transactions (continued)

Group Company

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Key management personnel Directors Executive Director - salary and bonus - 106 - 106 - other benefits - 18 - 18

- 124 - 124

Non-executive Directors - fees 314 388 314 388 - other benefits 44 53 44 53

358 441 358 441

358 565 358 565

Short-term employee benefits 727 3,240 Post-employment benefits: Defined contribution plan 92 216

819 3,456

Other key management personnel comprise persons other than the Directors of Group entities, having authority and responsibility for planning, directing and controlling the activities of the Group entities either directly or indirectly.

Directors and other key management personnel have been granted the following number of options under the ESOS:

Group and Company

2015 2014 ’000 ’000

At 1 April 12,435 12,795 Forfeited (2,490) (360)

9,945 12,435

Certain executive officers are subject to mutual term of notice of 12 months. Upon resignation at the Group’s request, they are entitled to terminate benefits up to 24 months gross salary.

120 Scomi Engineering Bhd | Notes to the financial statements

29. Supplementary financial information on the breakdown of realised and unrealised profits or losses

The breakdown of the retained earnings of the Group and of the Company as at 31 March, into realised and unrealised profits, pursuant to Paragraphs 2.06 and 2.23 of Bursa Malaysia Main Market Listing Requirements, are as follows:

Group Company

2015 2014 2015 2014 RM’000 RM’000 RM’000 RM’000

Realised and unrealised profit/(losses) of the Company and its subsidiaries: - realised (211,341) (203,111) (73,189) (25,133) - unrealised 390 (8,006) (9,262) (26,137)

(210,951) (211,117) (82,451) (51,270) Less: Consolidation adjustments 75,398 75,042 - -

Total accumulated losses (135,553) (136,075) (82,451) (51,270)

The determination of realised and unrealised profits is based on the Guidance of Special Matter No. 1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosures Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, issued by the Malaysian Institute of Accountants on 20 December 2010.

Annual Report 2015 121 Statement by Directors pursuant to Section 169(15) of the Companies Act, 1965

In the opinion of the Directors, the financial statements set out on pages 054 to 120 are drawn up in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the Companies Act, 1965 in Malaysia so as to give a true and fair view of the financial position of the Group and of the Company as of 31 March 2015 and of their financial performance and cash flows for the financial year then ended.

In the opinion of the Directors, the information set out in Note 29 on page 121 to the financial statements has been compiled in accordance with the Guidance on Special Matter No.1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosures Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, issued by the Malaysian Institute of Accountants, and presented based on the format prescribed by Bursa Malaysia Securities Berhad.

Signed on behalf of the Board of Directors in accordance with a resolution of the Directors:

Datuk Zainun Aishah binti Ahmad

Shah Hakim @ Shahzanim bin Zain

Petaling Jaya

24 July 2015

122 Scomi Engineering Bhd Sortatut y declaration pursuant to Section 169(16) of the Companies Act, 1965

I, L. Joseph Nixon A/L S. Lourdesamy, the officer primarily responsible for the financial management of Scomi Engineering Bhd, do solemnly and sincerely declare that the financial statements set out on pages 054 to 121 are, to the best of my knowledge and belief, correct and I make this solemn declaration conscientiously believing the same to be true, and by virtue of the provisions of the Statutory Declarations Act, 1960.

Subscribed and solemnly declared by the above named in Kuala Lumpur in the Federal Territory on 24 July 2015.

L. Joseph Nixon A/L S. Lourdesamy

Before me:

Commission for Oaths

Annual Report 2015 123 Independent auditors’ report to the members of Scomi Engineering Bhd

Report on the Financial Statements

We have audited the financial statements of Scomi Engineering Bhd, which comprise the statements of financial position as at 31 March 2015 of the Group and of the Company, and the statements of profit or loss and other comprehensive income, changes in equity and cash flows of the Group and of the Company for the year then ended, and a summary of significant accounting policies and other explanatory information, as set out on pages 054 to 120.

Directors’ Responsibility for the Financial Statements

The Directors of the Company are responsible for the preparation of financial statements so as to give a true and fair view in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia. The Directors are also responsible for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements give a true and fair view of the financial position of the Group and of the Company as at 31 March 2015 and of their financial performance and cash flows for the year then ended in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia.

Report on Other Legal and Regulatory Requirements

In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report the following:

(a) In our opinion, the accounting and other records and the registers required by the Act to be kept by the Company and its subsidiaries of which we have acted as auditors have been properly kept in accordance with the provisions of the Act.

(b) We have considered the accounts and auditors’ reports of all the subsidiaries of which we have not acted as auditors, which is indicated in Note 5 to the financial statements.

(c) We are satisfied that the accounts of the subsidiaries that have been consolidated with the Company’s financial statements are in form and content appropriate and proper for the purposes of the preparation of the financial statements of the Group and we have received satisfactory information and explanations required by us for those purposes.

(d) The audit reports on the accounts of the subsidiaries did not contain any qualification or any adverse comment made under Section 174 (3) of the Act.

124 Scomi Engineering Bhd Other Reporting Responsibilities

Our audit was made for the purpose of forming an opinion on the financial statements taken as a whole. The information set out in Note 29 on page 121 to the financial statements has been compiled by the Company as required by the Bursa Malaysia Securities Berhad Listing Requirements and is not required by the Malaysian Financial Reporting Standards or International Financial Reporting Standards. We have extended our audit procedures to report on the process of compilation of such information. In our opinion, the information has been properly compiled, in all material aspects, in accordance with the Guidance on Special Matter No. 1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosures Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, issued by the Malaysian Institute of Accountants and presented based on the format prescribed by Bursa Malaysia Securities Berhad.

Other Matters

This report is made solely to the members of the Company, as a body, in accordance with Section 174 of the Companies Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report.

KPMG Siew Chin Kiang @ Seow Chin Kiang Firm Number: AF 0758 Approval Number: 2012/11/16(J) Chartered Accountants Chartered Accountant

Petaling Jaya,

Date: 24 July 2015

Annual Report 2015 125 Analysis of shareholdings As At 15 July 2015

Share Capital

Authorised share capital : RM400,000,000.00 divided into 400,000,000 ordinary shares of RM1.00 each

Issued and paid-up capital : RM341,957,703.00 divided into 341,957,703 ordinary shares of RM1.00 each. This excludes 121,800 ordinary shares purchased by the Company under share buy-back scheme and retained as treasury shares

Types of shares : Ordinary share of RM1.00 each

Voting rights : One vote per ordinary share

Distribution Of Shareholdings

Shareholders Shareholdings Size of shareholding No. of holders % of holders No. of shares % of shares Less than 100 70 2.24 1,450 0.00 100 to 1,000 607 19.42 399,086 0.12 1,001 to 10,000 1,530 48.94 7,836,922 2.29 10,001 to 100,000 805 25.75 24,794,297 7.25 100,001 to less than 5% of issued shares 113 3.61 61,575,890 18.01 5% and above of issued shares 1 0.03 247,350,058 72.33 Total 3,126 100.00 341,957,703 100.00

Thirty Largest Registered Shareholders

No Registered Shareholders No. of shares % of shares 1. Scomi Group Bhd 247,350,058 72.33 2. Bara Aktif Sdn Bhd 8,949,000 2.62 3. Eagletron Venture Corp. 8,489,000 2.48 4. Public Nominees (Tempatan) Sdn Bhd 5,500,000 1.61 Pledged securities account for Nik Awang @ Wan Azmi Bin Wan Hamzah (E-KPG/JRL) 5. Amanahraya Trustees Berhad 4,004,800 1.17 Public Islamic Select Treasures Fund 6. Maybank Nominees (Asing) Sdn Bhd 3,938,200 1.15 Pledged securities account for San Tuan Sam 7. Amanahraya Trustees Berhad 2,229,900 0.65 Public Islamic Opportunities Fund 8. RHB Capital Nominees (Tempatan) Sdn Bhd 1,067,700 0.31 Koo Eu Jim 9. CIMSEC Nominees (Tempatan) Sdn Bhd 935,800 0.27 Pledged securities account for Chan Thye Thian (J DEDAP-CL)

126 Scomi Engineering Bhd Thirty Largest Registered Shareholders

No No. of shares Percentage % 10. Lim Hock Lai 688,100 0.20 11. Public Nominees (Tempatan) Sdn Bhd 675,000 0.20 Pledged securities account for Tee Kim Hew (E-KLG/BTG) 12. Amanahraya Trustees Berhad 643,200 0.19 Public Islamic Treasures Growth Fund 13. Wong Chock Faa 641,839 0.19 14. Foong Seng 620,662 0.18 15. Kalaichelvan A/L Manickavasagar 571,100 0.17 16. Malacca Equity Nominees (Tempatan) Sdn Bhd 559,600 0.16 Exempt an for Phillip Capital Management Sdn Bhd (EPF) 17. Public Invest Nominees (Tempatan) Sdn Bhd 533,244 0.16 Pledged securities account for Chong Kwong Chin (M) 18. Public Nominees (Tempatan) Sdn Bhd 532,888 0.16 Pledged securities account for Koay Ean Chim (E-IMO) 19. Ng Kai Yau 510,000 0.15 20. Ee Bee Pheng 500,000 0.15 21. Shah Hakim @ Shahzanim Bin Zain 500,000 0.15 22. See Tian Chwan 488,000 0.14 23. Mansor Bin Tahir 484,900 0.14 24. CIMSEC Nominees (Tempatan) Sdn Bhd 483,400 0.14 CIMB Bank for Haris Onn Bin Hussein (MM0614) 25. Lim Keng Chuan 439,400 0.13 26. RHB Capital Nominees (Tempatan) Sdn Bhd 380,000 0.11 Pledged securities account for Tan Kee Hock 27. Citigroup Nominees (Asing) Sdn Bhd 378,700 0.11 Exempt an for OCBC Securities Private Limited (CLIENT A/C-NR) 28. CIMSEC Nominees (Tempatan) Sdn Bhd 367,000 0.11 Pledged securities account for Lau Woan Lee (TMN MUTIARA-CL) 29. Public Nominees (Tempatan) Sdn Bhd 355,700 0.10 Pledged securities account for Lee Yock Chem @ Lee York Soo (E-PKG) 30. Pang Chin Kan 354,800 0.10 Total 293,171,991 85.73

Annual Report 2015 127 analysis of shareholdings |

Substantial Shareholders

Direct shareholding Indirect shareholding Name of substantial shareholders No. of shares % of shares No. of shares % of shares Scomi Group Bhd 247,350,058 72.33 - -

Directors’ Shareholdings

Direct Interest Indirect Interest Directors No. of shares % of shares No. of options No. of shares % of shares Datuk Zainun Aishah binti Ahmad 250,000 0.07 500,000 # - - YM Tunku Alizan bin Raja Muhammad Alias - - - - - Dato’ Ikmal Hijaz bin Hashim - - - - - Shah Hakim @ Shahzanim bin Zain *623,000 0.18 1,500,000 # ^537,500 0.16 Lee Chun Fai - - - - - Loong Chun Nee 25,100 0.01 - - -

Notes: # Options granted pursuant to the Company’s Employees’ Share Options Scheme to subscribe for ordinary shares in the Company. * 123,000 ordinary shares held through Maybank Securities Nominees (Tempatan) Sdn Bhd (margin)(pledged Securities Account for Shah Hakim @ Shahzanim bin Zain) ^ 255,500 deemed interested by virtue of Section 6A(4) of the Companies Act, 1965 through his shareholding in Rentak Rimbun Sdn Bhd which in turn is deemed interested in SEB. 282,000 held through Kaff Nominees (Tempatan) Sdn Bhd (pledged Securities Accounts for Rentak Rimbun Sdn Bhd).

128 Scomi Engineering Bhd LIST OF PROPERTY As At 31 March 2015

Tenure of land: Audited freehold or net book leasehold Approximate value as at Registered Description / Existing (years)/date of Land area/ age of 31.03.2015 Owner location address use of acquisition Built-up area building RM ‘000

Scomi Coach Land and Building Office and Freehold Land area Building 1 Land Sdn Bhd EMR 2751 Lot 795 factory 15.04.1996 61,714 sq 5.75 years RM 8,020 and EMR 2616 metres Building 2 Building 1 Lot 796, Mukim Serendah, Built-up area 18.25 years RM 22,648 Daerah Hulu Selangor, 26,556 sq metres Building 2 Malaysia. RM 8,817

Annual Report 2015 129 corporate directory

CORPORATE Operating Locations Malaysia (Selangor) Scomi Coach Sdn Bhd Scomi Engineering Bhd Brazil (São Paulo) Scomi Coach Marketing Sdn Bhd Level 17, 1 First Avenue Urban Transit Servicos do Brasil Ltda Scomi Rail Bhd Bandar Utama Berrini Trade Centre Lot 795, Jalan Monorel 47800 Petaling Jaya Av. Engenheiro Luis Carlos Berrini, 1700 Sungai Choh Selangor Darul Ehsan 11° Andar, Brooklin 04571-000 48000 Rawang Malaysia São Paulo, Brazil Selangor Darul Ehsan Tel: +603 7717 3000 Malaysia Fax: +603 7728 5258 India (Mumbai) Urban Transit Pvt Ltd Scomi Special Vehicles Sdn Bhd Mumbai Monorail Project Office Lot 2112, Jalan Kusta 3rd Floor, Sona Building Kampung Jaya Industrial Area Plot No. C/20 47000 Sungai Buloh 1st Road, Chembur (East) Selangor Darul Ehsan Mumbai, 400071 Malaysia India

130 Scomi Engineering Bhd NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN THAT the 31st Annual General Meeting of SCOMI ENGINEERING BHD [the “Company”] will be held at Banquet Hall, 1st Floor, Kuala Lumpur Golf & Country Club, 10 Jalan 1/70D, Off Jalan Bukit Kiara, 60000 Kuala Lumpur, Malaysia on Monday, 7 September 2015 at 2.30 p.m. to transact the following business:-

AS ORDINARY BUSINESS:

To consider and, if thought fit, to pass the following as Ordinary Resolutions:

1. To receive the Audited Financial Statements for the financial year ended 31 March 2015 and the Reports of the Directors and Auditors thereon.

2. To re-elect the following Directors who retire pursuant to Article 80 of the Company’s Articles of Association and being eligible, offer themselves for re-election:

a) Encik Shah Hakim @ Shahzanim bin Zain Resolution 1 b) Mr Lee Chun Fai Resolution 2

3. To approve the payment of Directors’ fees of RM314,191.73 for the financial year ended 31 March 2015. Resolution 3

4. To re-appoint Messrs. KPMG as Auditors of the Company for the financial year ending 31 March 2016, and to Resolution 4 authorise the Directors to fix their remuneration.

AS SPECIAL BUSINESS

To consider and, if thought fit, to pass the following as Ordinary Resolution:-

5. Authority to Issue and Allot Shares pursuant to Section 132D of the Companies Act, 1965 (the “Act”) Resolution 5

“THAT subject to Section 132D of the Act, the Company’s Articles of Association and the approvals of the relevant authorities, where necessary, the Directors be and are hereby authorised to issue and allot shares in the Company, at any time and upon such terms and conditions and for such purposes as the Directors may in their absolute discretion deem fit, provided that the aggregate number of shares to be issued and allotted pursuant to this resolution does not exceed 10% of the issued and paid-up share capital of the Company for the time being AND THAT such authority shall continue in force until the conclusion of the next Annual General Meeting of the Company.”

Annual Report 2015 131 no tice of annual general meeting |

6. To transact any other business of the Company for which due notice shall have been given in accordance with the Act and the Articles of Association of the Company.

BY ORDER OF THE BOARD

ONG WEI LENG (MAICSA 7053539) Company Secretary

Selangor Darul Ehsan 14 August 2015

Notes:-

1. A member of the Company who is entitled to attend and vote at 7. For the purpose of determining a member who shall be entitled the meeting is entitled to appoint a proxy or more than one proxy to attend this 31st Annual General Meeting, the Company shall be to attend and vote in his/her behalf. A proxy may but need not be a requesting Bursa Malaysia Depository Sdn Bhd in accordance with member of the Company. Article 57 of the Company’s Articles of Association and Section 34(1) of the Securities Industry (Central Depositories) Act, 1991, to issue a 2. Where a member appoints more than one proxy, the appointments General Meeting Record of Depositors as at 1 September 2015. Only shall be invalid unless he/she specifies the proportions of his/her a depositor whose name appears on the General Meeting Record holdings to be represented by each proxy. of Depositors as at 1 September 2015 shall be entitled to attend the said meeting or appoint proxies to attend and/or vote on his or its 3. Where a member is an exempt authorised nominee as defined behalf. under the Securities Industry (Central Depositories) Act 1991, who holds ordinary shares in the company for multiple beneficial owners Audited Financial Statements for the financial year ended 31 March in one securities account (“Omnibus account”), there is no limit to 2015 and the Reports of the Directors and Auditors thereon the number of proxies which the exempt authorised nominee may appoint in respect of each Omnibus account it holds. 8. The audited financial statements under this agenda are laid before the shareholders for discussion only as under the provision of 4. The instrument appointing a proxy shall be in writing under the Section 169(1) and (3) of the Act, the audited financial statements hands of the appointor or his/her attorney duly authorised in do not require a formal approval of the shareholders and hence, this writing or, if the appointor is a corporation, either under its common agenda is not put forward for voting. seal or under the hand of its officer or its attorney duly authorised. If no name is inserted in the space for the name of the proxy, the Abstention from voting Chairman of the meeting will act as your proxy. 9. The interested Directors of the Company who are shareholders of 5. The instrument appointing a proxy must be completed and the Company will abstain from voting on the relevant resolutions deposited at the office of the Share Registrar of the Company, in respect of their re-election as the Director of the Company at the Symphony Share Registrars Sdn Bhd at Level 6, Symphony House, 31st Annual General Meeting. Pusat Dagangan Dana 1, Jalan PJU1A/46, 47301 Petaling Jaya, Selangor Darul Ehsan, Malaysia not less than forty-eight (48) hours 10 All the Non-Executive Directors of the Company who are before the time set for holding the 31st Annual General Meeting or shareholders of the Company will abstain from voting on Ordinary at any adjournment thereof. Resolution 3 concerning remuneration to the Non-Executive Directors at the 31st Annual General Meeting. 6. The lodging of a completed Form of Proxy to the Share Registrar of the Company will not preclude you from attending and voting in person at the meeting should you subsequently wish to do so. Should you subsequently decide to attend and vote in person at the meeting, you are requested to rescind your earlier appointment of proxy(ies), and notify the Share Registrar of the Company as soon as practicable.

132 Scomi Engineering Bhd Explanatory notes on Special Business: Personal data privacy:

11. Ordinary Resolution 5 - Authority to Issue and Allot Shares pursuant 12. By lodging of a completed Form of Proxy to the Share Registrar of to Section 132D of the Act the Company for appointing a proxy(ies) and/or representative(s) to attend and vote in person at the 31st Annual General Meeting and The ordinary resolution 5 above is proposed for the purpose of any adjournment thereof, a member of the Company is hereby: granting a renewed general mandate for issuance and allotment of shares by the Company under Section 132D of the Act, and if (i) consented to the collection, use and disclosure of the passed, will give the Directors the authority, from the date of the member’s personal data by the Company (or its agents) above Annual General Meeting, to issue and allot shares in the for the purpose of the processing and administration by Company at any time up to an aggregate amount not exceeding the Company (or its agents) of proxies and representatives 10% of the issued and paid-up share capital of the Company for appointed for the 31st Annual General Meeting (including any such purposes as the Directors may deem fit and in the interest adjournment thereof) and the preparation and compilation of of the Company (“Share Mandate”) without convening a General the attendance list, minutes and other documents relating to Meeting, which may delay the capital raising initiatives and incur the 31st Annual General Meeting (including any adjournment relevant costs in organising the required General Meeting. thereof), and in order for the Company (or its agents) to comply with any applicable laws, listing rules, regulations and/ The Company has not issued any new shares pursuant to Section or guidelines (collectively, the “Purposes”); 132D of the Act under the general authority which was approved at the 30th Annual General Meeting held on 23 September 2014 and (ii) warranted that where the member discloses the personal data which will lapse at the conclusion of the forthcoming 31st Annual of the member’s proxy(ies) and/or representative(s) to the General Meeting. Company (or its agents), the member has obtained the prior consent of such proxy(ies) and/or representative(s) for the This Share Mandate, unless revoked or varied at a General Meeting, collection, use and disclosure by the Company (or its agents) will expire at the conclusion of the next Annual General Meeting of of the personal data of such proxy(ies) and/or representative(s) the Company. With this Share Mandate, the Company will have the for the Purposes (“Warranty”); and flexibility to undertake any possible fund raising activities, including but not limited to further placing of shares, for the purpose of (iii) agreed that the member will indemnify the Company in funding future investment project(s), working capital and/or respect of any penalties, liabilities, claims, demands, losses and acquisition(s). damages as a result of the member’s breach of the Warranty.

Annual Report 2015 133 This page is intentionally left blank FORM OF PROXY

SCOMI ENGINEERING BHD Number of Ordinary Shares Held (111633-M) (Incorporated in Malaysia under the Companies Act, 1965) Registered Office : Level 17, 1 First Avenue, Bandar Utama 47800 Petaling Jaya, Selangor Darul Ehsan, Malaysia

I/We* ______NRIC/Passport No______(Full name in Capital Letters) of______(Full Address) being a Member / Members of Scomi Engineering Bhd, do hereby appoint ______

______(Full name in Capital Letters and NRIC No.) of______(Full Address) or failing him/her______(Full name in Capital Letters and NRIC No.) of______(Full Address) and /or failing him/her, * the Chairman of the meeting as * my/our proxy/proxies to attend and vote for * me/us and on* my/our behalf at the 31st Annual General Meeting of the Company, to be held at Banquet Hall, 1st Floor, Kuala Lumpur Golf & Country Club, 10, Jalan 1/70D, Off Jalan Bukit Kiara, 60000 Kuala Lumpur on 7 September 2015 at 2.30 p.m. and, at any adjournment(s) thereof to vote as indicated below:

Ordinary Business : For Against To re-elect the following Directors who retire pursuant to Article 80 of the Company’s Articles of Association, and, being eligible, offer themselves for re- election: Resolution 1 (a) Encik Shah Hakim @ Shahzanim Bin Zain Resolution 2 (b) Mr Lee Chun Fai Resolution 3 To approve the payment of Directors’ fee of RM314,191.73 for the financial year ended 31 March 2015. Resolution 4 To re-appoint Messrs. KPMG as Auditors of the Company for the financial year ending 31 March 2016, and, to authorize the Directors to fix their remuneration. Special Business Resolution 5 To approve the Authority to Issue and Allot Shares pursuant to Section 132D of the Companies Act, 1965

Please indicate with an “X” in the space provided above on how you wish your vote to be cast. If you do not do so, the proxy will vote or abstain from voting at his discretion.* Strike out whichever is not desired.

The proportion of my holdings to be represented by my*proxy/ In case of a vote taken by a show of hands, the First Proxy shall vote proxies are as follows:- on * my/our behalf

First name Proxy % Second name Proxy % As witness my hand ______day of ______2015

100 % Signature / Common Seal of Member ______Fold this flap for sealing

Notes: (i) A member of the Company who is entitled to attend and vote at the meeting is entitled to appoint a proxy or more than one proxy to attend and vote in his/her behalf. A proxy may but need not be a member of the Company. (ii) Where a member appoints more than one proxy, the appointments shall be invalid unless he/she specifies the proportions of his/her holdings to be represented by each proxy. (iii) Where a member is an exempt authorised nominee as defined under the Securities Industry (Central Depositories) Act 1991, who holds ordinary shares in the company for multiple beneficial owners in one securities account (“Omnibus account”), there is no limit to the number of proxies which the exempt authorised nominee may appoint in respect of each Omnibus account it holds. (iv) The instrument appointing a proxy shall be in writing under the hands of the appointor or his/her attorney duly authorised in writing or, if the appointor is a corporation, either under its common seal or under the hand of its officer or its attorney duly authorised. If no name is inserted in the space for the name of the proxy, the Chairman of the meeting will act as your proxy. (v) The instrument appointing a proxy must be completed and deposited at the office of the Share Registrar of the Company, Symphony Share Registrars Sdn Bhd at Level 6, Symphony House, Pusat Dagangan Dana 1, Jalan PJU1A/46, 47301 Petaling Jaya, Selangor Darul Ehsan, Malaysia not less than forty-eight (48) hours before the time set for holding the 31st Annual General Meeting or at any adjournment thereof. (vi) The lodging of a completed Form of Proxy to the Share Registrar of the Company will not preclude you from attending and voting in person at the meeting should you subsequently wish to do so. Should you subsequently decide to attend and vote in person at the meeting, you are requested to rescind your earlier appointment of proxy(ies), and notify the Share Registrar of the Company as soon as practicable. (vii) For the purpose of determining a member who shall be entitled to attend this 31st Annual General Meeting, the Company shall be requesting Bursa Malaysia Depository Sdn Bhd in accordance with Article 57 of the Company’s Articles of Association and Section 34(1) of the Securities Industry (Central Depositories) Act, 1991, to issue a General Meeting Record of Depositors as at 1 September 2015. Only a depositor whose name appears on the General Meeting Record of Depositors as at 1 September 2015 shall be entitled to attend the said meeting or appoint proxies to attend and/or vote on his or its behalf.

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Affix Stamp

The Registrar of Scomi Engineering Bhd Symphony Share Registrars Sdn Bhd Level 6, Symphony House Pusat Dagangan Dana 1 Jalan PJU 1A/46, 47301 Petaling Jaya Selangor Darul Ehsan, Malaysia

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