Chairman’s Statement

Dear Shareholders, It gives me great pleasure to inform you once again that 2006 was another record year for UMW.

The robust performance of our Oil & Gas Division, the resiIience of our Automotive Division in the face of a highly-competitive operating environment for the overall automotive industry, and the sustained contribution from the Group’s other core activities, yielded yet another good year both in terms of revenue and profit.

Toyota remained as the best selling car in the non-national segment for the seventeenth consecutive year. 2006 was a historical year for our associated company, Perusahaan Otomobil Kedua Sdn. Bhd. (“Perodua”), as it attained the No. 1 position in the overall market share in Malaysia.

I am pleased and proud to inform you that UMW Holdings Berhad was listed amongst Malaysia’s Top 10 Most Admired companies under a survey conducted by the Wall Street Journal Asia in 2006 and was also voted amongst the Top 200 companies in Asia. Malaysian Business gave a No. 8 rating to UMW in the Top 100 Largest Malaysian companies.

FINANCIAL PERFORMANCE

The substantial jump in profit contribution from the Oil & Gas Division underpinned the 14.7% growth in Group profit before taxation, which increased to RM754.3 million from RM657.5 million in 2005. Group revenue rose from RM9,868.8 million in 2005 to RM9,950.5 million in 2006. The other main driver of this increase was the Equipment Division which achieved higher sales and profit. Tan Sri Datuk Asmat bin Kamaludin The Group’s earnings per share for the year ended 31 December 2006 was 60.3 sen (2005 - 56.2 sen).

22 UMW HOLDINGS BERHADv HIGHLIGHTS

Automotive

The year under review was a challenging one for Malaysia’s automotive industry, which saw a 10.9% contraction in total industry volume (“TIV”) to 490,768 units from 551,042 units in 2005, as reported by the Malaysian Automotive Association. The higher cost of ownership of vehicles, brought on by the rise in fuel prices, the more stringent car financing regime and also the drop in used car values, affected sales.

The combined sales of UMW Toyota Motor Sdn. Bhd. (“UMW Toyota Motor”) and Perodua of 237,227 units gave the UMW Group a 48.3% share of the total TIV of 490,768 units (2005 - 41.9%).

UMW Toyota Motor registered sales of 81,808 units in 2006 (2005 - 91,003 units), giving it a market share of 16.7% (2005 - 16.5%). The brand new Camry which was launched in October 2006 received a tremendous response from the public. In December 2006, UMW Toyota Motor opened its luxurious Lexus Centre in Mutiara Damansara and launched two new Lexus models, the LS460L and the GS300. Assembly Services Sdn. Bhd. continued with its quality, efficiency and cost-reduction drive. On 29 May 2006, the plant rolled out the full-scale export model of the Toyota Hiace for the Thailand market. Automotive Industries Sendirian Berhad further improved its research and development initiatives when it acquired a fatigue strength tester machine, which enables it to do in-house testing of assembly quality of exhaust components.

The success story of the Myvi, launched in May 2005, was the backbone of Perodua’s record sales achievement of 155,419 units (2005 - 139,680 units). The Myvi, Perodua’s sixth and most successful model todate, won Autocar Asean’s “Car Of The Year 2005/2006” award in the super-mini category. Previously, the Perodua Kelisa had won the award in the “Best Compact Car/Super-Mini” category in 2003/2004. On 17 October 2006, Perodua rolled out its 100,000th Perodua Myvi at its assembly plant. Perodua’s continuing export programme covered the United Kingdom, Brunei, Singapore, Sri Lanka, Fiji, Mauritius, Nepal, Egypt, Lebanon and Syria.

In March 2007, Perodua commenced its maiden manufacturing/export programme of Daihatsu-badged cars to Indonesia. The assistance and support of Daihatsu Motor Corporation, Japan has been invaluable in preparing Perodua to be a cost-effective and quality-regional manufacturing centre for small cars in the post-AFTA era.

ANNUAL REPORT 2006 23 Oil & Gas

The decision to focus on Oil & Gas as a core business of the Group was made in 2002. In a period of just over four years, this Division has grown to become the second contributor to Group profit. Management continues to explore further opportunities and potential in this area, given the sustained global demand for oil and gas products and services, in view of the active development and exploration activities undertaken by the major oil companies.

The most recent major investments in this sector were as follows:-

(i) Joint venture with Baoji Petroleum Steel Pipe Co., Ltd., to set up a longitudinal submerged ‘arc-welded’ (“LSAW”) steel-pipe manufacturing and processing plant in the Qinhuangdao Economic and Technical Development area, about 300 km east of Beijing.

(ii) Joint venture with Mr. Manoj Saraf of India, to acquire a majority stake in Multicoat Coating Technologies Private Limited, India, for the application of a variety of protective and specialty high-temperature corrosion coating, that includes polyurethane, fluoropolymer and thermal spray coating. This acquisition is intended to be a spring-board for the Group’s future investments in India.

(iii) Acquisition of a majority stake in Vina Offshore Holdings Pte. Ltd., Singapore, for offshore fabrication and operations in maintenance businesses in Vietnam, as a platform for future growth in the Asean region.

(iv) Co-ownership of a jack-up rig with Standard Drilling Far East Pte. Ltd. and an option for investment in an additional rig, to take advantage of the demand for jack-up rigs in exploration activities in the international market, which can generate excellent returns for the Company in future. An illustration of Naga 2 jack-up rig In 2006, UMW completed an internal restructuring exercise of its subsidiary, Wuxi Seamless Oil Pipe Co., Ltd. (“WSP”), as a result of which WSP became an associate company in the Group. This restructuring exercise was undertaken with a view to an eventual listing of the holding company of WSP, i.e., WSP Holdings Limited, in 2007. The proposed listing is expected to enhance the value and marketability of UMW’s investment in WSP.

24 UMW HOLDINGS BERHAD Equipment

The Heavy Equipment Division continued to register good results, backed by strong machine and parts sales.

On 22 November 2006, UMW Niugini Limited, based in Papua New Guinea, signed contracts with Morobe Consolidated Goldfields Ltd., a company wholly-owned by Harmony Gold Mining Co. Ltd., worth approximately USD136.0 million, for the supply of mining equipment and 10-year maintenance services for mining and construction equipment.

UMW Industries (1985) Sdn. Bhd. turned in commendable results, registering strong sales in its material handling equipment and fleet management programme and increasing its leading market share position to 59% market share in the Malaysian market. The company launched the new Toyota 8-series forklift in November 2006, which has already attracted positive response from customers.

UMW Equipment & Engineering Pte. Ltd. of Singapore also had a good year, due to its successful marketing initiatives in Singapore and aggressive business development efforts in Vietnam. The Toyota industrial equipment remains as a market leader in Singapore, with market share strengthening to over 40% in 2006, as per the Japan Industrial Vehicles Association statistics. The company was also the proud recipient of the “Singapore Work Life Achiever” gold award in 2006.

UMW Industrial Power Sdn. Bhd. maintained satisfactory performance levels. The company introduced its GE range of marine engines in Miri in July 2006, and also the Honda brush cutter, which is specifically developed for the South-East Asian market.

ANNUAL REPORT 2006 25 Manufacturing & Engineering

The automotive component market was severely affected by lower car production, particularly Proton. Revenue for automotive component related business was lower despite growth from Perodua. In November 2006, UMW Engineering Sdn. Bhd. (“UMW Engineering”) changed its name to UMW Advantech Sdn. Bhd. (“UMW Advantech”). Effective 1 January 2007, the operations of UMW Auto Parts Sdn. Bhd. and UMW Advantech were consolidated. This restructuring exercise was undertaken for better operational and cost efficiencies.

Pennzoil business registered healthy growth in revenue and profit in spite of the tight supply and escalating price of base oil.

The KYB-UMW Malaysia Group recorded improved profitability although there was a marginal contraction in revenue. This was achieved through concerted cost-control initiatives and higher exports and after-sales market.

COMMUNITY RELATIONS

Notwithstanding the daily demands of business and day-to-day operations, the UMW Group continued to undertake various community relations and charitable programmes for the needy and underprivileged. For the fifteenth year running, UMW Toyota Motor organised the Toyota Classics Concert series, and in 2006, the concert’s gross proceeds of RM451,556 were donated to St. Nicholas’ Home, Penang, Pusat Latihan Pertanian Bagi Orang Buta, Taman Harapan, Temerloh, Pahang, Persatuan Kanak-Kanak Spastik Johor, Johor, Women’s Aid Organisation, Selangor, Persatuan Kebajikan Orang Cacat Pendengaran Terengganu and Yayasan Nur, Kuala Lumpur.

Environmental Activities & Safety Programmes

The Group maintained its commitment towards environmental preservation and also safety and health issues to ensure a safe and healthy environment for its customer and staff. UMW Toyota Motor made further progress in its environmental management regime by achieving 18 sites certified under the ISO 14001 certification. The company also organised the annual Toyota Eco Youth Programme, aimed at instilling environmental preservation awareness at school levels.

UMW’s in-house Safety Committee meticulously reviews the safety standards throughout the Group as an ongoing exercise and makes recommendations on improvements required in the areas of safety and health.

DIVIDEND

For 2006, the Board of Directors declared an interim dividend of 17.5 sen per share, less 28% tax, which was paid on 13 October 2006 and also a special interim dividend of 10.0 sen per share, less 27% tax, paid on 30 April 2007.

26 UMW HOLDINGS BERHAD The Board has recommended a final gross dividend of 13.5 sen per share, less 27% tax, bringing the total gross dividend for the year to 41.0 sen per share (2005 - 38.0 sen per share).

Barring any unforeseen circumstances, the Board is committed to a dividend pay-out rate of 50% of net profit after tax, attributable to shareholders.

PROSPECTS/FUTURE DIRECTION

The Malaysian economy in general performed well in 2006, with real gross domestic product growth of 5.9% amidst a moderately benign inflation rate of 3.6%, thanks largely to strong domestic demand and rising exports. For 2007, Bank Negara has forecasted a 6% growth in the economy with consumer demand expected to remain steady.

The automotive industry is expected to become even more competitive, as automotive companies strive for increased market share in an operating environment reminiscent of 2006. The sound reputation and after-sales service support of UMW Toyota Motor and Perodua, and the cost reduction and quality and efficiency improvement programmes undertaken by the companies, aided by Toyota Motor Corporation, Japan and Daihatsu Motor Corporation, Japan, respectively, should enable the companies to withstand the competitive pressures in a liberalised market.

The Ninth Malaysia Plan provides excellent opportunities for our Equipment Division, and plans have been formulated to strengthen our product presence in the market.

With the re-organisation of UMW Advantech now complete, the Manufacturing & Engineering Division is exploring various manufacturing opportunities, both locally and abroad, to enable the Division to turn in meaningful contributions to Group turnover and profits in the medium term.

The growth in revenues and margins of the Group in the next few years will be spurred by the Oil & Gas Division. Our foray into the global arena has been timely in view of the tremendous demand for oil and gas products and services on the back of increasing exploration and drilling activities. Our Oil & Gas overseas operations are currently located in Singapore, Thailand, China, Vietnam, India, Australia, Turkmenistan and the Middle East. Further feasible business opportunities continue to be explored both locally and globally, as a result of which the future earnings potential of the Group appears extremely healthy.

With all of the above, and the satisfactory business climate that has been forecasted for Malaysia, the Board remains confident about the Group’s performance and products going forward.

ACKNOWLEDGEMENT

I would like to place on record my thanks to all our employees for their support, commitment and untiring efforts in delivering record results, in spite of the various challenges and competition that they have had to face in their day-to-day operations.

A word of appreciation also goes to my fellow Board members, whose advice and experience in various fields have greatly supported management’s efforts.

I thank also our principals, customers, shareholders, suppliers, bankers and business associates for their kind support and invaluable co-operation all these years.

ASMAT BIN KAMALUDIN Group Chairman

UMW Holdings Berhad Shah Alam, Selangor Darul Ehsan 15 May 2007

ANNUAL REPORT 2006 27 Review of Operations

Dato’ Dr. Abdul Halim bin Harun

The year 2006 turned in higher profitability for the UMW Group against a marginal increase in turnover. It was yet again another record year for UMW.

Aided by a growing economy, a good business portfolio mix, a dedicated work force and valuable advice and guidance from our Board of Directors, the Group achieved a turnover of RM9,950.5 million (2005 - RM9,868.8 million) and profit before taxation of RM754.3 million (2005 - RM657.5 million), an all-time high for the UMW Group.

At the net profit attributable to shareholders’ level, UMW Holdings registered a 7.6% increase in earnings to RM305.9 million. Basic earnings per share improved to 60.3 sen (2005 - 56.2 sen per share).

The Group continued to remain on solid financial footing, with shareholders’ funds of RM2.560 billion, up 9.3% from 2005, and a net cash position of RM1.142 billion as at year-end. Net assets per share stood at RM5.02 versus RM4.62 in 2005.

28 UMW HOLDINGS BERHAD AUTOMOTIVE

UMW Toyota Motor Sdn. Bhd.

Total industry volume (“TIV”) at 490,768 units saw a 10.9% contraction from last year’s 551,042 units. This was brought on by the higher cost of vehicle ownership in the form of increased fuel and financing costs, as well as lower trade-in values. UMW Toyota Motor Sdn. Bhd. (“UMW Toyota Motor”) registered sales of 81,808 units in 2006 (2005 - 91,003 units), a 10.1% decrease in line with the lower TIV. However, the company retained its market leadership position in the non-national sector for the seventeenth consecutive year, with a market share of 16.7%. Competition remained intense with most automotive companies having to resort to higher discounting and incentives to attract sales. By the same token, UMW Toyota Motor’s margins were somewhat affected.

Despite the adverse conditions, especially in the second half of the year, the response to the brand new Camry in October 2006 was spectacular and reflective of the public’s confidence in the superior technology, design and performance of the Toyota brand. In December 2006, UMW Toyota Motor opened its elegant Lexus Centre located in the upmarket Mutiara Damansara area in Selangor. Two new Lexus models were launched at the same time, i.e., the LS460L and the GS300. Orders received todate have exceeded expectations.

The company is continuing with its expansion plans to upgrade its infrastructure to better serve its increasing customer base. UMW Toyota Motor remains committed to continuously improving its facilities, products and services for the benefit of its customers.

Assembly Services Sdn. Bhd.

Assembly Services Sdn. Bhd. (“ASSB”), the assembler/manufacturer of Toyota’s stable of passenger and commercial vehicles, which include Vios, Corolla Altis, Innova, Unser, Hiace, Hilux, Fortuner, as well as Hino and Daihatsu commercial vehicles, continues to meet its targets. ASSB’s focus is now on the production of the popular Vios as a core model. Toyota Motor Corporation’s full support and co-operation has been invaluable in this regard. Cost cutting and quality improvement efforts were intensified throughout the company in the interests of achieving cost-competitiveness of Toyota vehicles rolled out from the plant.

ASSB achieved a milestone on 29 May 2006, when it rolled out the export model of the Toyota Hiace for the Thailand market. This project will strengthen the competitiveness of the company’s manufacturing operations.

Automotive Industries Sendirian Berhad

Automotive Industries Sendirian Berhad (“AISB”), the leading original equipment manufacturer of exhaust systems, further improved its research and development initiatives by acquiring a Fatigue Strength Tester Machine. This will enable the company to conduct its own in-house testing on the quality of its exhaust components. Although AISB’s total sales took a dip in 2006, the forecasted higher volume from major car assemblers from the national and non-national sectors should result in revenue and profit improvements in 2007. In its bid to attain world-class manufacturer status, AISB launched the Operational Excellence Initiatives Campaign in June 2006 which highlighted ten main areas for improvement.

ANNUAL REPORT 2006 29 Toyota Boshoku UMW Sdn. Bhd. (formerly known as Takanichi SIM Sdn. Bhd.)

Further to the joint venture between Takanichi SIM Sdn. Bhd. (“TSIM”) and Toyota Boshoku Corporation, Japan, TSIM changed its name to Toyota Boshoku UMW Sdn. Bhd. (“TBU”) in August 2006. TBU’s production volume for 2006 saw a slight fall due to the TIV contraction and consequently, UMW Toyota Motor sales. TBU continued to produce higher quality and lower-cost car seats, door trims and other car interior parts for all Toyota cars and Hino commercial vehicles assembled by ASSB using the Just-in-Time (“JIT”) method. The company’s strong commitment to quality resulted in the re-certification of its ISO 14001 : 2004 status in April 2006.

Perusahaan Otomobil Kedua Sdn. Bhd. (“Perodua”) Group

Perodua achieved record sales of 155,419 units in 2006 (2005 - 139,680 units), spurred by the spectacular demand for the Myvi, which was introduced in May 2005. There are presently 130,000 Myvis on the road in Malaysia. The recent introduction of the Myvi special edition helped to further boost total Myvi sales. Perodua now holds the pole market leadership position in the Malaysian automotive market, with a market share of 32% (2005 - 25%). Perodua’s ongoing export programme covered mainly United Kingdom, Brunei, Singapore, Sri Lanka, Fiji, Mauritius, Nepal, Egypt, Lebanon and Syria.

The Toyota Avanza production project, a joint collaboration involving Perodua Manufacturing Sdn. Bhd., UMW Toyota Motor, Toyota Motor Corporation, Daihatsu Motor Corporation, PT Astra Daihatsu Motor and PT Toyota Motor Manufacturing Indonesia, implemented in 2004, is progressing well. The success of the Avanza, distributed by UMW Toyota Motor, is testimony to the quality and efficiency of Perodua’s production standards.

Perodua’s current total production capacity is 200,000 units per annum.

OIL & GAS

The Oil & Gas Division has fuelled the growth of the UMW Group, aided by the higher oil prices and an aggressive expansion strategy in the face of increased exploration and drilling activities globally. The Division has achieved spectacular results and is presently the second contributor to Group profits next to the Automotive Division. Management believes that the Division will continue to chart creditable growth going forward.

UMW Oilpipe Services Sdn. Bhd. (formerly known as UMW Citra Maju Sdn. Bhd.) (“UOS”)

UOS continues to be the leading premium threading plant in Labuan, servicing the oil and gas industry locally and regionally. It also has operations in Songkhla and Sattahip, Thailand. Although the performance of UOS was affected by higher operating costs, the company is in a strong position to expand its premium threading services locally and internationally, in tandem with the increased exploration activities, especially in deep water areas off-East Malaysia. UOS has API Q1 ISO 9001 and ISO 14001 certification.

30 UMW HOLDINGS BERHAD UMW Coating Technologies Sdn. Bhd. (formerly known as UMW SAEKAPHEN Coating Sdn. Bhd.) (“UCT”)

UCT provides cost-effective synthetic resinous anti-corrosion coating applications to tube-side and shell-side of heat exchangers, condensers and air-coolers. Its coating plant in Teluk Kalong, Kemaman, was officially opened in August 2006. UCT achieved modest sales in its maiden year of operations. The company is poised to grow its business, both locally and within the Asean region.

UMW Petrodril Sdn. Bhd. (“UMW Petrodril”)

UMW Petrodril is the only Petronas-licensed self-operated hydraulic workover rig contractor in Malaysia. The company’s performance has seen marked improvement as a result of the increased workover requirements domestically.

UMW Oilfield International Trading Sdn. Bhd./UMW Oilfield International (Labuan) Ltd. (formerly known as UMW Oilfield International Trading (Labuan) Ltd.) (together known as “UOIT Group”).

During the year, the UOIT group established its presence in the Middle East and India to serve its customers better. The UOIT group remains active in exploring new markets for oil country tubular goods and linepipes due to its ability to source products internationally, mainly from China.

UMW Drilling Co. Ltd. (“UDC”)

UDC is the owner of NAGA 1, the only Malaysian co-owned semi-submersible offshore rig. The company also owns UP GAIT I and UP GAIT II, the only Malaysian wholly-owned hydraulic workover units. NAGA 1 is currently leased to UMW JDC Drilling Sdn. Bhd., whilst UP GAIT I and UP GAIT II are leased to UMW Petrodril.

ANNUAL REPORT 2006 31 UMW JDC Drilling Sdn. Bhd. (“UJD”)

UJD provides contract offshore drilling services through the abovementioned NAGA 1. The latter underwent maintenance/ upgrading works which took nearly three months to complete. As a Petronas-licensed drilling rig operator, the company has been awarded a new phase for twenty firm wells and twenty option wells with increased day rates, which will see NAGA 1 fully utilised to 2010. There were no loss time incidents (“LTI”) throughout 2006, which enabled NAGA 1 to achieve a tremendous record of zero LTI for six years since year 2000.

PFP Holdings Proprietary Limited (“PFP”) Group

The PFP group experienced another year of strong sales and record growth, consolidating its position as one of the market leaders in supplying carbon steel fittings and flanges within this sector. During the year, its subsidiary, Cladtek International Pty. Ltd. (“Cladtek International”), secured orders for the supply of more than RM192.0 million for its unique bi-metal pipe. These orders are progressing well. Fulfilment of the orders in 2008 will cement Cladtek International’s position as one of the top three corrosion-resistant alloy pipe manufacturers in the world.

Vina Offshore Holdings Pte. Ltd./Vietnam Offshore Fabrication & Engineering Co., Ltd. (“Vina”) Group

The Vina group, which UMW acquired in the second quarter of 2006, is principally involved in operations and maintenance services in Vietnam, such as repairs to and fabrication of offshore installations, valve testing services and electrical and instrumentation work. It is also in the sale and maintenance of lifting gears and is a service provider to offshore operations. The Vina group showed a marked improvement in its 2006 results, and an expansion of business can be seen in 2007. Vina currently operates at its main facility in Vung Tau.

Multicoat Coating Technologies Private Limited, India (“Multicoat”)

On 21 September 2006, UMW entered into a Share Sale & Subscription Agreement with Mr. Manoj Saraf of India for the acquisition of shares in Multicoat. The latter provides a variety of protective and specialty high temperature corrosion coating that includes polyurethane, fluoropolymer and thermal spray coating. This acquisition was made with the intention of enabling UMW to expand its global presence into the oil and gas industry in India, so as to provide a base for future growth in that region.

Shanghai Tube-Cote Petroleum Pipe Coating Co., Ltd. (“STPPC”)

A leading player for the internal coating for drill pipes, casings, tubing and transporting linepipes in China, STPPC focuses in developing and marketing its own brand of coating material and products. STPPC’s association with Shanghai Shine Petroleum Pipe Special Coating Co., Ltd., to jointly develop locally-made coating materials, has been well accepted by most of the local oilfields and also end-users.

Jiangsu Tube-Cote Shuguang Coating Co., Ltd. (“JTSC”)

JTSC, an associated company of STPPC, undertakes internal coating for drill pipes, casings, tubings, linepipes and other products for the

32 UMW HOLDINGS BERHAD oil and gas industry. Like STPPC, JTSC has also jointly developed local coating materials for the local and international markets. This has been well accepted by the local end users, as these are more cost effective, whilst still fulfilling customers’ specifications and quality requirements. The company showed a growth in revenue and profits.

Shanghai BSW Petro-pipe Co., Ltd. (“BSW”)

BSW, a manufacturer of linepipes, achieved substantial increase in revenue and profit, having successfully secured 150,000 metric tons of gas linepipe order from its parent company, Baoji Petroleum Steel Pipe Co., Ltd. The outlook appears extremely positive in the international market, with various linepipe projects expected to be constructed in the next ten years.

Wuxi Seamless Oil Pipe Co., Ltd. (“WSP”) Group

The WSP group registered an impressive growth in terms of turnover and profit of 47% and 123%, respectively. This growth is mainly from the strong demand for oil country tubular goods (“OCTG”) due to the continued high-drilling activities. With WSP’s strong commitment on product development, customised products and a long established customer relationship, WSP has developed a strong brand recognition within the OCTG industry. Following the recent plant expansion exercise, WSP’s production output capacity has increased to 450,000 metric tons. Currently, WSP conforms to the ISO 9001 and API 5CT.

In the second half of 2006, an internal restructuring exercise of the WSP group was undertaken, which saw WSP becoming an associate company of UMW. The present shareholding in WSP is held by a UMW subsidiary and Expert Master Holdings Ltd., a company owned by Mr. Piao Longhua, in the proportions of 30.6% and 69.4%, respectively. This restructuring exercise was undertaken to facilitate a proposed listing of WSP Holdings Limited (formerly known as Eastar Group Holdings Limited) (“WSP Holdings”), on an appropriate Stock Exchange. Consequently, an application was submitted to the Hong Kong Stock Exchange for the proposed listing. The proposed listing will enable WSP Holdings to gain access to the international capital markets to raise funds required for its ongoing expansion exercise, i.e., to expand production capacity, to expand into overseas markets, as well as to further strengthen its proprietary research and development capabilities, thereby enabling WSP Holdings to be a self-sustaining entity. The proposed listing will also enhance the value and marketability of UMW’s investment in WSP.

UMW Oilfield Services (Tianjin) Co., Limited (“UMW Tianjin”)

UMW Tianjin’s performance in 2006 was impressive. The company holds various premium connection threading licences, such as FOX, NK3SB, TPCQ/NF/FJ and is supported by ISO 9001 : 2000 and API 5CT certification. In addition to the conventional threading businesses, UMW Tianjin is also venturing into premium connection research and development, which will enable the manufacturing of customers’ specific connections. The company has signed a Technical Agreement with Xi’an Nate Petroleum Technology Co., Ltd., a renowned oil and gas research centre in China. This collaboration will enable substantial business opportunities in the future. UMW Tianjin will be undergoing a plant expansion exercise to enable API production threading. This is expected to be completed by mid-2007.

Longitudinal Submerged Arc-Welded (“LSAW”) Project

On 29 January 2007, UMW entered into a joint venture contract with Baoji Petroleum Steel Pipe Co., Ltd. (“BSG”) to set up an LSAW steel pipe processing plant in Qinhuangdao Economic & Technical Development Area, which is located about 300 km east of Beijing. BSG is also UMW’s current partner in BSW in China and is also a company in the China National Petroleum Corporation group. The joint venture will adopt advanced technology in the manufacturing of LSAW pipes, coupled with external and internal coating lines which will meet future requirements of pipe line construction for China and international markets. The joint venture partners expect the demand for LSAW pipes to be very strong in the next few years.

ANNUAL REPORT 2006 33 EQUIPMENT

Heavy Equipment

The Heavy Equipment Division scored a double-digit growth in 2006, with higher machine, parts and service sales into the construction, logging and agricultural sectors. The Division’s Papua New Guinea operations, under UMW Niugini Limited, did extremely well in the mining industry, securing a contract valued at USD136.0 million for machine sales and repair and maintenance of machines for the Hidden Valley Gold Mine. In Myanmar, the buoyant jade mining sector helped to further boost sales and profit of our Myanmar operations.

The anticipated roll-out of projects under the Ninth Malaysia Plan, coupled with the strong demand for timber products, augur well for the continued good performance of the Heavy Equipment Division.

Industrial Equipment

UMW Industries (1985) Sdn. Bhd. (“UMW Industries”) achieved another year of record results with strong sales of its material handling equipment and fleet management programme. The company increased its leading market share position to 59% from 57% previously. The Division’s pioneering efforts in its fleet management programme have borne fruit. The company was successful in securing key accounts in the logistics and also the food and beverage sector. For the fourth consecutive year, UMW Industries won the prestigious “Toyota Overall Excellence” award for best overall performance in marketing and sales activities, parts and service operations, as well as customer support initiatives. The company also received the “Brand Laureate” award in January 2007 in the category of “Best Brands in Industrial Equipment”. In November 2006, the company launched the new Toyota 8-series forklift in Malaysia, which boasts of a high technology design with emphasis on customer safety, ergonomics, lower cost of ownership and environmental preservation.

The company is confident about achieving another good year in 2007, and will continue to invest in and upgrade its facilities and services in line with its growth and market requirements.

UMW Industrial Power Sdn. Bhd. maintained its satisfactory performance and market share for its products. New models were launched during the year, i.e., GE range of marine engines in Miri and the Honda brush cutter UMR435T. The company also introduced the Compressed Air Management long-term rental programme.

Although UMW Industrial Trading (Shanghai) Co., Ltd. registered reasonable sales levels, margins were reduced due to severe competition and tough market conditions. However, plans have been formulated to counter this problem and to improve performance.

Singapore Equipment Operations

UMW Equipment & Engineering Pte. Ltd. continued its momentum of growth. In both revenue and profit, the company recorded improvements in all its served business segments. The Toyota industrial equipment remains the market leader in Singapore, with market share strengthening to Brush cutter UMR435T over 40% in 2006, in accordance with the Japan Industrial Vehicles Association’s statistics.

34 UMW HOLDINGS BERHAD Komatsu heavy equipment sales showed an impressive increase in sales of parts and operating lease programmes with the construction industry picking up in Singapore.

UMW Equipment Systems (Vietnam) Company Limited continued to expand its business in Ho Chi Minh City and Hanoi, focusing on sales, service and rental of Toyota industrial equipment, BT warehouse trucks and Case equipment. The business outlook in Vietnam appears promising.

MANUFACTURING & ENGINEERING

2006 was a challenging year for the Manufacturing & Engineering Division. Decreased sales in the automotive sector was only marginally offset by the increased sales to Perodua and other automotive companies.

While the Division remained profitable at the operational level, a provision has been made in the accounts for any potential losses in respect of the proposed closure of the operations of UMW Auto Parts (Thailand) Co., Ltd. This company, which manufactures natural fibre-based composite material in Thailand, continues to face difficulties without sound future prospects.

UMW Advantech Sdn. Bhd. (formerly known as UMW Engineering Sdn. Bhd.)

With effect from 1 January 2007, an internal restructuring exercise was implemented involving the transfer of the business of UMW Auto Parts Sdn. Bhd. to UMW Advantech Sdn. Bhd. This exercise was undertaken to streamline the operations of the two companies and to create a more efficient organisational structure aimed at increasing operational and financial efficiencies.

KYB-UMW Malaysia Sdn. Bhd. (“KYB-UMW”) Group

The KYB-UMW group recorded a growth in profit on the back of an 8% contraction in turnover. This was achieved through tight control over material and operational costs. In 2006, the KYB-UMW group was certified by NQA under TS 16949 : 2002 and ISO 9001 : 2000, while maintaining its ISO 14001 certification.

Lubetech Sdn. Bhd./UMW Pennzoil Distributors Sdn. Bhd.

Pennzoil business registered healthy growth in both revenue and profit with higher contributions from passenger cars and institutional sectors. The growth was achieved in spite of the tight supply and escalating price of base oil, the basic ingredient for blending lubricants.

Power Steering Pump

ANNUAL REPORT 2006 35 OTHER NON-CORE BUSINESSES

UMW Toyota Capital Sdn. Bhd. (“UTC”)

UTC faced intense competition in an environment of interest rate hikes in 2006. The company remains geared to enhancing its products and services for Toyota owners. To meet the challenges ahead, the company continues to develop new automotive financing solutions and a more efficient service support to Toyota branches and dealers.

UMW E-Technologies Sdn. Bhd. (“UET”)/UPE Systems Services Sdn. Bhd. (“UPE”)

UET has successfully rolled out the new Enterprise Resource Planning (“ERP”) systems for the Industrial Equipment and Heavy Equipment groups, catering for their growing business needs. UET has also upgraded its data network infrastructure for all branch offices connectivity, helping to improve systems performance for mission critical ERP and office automation applications.

UPE’s newly launched “Inobel” Voice over Internet Protocol (“VoIP”) telecommunication services business performed well in its first year of operations. “Inobel” has successfully established market presence and achieved a growing subscriber base, which includes the corporate sector, financial institutions, and diplomatic, government, hospitality and manufacturing industries.

UMW-PNSB Development Sdn. Bhd. (“UMW-PNSB”)

During the year, UMW-PNSB submitted a revised master plan to the relevant State Authority to convert part of the land into smaller and more marketable plots for industrial and commercial use. Some of these plots of land have already been sold and sales efforts will be continued to dispose the balance of the land to potential buyers.

UMW Travel Sdn. Bhd. (“UMW Travel”)/UMW Insurance Services Sdn. Bhd. (“UMW Insurance”)

UMW Travel was one of the 38 companies that received the “Diamond Award” for outstanding sales achievement from Malaysia Airlines. The company was also listed as one of the top 40 travel agencies from over 1,900 registered travel-related companies in Malaysia in 2006.

UMW Insurance, which provides insurance services for the Group, offered good service levels to its clients.

UMW GaleriKu

During the year, UMW proudly launched its own UMW Gallery, known as UMW GaleriKu. The Gallery tells the story of the UMW Group, its current profile, its history, its growth and achievements and its corporate heritage. It pays tribute to the founders and to the leaders of the Group who have served with distinction, while also show-casing the long standing relationship with its principals and partners. UMW GaleriKu traces the roots of the UMW Group, which goes back to the early 20th Century and tracks its journey of expansion across the globe, with businesses varied and diversified. UMW GaleriKu serves as an introductory and educational tour of the Group and is open to our visiting principals and partners, potential business associates, shareholders and investors, customers and also to visiting school children, government officers and the public at large.

36 UMW HOLDINGS BERHAD 36 UMW Holdings Berhad Corporate Governance

The Board of Directors of UMW recognises that the making the minimum mandatory disclosure practice of good corporate governance is a pre-requisite requirements. towards the Group’s continued growth, success and reputation. The Board remains fully committed to Set out below is a statement which outlines the ensuring that the highest standards of corporate application of the Principles of the Code and compliance governance, based on the Principles and Best Practices with the Best Practices provisions set out therein, by set out in the Malaysian Code on Corporate the Group throughout the year ended 31 December Governance (“the Code”), are applied and maintained 2006. throughout the Group with the ultimate objective of safeguarding and enhancing shareholder value and the BOARD OF DIRECTORS financial performance of the Group. Being a Government-Linked Company (“GLC”), the Group has Board Balance also adhered to the principles and practices introduced by the Putrajaya Committee on GLC High Performance The Board currently has nine (9) members comprising relating to guidelines for enhancement of GLC Board eight (8) Non-Executive Directors, including the effectiveness as set out in the Green Book launched in Chairman, and one (1) Executive Director designated April 2006. as the Group Managing Director and Chief Executive Officer. In compliance with the Listing Requirements The Board has formulated internal guidelines on of Bursa Securities, three (3) of the nine (9) members of Corporate Disclosure Policies and Procedures based the Board are Independent Directors. on the best practices recommended by Bursa Malaysia Securities Berhad (“Bursa Securities”) for adoption by The Board meets on a quarterly basis with additional the Group. This is to provide the Group with meetings convened when necessary. During the year appropriate guidance in discharging its disclosure ended 31 December 2006, the Board had met for a obligations and to ensure that the Group moves beyond total of nine (9) times to deliberate on the business

38 UMW HOLDINGS BERHAD Corporate Governance (Cont’d.)

operations and performance, corporate proposals, The Board delegates specific responsibilities to three strategies and direction, and standards of conduct and (3) Committees, namely the Audit Committee, the compliance by the Group. The attendance of Board Nomination Committee and the Remuneration members and a profile of each Director are set out in Committee, which operate within clearly defined terms the Directors’ Profile on pages 12 to 14 of this annual of reference. Other committees are set up for specific report. purposes as and when required. Reports of proceedings and outcome of various Committee meetings are Board Responsibility submitted to the Board.

The Company is led by an experienced Board, Supply of Information comprising members from diverse professional background, with expertise and extensive experience, All Directors are provided with comprehensive Board skills and knowledge in various fields such as business reports well in advance of Board meetings to enable management, legal, industrial, engineering, accounting them to review and consider the agenda items to be and finance, and corporate planning. discussed at Board meetings. In addition, there is a schedule of matters reserved specifically for the Board’s There is a clear and distinct division of responsibility decision. Senior management of the Group and external between the Chairman and the Group Managing advisers may be invited to attend Board meetings to Director to ensure a proper balance of power and provide their professional views, advice and authority. The Chairman is responsible for the effective explanations on specific items on the agenda. The conduct of the Board and ensures that information Board has also approved a procedure for Directors to relating to issues on the agenda is disseminated to all take independent advice, where necessary, in the Directors well before deliberation at Board meetings. furtherance of their duties and at the Group’s expense. The Chairman encourages active participation by Board All Directors have unrestricted access to all information members and provides reasonable time for discussion pertaining to the Company’s business and affairs of issues raised at meetings. Decisions reached at necessary for the effective discharge of their meetings reflect the consensus of the whole Board and responsibilities. The Directors also have direct access not the views of any individual or group. The Group to the advice and services of the Company Secretary. Managing Director is primarily responsible for the day- The Company Secretary regularly updates the Directors to-day operations of the Group, which includes on statutory and regulatory requirements, particularly implementation of policies and strategies adopted by pertaining to the duties and responsibilities of the Board the Board. The Group Managing Director is under the and individual Directors. control of the Board and is responsible for communicating matters relating to the Group’s business Appointments to the Board and affairs to the Board. The Group Managing Director’s intimate knowledge of the Group’s affairs contributes New appointments to the Board are recommended by significantly towards the attainment of the Group’s goals the Nomination Committee of the Board, which and objectives. comprises two (2) Independent Non-Executive Directors and one (1) Non-Independent Non-Executive Director. There is also balance in the Board with the presence of The Committee is empowered to bring to the Board Independent Non-Executive Directors of high calibre recommendations on the appointment of any new and capability necessary to carry weight in all decisions Executive and Non-Executive Directors by evaluating of the Board. The Board recognises the importance of and assessing the suitability of candidates for Board the role of the Independent Non-Executive Directors membership. On a periodic basis, the Committee also particularly in ensuring that strategies proposed by reviews the size, structure and effectiveness of the Board management are fully deliberated and examined as a whole, the Committees of the Board and the objectively, taking into perspective, among others, the contribution of individual Directors. The Nomination long term interests of shareholders as well as other Committee also reviews for recommendation to the stakeholders and the community at large. Lt. Gen. (R) Board, recruitment and promotion of the senior most Dato’ Mohd. Yusof bin Din is the Senior Independent management staff of the Group. Non-Executive Director of the Board to whom any concerns on the Group may be conveyed.

ANNUAL REPORT 2006 39 Corporate Governance

Board Performance, Evaluation and Review Accreditation Programme (“MAP”) prescribed by Bursa Securities for Directors of public-listed companies. The Board, through the Nomination Committee, reviews In spite of the repeal of Practice Note No. 15/2003 on annually its required mix of skills, expertise, attributes Continuing Education Programme (“CEP”) for Directors and core competencies of its Directors. There exists a of public-listed companies by Bursa Securities effective procedure for the evaluation of the effectiveness of the 1 January 2005, the Board is mindful of the need for Board as a whole and the Committees of the Board, the Directors to attend continuous education programmes contribution of each Director to the effectiveness of the to keep them abreast of changes in legislations and Board and the performance of the Chairman. regulations that affect business operations and Evaluations of the Board, the Chairman and individual compliance matters. Appropriate continuous training Directors have been conducted in the year under review. and education programmes are identified and arranged for Directors’ participation from time to time to further Directors’ Training enhance their skills and knowledge and keep them updated on new developments in the business and All members of the Board have attended the Mandatory regulatory environment.

Details of training programmes attended by members of the Board in the financial year under review are as follows -

TAN SRI DATUK ASMAT BIN KAMALUDIN Highlights of the New Financial Reporting Standards in Malaysia 14 April 2006 FRS Workshop (Board Agenda Series) 12 July 2006 ICLIF-INSEAD Directors’ Forum 30 July - 2 August 2006

DATO’ DR. ABDUL HALIM BIN HARUN Highlights of the New Financial Reporting Standards in Malaysia 14 April 2006 On Going Business Improvement 21 December 2006

TAN SRI DATUK MOHAMED KHATIB BIN ABDUL HAMID Highlights of the New Financial Reporting Standards in Malaysia 14 April 2006 Breakfast Talk on “Enhancing Board Effectiveness - A Practical Perspective” 30 June 2006 Directors’ Duties and Responsibilities : Challenges and Obligations in Maintaining Corporate Governance 21 November 2006 ASEAN - CHINA Business Forum 2006 7 - 8 December 2006

TAN SRI DATO’ MOHAMED NOORDIN BIN HASSAN Making Corporate Boards More Effective 18 - 19 January 2006 Highlights of the New Financial Reporting Standards in Malaysia 14 April 2006

LT. GEN. (R) DATO’ MOHD. YUSOF BIN DIN Highlights of the New Financial Reporting Standards in Malaysia 14 April 2006 Directors’ Duties and Responsibilities : Challenges and Obligations in Maintaining Corporate Governance 21 November 2006

40 UMW HOLDINGS BERHAD Corporate Governance (Cont’d.)

DATO’ IR. LEE YEE CHEONG Highlights of the New Financial Reporting Standards in Malaysia 14 April 2006 Implementing Business Plan Strategies for Company Directors and Senior Management 24 July 2006 Strategic Corporate Planning for Company Directors and Senior Management 25 July 2006

DATO’ HAJI DARWIS BIN MOHD. DAID Highlights of the New Financial Reporting Standards in Malaysia 14 April 2006 Directors’ Duties and Responsibilities : Challenges and Obligations in Maintaining Corporate Governance 21 November 2006

DATO’ THOMAS MUN LUNG LEE Highlights of the New Financial Reporting Standards in Malaysia 14 April 2006 Applications and Implications of Selected Revised/New Financial Reporting Standards (FRS) 27 June 2006 Improving Board of Directors’ Performance, Leadership & Governance 13 September 2006

MD. YUSOF BIN HUSSIN Highlights of the New Financial Reporting Standards in Malaysia 14 April 2006 Public Rulings by IRB 23 May 2006

Re-Election of Directors The contract in respect of the services of the Group Managing Director, Dato’ Dr. Abdul Halim bin Harun, In accordance with the Bursa Securities Listing was entered into prior to 1 June 2001. Dato’ Dr. Abdul Requirements and the Articles of Association of the Halim bin Harun is not subject to retirement by rotation Company, all Directors are to retire from office once at as adherence to the above regulation on retirement by least in each three-year period. The Articles also provide rotation would result in a breach of this service contract. that at least one-third of the Directors shall be subject to retirement by rotation at each Annual General DIRECTORS’ REMUNERATION Meeting (“AGM”). The retiring Directors are eligible for re-election. In addition, Directors over seventy years Level and Make-up of Remuneration of age are to retire at every AGM pursuant to Section 129(6) of the Companies Act, 1965 and may offer The Code states that the level of remuneration for themselves for re-appointment. Lt. Gen. (R) Dato’ Mohd. Directors should be sufficient to attract and retain the Yusof bin Din and Dato’ Ir. Lee Yee Cheong are subject Directors needed to guide the Group successfully. In to such retirement and re-appointment. UMW, remuneration for Executive Directors is structured so as to link rewards to corporate and individual performance. In addition, the Executive Director is eligible to participate in the Company’s Employee Share Option Scheme that came into effect on 18 April 2006. In the case of Non-Executive Directors, the remuneration structure reflects the level of responsibilities undertaken and contributions made by the Non-Executive Directors. Non-Executive Directors are paid fees and attendance allowances for Board and Committee meetings that they attend. They do not participate in the UMW Employee Share Option Scheme.

᭣ The Wall Street Journal Asia Award 2006 Top 200 in Asia ● Top 10 in Malaysia

ANNUAL REPORT 2006 41 Corporate Governance

Procedure

The Remuneration Committee is responsible for evaluating the performance of Executive Directors and recommending to the Board, the Executive Directors’ remuneration in line with the contributions made by them for the year. The determination of the remuneration of Non-Executive Directors is a matter to be decided by the Board as a whole. All Directors, executive and non-executive, abstain from deliberations and voting on decisions in respect of their individual remuneration. The Nomination Committee also reviews and recommends to the Board, the holding office as Directors of the Company. However, remuneration of the senior most management staff of the insurance does not provide coverage where there the Group. is negligence, default, breach of duty or breach of trust proven against the Directors. Directors contribute Disclosure partially towards the payment of the insurance premium. Details of the aggregate remuneration of Directors of the Company for the financial year ended 31 December RELATIONS WITH SHAREHOLDERS AND 2006 are as follows - INVESTORS Executive Non-Executive Director Directors Total Dialogue between the Group and Investors (RM’000) (RM’000) (RM’000) The Board has always recognised the importance of Fees - 597 597 accurate and timely dissemination of information about Salaries and 943 - 943 the Group’s performance, corporate strategies and other other emoluments matters affecting shareholders’ interests to shareholders and investors. This is achieved through accurate and Benefits-in-kind 68 36 104 timely disclosures and announcements to Bursa 1,011 633 1,644 Securities for public consumption, distribution of annual reports, relevant circulars and press releases and Details of the number of Directors of the Company conducting dialogues/discussions with analysts and whose total remuneration during the year falls within investors, locally and abroad, and shareholders from the following bands are as follows - time to time. A presentation on the Group’s operations is also made at every AGM of the Company for the Executive Non-Executive benefit of shareholders. Director Directors Total RM50,001 - RM100,000 - 7 7 In addition, the Group has established a website at RM100,001 - RM150,000 - 1 1 www.umw.com.my which shareholders can access for RM1,000,001 - RM1,050,000 1 - 1 information. 189 The UMW Corporate Disclosure Policy and Procedures has been formulated and a Corporate Disclosure Indemnification of Directors Executive recruited. The latter will coordinate the disclosure of information to analysts, institutional Directors are indemnified under a Directors’ and investors, the media and the investing public and will Officers’ Liability insurance, against any liability also assist in the disclosure requirements of Bursa incurred by them in discharging their duties while Securities.

42 UMW HOLDINGS BERHAD Corporate Governance (Cont’d.)

Annual General Meeting give a true and fair view of the state of affairs of the Group and the Company at the end of the financial The AGM is the principal forum for direct interaction year and of the results and the cash flows of the Group among shareholders, Directors and management. The and the Company for the financial year. notice of the AGM and the annual report are sent out to shareholders at least 21 days before the date of the In preparing the above financial statements, the meeting. Besides the usual agenda for the AGM, the Directors have adopted appropriate accounting policies, Board presents the progress and performance of the consistently applied and supported by reasonable and business as contained in the annual report and prudent judgment and estimates. All applicable encourages shareholders to participate in the question accounting standards have been followed and the and answer session. The Board and management are financial statements have been prepared on a going at hand to provide responses to questions from concern basis. shareholders during the meeting. The Directors are responsible for ensuring that the The external auditors and advisers of corporate Company maintains accounting records that disclose exercises, where applicable, attend general meetings with reasonable accuracy the financial position of the upon invitation and are available to answer questions Group and the Company. from shareholders. The Directors have overall responsibility for taking such A press conference is held after each AGM whereat the steps as are reasonably available to them to safeguard Chairman and Group Managing Director advise the the assets of the Group and to prevent and detect fraud media of the resolutions passed, brief them on the and other irregularities. operations and performance of the Group during the year under review and answer questions posed. Internal Controls

Each item of special business included in the notice of An overview of the state of internal controls within the meeting is accompanied by a full explanation of the Group is given in the Statement on Internal Controls set effects of the proposed resolution to facilitate full out on pages 44 to 45 of this annual report. understanding and evaluation of the issues involved. Relationship with Auditors ACCOUNTABILITY AND AUDIT The Group has established an active and transparent Financial Reporting relationship with its external auditors through the Audit Committee of the Board. A report on the Audit In presenting the annual financial statements and Committee which includes the Committee’s role in quarterly reports to Bursa Securities and the annual relation to the external auditors is set out on pages 16 report to the shareholders, the Directors have taken to 17 of this annual report. appropriate steps to present a clear, balanced and understandable assessment of the Group’s position and Statement of Compliance with the Best Practices future prospects. of the Code

Statement of Directors’ Responsibility in relation The Group has taken necessary steps throughout the to the Financial Statements financial year to comply with the Best Practices of good corporate governance as set out in Part 2 of the Code. The Directors are required under the Companies Act, The Group will continuously review its corporate 1965, to prepare financial statements for each financial governance principles and practices in its effort to year which have been made out in accordance with achieve the highest standards of transparency, applicable approved accounting standards and which accountability and above all, integrity.

ANNUAL REPORT 2006 43 Statement on Internal Controls

Introduction line with the guidelines set out in the Statement on Internal Controls - Guidance for Directors of Public- The Malaysian Code on Corporate Governance requires Listed Companies. Policies and procedures for the listed companies to maintain a sound system of internal regular review and management of these risks were controls to safeguard shareholders’ investment and the adopted for implementation throughout the Group company’s assets. Under the Listing Requirements of (except for the Perusahaan Otomobil Kedua Sdn. Bhd. Bursa Malaysia Securities Berhad (“Bursa Securities”), group of companies as well as for associated companies listed companies are to include a statement in their incorporated overseas). The Board plans to extend the annual report on the state of their internal controls as a risk management framework to these companies in the group. Set out below is the Board of Directors’ near future. Statement on Internal Controls, which was prepared in accordance with the guidelines provided by Bursa The Group’s Risk Management function is described Securities. on page 46 of this annual report.

Responsibility Internal Audit Function

The Directors affirm their responsibility for the Group’s The Group has an adequately-resourced Internal Audit system of internal controls covering not only financial Division (“IAD”) which provides the Board with much controls but also operational and compliance controls of the assurance it requires regarding the adequacy and as well as risk management, and for reviewing the effectiveness of risk management, internal controls and adequacy and integrity of the system. The internal governance processes. The audit plan is approved by control system is designed to meet the Group’s the Audit Committee each year. The scope of internal particular needs and to manage the risks that may audit covers the audits of all units and operations within impede the achievement of the Group’s business the Group, including also certain associated companies. objectives. The system, by its nature, cannot eliminate The audit also covers the Group’s major information risks but can provide only reasonable and not absolute systems and applications. assurance against material mis-statement or loss. The IAD ensures that the system of internal controls Risk Management Framework remains effective and efficient and is adequately monitored and enhanced when the need arises. The The Board recognises the importance of having in place IAD, which is completely independent of all operating a risk management system to identify principal risks units, performs regular reviews of significant areas of and to implement appropriate controls to manage such risk and reports directly to the Audit Committee of the risks. Briefings on risk management are conducted for Board on major findings and any significant control senior management as part of the Group’s effort to instil issues and concerns. The Audit Committee then reviews a proactive risk management culture and to implement all reports generated by IAD and recommends a proper risk management framework in the Group. appropriate actions to strengthen controls. The Audit Committee also provides to the Board an independent On 25 February 2003, the Board approved a risk assessment of the significant changes in the business management system framework and established a and external environment which give rise to risks, and process for the identification, evaluation and reporting reviews the adequacy and effectiveness of the risk of the major risks within the Group (except for management processes as well as compliance with risk associated companies). The process established is in policies and regulatory guidelines.

44 UMW HOLDINGS BERHAD Statement On Internal Controls (Cont’d.)

Monitoring and Reviewing the Effectiveness of the System on Internal Controls The monitoring, review and reporting arrangements in place give reasonable assurance that the structure There is a comprehensive budgeting system with annual of controls and its operations are appropriate to the budget and business plans approved by the Board each Group’s operations. The Board believes that the system year. During the business planning session, each of internal controls is adequate and effective in operating unit performs a critical self-assessment which achieving the Group’s business objectives. However, involves analysis of strengths, weaknesses, the Group will continue to improve and enhance the opportunities, problems and threats together with action existing system of internal controls in anticipation of plans to address issues identified. Budgets prepared changes in the business environment following changes by operating units are regularly updated and reasons in technology and regulatory requirements. for variances are incorporated in management reports which are prepared and reported on a quarterly basis Other Key Elements of Internal Controls to the Board. These management reports analyse and explain variances against plan and report on key The Board is committed to maintaining a strong control performance indicators. structure and environment for the proper conduct of the Group’s business operations. The key elements The monitoring of control procedures is achieved are as follows:- through monthly management review of operating 1. Clearly defined procedures and controls, including results by Heads of Operating Units as well as by the information systems controls, are in place to Heads of Strategic Business Units. This is supplemented ensure the reporting of complete and accurate by a comprehensive review undertaken by the internal accounting information. The control systems are audit function on the controls in operation in each for obtaining authority for major transactions and individual business process and the state of internal for ensuring compliance with laws and regulations controls. Reports on the reviews carried out by the that have significant financial implications. internal audit function are submitted on a regular basis Procedures are also in place to ensure that assets to senior management and Audit Committee members are subject to proper physical controls and that who assess the impact of control issues and recommend the organisation remains structured to ensure appropriate actions to strengthen controls. appropriate segregation of duties.

Regular internal visits are made to operating units by 2. There is clearly defined delegation of senior management to monitor compliance with responsibilities to Committees of the Board and procedures and to assess performance. to management and operating units, including appropriate authorisation levels for all aspects of The Group Managing Director and Executive Director, the business. UMW Corporation (Group Financial Services Division) 3. Clearly defined and documented financial limits report to the Audit Committee on the status of of delegated authority are in place, and these are management’s action plans to address issues regularly updated to reflect changing risks or to highlighted by IAD on a quarterly basis. resolve operational deficiencies. 4. Corporate values which emphasise ethical The Board does not regularly review the internal control behaviour are set out in the Group’s Mission systems of associated companies, as the Board does Statement and Executive Handbook. not have any direct control over their operations. Notwithstanding the above, the Group’s interests are 5. There is emphasis on the quality and abilities of served through representation on the Boards of the employees, with continuing education, training respective associated companies and receipt and and development actively encouraged through a review of management accounts, and enquiries wide variety of programmes. thereon. Such representation also provides the Board with information for timely decision making on the Weaknesses in Internal Controls which continuity of the Group’s investments based on the resulted in Material Losses performance of the associated companies. The representation also enables the Group to influence the There were no major weaknesses in internal controls financial and operating policies of associated which resulted in material losses during the current companies. financial year.

ANNUAL REPORT 2006 45 Risk Management

UMW adopts a structured and disciplined approach to Operational risks are inherent in the ongoing activities risk management with its Enterprise Risk Management within the different SBUs of the Group. Typically, some or ERM framework. Under the ERM framework, a of the risks cover foreign exchange, credit, competition, holistic, integrated, future-focused, and process- technology, etc. Senior management needs ongoing oriented approach is adopted to assist the Group to assurance that operational risks are identified and manage all key businesses and opportunities with the managed. Accountability for managing operational intent of maximising shareholder value for the Group risks rests specifically with the Heads of SBUs. as a whole. In this context, ERM aligns UMW’s strategy, processes, ERM incorporates a well-structured systematic process people, technology and knowledge with the purpose to identify business risks and reduce their impact on of evaluating and managing the risks that the Group the Group. This involves the following core elements:- faces as it creates value.

● Establishing a risk management framework within The Management Committee of UMW has assumed which risk management activities take place; the role of the Risk Management Committee. The Risk ● The identification of each business risk which may Management Committee reviews all major risks at least prevent achievement of business objectives; twice a year. Additional meetings will be called for, as ● The measurement of the identified business risks; and when necessary. The IAD submits regular reports ● The control or method by which risks are managed to the Audit Committee of the Board on critical risks in line with the needs of the Group’s policies and and proposed action plans to be implemented to strategies; and mitigate such exposure. ● Constant monitoring and communicating of risks associated with any activity, function or process The Risk Management Committee is assisted by the in a way that will enable the Group to minimise Heads of each SBU who act as Risk Officers. These losses and maximise opportunities. Risk Officers are responsible for identifying, measuring, controlling, monitoring and reporting all critical risks The context within which the Group manages the risks and for advising the Risk Management Committee on and key focus of accountability for this is as follows:- action plans to address these risks accordingly.

Type of Risks Accountability The Audit Committee of the Board has approved the Strategic Risks Board and Group UMW Risk Management Policies and Procedures, Managing Director/ which were adopted by all SBUs, on 25 February 2003. Chief Executive Officer As at the end of 2006, all major operating companies within the Group, including the Corporate Divisions, Operational Risks Heads of Strategic have completed their ERM framework. Business Units (“SBU”) At the moment, the UMW Risk Management Policies and Procedures have not been adopted by the Strategic risks are primarily risks caused by events that Perusahaan Otomobil Kedua Sdn. Bhd. (“Perodua”) are external to the Group, but have a significant impact group of companies. It should be noted that the Perodua on its strategic decisions or activities. Accountability group of companies has its own Audit Committee and for managing strategic risks therefore rests with the Internal Audit Division. The UMW Group Managing Board and the Group Managing Director/Chief Director/Chief Executive Officer, Dato’ Dr. Abdul Executive Officer. The benefit of effectively managing Halim bin Harun, is also a member of the Audit strategic risks is that the Group can better forecast and Committee of the Perodua group of companies. quickly adapt to the changing demands that are placed upon the Group. It also means that the Group is less likely to be affected by some external event that calls for significant change.

46 UMW HOLDINGS BERHAD Corporate Social Responsibility

As a responsible corporate citizen, the UMW Group simulator as learning aids to INPENS College and Kolej has continued to fulfil its share of social obligations in WIT. The company contributed about RM75,000 to 2006, by providing humanitarian aid to the assist automotive students of these colleges. underprivileged, aid for fire and natural disasters victims, rewarding excellence in education and giving The Toyota Eco Youth Programme was held in March other donations for various charitable causes. 2006 in collaboration with the Ministry of Education for the sixth consecutive year. 15 schools participated For the fifteenth consecutive year, the 2006 Toyota in this programme which promotes good habits and Classics Concert was brought to Malaysia, featuring the practices in environment preservation and conservation Nagoya Philharmonic Orchestra. The event raised a amongst the younger generation. total of RM451,556 from ticket sales and corporate donations. The gross proceeds were channelled to six The Group has also undertaken initiatives to support beneficiaries, namely the St. Nicholas’ Home of Bagan activities relating to sports, especially amongst youth Jermal, Penang, Persatuan Kanak-Kanak Spastik Johor, in the country. Among others, a sum of RM10,000 was Pusat Latihan Pertanian Bagi Orang Buta of Taman donated to Persatuan Kriket Melayu Malaysia for its Harapan, Temerloh, Pahang, Women’s Aid Training Centre Programme. Organisation, Selangor, Persatuan Kebajikan Orang Cacat Pendengaran Terengganu and Yayasan Nur, Kuala The less fortunate groups also benefited from UMW’s Lumpur. contributions via humanitarian aid for victims of natural disasters as well as underprivileged families. Following The Group also placed a high degree of importance to the earthquake which hit Yogyakarta in 2006, UMW education and numerous efforts were undertaken to donated RM10,000 through Majlis Belia Malaysia, to assist employees and the community as a whole in this ease the burden of the victims. Closer to home, UMW area. To support the Government’s effort to improve donated five generators to the Johor Flood Relief Centre the level of proficiency in English especially among the through Kontena Nasional Berhad for flood victims in underprivileged students as well as students from the Pagoh, in addition to financial aid for the victims. In rural areas, UMW has contributed a total of RM22,960 other areas, the Group made contributions via to the NST School Sponsorship Programme. The sponsorships for Palestinian children through The contribution was allocated to 14 secondary schools National Institute of Social Care and Vocational Training throughout Malaysia. The year also saw the Group and had the opportunity to organise a Ramadhan rewarding excellence in education with the UMW PMR Breaking Fast session for underprivileged Cambodian Achievement Award where a total of 30 students from Muslims. 15 schools around Shah Alam were presented with the Amanah Saham Gemilang unit trusts. The Group also The Group displayed its concern for the well-being of awarded scholarships to deserving students from local society at large by organising blood donation drives for universities in the fields of Engineering, Accountancy the National Blood Centre in Peninsular Malaysia, and and Business Administration. Todate, 65 scholars have for the Sarawak General Hospital Blood Transfusion benefited from this scheme, i.e., 37 from the non-motor Service. group and 28 from the motor group. The UMW Group continues to be one of the largest In an effort to encourage students’ involvement in extra- local contributors to the Majlis Kanser Nasional payroll curricular activities, the Group contributed musical project since its inception in 1999. instruments worth RM86,956 to the school band of Sekolah Menengah Sultan Salahuddin Abdul Aziz Shah, Going forward, UMW will continue to help the Shah Alam, in addition to an annual grant of RM5,000 community by undertaking worthwhile Corporate to the school. Social Responsibility programmes that will benefit the underprivileged and less fortunate. UMW Toyota Motor continued its contributions to various colleges in Malaysia. In 2006, UMW Toyota Motor contributed used Toyota components and a

ANNUAL REPORT 2006 47 Environment, Safety and Health

In line with its policy to provide a safe and healthy members and the Group’s key safety personnel. The environment for its staff, the UMW Group remains seminar was intended to aid participants as follows - committed to continuously support all environmental, safety and health programmes as stipulated in the ● Have a clear understanding of the Occupational UMW Safety and Health Policy. Safety and Health (“OSH”) Management System;

The UMW Main Safety Committee has continuously ● Enhance knowledge of legal and other played an important role in assisting all divisions in requirements; developing safety and health rules and safe systems of work, reviewing the effectiveness of safety and health ● Develop a healthy attitude towards achieving team programmes and carrying out studies on the trend of goals; and accidents, near-accidents, dangerous occurrences, occupational poisoning and occupational diseases. ● Implement better planning efforts towards excellent OSH culture. The Committee met three (3) times during the year with the venue of the meetings rotated between participating As one of the leading automotive companies in companies, thus allowing all members to visit various Malaysia, UMW Toyota Motor Sdn. Bhd. (“UMW production areas and to share their knowledge and Toyota Motor”) believes that a commitment to experience on the implementation of safety systems of environment, safety and health is an integral part of a different production areas and business activities. successful and sustainable business. This belief has resulted in the formulation of the UMW Toyota Motor During the year under review, numerous activities were Environment, Safety and Health Policy, a written organised by the UMW Main Safety Committee to statement prepared by the top management in 2004, inculcate safety knowledge and standards amongst to demonstrate specific commitments towards members and employees. The Committee organised environmental protection, compliance with applicable the 1st UMW Safety Seminar and Teambuilding at Port laws and regulations and safety and health protection Dickson from 14 to 16 September. The seminar was for employees. attended by the UMW Main Safety Committee

48 UMW HOLDINGS BERHAD Environment, Safety and Health (Cont’d.)

On environmental issues, UMW Toyota Motor systematically manages and continually improves its environmental-related performance through its environmental management system. In 2005, it set a target of acquiring ISO 14001 certification for 15 sites. Its actual achievement surpassed the target and it now has a total of 18 sites including head office, parts distribution centre, and 16 sales and after-sales branches certified under the standard. With the growing numbers of sales and after-sales dealers, it is critical to maintain the same standards of commitment. With this objective in mind, Bhd., managed to lower its industrial accidents. UASB the Dealers’ Environmental Risk Audit Programme was has shown its commitment towards improving its ESH implemented at all service outlets, including dealer Management System with more emphasis on ESH outlets, to ensure full compliance with Malaysian implementation. environmental laws and regulations covering issues such as air, waste water and scheduled waste. A similar trend of declining industrial accident rates was also observed at UMW Auto Parts Sdn. Bhd. On safety aspects, a mandatory requirement on (“UMW Auto Parts”), reflecting an improvement in establishing emergency response plans and conducting occupational safety and health achievement. UMW regular drill exercises was laid out to all facilities. Auto Parts had completed its three-year cycle of Todate, more than 33 sales and after-sales outlets have Environmental Management System, EMS ISO successfully conducted fire drill exercises in 14001 : 2004 and had successfully undergone the collaboration with the respective State Departments of re-certification of the EMS in November 2006. With Fire and Rescue Services. UMW Toyota Motor also the consolidation of UMW Auto Parts into UASB in implemented the accident reporting system to ensure 2007, more effort towards continued improvement of quick response in the case of any emergencies. ESH can be expected.

Overall, UMW Toyota Motor’s Environment, Safety and Safety training programmes are continuously provided Health Division is responsible for monitoring and in order to promote safety awareness amongst providing support to all the efforts above by regularly employees. Basic safety awareness training, which is carrying out internal environment, safety and health part of the Group’s awareness programme, is audits and inspections to ensure continuous compulsory for all employees. Group Security & Safety improvements. Division and Group Training Department have jointly organised a total of five sessions of awareness UMW Pennzoil Distributors Sdn. Bhd. (“UPD”) and programmes throughout the year. Lubetech Sdn. Bhd. (“LT”) maintained their industrial zero accident status for the second consecutive year in The main objective of UMW’s Crisis Action Plan 2006, with strong encouragement from their business (“CAP”) is to educate employees on emergency principal, Shell. Environmental, safety and health issues procedures. The Group Security & Safety Division has were given priority in 2006. In September 2006, UPD continuously organised training programmes on CAP and LT launched the Health, Safety, Security and for all Emergency Response Team members within the Environment Policy, which marked further effort Group. towards the improvement of environment, safety and health (“ESH”). Going forward, the UMW Group, as a responsible employer, will continue to improve its environmental, Another subsidiary, UMW Advantech Sdn. Bhd. safety and health standards to ensure a safe and healthy (“UASB”), formerly known as UMW Engineering Sdn. working environment for its employees.

ANNUAL REPORT 2006 49 Human Resource, Training and Development

The total manpower strength of the UMW Group as at senior management were selected to undergo a series 31 December 2006 stood at 9,426 employees, a of specialised programmes to equip them with the reduction of 0.5% compared to the previous year. There necessary leadership skills. In-depth exposure to their was increased manpower in the Oil & Gas Division, own personal profiling and reflections on leader/staff which was offset by a decrease in manpower in the behaviour and its impact on business were provided, assembly/production plant. to prepare them for their future roles. Dialogue sessions with top management on current issues and future 2006 saw the conclusion and execution of a total of direction and expectations were also held, to enable eight Collective Agreements (“CA”), representing five them to chart their personal development plans against CAs with the in-house union, Kesatuan Pekerja-Pekerja the future targets and objectives of the Group. Perusahaan Kumpulan UMW and one CA each with the National Union of Commercial Workers, Sabah In supporting the business needs of the Group, two Commercial Employees’ Union and Sarawak Human Resource (“HR”) programmes were organised, Commercial Employees’ Union. The above new CAs namely the Strategic Human Resource Management for 2006 - 2008 will result in overall increases in salary Programme and the HR Competencies Programme levels and widening of the current salary bands, as well which were attended by 32 HR managers/assistant as several improved benefits. The relationship between managers and 24 HR executives within the Group, management and the various unions in the Group respectively. Group HR Division was successful in remains harmonious. renewing its ISO 9001: 2000 re-certification from SIRIM QAS International Sdn. Bhd. and UKAS in May 2006. The UMW Group is committed to the development of The HR Division of the Motor Group also received re- its human capital and continuously provides training certification of its ISO 9001: 2000. and development programmes so as to equip its employees with the required competencies and desired New recruits are given thorough orientation and skills to attain effective growth and productivity. induction programmes, through which they are given an insight into the Group’s business activities, products During the year, 134 training courses were coordinated and services, and also on UMW’s values and work and organised by the UMW Group Training Centre. ethics. Plant and other facility visits are also organised Specially designed and customised mandatory courses for their benefit. were implemented which included the Supervisor Development Programme, Executive Development The success of UMW has been built on the philosophy Programme, Manager Development Programme and of total customer satisfaction through its after-sales Leadership Development Programme. A total of 2,495 service support programmes. One such programme participants attended the said programmes. that will continue to receive the same amount of focus and consideration is the area of customer training. Such In an effort to develop a pool of potential leaders, a training helps to upgrade the participants’ knowledge total of 41 leaders and newly appointed/promoted and skills so as to enable them to perform the required

50 UMW HOLDINGS BERHAD Human Resource, Training and Development (Cont’d.)

jobs, including safe operation of machines, proper care and maintenance, periodical servicing, fault finding and the repair of machinery. These training programmes are also aimed at achieving better work efficiency and profitability of the customer’s organisation as a whole.

In 2006, UMW Toyota Motor Sdn. Bhd. (“UMW Toyota Motor”) introduced the Team Leader Development Programme with the recognition of their loyalty and contributions, they were objective of equipping new team leaders with honoured and presented with commemorative plaques knowledge and skills in both technical and management and Long Service Awards. Spouses and/or family development. The programme equipped participants members were equally recognised for their with a combination of technical, leadership and understanding and support of the Group’s long-serving customer service skills which are the pre-requisites of staff. a team leader. Realising the importance of injecting new blood Continuous improvement or KAIZEN, which is a culture through the presence of young and dynamic employees within UMW Toyota Motor, is one of the principles of in the organisation, fresh graduates from local the “Toyota Way”. The Genba Programme was universities were recruited during the year under the introduced in October 2005, its main objective being Trainee Executive Programme. The young graduates the inculcating of the Toyota culture in all new staff. underwent on-the-job training at various Corporate Genba is focused on providing new executives in UMW Divisions and subsidiaries in the Group. Toyota Motor with knowledge on the company’s core businesses. During this 5-day programme, new Apart from the financial assistance offered to school- executives were introduced to Assembly Services Sdn. going children of employees in the lower income Bhd., Customer Relations Management Division, bracket, employees’ children who excelled in their Customer Service Operations Division and Sales UPSR, PMR and SPM examinations were also presented Division. A total of 97 executives successfully with the Academic Excellence Award, which carried completed the programme. rewards given in the form of unit trusts, for their achievement. As a caring employer, the Group continued to initiate various staff welfare programmes. Regular health and On the occasion of the nation’s 49th National Day safety talks were organised. celebration, the UMW Group participated in the Selangor State Merdeka celebration where 40 of its In 2006, a total of 424 employees in the Group clocked employees group-wide, adorned in attractive red attire, 10, 20 or 30 years of service with UMW and in proudly waved the UMW pennant and marked their presence at Dataran Shah Alam. The Group also participated in the National Day celebration held at Padang Merdeka, Kuching, Sarawak, UMW’s entry being in the joint Merdeka Float Project under the automotive and manufacturing sectors.

As per normal tradition, “Family Days” are organised throughout the Group from time to time. Such events allow staff and their family members to interact with each other, thereby improving rapport and the camaraderie spirit in the Group.

ANNUAL REPORT 2006 51 Calendar Of Events

January February

16 UMW Corporation Sdn. Bhd. contributed 10 UMW Equipment Sdn. Bhd. handed over 10 RM22,960 to the NST School Sponsorship units of new Komatsu excavators PC300LC-7 Programme at Balai Berita, Kuala Lumpur. to Inai Kiara Sdn. Bhd. in a ceremony at their worksite in Seberang Takir, Kuala Terengganu. 25 UMW JDC Drilling Sdn. Bhd., a joint venture between UMW Corporation Sdn. Bhd. and 21 UMW Toyota Motor announced the appointment Japan Drilling Co., Ltd. of Japan, was awarded of Sunway Computer Services Sdn. Bhd. (a a contract to provide the drilling rig, NAGA 1, member of the Sunway Technology Group) to Petronas Carigali Sdn. Bhd. (“PCSB”) for together with its technology partner, IBM PCSB’s wells drilling programme. Malaysia Sdn. Bhd. where both companies will undertake to upgrade and optimise UMW UMW Toyota Motor Sdn. Bhd. (“UMW Toyota Toyota Motor’s mission critical applications. Motor”) donated a new Toyota Hilux Single Cab to Kolej WIT at the official opening of the college’s new hall.

March

2 Toyota Eco Youth, a national-level environment conservation programme was launched in Shah Alam by Mr. Patrick Tan, Director of Strategic Communication, Department of Environment.

7 UMW’s management lounge “The Hallmark”, was officially opened by Tan Sri Datuk Asmat bin Kamaludin, UMW Group Chairman.

9 UMW Industries (1985) Sdn. Bhd. played host to 45 Japanese domestic dealers of Toyota Material Group at UMW Complex, Shah Alam.

52 UMW HOLDINGS BERHAD Calendar Of Events (Cont’d.)

April May

5 In keeping with the Malaysian Code on 21 The two largest tank trailers in South-East Asia Corporate Governance, UMW Holdings Berhad were launched by Shell Malaysia at Consortium organised the Affirmation Ceremony on the Depot, Port Dickson. This was another Statement on Internal Controls. milestone created by UMW, through the collaboration of its subsidiary, UMW 8 UMW announced the acquisition of Vietnam Engineering Sdn. Bhd. and Heil-Asia Limited. Offshore Fabrication & Engineering Ltd. (“Vina Offshore”), a Vietnam-based company that owns 25 A RM22.8 million five-year fleet management a fabrication and engineering complex in Vung contract for Toyota and BT material handling Tau. equipment was awarded by Nestle to UMW Industries (1985) Sdn. Bhd. 10 UMW Industries (1985) Sdn. Bhd. again won the prestigious Toyota Overall Excellence Award 29 UMW Toyota Motor’s full-scale export model for 2005, for the fourth consecutive year since of the Toyota Hiace to Thailand was launched 2002. by the Deputy Prime Minister, YAB Dato’ Seri Mohd. Najib bin Tun Haji Abdul Razak.

8 UMW Equipment Sdn. Bhd. June played host to the Komatsu Asia & Pacific Pte. Ltd. Distributors’ Meeting. The delegation of 60 participants was led by Mr. Masahiro Sakane, President of Komatsu Limited.

26 As part of UMW’s commitment to PNB Group Q-Day Post Event Training programme, a one day Enterprise Risk Management workshop was organised by UMW.

ANNUAL REPORT 2006 53 Calendar Of Events

July August

10 14 deserving students from Universiti Teknologi 8 Malaysia’s first 15-ton Toyota forklift 4FDK150 Mara were awarded the UMW scholarship. was handed over by UMW Industries (1985) Sdn. Bhd. to Tatt Giap Steel Centre Sdn. Bhd. 25 UMW Toyota Motor’s pre-owned car centre, Topmark, in Petaling Jaya, was officially opened. 14 UMW Coating Technologies Sdn. Bhd., located at Teluk Kalong, Kemaman, Terengganu, was 28 The Work-Life Excellence Award and Work-Life officially declared open by the State Executive Achiever Award by the Tripartite Committee on Councillor, YB Datuk Abdul Rahin bin Dato’ Work-Life Strategy were awarded to UMW Mohd. Said. Equipment & Engineering Pte. Ltd. 31 UMW participated in the National Day celebration held at Padang Merdeka, Kuching, Sarawak. UMW’s entry was in the joint Merdeka Float Project under the automotive and manufacturing sectors.

September 3-6 Kick-off session of UMW Business Plan 2007 was held in Ho Chi Minh City, Vietnam, in recognition of the Group’s best-ever PBT achieved in 2005.

15 UMW Toyotsu Motors Sdn. Bhd.’s 3S Centre (Sales, Service and Spare Parts) at Section 15, Shah Alam was officially opened by the Menteri Besar of Selangor, YB Datuk Seri Mohd. Khir bin Toyo.

21 The signing ceremony of a Share Sale & Subscription Agreement to jointly acquire Multicoat Coating Technologies Private Limited, India, was held in New Delhi, India.

54 UMW HOLDINGS BERHAD Calendar Of Events (Cont’d.)

October November

5 UMW Equipment & Engineering Pte. Ltd., 6 The official launching of the new Honda Singapore, received the Singapore H.E.A.L.T.H. 4-Stroke Brush Cutter UMR435T by Mr. Y. Iida, Gold Award from the Ministry of Health’s Health Coordinator, Power Products, Asian Honda Promotion Board in recognition of its effective Motor Co. Ltd., Thailand, and Mr. Kuah Kock initiatives in workplace health programmes for Heng, Executive Director, Industrial Equipment employees. Group, was held.

13 During the ‘ Majlis Berbuka Puasa’ and 8 Letter of Intent by UMW’s wholly-owned ‘Ceramah Nuzul Quran’, UMW played host to subsidiary, UMW Petropipe (L) Ltd., with 70 children from Institut Taufiq Islami, Jalan Standard Drilling ASA of Norway for the joint Kebun, Klang. ownership/option, marketing and operations of two newly-built jack-up rigs was signed.

9 UMW Industries (1985) Sdn. Bhd. officially launched the Toyota 8-Series forklift at the UMW December Auditorium, Shah Alam.

22 Two major mining contracts worth USD136 million between UMW Niugini Limited and Harmony Gold Australia were signed.

12 UMW contributed RM50,000 to the Malaysia Crime Prevention Foundation.

24 UMW donated five units of Honda Generator Model EB1000 to the Flood Relief Centre in Johor which was hard hit by floods that ravaged part of the state.

ANNUAL REPORT 2006 55 Statistics On Shareholdings As At 23 April 2007

Analysis Of Shareholdings No. Of Holders Holdings Total Holdings % 455 Less than 100 shares 17,140 0.00 1,379 100 to 1,000 shares 885,755 0.17 2,404 1,001 to 10,000 shares 8,405,840 1.61 535 10,001 to 100,000 shares 17,799,908 3.42 217 100,001 to less than 5% of issued shares 201,867,254 38.74 3 5% and above of issued shares 292,107,469 56.06 4,993 521,083,366 100.00 Note : There is only one class of shares in the paid-up capital of the Company. Each share entitles the holder to one vote.

Directors’ Direct And Deemed Interests In The Company In accordance with the Register of Directors’ Shareholdings, the Directors’ direct and deemed interests in shares in the Company are as follows:-

Direct Indirect Name of Director Interest % Interest %

1. Dato’ Dr. Abdul Halim bin Harun 173,933 0.03 - -

Thirty Largest Shareholders Shareholders No. Of Shares % 1. Amanah Raya Nominees (Tempatan) Sdn. Bhd. - Skim Amanah Saham Bumiputera 207,166,948 39.76 2. Employees Provident Fund Board 42,495,552 8.16 3. Permodalan Nasional Berhad 42,444,969 8.15 4. HSBC Nominees (Asing) Sdn. Bhd. - BBH And Co. Boston For GMO Emerging Markets Fund 15,300,700 2.94 5. Amanah Raya Nominees (Tempatan) Sdn. Bhd. - Amanah Saham Wawasan 2020 15,179,200 2.91 6. HSBC Nominees (Asing) Sdn. Bhd. - Exempt An For JPMorgan Chase Bank, National Association (U.S.A.) 14,857,996 2.85 7. Malaysia Nominees (Tempatan) Sendirian Berhad - Great Eastern Life Assurance (Malaysia) Berhad (Par 1) 12,700,000 2.44 8. HSBC Nominees (Asing) Sdn. Bhd. - Exempt An For J.P. Morgan Bank Luxembourg S.A. 6,492,854 1.25 9. Valuecap Sdn. Bhd. 5,478,200 1.05 10. AmInvestment Bank Berhad - IVT101C(CW) 5,471,200 1.05 11. Amanah Raya Nominees (Tempatan) Sdn. Bhd. - Amanah Saham Didik 5,000,000 0.96 12. HSBC Nominees (Tempatan) Sdn. Bhd. - Nomura Asset Mgmt SG For Employees Provident Fund 4,915,566 0.94 13. Citigroup Nominees (Asing) Sdn. Bhd. - Exempt An For American International Assurance Company Limited 4,882,500 0.94 14. Citigroup Nominees (Tempatan) Sdn. Bhd. - Exempt An For Prudential Assurance Malaysia Berhad 4,795,500 0.92 15. Lembaga Tabung Haji 3,497,033 0.67 16. AllianceGroup Nominees (Tempatan) Sdn. Bhd.- Pheim Asset Management Sdn. Bhd. 3,249,000 0.62 For Employees Provident Fund 17. HSBC Nominees (Asing) Sdn. Bhd. - Exempt An For JPMorgan Chase Bank, National Association (Netherlands) 3,232,400 0.62 18. Citigroup Nominees (Asing) Sdn. Bhd. - CBNY For DFA Emerging Markets Fund 2,916,443 0.56 19. Amanah Raya Nominees (Tempatan) Sdn. Bhd. - Amanah Saham Malaysia 2,628,700 0.50 20. SBB Nominees (Tempatan) Sdn. Bhd. - Employees Provident Fund Board 2,600,000 0.50 21. Cartaban Nominees (Asing) Sdn. Bhd. - Investors Bank And Trust Company For Ishares, Inc. 2,591,600 0.50 22. DB (Malaysia) Nominee (Tempatan) Sendirian Berhad - Icapital.Biz Berhad 2,200,000 0.42 23. Malaysia Nominees (Tempatan) Sendirian Berhad - Great Eastern Life Assurance (Malaysia) Berhad (Par 2) 2,200,000 0.42 24. Cartaban Nominees (Asing) Sdn. Bhd. - SSBT Fund SJ25 For California Public Employees Retirement System 2,030,000 0.39 25. Citigroup Nominees (Asing) Sdn. Bhd. - Exempt An For Mellon Bank (Mellon) 1,898,400 0.36 26. HSBC Nominees (Asing) Sdn. Bhd. - BBH (LUX) SCA For Fidelity Funds - Asia Pacific Growth & Income Fund 1,550,000 0.30 27. HSBC Nominees (Asing) Sdn. Bhd. - BBH And Co. Boston For Vanguard Emerging Markets Stock IndexFund 1,417,100 0.27 28. Amanah Raya Nominees (Tempatan) Sdn. Bhd. - Public Far-East Dividend Fund 1,350,000 0.26 29. HSBC Nominees (Asing) Sdn. Bhd. - Nomura BK Lux For TMA South East Asian Equity Fund 1,300,000 0.25 30. HSBC Nominees (Asing) Sdn. Bhd. - BBH And Co. Boston For GMO Foreign Fund 1,200,000 0.23 Total 423,041,861 81.19

Substantial Shareholders Shareholders Direct Interest Deemed Interest % 1. Skim Amanah Saham Bumiputera - 207,166,948 39.76 2. Employees Provident Fund Board 42,495,552 13,515,966 10.75 3. Permodalan Nasional Berhad 42,444,969 - 8.15 84,940,521 220,682,914 58.66

Note : The above information was based on Bursa Malaysia Depository Sdn. Bhd.’s records, received on 25 April 2007.

56 UMW HOLDINGS BERHAD Additional Compliance Information

Utilisation of Proceeds Revaluation Policy

No proceeds were raised from any corporate proposals Land and buildings of the Group have not been revalued during the financial year under review. since they were first revalued in 1979, 1984 and 1985. The Directors have not adopted a policy of regular Share Buy-Backs revaluation of such assets. These assets are stated at their respective valuation less accumulated depreciation There was no share buy-back by the Company during and accumulated impairment losses. the financial year under review. Material Contracts Options, Warrants or Convertible Securities Particulars of material contracts of UMW and its The amount of share options issued by the Company subsidiaries, involving Directors’ and major and exercised by eligible employees during the financial shareholders’ interests, are as follows - year under review is disclosed in the Directors’ Report and Note 13 (d) to the Financial Statements for the year (a) Shareholders’ Agreement dated 2 July 1997 (“the ended 31 December 2006. Agreement”) between UMW-PNSB Development Sdn. Bhd. (“UMW-PNSB”), UMW Corporation American Depository Receipt (“ADR”) or Global Sdn. Bhd. (“UMWC”), TTDI Development Sdn. Depository Receipt (“GDR”) Bhd. (“TTDI”), formerly a Permodalan Nasional Berhad-related party, and Permodalan Negeri The Company did not sponsor any ADR or GDR Selangor Berhad (“PNSB”) in connection with the programme during the financial year under review. joint venture between the parties for a property development project. Pursuant to the Agreement, Imposition of Sanctions/Penalties TTDI acquired 19% and 20% from UMWC and PNSB, respectively, of the total issued and There were no sanctions and/or penalties imposed on paid-up share capital of UMW-PNSB for a total the Company and its subsidiaries, Directors or cash consideration of RM25,326,525 and management by any regulatory body during the RM26,659,500. A Supplementary Shareholders’ financial year under review. Agreement dated 31 March 1998 (supplemental to the Shareholders’ Agreement dated 2 July 1997) Non-Audit Fees between UMW-PNSB, UMWC, TTDI and PNSB to facilitate the payment of the purchase The amount of non-audit fees incurred for services price by TTDI to UMWC and PNSB. rendered to the Group for the financial year ended Supplementary Shareholders’ Agreement No. 2 31 December 2006 by the Company’s external auditors dated 24 November 2000 between UMW-PNSB, or their affiliates is disclosed in Note 24 of the Financial UMWC, TTDI and PNSB in respect of the Statements. amendments to the pre-emption rights of the shareholders. Pursuant to this Agreement, Variation in Results Permodalan Nasional Berhad (“PNB”) acquired 39% of the equity holding of TTDI in UMW-PNSB There were no variances of 10% or more between the in May 2001. PNB is now a shareholder of UMW- results for the financial year 2006 and the unaudited PNSB and the PNB Group is the largest shareholder results previously announced. of UMW Holdings Berhad, the parent company of UMWC, and therefore a related party. Profit Guarantees (b) Joint Venture Agreement dated 2 February 1993 The Company did not give any profit guarantee during between PNB Equity Resource Corporation Sdn. the financial year under review. Bhd. (“PNB EQUITY”), a related party, UMW Corporation Sdn. Bhd. (“UMWC”), Med-Bumikar Mara Sdn. Bhd. (“MBM”), Daihatsu (Malaysia) Sdn. Bhd. (“DMSB”), Daihatsu Motor Co. Ltd. (“DMC”)

ANNUAL REPORT 2006 57 Additional Compliance Information

and Mitsui & Co. Ltd. (“MBK”) in respect of a joint the ultimate parent company of KNGL. As such, venture to set up Perusahaan Otomobil Kedua Sdn. ARN is deemed to be a related party. Bhd. (“PERODUA”) to undertake the manufacture of the second Malaysian national car. (e) Vehicle Assembly Agreement dated 9 June 2004 between UMW Toyota Motor Sdn. Bhd. Supplement and Amendment Agreement dated (“UMWT”), a 51%-owned subsidiary of UMW 5 December 2001 between UMWC, DMC, MBM Corporation Sdn. Bhd. (“UMWC”), which is in turn Resources Berhad, PNB EQUITY, MBK and DMSB 100%-owned by UMW Holdings Berhad in respect of the setting up of Perodua Auto (“UMWH”), and Perodua Manufacturing Sdn. Bhd. Corporation Sdn. Bhd. and the restructuring of the (“PMSB”), a 38%-owned associate company of manufacturing subsidiaries of PERODUA, i.e., UMWC, in respect of the appointment of PMSB as Perodua Manufacturing Sdn. Bhd. (“PMSB”) and assembler/producer of specific vehicles for UMWT. Perodua Engine Manufacturing Sdn. Bhd. (“PEMSB”) to enable the PERODUA Group to Toyota Motor Corporation of Japan (“TMC”), a 39% acquire the ability to compete in the post-AFTA era shareholder of UMWT, has indirect interest in with assistance from DMC, through DMC’s PMSB via Daihatsu Motor Co., Ltd., its 51.56%- management control in PMSB and PEMSB, in owned subsidiary, which owns 20% and 41% improving production efficiencies, reducing cost equity interest in PERODUA and Perodua Auto and enhancing quality and to increase PERODUA’s Corporation Sdn. Bhd. (“PCSB”), respectively. competitiveness in the industry. PERODUA and PCSB in turn, hold 49% and 51% equity interest in PMSB, respectively. As such, PNB EQUITY is a wholly-owned subsidiary of TMC is deemed to be a related party. Permodalan Nasional Berhad (“PNB”) and the PNB Group is the largest shareholder of UMW Holdings (f) Joint Venture Agreement dated 5 July 2004 Berhad, the parent company of UMWC, and between UMW Corporation Sdn. Bhd. (“UMWC”), therefore a related party. a wholly-owned subsidiary of UMW Holdings Berhad (“UMWH”), Toyota Tsusho Corporation, (c) Joint Venture Agreement dated 16 August 1991 Japan (“TTC”) and Toyota Tsusho (Malaysia) Sdn. between PNB Equity Resource Corporation Sdn. Bhd. (“TTM”) for the setting up of a joint venture Bhd. (“PNB EQUITY”), Sung Jin Machinery Co. Ltd. operation, under UMW Toyotsu Motors Sdn. Bhd. and UMW Corporation Sdn. Bhd. (“UMWC”) in (“UMW Toyotsu”) in which UMW Toyotsu will be respect of the manufacture and sales of automotive an authorised non-exclusive dealer of UMW flexible tubes, industrial expansion joints, catalytic Toyota Motor Sdn. Bhd. (“UMWT”), a 51%-owned converters, motor vehicle components and related subsidiary of UMWC. products. PNB EQUITY is a wholly-owned subsidiary of Permodalan Nasional Berhad (“PNB”) Toyota Motor Corporation, Japan (“TMC”), a 39% and the PNB Group is the largest shareholder of shareholder of UMWT owns 23.84% equity UMW Holdings Berhad, the parent company of interest in TTC. TTC, a 10% shareholder of UMWT UMWC, and therefore a related party. is also a 51% shareholder of TTM. TMC and TTC are deemed to be related parties by virtue of their (d) The Agreement dated 3 March 2004 between direct interest in UMWT. UMW Corporation Sdn. Bhd., a wholly-owned subsidiary of UMW Holdings Berhad (“UMWH”), Recurrent Related Party Transactions of a Revenue and Kontena Nasional Global Logistics Sdn. Bhd. or Trading Nature (“KNGL”) for the provision of logistics and/or freight management-related support services, by KNGL to At the Annual General Meeting of the Company held the UMW Group. on 15 June 2006, the Company had obtained a Shareholders’ Mandate to allow the Group to enter into Amanah Raya Nominees (Tempatan) Sdn. Bhd. recurrent related party transactions of a revenue or (“ARN”), a major shareholder of UMWH, is also a trading nature. major shareholder of NCB Holdings Bhd. (“NCB”),

58 UMW HOLDINGS BERHAD Additional Compliance Information (Cont’d.)

In accordance with Paragraph 10.09(1)(b), Chapter 10 of the Listing Requirements of Bursa Securities, details of recurrent related party transactions conducted during the financial year ended 31 December 2006 pursuant to the Shareholders’ Mandate are as follows -

Value of Name of Type of Recurrent Transaction Related Party Relationship Related Party Transaction (RM’000)

Toyota Motor TMC has direct and indirect interest in ● Payment of advertising 2,676 Corporation, Japan UMW Toyota Motor Sdn. Bhd. (“UMWT”) and other subsidy (“TMC”) and its subsidiaries by virtue of its 39% support by TMC to direct shareholding in UMWT, a 51%- UMWT 1. owned subsidiary of UMW Corporation Sdn. Bhd. (“UMWC”). In addition, TMC also has an indirect interest in UMWT through its associated company, Toyota Tsusho Corporation, Japan (“TTC”), by virtue of TTC’s 10% direct shareholding in UMWT.

TMC has 23.84% equity interest in TTC.

TTC is a major shareholder of Toyota Tsusho (Malaysia) Sdn. Bhd. (“TTM”) as TTC has 51% equity interest therein.

TTM has 27.27% equity interest in Denso ● Sale of vehicle spare 348,773 (Malaysia) Sdn. Bhd. (“Denso”). parts by Denso to UMWT. Denso International Asia, Singapore (“DIA”) has 72.73% equity interest in Denso. DIA is a wholly-owned subsidiary of Denso Corporation, Japan, a company in which TMC has 24.78% equity interest therein.

TMC has 22.96% equity interest in JTEKT ● Sale of vehicle spare 144,902 Corporation, which in turn has 90% equity parts by JTEKT to interest in JTEKT Automotive (Malaysia) UMWT. Sdn. Bhd. (“JTEKT”).

UMWT has 10% equity interest in JTEKT.

TMC has indirect interest in Perodua ● Sale of vehicle 664,577 Manufacturing Sdn. Bhd. (“PMSB”) via completely knock- Daihatsu Motor Co., Ltd., Japan (“DMC”), down (“CKD”) units its 51.56%-owned subsidiary, which has and components by 20% and 41% equity interests in UMWT to PMSB. Perusahaan Otomobil Kedua Sdn. Bhd. (“Perodua”) and Perodua Auto Corporation ● Sale of vehicles by 1,068,137 Sdn. Bhd. (“PCSB”), respectively. Perodua PMSB to UMWT. and PCSB in turn, have 49% and 51% equity interests in PMSB, respectively.

Assembly Services Sdn. Bhd. (“ASSB”) is a ● Receipt of technical 2,628 wholly-owned subsidiary of UMWT. engineering fees by TMC from ASSB 2.

ANNUAL REPORT 2006 59 Additional Compliance Information

Value of Name of Type of Recurrent Transaction Related Party Relationship Related Party Transaction (RM’000)

Toyota Tsusho TTC and TTM have 15% and 10% equity ● Sale of aluminium/ 7,901 Corporation, Japan interest in OYL Steel Centre Sdn. Bhd. stainless steel coils and (“TTC”) (“OYL”), respectively. sheets by OYL to AISB.

Automotive Industries Sendirian Berhad (“AISB”) is a wholly-owned subsidiary of UMWT.

Assembly Services Sdn. Bhd. (“ASSB”) is a ● Sale of tools, vehicle 4,586 wholly-owned subsidiary of UMWT. OE parts and consumables by TTM to ASSB3.

TTC owns 30% equity interest in Toyota ● Purchase of material 18,329 Material Handling Shanghai (“TMHS”). handling equipment by UMW Industrial UMW Industrial Trading (Shanghai) Co., Trading (Shanghai) Co., Ltd. is a wholly-owned subsidiary of Ltd. from TMHS. UMWC.

TTC and TTM have 51% and 19% equity ● Sale of vehicles by 46,401 interest in UMW Toyotsu Motors Sdn. Bhd. UMWT to UMW (“UMW Toyotsu”), respectively. Toyotsu.

Kayaba Industry Co., TMC has 8.81% equity interest in KYB, ● Purchase of shock 3,652 Ltd. (“KYB, Japan”) Japan. absorbers for export market, by KYB, Japan KYB, Japan also has 33.4% equity interest from KYB-UMW, a in KYB-UMW Malaysia Sdn. Bhd. (“KYB- subsidiary of UMWC. UMW”), a 52.1%-owned subsidiary of UMWC, 67% equity interest in KYB ● Purchase of parts and 1,930 (Thailand) Co., Ltd. (“KYB Thailand”) and raw materials by KYB- 100% equity interest in KYB America LLC UMW from KYB (“KYB America”), KYB Europe GmbH Thailand. (“KYB Europe”) and KYB France. ● Sale of shock absorbers 8,505 by KYB-UMW to KYB America, a wholly- owned subsidiary of KYB, Japan.

● Sale of shock absorbers 8,685 by KYB-UMW to KYB Europe, a wholly- owned subsidiary of KYB, Japan.

60 UMW HOLDINGS BERHAD Additional Compliance Information (Cont’d.)

Value of Name of Type of Recurrent Transaction Related Party Relationship Related Party Transaction (RM’000)

Kayaba Industry Co., ● Sale of shock absorbers 5,022 Ltd. (“KYB, Japan”) by KYB-UMW to KYB France, a wholly- owned subsidiary of KYB, Japan.

Japan Drilling Co., JDC has 15% equity interest in UMW JDC ● Payment for the 9,251 Ltd. (“JDC”) Drilling Sdn. Bhd. (“UJD”), an 85%-owned provision of rig service subsidiary of UMWC. personnel by UJD to JDC.

● Payment of Technical 4,419 Service fees by UJD to JDC.

JDC Panama, Inc. (“JDC Panama”) is a ● Payment of charter of 13,316 wholly-owned subsidiary of JDC. drilling rig by UJD to JDC Panama.

Notes :

1. TMC bears part of the publicity and advertising expenses incurred locally based on contract.

2. Engineering services for the production of new models, including production planning, planning of production specifications, sourcing and installation of equipment and provision of instructors for technical assistance.

3. Includes modification fees for conveyor, cooling coil and steering angle tester.

Notwithstanding the related party disclosures already presented in the audited financial statements in accordance with Financial Reporting Standard No. 124 (“FRS 124”), the above disclosures are made in order to comply with Paragraph 10.09 of the Listing Requirements of Bursa Malaysia Securities Berhad (“Bursa Securities Listing Requirements”) with regard to the value of recurrent related party transactions of a revenue or trading nature conducted in accordance with the shareholders’ mandate during the financial year, as the scope of related party relationships and disclosures contemplated by the Bursa Securities Listing Requirements are, to a certain extent, different from those of FRS 124.

The shareholdings of the respective interested Major Shareholders as shown above are based on information disclosed in the Circular to Shareholders dated 22 May 2006 in relation to the Proposed Renewal of Shareholders’ Mandate for Existing Recurrent Related Party Transactions and New Shareholders’ Mandate for Additional Recurrent Related Party Transactions of a Revenue or Trading Nature.

ANNUAL REPORT 2006 61 Top Ten Properties Held by the UMW Group

Approximate Approximate Net Book Area of Land/ Age of Value as at Existing Built-up Building Revaluation Acquisition 31.12.2006 Location Description Use Tenure (Sq. Metres) (Years) Date Date (RM)

1. Ulu Selangor PT. 4445, Industrial Vacant Leasehold Land - 3,617,193.0 - - 17.04.1995 81,085,465 Mukim Land 99 years Built-up - Nil Serendah, expiring Ulu Selangor. 16.04.2094

2. Shah Alam No. 2, Persiaran Commercial UMW Leasehold Land - 24,283.2 2 - 06.08.1985 46,859,596 Raja Muda, Land Toyota Motor 99 years Built-up - 19,840.5 Section 15, Head Office expiring Shah Alam. 13.12.2066

3. Petaling Jaya Lot 1, Industrial Showroom, Leasehold Land - 17,094.0 1 - 15.06.1991 29,085,881 Jalan 19/1, Land Body & Paint, 99 years Built-up - 11,632.1 Section 19, Parts and expiring Petaling Jaya. Service Centre 28.06.2061

4. Shah Alam No. 19, Jalan Industrial Production Freehold Land - 46,947.5 4 - 14.05.1997 27,879,655 Subang Utama 2, Land Logistic Built-up - 820.0 (Jalan Puchong), Distribution Lion Industrial Centre Park, Section 22, Shah Alam.

5. Wilayah Persekutuan Lot 4523, Batu 5, Commercial Showroom, Freehold Land - 10,337.0 1 - 08.10.2003 26,230,739 Jalan Cheras, Land Parts and Built-up - 12,197.4 Kuala Lumpur. Service Centre

6. Mutiara Damansara Lot 44580, Mukim Commercial Showroom, Freehold Land - 10,967.1 1 - 13.08.2004 25,231,446 Sungai Buloh, Land Parts and Built-up - 11,375.5 Daerah Petaling, Service Centre Selangor.

7. Ulu Selangor PT. 4446 and Industrial Investment Leasehold Land - 2,023,399.0 - - 06.06.1995 20,621,754 PT. 4447, Land 99 years Built-up - Nil Mukim Serendah, expiring Ulu Selangor. 05.06.2094

8. Subang Part of Lot 61716, Commercial Proposed Freehold Land - 10,967.1 - - 28.03.2006 20,068,092 H.S.(D) 58036, Land Showroom, Built-up - Nil Bandar Subang Jaya, Parts and Daerah Petaling, Service Centre Selangor.

9. Kuala Langat Lot 8, Industrial Office and Leasehold Land - 31,510.0 8 - 26.04.1997 19,571,018 Jalan Waja 16, Land Factory 99 years Built-up - 12,662.0 Telok Panglima Buildings expiring Garang, 09.09.2103 Kuala Langat.

10. Singapore 108, International Industrial Office, Leasehold Land - 17,915.4 17 - 01.07.1999 19,570,764 Road, Land Warehouse and 60 years Built-up - 11,216.4 Singapore. Workshop expiring Buildings 15.10.2049

62ANNUAL REPORT 2006 UMW HOLDINGS BERHAD62 Financial Statement

Directors' Report 64

Statement by Directors 70

Statutory Declaration 70

Report of the Auditors 71

Consolidated Balance Sheet 72

Consolidated Income Statement 74

Consolidated Statement of Changes in Equity 75

Consolidated Cash Flow Statement 77

Balance Sheet 79

Income Statement 80

Statement of Changes in Equity 81

Cash Flow Statement 82

Notes to the Financial Statements 83

ANNUAL REPORT 2006 63 Directors’ Report

The directors hereby submit their report together with the audited financial statements of the Group and of the Company for the financial year ended 31 December 2006.

PRINCIPAL ACTIVITIES

The principal activities of the Group and of the Company are referred to in Note 1 to the financial statements.

There have been no significant changes in the nature of the principal activities during the financial year other than as disclosed in Note 1 to the financial statements.

RESULTS

Group Company RM'000 RM'000

Profit for the year 584,938 145,059

Attributable to: Equity holders of the Company 305,904 145,059 Minority interests 279,034 - 584,938 145,059

There were no material transfers to or from reserves or provisions during the financial year other than as disclosed in the statements of changes in equity of the Group and of the Company.

In the opinion of the directors, the results of the operations of the Group and of the Company during the financial year were not substantially affected by any item, transaction or event of a material and unusual nature other than:

(a) the effects arising from the changes in accounting policies due to the adoption of the new and revised FRSs which has resulted in a decrease in the Group's profit for the year by RM24.4 million as disclosed in Note 3.3(g)(ii) to the financial statements; and

(b) the effects arising from changes in estimates where the residual values and estimated useful lives of motor vehicles were revised, resulting in an increase in the Group's profit for the year by RM16.4 million as disclosed in Note 3.4 to the financial statements.

DIVIDENDS

The amounts of dividends paid or declared by the Company since 31 December 2005 were as follows:

RM'000

In respect of the financial year ended 31 December 2005:

Special interim dividend of 5% less 28% taxation paid on 23 January 2006 18,251

Final dividend of 20.5% less 28% taxation paid on 28 July 2006 74,832

In respect of the financial year ended 31 December 2006:

Interim dividend of 17.5% less 28% taxation paid on 13 October 2006 63,961

64 UMW HOLDINGS BERHAD Directors’ Report (Cont’d.)

DIVIDENDS (CONT’D.)

On 26 February 2007, the Board had approved the payment of a special interim dividend in respect of the current financial year ended 31 December 2006, of 10%, less 27% taxation, amounting to a total net dividend of approximately RM38,011,700 (7.3 sen net per share) to be paid on 30 April 2007. The financial statements for the current financial year do not reflect this special interim dividend. Such dividend will be accounted for in the shareholders' equity as an appropriation of retained profits in the next financial year ending 31 December 2007.

At the forthcoming Annual General Meeting of the Company, a final dividend in respect of the current financial year ended 31 December 2006, of 13.5%, less 27% taxation, amounting to a total net dividend of approximately RM51,316,000 (9.86 sen net per share) will be proposed for shareholders' approval. The financial statements for the current financial year do not reflect this proposed dividend. Such dividend, if approved by shareholders, will be accounted for in the shareholders' equity as an appropriation of retained profits in the next financial year ending 31 December 2007.

EMPLOYEE SHARE OPTION SCHEME

The UMW Holdings Berhad Employee Share Option Scheme (“ESOS”) was approved by shareholders at an Extraordinary General Meeting of the Company held on 3 April 2006 and became effective on 18 April 2006.

The main features of the ESOS are as follows:

(a) Eligible persons are employees of the Group who have been confirmed in the employment of the Group including full-time salaried executive directors. The eligibility for participation in the ESOS shall be at the discretion of the ESOS Committee appointed by the Board of Directors.

(b) The total number of shares to be offered shall not exceed in aggregate 15% of the issued and paid-up ordinary share capital of the Company at the point of offer during the duration of the ESOS, which shall be in force for a period of five years from 18 April 2006 and expiring on 17 April 2011.

(c) The option price for each share shall be determined by the ESOS Committee at its discretion based on the five (5)-day weighted average market price (“5D-WAMP”) of the underlying shares of the Company immediately prior to the date of offer provided that the price so determined shall not be at a discount of more than 10% of the 5D-WAMP and shall not be less than the par value of the shares of the Company.

(d) Not more than 50% of the shares available under the ESOS shall be allocated, in aggregate, to Directors and senior management of the Group and not more than 10% of the shares available under the ESOS shall be allocated to any individual eligible employee, who, either singly or collectively through persons connected with him/her holds 20% or more of the issued and paid-up share capital of the Company.

(e) Options granted under the ESOS shall be capable of being exercised by the grantee in stages upon satisfaction of stipulated service conditions ranging from 1 year to 3 years of service from grant dates whilst he/she is in the employment of the Group, by notice in writing to the Company of his/her intention to exercise an option during the option period.

(f) The number of shares under option or the option price or both so far as the options remain unexercised, may be adjusted following any alteration in the capital structure of the Company during the option period by way of rights issues, bonus issues, capital reduction, subdivision or consolidation of capital of the Company.

(g) The new shares to be issued and allotted upon the exercise of any option shall upon issuance, allotment and full payment, rank pari passu in all respects with the existing shares of the Company at the time of allotment and will be subject to all the provisions of the Articles of Association of the Company relating to transfer, transmission and otherwise.

ANNUAL REPORT 2006 65 Directors’ Report

EMPLOYEE SHARE OPTION SCHEME (CONT’D.)

The movements in the options to take up unissued new ordinary shares of RM1.00 each and the option prices were as follows:

<—–—–––––— Number of Options Over Ordinary Shares of RM1.00 Each ———–––––—> Option Grant 31 December Price (RM) Date Offered Accepted Forfeited Exercised 2006

6.67 07/6/2006 17,213,000 17,000,900 188,900 1,036,300 15,775,700 6.66 10/8/2006 28,641,900 28,208,600 179,200 2,182,800 25,846,600 6.65 18/9/2006 2,616,600 2,578,100 10,500 7,900 2,559,700

As at 31 December 2006, 3,227,000 ordinary shares have been allotted during the year.

The number of outstanding options as at 31 December 2006 stood at 44,182,000.

At the date of this report, options relating to 3,830,800; 5,883,900 and 803,300 ordinary shares were exercised and allotted at option prices of RM6.67 per share, RM6.66 per share and RM6.65 per share, respectively, subsequent to the end of the financial year.

The Company has been granted exemption by the Companies Commission of Malaysia from having to disclose the names of option holders, other than directors, who have been granted options to subscribe for less than 100,000 ordinary shares of RM1.00 each. The names of option holders granted options to subscribe for 100,000 or more ordinary shares of RM1.00 each during the financial year are as follows:

Number of Options Over <------Ordinary Shares of RM1.00 Each ------> Name Grant Expiry Exercise <--- Number of Share Option ---> Date Date Price Granted Exercised 31 December RM 2006

Dato' Dr. Abdul Halim bin Harun 07/6/2006 17/4/2011 6.67 294,000 40,600 253,400 Chen Yuen Thiam @ Chang Yuen Thiam 10/8/2006 17/4/2011 6.66 210,000 - 210,000 Chew Chee Loon 07/6/2006 17/4/2011 6.67 151,200 15,000 136,200 Kuah Kock Heng 07/6/2006 17/4/2011 6.67 151,200 - 151,200 Suseela Menon A/P T.A.S Menon 07/6/2006 17/4/2011 6.67 151,200 10,000 141,200 Aminar Rashid bin Salleh 10/8/2006 17/4/2011 6.66 111,300 - 111,300 Fadzil bin Ismail 10/8/2006 17/4/2011 6.66 111,300 - 111,300 Harry Loo Chee Yan 10/8/2006 17/4/2011 6.66 111,300 - 111,300 Lee Yoke Wah 10/8/2006 17/4/2011 6.66 111,300 - 111,300 Madzlan bin Mansor 07/6/2006 17/4/2011 6.67 111,300 - 111,300 Meor Mohar Azhar bin Abd Ghani 07/6/2006 17/4/2011 6.67 111,300 - 111,300 Zulkifly bin Zakaria 07/6/2006 17/4/2011 6.67 111,300 - 111,300

66 UMW HOLDINGS BERHAD Directors’ Report (Cont’d.)

SHARE CAPITAL

During the financial year, the Company increased its issued and paid-up share capital from RM506,962,766 to RM510,189,766 by way of the issuance of 3,227,000 ordinary shares through the:

(a) exercise and allotment of 1,036,300 option shares of RM1.00 each at RM6.67 per share pursuant to the ESOS;

(b) exercise and allotment of 2,182,800 option shares of RM1.00 each at RM6.66 per share pursuant to the ESOS; and

(c) exercise and allotment of 7,900 option shares of RM1.00 each at RM6.65 per share pursuant to the ESOS.

At the date of this report, the issued and paid-up capital of the Company was increased from RM510,189,766 to RM520,707,766 as a result of the exercise and allotment of 3,830,800; 5,883,900 and 803,300 option shares of RM1.00 each at option prices of RM6.67 per share, RM6.66 per share and RM6.65 per share, respectively, pursuant to the ESOS subsequent to the end of the financial year.

DIRECTORS

The names of the directors of the Company in office since the date of the last report and at the date of this report are:

Tan Sri Datuk Asmat bin Kamaludin Dato’ Dr. Abdul Halim bin Harun Tan Sri Datuk Mohamed Khatib bin Abdul Hamid Tan Sri Dato’ Mohamed Noordin bin Hassan Lt. Gen. (R) Dato’ Mohd. Yusof bin Din Dato’ Ir. Lee Yee Cheong Dato’ Haji Darwis bin Mohd. Daid Dato’ Thomas Mun Lung Lee Md. Yusof bin Hussin

DIRECTORS' BENEFITS

Neither at the end of the financial year, nor at any time during that year, did there subsist any arrangement to which the Company was a party, whereby the directors might acquire benefits by means of acquisition of shares in or debentures of the Company or any other body corporate, other than as may arise from the share options granted pursuant to the ESOS.

Since the end of the previous financial year, no director has received or become entitled to receive a benefit (other than benefits included in the aggregate amount of emoluments received or due and receivable by the directors as shown in Note 23 to the financial statements) by reason of a contract made by the Company or a related corporation with any director or with a firm of which he is a member, or with a company in which he has a substantial financial interest, except as disclosed in Note 24 to the financial statements.

ANNUAL REPORT 2006 67 Directors’ Report

DIRECTORS' INTEREST

According to the register of directors’ shareholdings, the directors in office at the end of the financial year did not have any interest in the shares of the Company or its related corporations and did not have any options to subscribe for shares in the Company under the ESOS except for the following:

<––––––––– Number of Ordinary Shares of RM1.00 Each ––––––––> Exercise 1 January of 31 December The Company 2006 Options Bought Sold 2006

Direct Interest Dato’ Dr. Abdul Halim bin Harun 93,333 40,600 - - 133,933

<––––––––––––– Number of Options Over Ordinary ––––––––––––> Shares of RM1.00 Each Option 1 January 31 December The Company Price 2006 Granted Exercised 2006

Dato’ Dr. Abdul Halim bin Harun - direct RM6.67 - 294,000 40,600 253,400

The options to subscribe for 294,000 ordinary shares of RM1.00 each in the Company were granted to Dato’ Dr. Abdul Halim bin Harun on 7 June 2006 at an option price of RM6.67 per share pursuant to the ESOS.

OTHER STATUTORY INFORMATION

(a) Before the income statements and balance sheets of the Group and of the Company were made out, the directors took reasonable steps:

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

(ii) to ensure that any current assets which were unlikely to realise their value as shown in the accounting records in the ordinary course of business had been written down to an amount which they might be expected so to realise.

(b) At the date of this report, the directors are not aware of any circumstances which would render:

(i) the amount written off for bad debts or the amount of the provision for doubtful debts inadequate to any substantial extent; and

(ii) the values attributed to the current assets in the financial statements of the Group and of the Company misleading.

(c) At the date of this report, the directors are not aware of any circumstances which have arisen which would render adherence to the existing method of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate.

(d) At the date of this report, the directors are not aware of any circumstances not otherwise dealt with in this report or financial statements of the Group and of the Company which would render any amount stated in the financial statements misleading.

68 UMW HOLDINGS BERHAD Directors’ Report (Cont’d.)

OTHER STATUTORY INFORMATION (CONT’D.)

(e) As at the date of this report, there does not exist:

(i) any charge on the assets of the Group or of the Company which has arisen since the end of the financial year which secures the liabilities of any other person; or

(ii) any material contingent liability of the Group or of the Company which has arisen since the end of the financial year.

(f) In the opinion of the directors:

(i) no contingent or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the financial year which will or may affect the ability of the Group or of the Company to meet their obligations when they fall due; and

(ii) no item, transaction or event of a material and unusual nature has arisen in the interval between the end of the financial year and the date of this report which is likely to affect substantially the results of the operations of the Group or of the Company for the financial year in which this report is made.

SIGNIFICANT EVENTS

The significant events during the year are as disclosed in Note 33 to the financial statements.

SUBSEQUENT EVENTS

The subsequent events are as disclosed in Note 34 to the financial statements.

AUDITORS

The auditors, Ernst & Young, have expressed their willingness to continue in office.

Signed on behalf of the Board in accordance with a resolution of the directors dated 16 April 2007.

LT. GEN. (R) DATO’ MOHD. YUSOF BIN DIN Director

DATO’ DR. ABDUL HALIM BIN HARUN Group Managing Director/Chief Executive Officer

ANNUAL REPORT 2006 69 Statement By Directors PURSUANT TO SECTION 169(15) OF THE COMPANIES ACT, 1965

We, LT. GEN. (R) DATO’ MOHD. YUSOF BIN DIN and DATO' DR. ABDUL HALIM BIN HARUN, being two of the directors of UMW HOLDINGS BERHAD, do hereby state that, in the opinion of the directors, the accompanying financial statements set out on pages 72 to 172 are drawn up in accordance with applicable MASB Approved Accounting Standards For Entities Other Than Private Entities in Malaysia and the provisions of the Companies Act, 1965 so as to give a true and fair view of the financial position of the Group and of the Company as at 31 December 2006 and of the results and the cash flows of the Group and of the Company for the year then ended.

Signed on behalf of the Board in accordance with a resolution of the directors dated 16 April 2007.

LT. GEN. (R) DATO’ MOHD. YUSOF BIN DIN DATO' DR. ABDUL HALIM BIN HARUN

Statutory Declaration PURSUANT TO SECTION 169(16) OF THE COMPANIES ACT, 1965

I, MEOR MOHAR AZHAR BIN ABD GHANI, being the officer primarily responsible for the financial management of UMW HOLDINGS BERHAD, do solemnly and sincerely declare that the accompanying financial statements set out on pages 72 to 172 are in my opinion, 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 ) abovenamed MEOR MOHAR AZHAR BIN ) ABD GHANI at Shah Alam in Selangor ) MEOR MOHAR AZHAR BIN ABD GHANI Darul Ehsan on 16 April 2007 )

Before me,

14C, 3rd Floor Block 1, Worldwide Business Park Jalan Tinju 13/50, 40675 Shah Alam, Selangor Tel : 03-55182429 Fax : 03-55182430

70 UMW HOLDINGS BERHAD Report Of The Auditors TO THE MEMBERS OF UMW HOLDINGS BERHAD (Incorporated in Malaysia)

We have audited the financial statements set out on pages 72 to 172. These financial statements are the responsibility of the Company's directors.

It is our responsibility to form an independent opinion, based on our audit, on the financial statements and to report our opinion to you, as a body, in accordance with Section 174 of the Companies Act, 1965 and for no other purpose. We do not assume responsibility to any other person for the content of this report.

We conducted our audit in accordance with applicable Approved Standards on Auditing in Malaysia. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

In our opinion:

(a) the financial statements have been properly drawn up in accordance with the provisions of the Companies Act, 1965 and applicable MASB Approved Accounting Standards For Entities Other Than Private Entities in Malaysia so as to give a true and fair view of:

(i) the financial position of the Group and of the Company as at 31 December 2006 and of the results and the cash flows of the Group and of the Company for the year then ended; and

(ii) the matters required by Section 169 of the Companies Act, 1965 to be dealt with in the financial statements; and

(b) the accounting and other records and the registers required by the Act to be kept by the Company and by its subsidiaries of which we have acted as auditors have been properly kept in accordance with the provisions of the Act.

We have considered the financial statements and the auditors’ reports thereon of the subsidiaries of which we have not acted as auditors, as indicated in Note 31 to the financial statements, being financial statements that have been included in the consolidated financial statements.

We are satisfied that the financial statements of the subsidiaries that have been consolidated with the financial statements of the Company are in form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements and we have received satisfactory information and explanations required by us for those purposes.

The auditors’ reports on the financial statements of the subsidiaries were not subject to any qualification material to the consolidated financial statements and did not include any comment required to be made under Section 174(3) of the Act.

Ernst & Young Ahmad Zahirudin bin Abdul Rahim AF: 0039 No. 2607/12/08 (J) Chartered Accountants Partner

Kuala Lumpur, Malaysia 16 April 2007

ANNUAL REPORT 2006 71 Consolidated Balance Sheet As At 31 December 2006

Note 2006 2005 RM'000 RM'000 (Restated)

ASSETS

Non-current assets Investments in associates 4 822,692 621,185 Investment properties 5 14,581 14,788 Property, plant and equipment 6 1,099,579 1,296,960 Leased assets 7 119,060 108,837 Deferred tax assets 17 26,724 32,151 Intangible assets 8 21,582 61,030 Other financial assets 4 25,436 51,226 2,129,654 2,186,177

Current assets Deposits, cash and bank balances 9 1,148,784 1,717,300 Receivables 10 891,863 813,027 Inventories 11 917,234 991,541 2,957,881 3,521,868 Non-current assets held for sale 12 14,989 12,935 2,972,870 3,534,803

TOTAL ASSETS 5,102,524 5,720,980

EQUITY AND LIABILITIES

Equity attributable to equity holders of the Company

Share capital 13 510,190 506,963 Share premium 163,527 145,251 Capital reserve 14 5,793 5,793 Share options reserve 13 33,683 - Foreign exchange reserve 23,861 29,837 Retained profits 1,823,008 1,654,187 2,560,062 2,342,031 Minority interests 826,796 921,081 Total equity 3,386,858 3,263,112

72 UMW HOLDINGS BERHAD Consolidated Balance Sheet (Cont’d.) As At 31 December 2006

Note 2006 2005 RM'000 RM'000 (Restated)

Non-current liabilities Long term liabilities 15 342,412 370,906 Provision for liabilities 16 26,626 7,244 Deferred taxation liabilities 17 36,442 35,918 405,480 414,068

Current liabilities Short term borrowings 18 152,673 344,546 Payables 19 1,045,690 1,556,891 Taxation 56,079 59,651 Dividend payable 28 - 18,251 Provision for liabilities 16 55,744 64,461 1,310,186 2,043,800

Total liabilities 1,715,666 2,457,868

TOTAL EQUITY AND LIABILITIES 5,102,524 5,720,980

The accompanying notes form an integral part of the financial statements.

ANNUAL REPORT 2006 73 Consolidated Income Statement For The Year Ended 31 December 2006

Note 2006 2005 RM'000 RM'000 (Restated)

Revenue 21 9,950,488 9,868,789 Other operating income 22 89,548 83,098 Changes in inventories 171,221 149,280 Finished goods purchased (7,806,005) (7,356,185) Raw materials and consumables used (318,308) (1,028,424) Employee benefits 23 (493,313) (437,257) Depreciation (166,771) (140,749) Other operating expenses 24 (796,314) (585,833) Profit from operations 630,546 552,719 Finance costs 25 (33,685) (23,594) Investment income 22 40,321 37,904 Share of profits of associated companies 117,099 90,468 Profit before taxation 754,281 657,497 Taxation 26 (169,343) (158,163) Profit for the year 584,938 499,334

Attributable to: Equity holders of the Company 305,904 284,201 Minority interests 279,034 215,133 584,938 499,334

Earnings per share attributable to equity holders of the Company (Sen):

Basic, for profit for the year 27 60.3 56.2

Diluted, for profit for the year 27 59.9 56.2

The accompanying notes form an integral part of the financial statements.

74 UMW HOLDINGS BERHAD Foreign Share <–––––––––––– Non-Distributable ––––––––––> Distributable Share Share Exchange Options Capital Retained Minority Capital Premium Reserve Reserve Reserve Profits Total Interests Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 directly in equity - - (1,045) - - - (1,045) 3,798 2,753 Groupexpense for the yearsubsidiaryPursuant to ESOS - - of warrantsExercise - - (1,045) 7,307 (1,045) 598 18,999 - 1,407 ------284,201 - 283,156 - 218,931 - - (1,045) 502,087 - 3,798 - - 2,753 - 26,306 2,005 - - - 26,306 - 2,005 36,298 36,298 At 1 January 2005 At previously statedEffect of adopting FRS 101At 1 January 2005 (restated)Foreign currency translation: 499,058 499,058 124,845Net income/expense recognised 124,845 - 30,882 30,882Profit for the year recognised income and Total - - -Dividends (Note 28)Increase in share capital of a 5,793 - 5,793 1,470,331 2,130,909Issue of ordinary shares: 1,470,331 2,130,909 722,556 - 720,016 2,853,465 - 2,850,925 At 31 December 2005 - - - 506,963 - 145,251 - 29,837 ------5,793 2,540 - 1,654,187 2,342,031 284,201 2,540 284,201 - 921,081 3,263,112 (100,345) 215,133 (100,345) 499,334 (56,704) (157,049) Consolidated Statement Of Changes In Equity For The Year Ended 31 December 2006 Year For The

ANNUAL REPORT 2006 75 Foreign Share <––––––––––– Non-Distributable –––––––––––>Distributable Share Share Exchange Options Capital Retained Minority Capital Premium Reserve Reserve Reserve Profits Total Interests Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 506,963 145,251 29,837 - 5,793 1,655,897 2,343,741 921,081 3,264,822 Groupin equityexpense for the yearsubsidiaries - -Pursuant to ESOS -subsidiaries - - -to associate (5,976) (5,976) (5,976)(under ESOS) 3,227 - - 18,276 ------305,904 - - - - - 299,928 - - 282,203 - (5,976) (5,976) 582,131 - - - 3,169 3,169 - (2,807) - - (2,807) - - 33,683 - 21,503 ------21,503 - 43,097 - - 43,097 33,683 - (19,119) - (19,119) (253,125) - (253,125) 33,683

At 1 January 2006Effect of adopting FRS 3Foreign currency translation: 506,963Net income recognised directly 145,251 -Profit for the year 29,837 recognised income and Total - -Dividends (Note 28)Increase in share capital of 5,793 -New/acquisition of subsidiaries 1,654,187Issue of ordinary shares: - 2,342,031 921,081Reduction in minority interests - 3,263,112 - - -Reclassification of a subsidiary Share based payment - - - -At 31 December 2006 1,710The accompanying notes form an integral part of the financial statements. - 1,710 - - 510,190 163,527 - - - - 23,861 305,904 33,683 1,710 - 305,904 - 5,793 (138,793) 279,034 1,823,008 (138,793) 2,560,062 584,938 (167,625) - (306,418) 826,796 3,386,858 - 20,284 20,284 Consolidated Statement Of Changes In Equity (Cont’d.) For The Year Ended 31 December 2006 Year For The

76 UMW HOLDINGS BERHAD Consolidated Cash Flow Statement For The Year Ended 31 December 2006

2006 2005 RM'000 RM'000 (Restated)

CASH FLOWS FROM OPERATING ACTIVITIES Profit before taxation 754,281 657,497 Adjustments for: Impairment/amortisation of intangible assets 3,328 10,926 Negative goodwill on consolidation (680) - Depreciation and impairment loss 166,771 140,749 Dividend income (385) (252) Net gain on disposal of property, plant and equipment and leased assets (15,877) (18,080) Interest expense 33,857 22,652 Interest income (39,936) (37,652) Gain on disposal of investment (2,366) (4,439) Property, plant and equipment written off 759 1,774 Provision for impairment loss of investment 31 - (Reversal)/provision for doubtful debts (4,986) 9,893 Provision for liabilities, net of reversals 28,267 45,286 Share of profits retained in associated companies (117,099) (90,468) Loss on disposal of investment - 4,992 Inventories (written back)/written down (8,849) 18,654 Provision/(written back) of unutilised leave 2,665 (177) ESOS reserve 33,683 - Unrealised foreign exchange (gain)/loss (806) 685 Operating profit before working capital changes 832,658 762,040 Increase in receivables (201,435) (143,769) Increase in inventories (238,481) (273,583) Decrease in provision for liabilities (15,902) (11,452) (Decrease)/increase in payables (97,066) 450,224 Cash generated from operating activities 279,774 783,460 Interest paid (33,857) (19,991) Taxes paid (169,264) (112,838) Net cash generated from operating activities 76,653 650,631

CASH FLOWS FROM INVESTING ACTIVITIES Net cash inflow in acquisition of subsidiaries 5,377 51,136 Net cash outflow for deconsolidation of a subsidiary (251,252) - Net cash paid for investment in associated companies (5,679) (5,257) Purchase of additional equity interest (45,888) - Investment in a subsidiary (6,232) - Proceeds from restructuring of a subsidiary 44,328 - Investment in research and development (66) (1,778) Purchase of property, plant and equipment and leased assets (489,996) (570,306) Proceeds from disposal of property, plant and equipment and leased assets 43,465 43,423 Proceeds from disposal of investments 33,041 15,565 Purchase of unit trusts/investment (4,916) (14,410) Interest received 39,936 37,652 Dividends received 69,487 19,907 Net cash used in investing activities (568,395) (424,068)

ANNUAL REPORT 2006 77 Consolidated Cash Flow Statement (Cont’d.) For The Year Ended 31 December 2006

2006 2005 RM'000 RM'000 (Restated)

CASH FLOWS FROM FINANCING ACTIVITIES

Drawdown of long term borrowings 39,573 273,856 Repayment of long term borrowings (24,289) (6,118) Net movement in short term borrowings 163,162 106,142 Repayment of finance lease payables (75) (64) Proceeds from issuance of shares - by holding company to shareholders 21,503 28,311 - by subsidiary companies to outside shareholders 55,152 34,730 Dividends paid (157,044) (82,094) Dividends paid to minority interests (167,625) (56,704) Net cash (used in)/generated from financing activities (69,643) 298,059

NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (561,385) 524,622 CASH AND CASH EQUIVALENTS AS AT 1 JANUARY 1,703,824 1,184,942 EFFECTS OF EXCHANGE RATE CHANGES (773) (5,740) CASH AND CASH EQUIVALENTS AS AT 31 DECEMBER 1,141,666 1,703,824

Cash and cash equivalents comprise: Cash and bank balances (Note 9) 315,574 275,947 Deposits (Note 9) 833,210 1,441,353 Bank overdrafts (Note 18) (7,118) (8,273) As previously reported 1,141,666 1,709,027 Effects of exchange rate changes - (5,203) As restated 1,141,666 1,703,824

The accompanying notes form an integral part of the financial statements.

78 UMW HOLDINGS BERHAD Balance Sheet As At 31 December 2006

Note 2006 2005 RM'000 RM'000

ASSETS

Non-current asset Investments 4 296,859 208,039

Current assets Deposits, cash and bank balances 9 5,389 5,069 Receivables 10 38 38 Tax recoverable 375 49 Due from wholly-owned subsidiaries 423,851 469,840 429,653 474,996

TOTAL ASSETS 726,512 683,035

EQUITY AND LIABILITIES

Equity attributable to equity holders of the Company

Share capital 13 510,190 506,963 Share premium 163,527 145,251 Share options reserve 33,683 - Retained profits 18,411 12,145 725,811 664,359

Current liabilities Payables 19 701 425 Dividend payable 28 - 18,251 Total liabilities 701 18,676

TOTAL EQUITY AND LIABILITIES 726,512 683,035

The accompanying notes form an integral part of the financial statements.

ANNUAL REPORT 2006 79 Income Statement For The Year Ended 31 December 2006

Note 2006 2005 RM'000 RM'000

Revenue 21 201,484 143,102 Other operating expenses 24 (1,540) (1,438) Profit from operations 199,944 141,664 Investment income 22 216 148 Profit before taxation 200,160 141,812 Taxation 26 (55,101) (40,017) Profit for the year 145,059 101,795

The accompanying notes form an integral part of the financial statements.

80 UMW HOLDINGS BERHAD Statement Of Changes In Equity For The Year Ended 31 December 2006

<-Non-Distributable-> Distributable Share Share Share Options Retained Capital Premium Reserve Earnings Total RM'000 RM'000 RM'000 RM'000 RM'000

At 1 January 2005 499,058 124,845 - 10,695 634,598 Profit for the year, representing total recognised income and expense for the year - - - 101,795 101,795 Dividends (Note 28) - - - (100,345) (100,345) Issue of ordinary shares: Pursuant to ESOS 598 1,407 - - 2,005 Exercise of warrants 7,307 18,999 - - 26,306 At 31 December 2005 506,963 145,251 - 12,145 664,359

At 1 January 2006 506,963 145,251 - 12,145 664,359 Profit for the year, representing total recognised income and expense for the year - - - 145,059 145,059 Dividends (Note 28) - - - (138,793) (138,793) Issue of ordinary shares: Pursuant to ESOS 3,227 18,276 - - 21,503 Share based payment under ESOS - - 33,683 - 33,683 At 31 December 2006 510,190 163,527 33,683 18,411 725,811

The accompanying notes form an integral part of the financial statements.

ANNUAL REPORT 2006 81 Cash Flow Statement For The Year Ended 31 December 2006

2006 2005 RM'000 RM'000

CASH FLOWS FROM OPERATING ACTIVITIES

Profit before taxation 200,160 141,812 Adjustments for: Interest income (216) (148) Dividend income (201,484) (143,102) Operating loss before working capital changes (1,540) (1,438) Decrease in receivables - 1 Increase/(decrease) in due from subsidiary 45,989 (48,237) Increase in payables 276 144 Cash generated from/(used in) operations 44,725 (49,530) Taxes recovered 989 17 Net cash generated from/(used in) operating activities 45,714 (49,513)

CASH FLOWS FROM INVESTING ACTIVITIES

Interest received 216 148 Dividends received 145,068 103,033 Purchase of investments (55,137) - Net cash generated from investing activities 90,147 103,181

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from issue of shares 21,503 28,311 Dividends paid (157,044) (82,094) Net cash used in financing activities (135,541) (53,783)

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 320 (115) CASH AND CASH EQUIVALENTS AS AT 1 JANUARY 5,069 5,184 CASH AND CASH EQUIVALENTS AS AT 31 DECEMBER 5,389 5,069

Cash and cash equivalents comprise: Cash and bank balances (Note 9) 470 348 Deposits (Note 9) 4,919 4,721 5,389 5,069

The accompanying notes form an integral part of the financial statements.

82 UMW HOLDINGS BERHAD Notes To The Financial Statements - 31 December 2006

1. CORPORATE INFORMATION

The Group is principally engaged in:

(a) import, assembly and marketing of passenger and commercial vehicles and related spares and manufacturing of original/replacement automotive parts;

(b) trading and manufacturing of a wide range of light and heavy equipment including related spares for use in the industrial, construction, agricultural sectors; and

(c) manufacturing and trading of oil pipes and providing various oil and gas services including drilling and pipe-coating.

Ancillary to these activities, the Group provides support services in the form of after-sales service, travel and insurance. The other activities within the Group include:

(i) marketing of a range of established agency lines in the automotive field;

(ii) rebuilding and repair of heavy equipment and diesel engines along with fabrication and manufacturing of related components and customised attachments;

(iii) manufacturing of engines, vehicle exhaust systems, kangaroo bars, filters and seats for various automotive and industrial applications;

(iv) manufacturing and assembly of power steering pumps;

(v) manufacturing, assembly and marketing of shock absorbers;

(vi) agencies for some products used in the oil and gas industry;

(vii) blending, packaging, marketing and distribution of lubricants; and

(viii) provision of support services in the form of after-sales service, travel and insurance.

The Company is an investment holding company.

There have been no significant changes in the nature of these activities during the financial year.

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

The registered office of the Company is located at 3rd Floor, The Corporate, No. 10, Jalan Utas (15/7), Batu Tiga Industrial Estate, 40200 Shah Alam, Selangor Darul Ehsan.

The financial statements were authorised for issue by the Board of Directors in accordance with a resolution of the directors on 16 April 2007.

ANNUAL REPORT 2006 83 Notes To The Financial Statements - 31 December 2006

2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s operations and activities expose it to various forms of financial risks. An Enterprise Risk Management Committee, headed by the Chief Executive Officer, assesses risks and makes recommendations on risk management to the Board of Directors. Financial risk management objectives and policies identified by the Board of Directors are as follows:

(a) to minimise the Group’s exposure to foreign currency exchange and future cash flow risks;

(b) to accept certain level of price risk and credit risk commensurate with the expected returns on the underlying operations and activities; and

(c) to minimise liquidity risk by proper cash flow planning, management and control.

The Group’s risk management policies include using:

(a) derivatives to hedge its exposure to currency, interest and cash flow risks. However, use of derivatives for speculation is specifically prohibited;

(b) credit controls that include evaluation, acceptance, monitoring and feedback to ensure that only reasonably credit-worthy customers are accepted; and

(c) money market instruments, short term deposits and bank borrowings to manage liquidity risks.

The Group's policies in respect of the major areas of treasury activity are set out as follows:

(i) Credit Risk

Credit risk is managed through the application of the UMW Group’s Credit Granting Guidelines. These guidelines outline the credit granting criteria and approval procedures as endorsed by the Board of Directors. A credit committee performs ongoing monitoring on compliance and ensures that these credit authorisation policies and procedures are consistent with business requirements.

The Group does not have any significant exposure to an individual customer nor does it have any major concentration of credit risk related to any financial institution.

(ii) Liquidity Risk

To ensure that the Group has a healthy liquidity position, the management ensures that it has the right mixture of liquid assets in its portfolio as well as proper control over the Group’s overall asset position.

Also, the Group seeks to maintain a balance between flexible and structured financing options to finance its operations and investments.

(iii) Currency Risk

Material foreign currency exposure is hedged via forward foreign exchange contracts by using foreign exchange facilities maintained with leading banks in Malaysia.

84 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D.)

(iv) Interest Rate Risk

The Group is exposed to interest rate risk in respect of its bank deposits and debt instruments. Its policy is to have an optimal mixture of short and long term deposits and borrowings with floating and fixed interest rates. This policy helps to minimise the impact of changes in interest rates.

3. SIGNIFICANT ACCOUNTING POLICIES

3.1 Basis of Preparation

The financial statements comply with the provisions of the Companies Act, 1965 and applicable Malaysian Accounting Standards Board (“MASB”) Approved Accounting Standard for Entities Other Than Private Entities in Malaysia. During the year, the Group and the Company had adopted new and revised FRSs which are mandatory for financial periods beginning on or after 1 January 2006 as described fully in Note 3.3.

The financial statements of the Group and of the Company have been prepared on the historical cost basis except for marketable securities and non-current assets and disposal groups held for sale, as explained in their respective accounting policy notes.

The financial statements of the Group and of the Company are presented in Ringgit Malaysia and all values are rounded to the nearest thousand (RM’000) except when otherwise stated.

3.2 Summary of Significant Accounting Policies

(a) Subsidiaries and Basis of Consolidation

(i) Subsidiaries

Subsidiaries are companies over which the Group has the power to exercise control over the financial and operating policies of an entity so as to obtain benefits therefrom. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group has such power over another entity. Details of the subsidiaries are disclosed in Note 31.

(ii) Basis of Consolidation

The consolidated financial statements comprise the financial statements of the Company and all its subsidiaries as at the balance sheet date except for the subsidiaries that are under liquidation as disclosed in Note 4. The financial statements of the subsidiaries are prepared for the same reporting date as the Company.

Subsidiaries are consolidated from the effective date of acquisition, being a date on which the Group obtains control, and continue to be consolidated until the date that such control ceases, being the effective date of disposal.

ANNUAL REPORT 2006 85 Notes To The Financial Statements - 31 December 2006

3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.)

3.2 Summary of Significant Accounting Policies (Cont’d.)

(a) Subsidiaries and Basis of Consolidation (Cont’d.)

(ii) Basis of Consolidation (Cont’d.)

Intragroup transactions, balances and resulting unrealised gains are eliminated in full on consolidation and the consolidated financial statements reflect external transactions only. Unrealised losses are eliminated on consolidation unless costs cannot be recovered.

Uniform accounting policies are adopted in the consolidated financial statements for like transactions and events in similar circumstances.

Acquisition of subsidiary is accounted for using the purchase method. The purchase method of accounting involves allocating the cost of the acquisition to the fair value of the assets acquired and liabilities and contingent liabilities assumed at the date of acquisition. The cost of an acquisition is measured as the aggregate of the fair values, at the date of exchange, of the assets given, liabilities incurred or assumed, and equity instruments issued, plus any costs directly attributable to the acquisition.

Any excess of the cost of acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities represents goodwill. However, any excess of the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition is recognised immediately in consolidated income statement.

The gain or loss on disposal of a subsidiary is the difference between the disposal proceeds and the Group’s share of its net assets together with any carrying value of goodwill and translation differences which were not previously recognised in the consolidated income statement.

Minority interests in consolidated income statement and consolidated balance sheet represent the portion of profit or loss or net assets in subsidiaries not held by the Group, respectively. Minority interests in the consolidated balance sheet consist of the minorities’ share of the fair value of the identifiable assets and liabilities of the acquiree as at acquisition date and the minorities’ share of movements in the acquiree’s equity since then.

(iii) Associates

Associated companies are those companies in which the Group has long term equity interest where it exercises significant influence over the financial and operating policies of those companies.

The Group’s share of profits less losses of associates during the financial year is included in the consolidated income statement, using the equity method of accounting, based upon the audited or management financial statements of the associated companies as at 31 December 2006. Associates are equity accounted for from the date the Group

86 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.)

3.2 Summary of Significant Accounting Policies (Cont’d.)

(a) Subsidiaries and Basis of Consolidation (Cont’d.)

(iii) Associates (Cont’d.)

obtains significant influence until the date the Group ceases to have significant influence over the associates. Uniform accounting policies are adopted for like transactions and events in similar circumstances.

Unrealised gains on transactions between the Group and the associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are eliminated up to the extent of the Group’s interest in the associates unless cost cannot be recovered.

The Group's interest in associates is carried in the consolidated balance sheet at cost plus the Group's share of post acquisition reserves. Where there has been a change recognised directly in the equity of the associate, the Group recognises its share of such changes.

Goodwill represents the excess of the cost of acquisition over the fair value of the Group’s share of identifiable net assets and contingent liabilities of the associated companies as at the acquisition date and is included within the carrying amount of investment in associates. Goodwill is not amortized. Where an indication of impairment exists, the carrying value of goodwill is written down immediately to its recoverable value.

Any excess of the Group’s share of the net fair value of the associate's identifiable assets,liabilities and contingent liabilities over the cost of the investment is included as income in the determination of the Group’s share of associate’s profit or loss in the consolidated income statement in the period in which the investment is acquired.

On disposal of investment in an associate, the difference between net disposal proceeds and their carrying amount is included in the consolidated income statement.

Details of associated companies are disclosed in Note 32.

(b) Investments

(i) Subsidiaries and Associates

Investments in subsidiaries and associates are stated at cost less impairment losses. Where an indication of impairment exists, the carrying value of the investment is written down immediately to its recoverable value.

(ii) Other Non-Current Investments

Other non-current investments are stated at cost less impairment losses. Where an indication of impairment exists, the carrying value of the investment is written down immediately to its recoverable value.

ANNUAL REPORT 2006 87 Notes To The Financial Statements - 31 December 2006

3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.)

3.2 Summary of Significant Accounting Policies (Cont’d.)

(b) Investments (Cont’d.)

(iii) Marketable Securities

Marketable securities are carried at the lower of cost and market value, determined on an aggregate basis. Cost is determined on the weighted average basis while market value is determined based on quoted market values. Increases or decreases in the carrying amount of marketable securities are recognised in the income statement.

On disposal of an investment, the difference between net disposal proceeds and its carrying amount is recognised in the income statement.

(c) Property, Plant and Equipment

All items of property, plant and equipment are initially recorded at cost. Subsequent costs are either included in the asset’s carrying amount or recognized as a separate asset, provided costs can be measured reliably and it is probable that future economic benefits associated with these costs will flow to the Group. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged to the income statement during the financial period which they are incurred.

Subsequent to recognition, property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.

Freehold land and assets-in-progress are not depreciated. Depreciation of other property, plant and equipment is provided for on a straight-line basis to write off the cost of each asset to its residual value over the estimated useful life, at the following annual rates or periods:

Leasehold land Over period of the lease Buildings ) Over period of 50 years or ) period of the lease ) whichever is shorter Plant and machinery 6% - 50% Office equipment, furniture and fittings 10% - 50% Motor vehicles 20% - 33% Renovation and improvements 10% - 16%

The residual values, useful life and depreciation method are reviewed at each financial year- end to ensure that the amount, method and period of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items of property, plant and equipment.

Land and buildings of the Group have not been revalued since they were first revalued in 1979, 1984 and 1985. The directors have not adopted a policy of regular revaluation of such assets. These assets are stated at their respective valuation less accumulated depreciation and accumulated impairment losses.

88 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.)

3.2 Summary of Significant Accounting Policies (Cont’d.)

(c) Property, Plant and Equipment (Cont’d.)

The revaluation surplus realised through depreciation of the revalued property, plant and equipment is taken directly to retained earnings.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Upon the disposal of an item of property, plant and equipment, the difference between the net disposal proceeds and the carrying amount is recognised in the income statement and the unutilised portion of the revaluation surplus on that item is taken directly to retained earnings.

When an indication of impairment exists, the carrying amount of the asset is written down immediately to its recoverable value. The policy for the recognition and measurement of impairment losses is in accordance with Note 3.2 (v).

(d) Leased Assets

Leased assets represent plant and equipment leased by the Group to third parties under operating leases.

Depreciation of leased assets is provided for on a straight-line basis calculated to write off the cost of each asset to its residual value over the estimated useful life at the following annual rates of depreciation:

Plant and machinery 12.5% - 50.0% Motor vehicles 20.0% Other equipment and tools 12.5%

The accounting policies for leased assets are the same as that for property, plant and equipment in all respects.

(e) Investment Properties

Investment property is land or buildings held by the Group or held under a finance lease, to earn rental income or for capital appreciation or both. Investment property is stated at cost less accumulated depreciation and accumulated impairment losses.

Freehold land is not depreciated. Depreciation of other investment property is provided for on a straight-line basis to write off the cost to its residual value over its estimated useful life at the following periods:

Buildings Over a period of 50 years or period of the lease whichever is shorter

Upon the disposal of an item of investment property, the difference between the net disposal proceeds and the carrying amount is recognized in the income statement.

ANNUAL REPORT 2006 89 Notes To The Financial Statements - 31 December 2006

3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.)

3.2 Summary of Significant Accounting Policies (Cont’d.)

(e) Investment Properties (Cont’d.)

When an indication of impairment exists, the carrying amount of the asset is written down immediately to its recoverable value. The policy for the recognition and measurement of impairment losses is in accordance with Note 3.2(v).

(f) Cash and Cash Equivalents

For the purposes of the cash flow statements, cash and cash equivalents include cash and bank balances and deposits at call with banks and finance companies, net of outstanding bank overdrafts.

(g) Inventories

Inventories are stated at the lower of cost and net realisable value. 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. In arriving at net realisable value, due allowance has been made for obsolete and slow-moving items.

Cost is determined principally by the following methods:

Equipment, unassembled and completed vehicles and attachments - specific identification

Finished goods, work-in-progress, raw materials, - weighted average spares and consumables

Cost of raw materials, spares and consumables represent cost of purchase.

For manufactured goods, completed vehicles, attachments and work-in-progress, cost includes cost of raw materials, direct labour and the appropriate production overheads.

(h) Intangible Assets

(i) Goodwill

Goodwill acquired in a business combination is initially measured at cost, being the excess of the cost of business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following the initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortised but instead, it is reviewed for impairment, annually or more frequently, if events or changes in circumstances indicate that the carrying value may be impaired. On disposal of an entity, the carrying amount of goodwill is taken into account in determining the gains and losses.

90 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.)

3.2 Summary of Significant Accounting Policies (Cont’d.)

(h) Intangible Assets (Cont’d.)

(ii) Research and Development Expenditure

Research expenditure is recognised as an expense when incurred.

Costs incurred on development projects are recognised as intangible assets only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the project and the ability to measure reliably the expenditure during the development. Product development expenditures which do not meet these criteria are expensed when incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

Development costs, considered to have finite lives, are stated at cost less any impairment losses and are amortised from the commencement of the commercial production of the product to which they relate, on a systematic basis based on the volume sold, so as to reflect the pattern in which the related economic benefits are recognised over the period of their expected benefit, but not exceeding five years. Impairment is assessed whenever there is an indication of impairment and the amortization period and method are also reviewed at least at each balance sheet date.

(i) Foreign Currencies

(i) Functional and Presentation Currency

The financial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates ("the functional currency"). The consolidated financial statements are presented in Ringgit Malaysia (RM), which is also the Company's functional currency.

Transactions in currencies other than the entity’s functional currency (“foreign currencies”) are initially converted into functional currency at rates of exchange ruling at the transaction dates, unless hedged by forward foreign exchange contracts, in which case the rates specified in such forward contracts are used. At each balance sheet date, foreign currency monetary items are translated into functional currency at exchange rates ruling at that date, unless hedged by forward foreign exchange contracts, in which case the rates specified in such forward contracts are used.

(ii) Foreign Currency Transactions

Non-monetary items initially denominated in foreign currencies, which are carried at historical cost are translated using the historical rate as of the date of acquisition and non-monetary items which are carried at fair value are translated using the exchange rate that existed when the values were determined.

ANNUAL REPORT 2006 91 Notes To The Financial Statements - 31 December 2006

3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.)

3.2 Summary of Significant Accounting Policies (Cont’d.)

(i) Foreign Currencies (Cont’d.)

(ii) Foreign Currency Transactions (Cont’d.)

Exchange differences arising on the settlement or translation of monetary items are taken to the income statement with the exception of differences on foreign currency borrowings that provide a hedge against a net investment in a foreign entity or long- term receivables or loans that form part of the entity’s net investment in a foreign entity. These exchange differences are recognised in the income statement in the Company's financial statements or the individual financial statements of the foreign entity, as appropriate but in the consolidated financial statements are:

- reclassified from income statement to foreign currency translation reserve within equity until the disposal of the net investment, at which time they are recognised in the income statement, in the case where the foreign currency borrowings or long-term receivables or loans are denominated in either the functional currency of the Company or the foreign entity;

- retained in the consolidated income statement, in the case where the foreign currency borrowings or long-term receivables or loans are denominated in a currency other than the functional currency of either the Company or the foreign entity.

In order to hedge its exposure to certain foreign exchange risks, the Group enters into forward foreign exchange contracts. The accounting policy for these contracts is further described in Note 3.2(o).

(iii) Foreign Operations

Financial statements of foreign subsidiaries consolidated are translated at year-end exchange rates with respect to the assets and liabilities, and at average exchange rates for the year, which approximate the exchange rates at the dates of the transactions with respect to the income statement. All resulting translation differences are included in the foreign currency translation reserve within equity.

Goodwill and fair value adjustments arising on the acquisition of a foreign operation on or after 1 January 2006 are treated as assets and liabilities of the foreign operation and are recorded in the functional currency of the foreign operation and translated at the closing rate at the balance sheet date. Goodwill and fair value adjustments arising on the acquisition of a foreign operation before 1 January 2006 are deemed to be assets and liabilities of the parent company and are recorded in RM at the exchange rate ruling at the date of the transaction.

92 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.)

3.2 Summary of Significant Accounting Policies (Cont’d.)

(i) Foreign Currencies (Cont’d.)

(iii) Foreign Operations (Cont’d.)

The principal exchange rates at the balance sheet date used for the translation of foreign currencies are as follows:

2006 2005 RM RM

United States Dollar 3.5265 3.7794 Singapore Dollar 2.3020 2.2728 Sterling Pound 6.9388 6.5618 Euro 4.6553 4.4536 Australian Dollar 2.7966 2.7726 Solomon Islands Dollar 0.4705 0.5168 Chinese Renminbi 0.4515 0.4685 Swedish Krone 0.5153 0.4741 Papua New Guinea Kina 1.1902 1.2124 Vietnamese Dong (100 units) 0.0220 0.0237 Thai Baht (100 units) 9.8387 9.2292 Japanese Yen (100 units) 2.9673 3.2112 Indonesian Rupiah (100 units) 0.0392 0.0386

(j) Income Tax

Income tax on the profit or loss for the year comprises current and deferred tax. Current tax is the expected amount of income taxes payable in respect of the taxable profit for the year and is measured using the tax rates that have been enacted at the balance sheet date.

Deferred tax is provided for, using the liability method, on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts in the financial statements. In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised for all deductible temporary differences, unused tax losses and unused tax credits to the extent that it is probable that future taxable profit will be available against which these can be utilised. Deferred tax is not recognised if the temporary difference arises from goodwill or negative goodwill or from the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction, affects neither accounting profit nor taxable profit.

Deferred tax is measured at the tax rates that are expected to apply in the period when the asset is realized or the liability is settled, based on tax rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax is recognised in the income statement, except when it arises from a transaction which is recognised directly in equity, in which case the deferred tax is also recognised directly in equity, or when it arises from a business combination that is an acquisition, in which case the deferred tax is included in the resulting goodwill or the amount of any excess of the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of acquisition.

ANNUAL REPORT 2006 93 Notes To The Financial Statements - 31 December 2006

3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.)

3.2 Summary of Significant Accounting Policies (Cont’d.)

(k) Revenue Recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:

(i) Revenue from sales of goods is recognised net of sales discounts when transfer of significant risks and rewards of ownership has been completed. Revenue includes excise duty but excludes sales tax and service tax.

(ii) Revenue from services rendered is recognised net of service tax on accrual basis as and when services are performed.

(iii) Rental income on operating lease transactions and rental income are recognised on accrual basis.

(iv) Dividend income is recognised when the shareholders’ rights to receive payment is established.

(v) Interest income is recognised on an accrual basis.

(vi) Revenue from construction contracts is accounted for by the stage of completion method as described in Note 3.2(u).

(l) Leases

(i) Where a Group Company is a Lessee

A lease is recognised as a finance lease if it transfers substantially to the Group all the risks and rewards incident to ownership. All other leases are classified as operating leases. Finance lease assets are capitalised at the lower of the fair value of the leased asset or the present value of the minimum lease payments, at the inception of the lease. The corresponding lease obligations, net of finance charges are included in borrowings. The interest rate implicit in the lease is used as the discount factor in calculating the present value of the minimum lease payments. Initial direct costs incurred are included as part of the asset.

The finance charge is allocated to periods during the lease term so as to produce a constant periodic rate of interest on the outstanding balance of the liability for each period.

The depreciation policy for assets held under finance leases is consistent with that for depreciable property, plant and equipment as described in Note 3.2(c).

Lease rental payments on operating leases are charged to the income statement on a straight-line basis over the period of the lease.

94 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.)

3.2 Summary of Significant Accounting Policies (Cont’d.)

(l) Leases (Cont’d.)

(ii) Where a Group Company is a Lessor

The present value of lease payments receivable under a finance lease is recognised as lease receivables. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. Lease income is recognised over the term of the lease so as to reflect a constant periodic rate of return on the balance outstanding.

Assets leased out under operating leases are included as leased assets in the balance sheet. They are depreciated over their expected useful lives as described in Note 3.2(d). Net rental income is recognised on a straight-line basis over the lease term.

(m) Employee Benefits

(i) Short Term Benefits

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

(ii) Defined Contribution Plans

Defined contribution plans are post-employment benefit plans under which the Group pays fixed contributions into separate entities or funds and will have no legal or constructive obligation to pay further contributions if any of the funds do not hold sufficient assets to pay all employee benefits relating to employee services in the current and preceding financial years.

As required by law, companies in Malaysia make contributions to the state pension scheme, the Employees Provident Fund. Some of the Group's foreign subsidiaries also make contribution to their respective countries' statutory pension schemes. The contributions are recognised as an expense in the income statement as incurred.

(iii) Retirement Benefits

The Group contributes to retirement schemes for its employees in accordance with its obligations. The major schemes are the UMW Group Retirement Plan (“UGRP”) and the Sejati Motor Retirement Plan (“SMRP”). Both of these schemes are defined benefit plans. These retirement schemes are funded by payments to trusts whose assets are separately administered from those of the Group. Current service costs, past service costs and experience adjustments in respect of these two plans are dealt with through the income statement of the Group.

ANNUAL REPORT 2006 95 Notes To The Financial Statements - 31 December 2006

3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.)

3.2 Summary of Significant Accounting Policies (Cont’d.)

(m) Employee Benefits (Cont’d.)

(iii) Retirement Benefits (Cont’d.)

The cost of retirement benefits is determined based on triennial actuarial valuation by independent actuaries using the Projected Unit Credit Valuation Method for both UGRP and SMRP. The last valuations were carried out as of 31 December 2004 for UGRP and 31 December 2003 for SMRP, respectively.

(iv) Share-based Compensation

The UMW Holdings Berhad Employee Share Option Scheme (“ESOS”), an equity-settled, share-based compensation plan, allows the Group’s employees to acquire ordinary shares of the Company. The total fair value of share options granted to employees is recognised as an employee cost with a corresponding increase in the share option reserve within equity over the vesting periods and takes into account the probability that the options will vest. The fair value of share option is measured at grant date and takes into account, if any, the market vesting conditions upon which the option were granted and excludes the impact of any non-market vesting conditions. Non-market vesting conditions are taken into account in making assumptions about the number of options that are expected to become exercisable on vesting dates.

At each balance sheet date, the Group revises its estimates of the number of options that are expected to become exercisable on vesting dates. It recognises the impact of the revision of original estimates, if any, in the profit or loss, and a corresponding adjustment to equity over the remaining vesting periods. The equity amount is recognised in the share options reserve until the option is exercised, upon which it will be transferred to share premium, or until the option expires, upon which it will be transferred directly to retained earnings.

The proceeds received net of any directly attributable transaction costs are credited to equity when the options are exercised.

(n) Provision for Warranties

Provision for warranties is recognised when the Group has a present obligation as a result of a past sale and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount can be made. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate.

(o) Financial Instruments

The recognised financial instruments comprise cash and cash equivalents, trade and other receivables, investments in securities and unit trusts, bank borrowings, trade and other payables and ordinary shares. These instruments are recognised in the financial statements when a contract or contractual arrangement has been entered into with the counter-parties.

96 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.)

3.2 Summary of Significant Accounting Policies (Cont’d.)

(o) Financial Instruments (Cont’d.)

Recognised financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement. The particular recognition method adopted and the basis of measurement applied for financial instruments recognised in the balance sheet is disclosed in the individual accounting policies associated with each item.

The unrecognised financial instruments comprise financial guarantees given to third parties and forward foreign exchange contracts. The financial guarantees would be recognised as liabilities when obligations to pay the counter-parties are assessed as being probable. The derivatives are recognised only when the underlying transactions occur or when settled.

The Group uses forward foreign exchange contracts to hedge its exposure to foreign exchange risk arising from operational, financing and investment activities. Under its treasury policy, the Group does not hold or issue derivative financial instruments for trading purposes.

The underlying foreign currency assets or liabilities are translated at their respective hedged exchange rates and all exchange gains or losses on the forward foreign exchange contracts are offset against the corresponding gain/loss on the underlying hedged item.

The measurement bases, extent and nature of other financial instruments are disclosed in their separate notes.

(p) Trade and Other Receivables

Trade and other receivables are carried at anticipated realisable values. Bad debts are written off when identified. An estimate is made for doubtful debts based on a review of all outstanding amounts as at the balance sheet date.

(q) Trade and Other Payables

Trade and other payables are stated at cost which is the fair value of the consideration to be paid in the future for goods and services received.

(r) Interest-Bearing Borrowings

Interest-bearing bank loans and overdrafts are recorded at the amount of proceeds received.

Borrowing costs directly attributable to the acquisition and construction of development properties and property, plant and equipment are capitalised as part of the cost of those assets, until such time as the assets are ready for their intended use or sale. All other borrowing costs are charged to the income statement as an expense in the period in which they are incurred.

(s) Share Capital

Ordinary shares are classified as equity. Other shares are classified as equity and/or liability according to the economic substance of the particular instrument. Dividends proposed or declared after the balance sheet date were not recognised as a liability at the balance sheet date.

ANNUAL REPORT 2006 97 Notes To The Financial Statements - 31 December 2006

3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.)

3.2 Summary of Significant Accounting Policies (Cont’d.)

(t) Non-current Assets (or Disposal Groups) Held for Sale and Discontinued Operation

Non-current assets (or disposal groups) are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition subject only to terms that are usual and customary.

Immediately before classification as held for sale, the non-current assets (or all the assets and liabilities in a disposal group) are measured in accordance with applicable FRSs. Then, on initial classification as held for sale, non-current assets or disposal groups (other than investment properties, deferred tax assets, employee benefits assets, financial assets and inventories) are measured in accordance with FRS 5, that is at the lower of carrying amount and fair value less costs to sell. Any difference are included in profit or loss. Non-current assets (or disposal groups) classified as held for sale, is not depreciated.

A component of the Group is classified as a discontinued operation when the criteria to be classified as held for sale have been met or it has been disposed of and such a component represents a separate major line of business or geographical area of operations, is part of a single co-ordinated major line of business or geographical area of operations or is a subsidiary acquired exclusively with a view to resale.

(u) Construction Contracts

Where the outcome of a construction contract can be reliably estimated, contract revenue and contract costs are recognised as revenue and expenses, respectively, by using the stage of completion method. The stage of completion is measured by reference to the proportion of contract costs incurred for work performed to date to the estimated total contract costs.

Where the outcome of a construction contract cannot be reliably estimated, contract revenue is recognised to the extent of contract costs incurred that it is probable will be recoverable. Contract costs are recognised as expenses in the period in which they are incurred.

When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.

When the sum of total costs incurred on construction contracts and recognised profits or recognised losses exceed progress billings, the balance is classified as amount due from customers on contracts. Conversely, when progress billings exceed the sum of total costs incurred on construction contracts and recognised profits or recognised losses, the balance is classified as amount due to customers on contracts.

(v) Impairment of Non-Financial Assets

The carrying amounts of assets, construction contract assets, property development costs, inventories, deferred tax assets and non-current assets (or disposal groups) held for sale, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated to determine the amount of impairment loss.

98 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.)

3.2 Summary of Significant Accounting Policies (Cont’d.)

(v) Impairment of Non-Financial Assets (Cont’d.)

For the purpose of impairment testing of these assets, recoverable amount is determined on an individual asset basis unless the asset does not generate cash flows that are largely independent of those from other assets. If this is the case, recoverable amount is determined for the cash-generating unit (CGU) to which the asset belongs to.

An asset's recoverable amount is the higher of an asset's or CGU's fair value less costs to sell and its value in use. 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. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Impairment losses recognised in respect of a CGU or groups of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to those units or groups of units and then, to reduce the carrying amount of the other assets in the unit or groups of units on a pro-rata basis.

An impairment loss is recognised in the income statement in the period in which it arises.

3.3 Changes in Accounting Policies and Effects Arising from Adoption of New and Revised FRSs

On 1 January 2006, the Group and the Company adopted the following FRSs mandatory for financial periods beginning on or after 1 January 2006:

FRS 2 Share-based Payment FRS 3 Business Combinations FRS 5 Non-current Assets Held for Sale and Discontinued Operations FRS 101 Presentation of Financial Statements FRS 102 Inventories FRS 108 Accounting Policies, Changes in Estimates and Errors FRS 110 Events after the Balance Sheet Date FRS 116 Property, Plant and Equipment FRS 121 The Effect of Changes in Foreign Exchange Rates FRS 127 Consolidated and Separate Financial Statements FRS 128 Investments in Associates FRS 131 Interests in Joint Ventures FRS 132 Financial Instruments : Disclosure and Presentation FRS 133 Earnings Per Share FRS 136 Impairment of Assets FRS 138 Intangible Assets FRS 140 Investment Property

The Group has not early adopted the following new and revised FRSs that are:

Effective for financial periods beginning on or after 1 October 2006 FRS 117 Leases FRS 124 Related Party Disclosures

ANNUAL REPORT 2006 99 Notes To The Financial Statements - 31 December 2006

3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.)

3.3 Changes in Accounting Policies and Effects Arising from Adoption of New and Revised FRSs (Cont’d.)

The Group has not early adopted the following new and revised FRSs that are: (Cont’d.)

Effective for financial periods beginning on or after 1 January 2007 FRS 6 Exploration for and Evaluation of Mineral Resources FRS 119 Employee Benefits - Actuarial Gains and Losses, Group Plans and Disclosures

Effective date deferred indefinitely FRS 139 Financial Instruments : Recognition and Measurement

The adoption of FRS 1192004 (Revised) and FRS 6 are not expected to have any significant effects on the financial statements of the Group and the Company for the year ending 31 December 2007. The effects on the adoption of FRS 117, 124 and 139 have been exempted from the disclosure.

The adoption of FRS 102, 108, 110, 116, 127, 128, 131, 132 and 133 does not result in significant changes in accounting policies of the Group. The principal changes in accounting policies and their financial impact on the Group, resulting from the adoption of the other new and revised FRSs are as discussed below:

(a) FRS 2 : Share-based Payment

This FRS requires an entity to recognize share-based payment transactions in its financial statements, including transactions with employees or other parties to be settled in cash, other assets, or equity instruments of the entity.

During the year, the Company implemented a new equity-settled, share-based compensation plan for the employees of the Group, known as the UMW Employee Share Options Scheme (“ESOS”). With the adoption of FRS 2, the compensation expense (“ESOS expense”) relating to share options is recognized in profit or loss over the vesting periods of the grant with a corresponding increase in the equity (Options Reserve). Prior to 1 January 2006, no compensation expense was recognized in the income statement for share option granted.

The total amount to be recognized as ESOS expense is determined by reference to the fair value of the share options at the date of the grant and the number of share options expected to vest on the vesting dates. The fair value of the share option is computed by using the Trinomial Option Valuation Model. The adoption of FRS 2 during the year has the effect of reducing the Group’s profit before tax by RM33.7 million.

(b) FRS 3 : Business Combinations, FRS 136 : Impairment of Assets and FRS 138 : Intangible Assets

The new FRS 3 has resulted in the consequential amendments to two other accounting standards, FRS 136 and FRS 138. In accordance with the transitional provisions, FRS 3 has been applied for business combinations for which the agreement date is on or after 1 January 2006.

100 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.)

3.3 Changes in Accounting Policies and Effects Arising from Adoption of New and Revised FRSs (Cont’d.)

(b) FRS 3 : Business Combinations, FRS 136 : Impairment of Assets and FRS 138 : Intangible Assets (Cont’d.)

(i) Goodwill

The adoption of these new or revised FRSs has resulted in the Group having to cease amortisation of goodwill arising from consolidation. Goodwill arising from consolidation is now carried at cost less accumulated impairment losses and is tested for impairment annually, or more frequently, if events or changes in circumstances indicate that it might be impaired. Any impairment loss is recognized in income statement and subsequent reversal is not allowed. Prior to 1 January 2006, goodwill arising from consolidation was amortised on a straight-line basis over a period of ten years. This change in accounting policy has been accounted for prospectively for business combinations where the agreement date is on or after 1 January 2006.

The net carrying amount of goodwill arising on consolidation as at 1 January 2006 of RM60,018,000 ceased to be amortised with effect from 1 January 2006. Per the transitional provisions of FRS 3, the Group has also ceased to amortise goodwill included in the carrying amount of investments in associates in the determination of the Group's share of profits or losses of associates. The net carrying amount of goodwill included in investments in associates as at 1 January 2006 was RM17,943,000. The above non-amortisation of goodwill has the effect of increasing the Group’s profit before tax by approximately RM10.9 million in the current financial year ended 31 December 2006.

Because the revised accounting policies have been revised prospectively, the change has no impact on amounts reported for 2005 or prior periods. The effects on the consolidated balance sheet as at 31 December 2006 and consolidated income statement for the year ended 31 December 2006 are set out in Note 3.3(g)(i) and Note 3.3(g)(ii), respectively. This change has no impact on the financial statements of the Company.

(ii) Excess of the Group's Interest in the Net Fair Value of the Identifiable Assets, Liabilities and Contingent Liabilities Over the Cost of Acquisition (Reserve on Consolidation)

Under FRS 3, any excess of the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over cost of acquisitions (previously referred to as “reserve arising on consolidation”), after reassessment, is now recognized immediately in income statement. Prior to 1 January 2006, reserve arising on consolidation was retained in the consolidated balance sheet and was not amortised. In accordance with the transitional provisions of FRS 3, the reserve arising on consolidation as at 1 January 2006 of RM1,710,000 was derecognized with a corresponding increase in retained earnings.

During the year ended 31 December 2006, there was an amount of RM680,000 being excess of the Group’s interest in the net fair value of a foreign subsidiary’s identifiable assets, liabilities and contingent liabilities over the cost of acquisition. This amount, after reassessment, was recognized immediately in the consolidated income statement.

ANNUAL REPORT 2006 101 Notes To The Financial Statements - 31 December 2006

3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.)

3.3 Changes in Accounting Policies and Effects Arising from Adoption of New and Revised FRSs (Cont’d.)

(b) FRS 3 : Business Combinations, FRS 136 : Impairment of Assets and FRS 138 : Intangible Assets (Cont’d.)

(iii) Accounting for Acquisition

Prior to 1 January 2006, the Group did not recognise separately the acquiree's contingent liabilities at the acquisition date as part of allocating the cost of a business combination. Upon the adoption of FRS 3, contingent liabilities are now separately recognised, provided their fair values can be measured reliably.

The change did not materially affect the financial statements of the Group and the Company.

(iv) Other Intangible Assets

Prior to 1 January 2006, intangible assets were considered to have a finite useful life and were stated at cost less accumulated amortisation and impairment losses. Under the new FRS 138, the useful lives of other intangible assets are now assessed at the individual asset level as having either a finite or indefinite life. Certain intangible assets are regarded to have an indefinite useful life when, based on an analysis of all of the relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the Group. Intangible assets with indefinite useful lives are not amortised but instead, are tested for impairment annually. As at 1 January 2006, the Group has no intangible asset with indefinite useful life. Thus, intangible assets of the Group as at 1 January 2006 of RM4,141,000 with finite useful lives continue to be stated at cost less accumulated amortization and impairment losses.

(c) FRS 5 : Non-current Assets Held for Sale and Discontinued Operations

During the year ended 31 December 2006, no component of the Group was discontinued.

Prior to 1 January 2006, non-current assets (or disposal group) held for sale were neither classified nor presented as current assets or liabilities. There were no differences in the measurement of non-current assets (or disposal groups) held for sale and those for continuing use. Upon the adoption of FRS 5, non-current assets (or disposal groups) held for sale are classified as current assets or current liabilities (in the case of non-current liabilities included within disposal groups) and are stated at the lower of carrying amount and fair value less costs to sell.

An item is classified as held for sale if its carrying amount will be recovered principally through a sale transaction rather than continuing use. The assets and liabilities of a discontinued operation (a disposal group) that are classified as held for sale are measured in accordance with FRS 5. Immediately before classification as held for sale, the carrying amounts of all the assets and liabilities in the disposal group are measured in accordance with applicable FRSs. Then, on initial classification as held for sale, the disposal group is recognised at the lower of carrying amount and fair value less costs to sell.

102 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.)

3.3 Changes in Accounting Policies and Effects Arising from Adoption of New and Revised FRSs (Cont’d.)

(c) FRS 5 : Non-current Assets Held for Sale and Discontinued Operations (Cont’d.)

In accordance with FRS 5, property amounting to RM12.9 million as at 1 January 2006 was reclassified from Property, Plant and Equipment to Non-current Assets Held for Sale.

(d) FRS 101 : Presentation of Financial Statements

The adoption of the revised FRS 101 has affected the presentation of consolidated balance sheet, consolidated income statement as well as the consolidated statement of changes in equity. Among other things, minority interests are now presented within total equity in the consolidated balance sheet and are presented as an allocation of the total profit or loss for the period in the consolidated income statement. In addition, the Group’s share of profit or loss of associated companies is stated net of tax and minority interests in the consolidated income statement.

FRS 101 also requires disclosure on the face of the statement of changes in equity, total recognised income and expenses for the period, showing separately the amounts attributable to equity holders of the parent, minority interests and potential shareholders.

The current period’s presentation of the Group’s financial statements is based on the revised requirements of FRS 101, with the comparatives restated to conform to the current period’s presentations.

(e) FRS 121 : The Effects of Changes in Foreign Exchange Rates

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are presented in Ringgit Malaysia, which is the Company’s functional and presentation currency.

Under the revised FRS 121, exchange differences arising on a monetary item that forms part of a reporting entity’s net investment in a foreign operation, where that monetary item is denominated in a currency other than the functional currency of either the reporting entity or the foreign operation, are to be recognized in the consolidated income statement. Prior to 1 January 2006, these translation differences were accounted for in the translation reserves within equity.

In addition, as of 1 January 2006, any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are now treated as assets and liabilities of the foreign operation and translated at the closing rate. In accordance with the transitional provisions of FRS 121, this change is applied prospectively. Goodwill acquired in business combinations prior to 1 January 2006 and fair value adjustments arising on those acquisitions are deemed to be assets and liabilities of the parent company and were translated using the exchange rate at the dates of acquisitions.

During the year ended 31 December 2006, goodwill arising on acquisition of foreign subsidiaries amounted to RM1,989,000.

ANNUAL REPORT 2006 103 Notes To The Financial Statements - 31 December 2006

3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.)

3.3 Changes in Accounting Policies and Effects Arising from Adoption of New and Revised FRSs (Cont’d.)

(f) FRS 140 : Investment Property

Investment property is land or buildings held by the Group or held under a finance lease, to earn rental income or for capital appreciation or both. Prior to 1 January 2006, investment property of RM14.8 million was classified as part of property, plant and equipment. Investment property is stated at cost less accumulated depreciation and accumulated impairment losses.

(g) Summary of Effects of adopting new and revised FRSs

The following tables provide estimates of the extent to which each of the line items in the balance sheet and profit or loss for the year ended 31 December 2006 is higher or lower than it would have been had the previous policies been applied in the current year.

(i) Effect on balance sheet as at 31 December 2006

Increase/(decrease) FRS 2 FRS 3 FRS 3 FRS 5 FRS 101 FRS 140 Description of change Note Note Note Note Note Note 3.3(a) 3.3(b)(i) 3.3(b)(ii) 3.3(c) 3.3(d) 3.3(f) Total Group RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Property, plant and equipment - - - (12,935) - (14,581) (27,516) Land held for property development - - - (2,054) - - (2,054) Investment properties - - - - - 14,581 14,581 Non-current assets held for sale - - - 14,989 - - 14,989 Intangible assets - 8,687 1,710 - - - 10,397 Investment in associates - 2,239 - - (2,536) - (297) Share options reserve 33,683 - - - - - 33,683 Retained earnings (33,683) 8,687 1,710 - - - (23,286)

Increase/ (decrease) FRS 2 Description of change Note 3.3(a) Total Company RM'000 RM'000

Investment in subsidiaries 33,683 33,683 Share options reserve 33,683 33,683 Retained earnings (33,683) (33,683)

104 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.)

3.3 Changes in Accounting Policies and Effects Arising from Adoption of New and Revised FRSs (Cont’d.)

(g) Summary of Effects of adopting new and revised FRSs (Cont’d.)

(ii) Effect on income statement for the year ended 31 December 2006

Increase/(decrease) FRS 2 FRS 3 FRS 3 FRS 5 FRS 101 Description of change Note Note Note Note Note 3.3(a) 3.3(b)(i) 3.3(b)(ii) 3.3(c) 3.3(d) Total Group RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Staff costs (33,683) - - - - (33,683) Other operating income - - 680 - - 680 Depreciation - - - (216) - (216) Other operating expenses - (10,926) - - - (10,926) Operating profit (33,683) 10,926 680 216 - (21,861) Share of profit of associates - - - - (35,015) (35,015) Profit before tax (33,683) 10,926 680 216 (35,015) (56,876) Income tax expense - - - - 32,479 32,479 Profit for the year (33,683) 10,926 680 216 (2,536) (24,397) Earnings per share: Basic, for profit for the year - sen (6.64) 2.15 0.13 0.04 - (4.32) Diluted, for profit for the year - sen (6.59) 2.14 0.13 0.04 - (4.28)

(h) Restatement of Comparatives

Previously Increase/(decrease) Stated Restated FRS 5 FRS 101 FRS 140 Description of change Note Note Note 3.3(c) 3.3(d) 3.3(f) Group RM'000 RM'000 RM'000 RM'000 RM'000

At 31 December 2005

Property, plant and equipment 1,243,598 (12,935) 81,085 (14,788) 1,296,960 Investment properties - - - 14,788 14,788 Non-current assets held for sale - 12,935 - - 12,935 Land held for property development 81,085 - (81,085) - - Investments 672,411 - (672,411) - - Investment in associates - - 621,185 - 621,185 Other financial assets - - 51,226 - 51,226

ANNUAL REPORT 2006 105 Notes To The Financial Statements - 31 December 2006

3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.)

3.3 Changes in Accounting Policies and Effects Arising from Adoption of New and Revised FRSs (Cont’d.)

(h) Restatement of Comparatives (Cont’d.)

Previously Increase/ Stated (decrease) Restated FRS 101 Description of change Note 3.3(d) Group RM'000 RM'000 RM'000

For the year ended 31 December 2005

Share of profit of associates 115,936 (25,468) 90,468 Profit before taxation 682,965 (25,468) 657,497 Income tax expense (181,091) 22,928 (158,163) Profit after taxation 501,874 (2,540) 499,334 Minority interests (217,673) 2,540 (215,133)

3.4 Changes in Estimates

The revised FRS116: Property, Plant and Equipment, requires the review of the residual value and remaining useful life of an item of property, plant and equipment at least at each financial year end. During the year, the Group revised the residual values and the estimated useful lives of motor vehicles. The revision was accounted for prospectively as a change in accounting estimates and has the effect of reducing the depreciation charge of the Group for the year ended 31 December 2006 by approximately RM16.4 million.

There were no other changes in estimates that have a material effect on the result of the current year.

3.5 Significant Accounting Estimates

Key Sources of Estimation Uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:

(i) Impairment of goodwill

The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value-in-use of the cash-generating units ("CGU") to which goodwill and brands are allocated. Estimating a value-in-use amount requires management to make an estimate of the expected future cash flows from the CGU and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The carrying amounts of goodwill as at 31 December 2006 was RM20,133,000 (2005: RM58,308,000). Further details are disclosed in Note 8.

106 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.)

3.5 Significant Accounting Estimates (Cont’d.)

(ii) Deferred tax assets

Deferred tax assets are recognised for all unabsorbed tax losses and unutilised capital allowances to the extent that it is probable that taxable profit will be available against which the losses and capital allowances can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. The total carrying value of recognised tax losses and capital allowances of the Group was RM2,796,000 (2005: RM1,268,000) and the unrecognised tax losses and capital allowances of the Group was RM226,753,000 (2005: RM214,013,000).

4. INVESTMENTS

The investments of the Group and the Company are as follows:

Group Company 2006 2005 2006 2005 RM'000 RM'000 RM'000 RM'000

Investment in subsidiaries: Unquoted shares, at cost (Note a(i)) - - 296,859 208,039 Investment in associates (Note b) 822,692 621,185 - - Other financial assets (Note c) 25,436 51,226 - - 848,128 672,411 296,859 208,039

(a) Investment in Subsidiaries

(i) Unquoted shares at cost

The Company's investment in subsidiaries represents its interest in:

(a) a wholly-owned Malaysian incorporated subsidiary, UMW Corporation Sdn. Bhd.. This subsidiary’s principal role lies in providing full corporate, administrative, professional, security services and financial support to its subsidiaries and associated companies. In addition, the subsidiary also trades in a range of light and heavy equipment; and

(b) a wholly-owned subsidiary, UMW Petropipe (L) Ltd., which was incorporated in the Federal Territory of Labuan. This subsidiary's principal activity is that of investment holding.

Details of the subsidiaries of the Company are disclosed in Note 31 to the financial statements.

ANNUAL REPORT 2006 107 Notes To The Financial Statements - 31 December 2006

4. INVESTMENTS (CONT’D.)

(a) Investment in Subsidiaries (Cont’d.)

(ii) Subsidiaries under members’ voluntary liquidation

The following subsidiaries have been placed under members’ voluntary liquidation and have accordingly been deconsolidated effective from the dates the subsidiaries were placed under liquidation:

Date Placed Under Liquidation

(a) UMW Toyota (Sabah) Sdn. Bhd. 2 December 1987 (b) UMW Orient Sdn. Berhad 5 April 2002 (c) UMW Industries (Philippines) Inc. 17 April 2002 (d) UMW Construction Sdn. Bhd. 26 April 2002 (e) Malaysian Electric Vehicles Sdn. Bhd. 26 April 2002 (f) Ulu Balung Estate Sdn. Bhd. 28 February 2005

The process of liquidation is currently still on-going for all the above subsidiaries.

The effects of deconsolidation of a subsidiary which was placed under members' voluntary liquidation during the previous year was as follows:

2006 2005 RM'000 RM'000

Total distribution in cash - 5 Less: Cash and bank balances - 5 Net assets disposed - 5 Net effect on deconsolidation to the Group - -

(iii) Acquisitions of subsidiaries

On 14 October 2004, UMW ACE (L) Ltd. ("UMW ACE"), a 51%-owned subsidiary of UMW Petropipe (L) Ltd., which is in turn wholly-owned by UMW, entered into a Master Agreement in relation to the proposed acquisition of 51% equity interest in Wuxi Seamless Oil Pipe Co., Ltd., for a total cash consideration of RMB280 million (equivalent to approximately USD33.83 million) with Wuxi Longhua Pipe Co., Ltd. (25%), King Partner Limited (25%) and Wuxi Quanhua Material Co., Ltd. (1%). The acquisition is secured by a profit guarantee for a stipulated audited profit after tax per annum for a period of three (3) years. The acquisition was completed during the year 2005.

On 25 February 2005, the Group acquired 90,000 ordinary shares of par value RM1.00 each, representing 45% equity interest in UMW JDC Drilling Sdn. Bhd. ("JDC") (formerly known as Japan Drilling (Malaysia) Sdn. Bhd.), for a total cash consideration of RM830,000. Consequent to the acquisition, JDC became an 84.2%-owned subsidiary of the Group.

108 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

4. INVESTMENTS (CONT’D.)

(a) Investment in Subsidiaries (Cont’d.)

(iii) Acquisitions of subsidiaries (Cont’d.)

On 28 November 2005, UMW Petropipe (L) Ltd ("UMW Petropipe"), a 100%-owned subsidiary of the Company entered into a Share Sale Agreement with Montague Holdings International Proprietary Limited to acquire 60% of the equity in PFP Holdings Proprietary Limited, for a total cash consideration of A$5.4 million (equivalent to approximately RM14,749,560). The acquisition was completed on 30 June 2006.

On 8 May 2006, UMW Petropipe entered into a sale and purchase agreement with Chua Tee Tee, for the acquisition of 210,000 ordinary shares of par value S$1.00 each in Vina Offshore Holdings Pte Ltd (“Vina"), a company incorporated in Singapore, for a total cash consideration of USD2.45 million (equivalent to approximately RM8,893,500). Upon completion of the acquisition on 31 May 2006, Vina became a 70%-owned subsidiary of the Company.

On 2 August 2006, UMW Petropipe acquired one (1) ordinary share of USD1.00, representing 100% of the total issued and paid-up share capital in UMW China Ventures (L) Ltd ("UMW CV"), a company incorporated in Wilayah Persekutuan Labuan, for a cash consideration of USD1.00.

The acquisitions had the following effects on the Group's financial results :

2006 2005 RM'000 RM'000

Revenue 86,721 954,086 Profit from operations 875 119,262 Net profit for the year 4,076 17,739

If the acquisitions had occurred on 1 January 2006, the Group's revenue and profit for the year would have been RM9,960,043,000 and RM592,639,000, respectively.

ANNUAL REPORT 2006 109 Notes To The Financial Statements - 31 December 2006

4. INVESTMENTS (CONT’D.)

(a) Investment in Subsidiaries (Cont’d.)

(iii) Acquisitions of subsidiaries (Cont’d.)

The fair values of the assets acquired and liabilities assumed from the acquisition of the subsidiaries as at the effective acquisition dates were as follows:

2006 2005 Fair value Fair value recognised Acquiree's recognised Acquiree's on carrying on carrying acquisition amount acquisition amount RM'000 RM'000 RM'000 RM'000

Property, plant and equipment (Note 6) 11,313 11,313 72,503 72,503 Investment - - 18,615 18,615 Inventories 14,883 14,883 83,919 83,919 Trade and other receivables 23,670 23,670 189,550 189,550 Cash and bank balances 21,644 21,644 80,432 80,432 Due from related parties 7,024 7,024 - - Deferred tax assets (Note 17) 766 766 - - Taxation - - 8,024 8,024 79,300 79,300 453,043 453,043

Trade and other payables (27,137) (27,137) (191,078) (191,078) Bank borrowings (5,406) (5,406) (174,086) (174,086) Taxation (360) (360) - - Deferred tax liabilities (Note 17) (1,211) (1,211) - - Minority interests (799) (799) - - Due to related parties (8,089) (8,089) - - Lease liability (1,356) (1,356) - - (44,358) (44,358) (365,164) (365,164)

Fair value of net assets 34,942 34,942 87,879 87,879 Less: Minority interests (12,609) (12,609) (42,789) (42,789) Less: Amount accounted for as an associate - - (320) (320) Fair value of net assets acquired 22,333 22,333 44,770 44,770 Goodwill on consolidation 1,989 1,989 84,608 84,608 Negative goodwill (680) (680) - - Cost of acquisition 23,642 23,642 129,378 129,378

110 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

4. INVESTMENTS (CONT’D.)

(a) Investment in Subsidiaries (Cont’d.)

(iii) Acquisitions of subsidiaries (Cont’d.)

2006 2005 RM'000 RM'000

Goodwill on consolidation - Groups share of goodwill (Note 8(a)(i)) 1,989 43,387 - Minority interests share of goodwill - 41,221 1,989 84,608

The cash outflows on acquisitions is as follows:

Total purchase consideration satisfied by cash: Paid in 2004 - 41,322 Paid in 2005 - 29,296 Paid in 2006 16,267 58,760 Profit guarantee retained to be paid in future (Note 19) 7,375 - 23,642 129,378

Cash and cash equivalents of subsidiaries acquired 21,644 80,432 Cash outflow of acquisitions (16,267) (29,296) Net cash inflow of the Group 5,377 51,136

(iv) Restructuring of investment in a subsidiary

As described in Note 33 (i), the Group had restructured its shareholding in Wuxi Seamless Oilpipe Co., Ltd. ("WSP"), a 51%-owned subsidiary of UMW ACE (L) Ltd., which is in turn a 51%-owned subsidiary of the Group, whereby:

(i) the Group's effective interest in WSP was increased from 26% to 30.6% and

(ii) WSP ceased to be a subsidiary of the Group and became an associate.

Accordingly, WSP was deconsolidated with effect from 15 November 2006.

ANNUAL REPORT 2006 111 Notes To The Financial Statements - 31 December 2006

4. INVESTMENTS (CONT’D.)

(a) Investment in Subsidiaries (Cont’d.)

(iv) Restructuring of investment in a subsidiary (Cont’d.)

The carrying value of assets and liabilities of WSP deconsolidated on 15 November 2006 were as follows:

2006 RM'000

Inventories 316,910 Trade receivables 231,145 Other receivables 74,070 Due from related companies 24,990 Deposits, cash and bank balances 251,252 Investments 4,786 Deferred tax asset (Note 17) 679 Property, plant and equipment (Note 6) 488,588 1,392,420

Trade payables 393,318 Other payables 19,940 Due to related companies 17,312 Short term borrowings 379,524 Taxation 1,723 Provision for liabilities 1,771 Long term liabilities 193,773 1,007,361

Net assets 385,059 Minority interests of WSP Group (10,493) 374,566 Less : Minority interest (242,632) 131,934 Goodwill (Note 8) 61,475 Proceeds from restructuring (44,328) Amount accounted for as investment in an associate 149,081

(b) Investment in Associates

Group 2006 2005 RM'000 RM'000

Unquoted shares, at cost 299,176 156,408 Share of profits less losses 523,888 464,797 823,064 621,205 Accumulated impairment loss (372) (20) 822,692 621,185

112 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

4. INVESTMENTS (CONT’D.)

(b) Investment in Associates (Cont’d.)

The Group’s share of results of associated companies is based on the audited or management financial statements of the associated companies for the year ended 31 December 2006.

The carrying value of the investment in associated companies is represented by:

2006 2005 RM'000 RM'000

Group’s share of aggregate net tangible assets 748,140 603,242 Group's goodwill on acquisition 74,552 17,943 822,692 621,185

Details of the associated companies are disclosed in Note 32 to the financial statements.

The financial statements of the associates companies disclosed in Note 32 to the financial statements are coterminous with those of the Group, except for UMW Toyotsu Motors Sdn. Bhd., UMW Toyota Capital Sdn. Bhd. and its subsidiaries which have a financial year end of 31 March to conform with its holding company's financial year end. For the purpose of applying the equity method of accounting, the management accounts for the 12 months period ended 31 December 2006 have been used.

The summarised financial information of the associates are as follows:

2006 2005 RM'000 RM'000

Assets and liabilities Current assets 2,988,629 1,815,324 Non-current assets 1,715,015 1,083,152 Total assets 4,703,644 2,898,476

Current liabilities 1,588,029 1,023,360 Non-current liabilities 1,072,016 281,835 Total liabilities 2,660,045 1,305,195

Results Revenue 9,624,563 5,356,124 Profit for the year 772,298 256,148

ANNUAL REPORT 2006 113 Notes To The Financial Statements - 31 December 2006

4. INVESTMENTS (CONT’D.)

(b) Investment in Associates (Cont’d.)

The details of goodwill included within the Group's carrying amount of investment in associates are as follows:

Goodwill RM'000 Cost

At 1 January 2005/31 December 2005 22,263 Effects of adopting FRS 3 (Note 3.3(b)(i)&(ii)) (4,320) Arising during the year 56,609 At 31 December 2006 74,552

Accumulated amortisation

At 1 January 2005 2,081 Amortisation 2,239 At 31 December 2005 and 1 January 2006 4,320 Effects of adopting FRS 3 (Note 3.3(b)(i)&(ii)) (4,320) At 31 December 2006 -

(c) Other Financial Assets

Group 2006 2005 RM'000 RM'000

Unquoted shares, at cost 8,841 6,979 Unit trust, at cost 17,170 44,791 26,011 51,770 Accumulated impairment loss - unquoted shares (575) (544) 25,436 51,226

Market value of unit trust 17,678 45,727

114 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

5. INVESTMENT PROPERTIES

Long term Short term Freehold Freehold leasehold leasehold Group land building building building Total RM'000 RM'000 RM'000 RM'000 RM'000

Cost

At 1 January 2005/ 31 December 2005 129 260 291 19,203 19,883 Exchange differences - - - 248 248 At 31 December 2006 129 260 291 19,451 20,131

Accumulated Depreciation

1 January 2005 - 84 60 4,559 4,703 Charge for the year - 5 8 379 392 At 31 December 2005 - 89 68 4,938 5,095 Exchange differences - - - 62 62 Charge for the year - 5 8 380 393 At 31 December 2006 - 94 76 5,380 5,550

Net Carrying Amount

At cost At 31 December 2006 129 166 215 14,071 14,581

At cost At 31 December 2005 129 171 223 14,265 14,788

Fair value of investment properties as at 31 December 2006 was estimated by the directors based on market values of comparable properties, to be approximately RM17 million.

ANNUAL REPORT 2006 115 Notes To The Financial Statements - 31 December 2006

6. PROPERTY, PLANT AND EQUIPMENT

*Land and Plant and Assets-In- **Other Buildings Machinery Progress Assets Total Group RM'000 RM'000 RM'000 RM'000 RM'000

Cost/Valuation

At 1 January 2005 At cost 625,627 422,553 117,079 240,702 1,405,961 At valuation 24,022 - - - 24,022 649,649 422,553 117,079 240,702 1,429,983 Exchange differences (765) 304 571 (329) (219) Additions 93,507 146,070 182,237 70,154 491,968 Transfer from leased assets (Note 7) - 145 - - 145 Acquisition of subsidiaries (Note 4(a)(iii)) 12,984 40,152 27,874 5,884 86,894 Write-offs - (19,784) (125) (17,790) (37,699) Disposals (5,129) (11,532) - (10,999) (27,660) Reclassification 146 59,199 (59,448) 103 - At 31 December 2005 750,392 637,107 268,188 287,725 1,943,412 Exchange differences 1,800 (4,996) (2,395) 1,188 (4,403) Additions 141,099 132,204 93,740 54,240 421,283 Transfer from leased assets (Note 7) - 34 - - 34 Acquisition of subsidiaries (Note 4(a)(iii)) 1,315 12,176 1,202 4,335 19,028 Disposal of a subsidiary (134,337) (147,241) (217,860) (21,448) (520,886) Write-offs (104) (11,227) - (12,737) (24,068) Disposals (1,979) (4,670) - (11,547) (18,196) Reclassification 82,331 5,502 (98,328) 10,495 - Reclassification to non-current asset held for sale (2,077) - - - (2,077) At 31 December 2006 838,440 618,889 44,547 312,251 1,814,127

At 31 December 2006 At cost 814,418 618,889 44,547 312,251 1,790,105 At valuation 24,022 - - - 24,022 838,440 618,889 44,547 312,251 1,814,127

At 31 December 2005 At costs 726,370 637,107 268,188 287,725 1,919,390 At valuation 24,022 - - - 24,022 750,392 637,107 268,188 287,725 1,943,412

116 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

6. PROPERTY, PLANT AND EQUIPMENT (CONT’D.)

*Land and Plant and Assets-In- **Other Buildings Machinery Progress Assets Total Group RM'000 RM'000 RM'000 RM'000 RM'000

Accumulated Depreciation and Impairment Losses

At 1 January 2005 114,760 278,618 - 188,914 582,292 Exchange differences (137) 191 - (341) (287) Transfer from leased assets (Note 7) - 95 - - 95 Acquisition of subsidiaries (Note 4(a)(iii)) 1,613 10,071 - 2,707 14,391 Charge for the year 15,773 59,389 - 31,883 107,045 Write-offs - (19,165) - (16,763) (35,928) Disposals (2,821) (9,421) - (8,914) (21,156) At 31 December 2005 129,188 319,778 - 197,486 646,452 Exchange differences (81) (1,224) - 652 (653) Transfer from leased assets (Note 7) - 34 - - 34 Acquisition of subsidiaries (Note 4(a)(iii)) 104 5,568 - 2,043 7,715 Disposal of a subsidiary (5,322) (20,944) - (6,032) (32,298) Charge for the year 21,804 69,815 - 33,242 124,861 Write-offs (51) (10,737) - (12,521) (23,309) Disposals (174) (3,383) - (10,237) (13,794) Impairment 698 4,850 - (8) 5,540 Reclassification 191 434 - (625) - At 31 December 2006 146,357 364,191 - 204,000 714,548

At 31 December 2006 At cost 135,240 364,191 - 204,000 703,431 At valuation 11,117 - - - 11,117 146,357 364,191 - 204,000 714,548

At 31 December 2005 At costs 118,359 319,778 - 197,486 635,623 At valuation 10,829 - - - 10,829 129,188 319,778 - 197,486 646,452

Net Carrying Amount

At 31 December 2006 At cost 679,178 254,698 44,547 108,251 1,086,674 At valuation 12,905 - - - 12,905 692,083 254,698 44,547 108,251 1,099,579

At 31 December 2005 At cost 608,011 317,329 268,188 90,239 1,283,767 At valuation 13,193 - - - 13,193 621,204 317,329 268,188 90,239 1,296,960

ANNUAL REPORT 2006 117 Notes To The Financial Statements - 31 December 2006

6. PROPERTY, PLANT AND EQUIPMENT (CONT’D.)

*LAND AND BUILDINGS

Long term Long term Short term Short term Freehold Freehold leasehold leasehold leasehold leasehold land buildings land buildings land buildings Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Cost/Valuation

At 1 January 2005 At cost 81,462 47,709 184,288 92,782 20,679 198,707 625,627 At valuation - 540 - 23,238 - 244 24,022 81,462 48,249 184,288 116,020 20,679 198,951 649,649 Exchange differences - 23 - (465) 16 (339) (765) Additions 637 7,797 17,255 320 9,985 57,513 93,507 Acquisition of subsidiaries - - - - 1,445 11,539 12,984 Disposals - - - - (2,124) (3,005) (5,129) Reclassification - 119 27 - - - 146 At 31 December 2005 82,099 56,188 201,570 115,875 30,001 264,659 750,392 Exchange differences - (27) - (296) (224) 2,347 1,800 Additions 42,559 217 496 4,211 - 93,616 141,099 Acquisition of subsidiaries - - - 1,315 - - 1,315 Disposal of a subsidiary - - - - (10,409) (123,928) (134,337) Write-offs - - - (104) - - (104) Disposals - - (424) (1,346) - (209) (1,979) Reclassification (1,811) 31,847 6,661 (4,220) (904) 50,758 82,331 Reclassification to non-current asset held for sale - - (2,077) - - - (2,077) At 31 December 2006 122,847 88,225 206,226 115,435 18,464 287,243 838,440

At 31 December 2006 At cost 122,847 87,685 206,226 92,197 18,464 286,999 814,418 At valuation - 540 - 23,238 - 244 24,022 122,847 88,225 206,226 115,435 18,464 287,243 838,440

At 31 December 2005 At cost 82,099 55,648 201,570 92,637 30,001 264,415 726,370 At valuation - 540 - 23,238 - 244 24,022 82,099 56,188 201,570 115,875 30,001 264,659 750,392

118 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

6. PROPERTY, PLANT AND EQUIPMENT (CONT’D.)

*LAND AND BUILDINGS (CONT’D.)

Long term Long term Short term Short term Freehold Freehold leasehold leasehold leasehold leasehold land buildings land buildings land buildings Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Accumulated Depreciation and Impairment Losses

At 1 January 2005 - 8,559 10,312 59,598 10,353 25,938 114,760 Exchange differences - 15 - (129) 2 (25) (137) Charge for the year - 1,026 2,812 3,054 396 8,485 15,773 Acquisition of subsidiaries - - - - 113 1,500 1,613 Disposals - - - - (1,017) (1,804) (2,821) Reclassification - - - (18,341) - 18,341 - At 31 December 2005 - 9,600 13,124 44,182 9,847 52,435 129,188 Exchange differences - (20) 2,603 (2,653) (14) 3 (81) Charge for the year - 2,196 2,972 2,620 1,899 12,117 21,804 Acquisition of subsidiaries - - - 104 - - 104 Disposal of a subsidiary - - - - (1,005) (4,317) (5,322) Write-offs - - - (51) - - (51) Disposals - - (40) (106) - (28) (174) Impairment loss - - 140 312 - 246 698 Reclassification - (584) (23) 584 (184) 398 191 At 31 December 2006 - 11,192 18,776 44,992 10,543 60,854 146,357

At 31 December 2006 At cost - 11,095 18,776 34,216 10,543 60,610 135,240 At valuation - 97 - 10,776 - 244 11,117 - 11,192 18,776 44,992 10,543 60,854 146,357

At 31 December 2005 At cost - 9,503 13,124 33,694 9,847 52,191 118,359 At valuation - 97 - 10,488 - 244 10,829 - 9,600 13,124 44,182 9,847 52,435 129,188

Net Carrying Amount

At 31 December 2006 At cost 122,847 76,590 187,450 57,981 7,921 226,389 679,178 At valuation - 443 - 12,462 - - 12,905 122,847 77,033 187,450 70,443 7,921 226,389 692,083

At 31 December 2005 At cost 82,099 46,145 188,446 58,943 20,154 212,224 608,011 At valuation - 443 - 12,750 - - 13,193 82,099 46,588 188,446 71,693 20,154 212,224 621,204

ANNUAL REPORT 2006 119 Notes To The Financial Statements - 31 December 2006

6. PROPERTY, PLANT AND EQUIPMENT (CONT’D.)

** Included in the other assets are office equipment, furniture and fittings, motor vehicles, renovation and improvements.

(a) Included in the property, plant and equipment of the Group are fully depreciated assets which are still in use with their carrying costs as follows:

2006 2005 RM'000 RM'000

Building 33,649 27,002 Plant and machinery 165,491 121,666 Office equipment, furniture and fittings and motor vehicles 109,180 120,577

(b) Details of independent professional valuations of land and buildings owned by the Group at 31 December 2006 are as follows:

Year of Description of Amount Valuation Property RM'000 Basis of Valuation

1979 Land and buildings in Shah Alam, 14,333 Open market value Selangor

1979 Land and building in Tawau, Sabah 244 Open market value

1979 Land and building in Kota Kinabalu, 5,435 Open market value Sabah

1984 Land and building in Temerloh, Pahang 256 Open market value

1985 Land and building in Kuantan, Pahang 3,470 Open market value

1985 Land and building in Ipoh, Perak 284 Open market value

24,022

(c) Due to the absence of historical records, the net book values of the above land and buildings, had the revalued assets been carried at historical cost less accumulated depreciation, are not disclosed.

(d) The net book value of plant and equipment held under hire purchase arrangements is RM78,500 (2005: RM103,000).

120 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

6. PROPERTY, PLANT AND EQUIPMENT (CONT’D.)

(e) The net book values of property, plant and equipment pledged for borrowings (Note 15 & Note 18) are as follows:

Group 2006 2005 RM'000 RM'000

Motor vehicle 787 - Leasehold land - 9,939 Plant and equipment 2,888 31,385 Work-in-progress - 63,285 3,675 104,609

7. LEASED ASSETS

Machinery and Equipment Group RM'000

Cost

At 1 January 2005 150,747 Exchange differences (1,601) Additions 78,338 Transfer out to property, plant and equipment (Note 6) (145) Transfer to inventories (453) Write-offs (343) Disposals (42,096) At 31 December 2005 184,447 Exchange differences 981 Additions 68,713 Transfer out to property, plant and equipment (Note 6) (34) Transfer from inventories 10 Disposals (43,643) At 31 December 2006 210,474

Accumulated Depreciation

At 1 January 2005 66,755 Exchange differences (704) Charge for the year 33,704 Transfer out to property, plant and equipment (Note 6) (95) Write-offs (340) Disposals (23,710) At 31 December 2005 carried forward 75,610

ANNUAL REPORT 2006 121 Notes To The Financial Statements - 31 December 2006

7. LEASED ASSETS (CONT’D.)

Machinery and Equipment Group RM'000

Accumulated Depreciation

At 31 December 2005 brought forward 75,610 Exchange differences 323 Charge for the year 35,977 Transfer out to property, plant and equipment (Note 6) (34) Disposals (20,462) At 31 December 2006 91,414

Net Book Value

At 31 December 2006 119,060

At 31 December 2005 108,837

The future minimum lease payments receivable by the Group in relation to those assets that have been leased as at year end are as follows:

2006 2005 RM'000 RM'000

Due within one year 57,267 58,114 Due between one and two years 41,344 35,600 Due between two and five years 29,675 23,334 Due after five years 14,500 13,502 142,786 130,550

Included in leased assets of the Group are fully depreciated assets which are still in use with their carrying costs of RM20,371,856 (2005: RM22,170,000).

8. INTANGIBLE ASSETS

Group 2006 2005 RM'000 RM'000

Goodwill on consolidation (Note a) 20,133 58,308 Product development (Note b) 1,449 2,722 21,582 61,030

122 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

8. INTANGIBLE ASSETS (CONT’D.)

Group 2006 2005 RM'000 RM'000

(a) (i) Goodwill on Consolidation

At 1 January 60,018 23,868 Arising from acquisition of subsidiaries (Note 4(a)(iii)) 1,989 43,387 Deconsolidation of a subsidiary (61,475) - Arising from acquisition of additional shares 26,769 31 Profit guarantee shortfall (5,179) - Impaired during the year (Note 24) (1,989) - Amortised during the year - (7,268) At 31 December 20,133 60,018

(ii) Reserve on Consolidation

At 1 January (1,710) (1,710) Effects of adopting FRS 3 (Note 3.3(b)(ii)) 1,710 - At 31 December - (1,710)

20,133 58,308

The profit guarantee shortfall relates to payment by vendors of UMW ACE due to crystalisation of a profit guarantee given at the time of the Group's acquisition of UMW ACE in 2003. The payment is accounted for as a reduction in the Group's costs of investment in UMW ACE and consequently goodwill arising from the acquisition.

(b) Product Development

At 1 January 2,722 2,363 Incurred and capitalised during the year 66 1,778 Charged to income statement (1,339) (1,419) At 31 December 1,449 2,722

(c) Impairment Tests For Goodwill

Goodwill has been allocated to the Group's Cash Generating Units ("CGU") identified according to country of operation and business segment as follows: People’s Republic of Malaysia China Total RM'000 RM'000 RM'000

At 31 December 2006 Oil & Gas 20,052 - 20,052 Others 81 - 81 20,133 - 20,133

ANNUAL REPORT 2006 123 Notes To The Financial Statements - 31 December 2006

8. INTANGIBLE ASSETS (CONT’D.)

(c) Impairment Tests For Goodwill (Cont’d.)

People’s Republic of Malaysia China Total RM'000 RM'000 RM'000

At 31 December 2005 Oil & Gas 21,317 38,620 59,937 Others 81 - 81 21,398 38,620 60,018

Key assumptions used in value-in-use calculations

The recoverable amount of a CGU is determined based on value-in-use calculations using cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five year period are computed based on year five cash flow into perpetuity. Key assumptions used for value-in-use calculations are:

Gross Margin Discount Rates 2006 2005 2006 2005

Oil & Gas: Malaysia 16.0 14.8 11.8 11.2 People's Republic of China 23.3 22.4 31.5 31.1

Others: Malaysia 9.7 9.4 10.8 10.0

The following describes each key assumption on which management has based its cash flow projections to undertake impairment testing of goodwill:

(i) Budgeted gross margin The basis used to determine the value assigned to the budgeted gross margin is the average margins achieved in the year immediately before the budgeted year increased for expected efficiency improvements.

(ii) Discount rate The discount rates used are pre-tax and reflect specific risks relating to the relevant segments.

(iii) Bond rate The bond rates used are the yield on 5-year Malaysian government and China government bond rates at the beginning of the budgeted year.

124 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

8. INTANGIBLE ASSETS (CONT’D.)

(c) Impairment Tests For Goodwill (Cont’d.)

Sensitivity to changes in assumptions

With regard to the assessment of value in use of the oil & gas and other segments, management believes that no reasonably possible change in any of the above key assumptions would cause the carrying values of the units to materially exceed their recoverable amounts.

9. DEPOSITS, CASH AND BANK BALANCES

Group Company 2006 2005 2006 2005 RM'000 RM'000 RM'000 RM'000

Deposits with licensed banks 833,210 1,325,853 4,919 4,721 Deposits with licensed finance companies - 115,500 - - Total deposits 833,210 1,441,353 4,919 4,721 Cash and bank balances 315,574 275,947 470 348 1,148,784 1,717,300 5,389 5,069

Deposits with licensed banks and bank balances of the Group amounting to RM1,077,330 (2005: RM23,425,000) are pledged to banks for credit facilities granted to certain subsidiaries (Note 18).

The weighted average effective interest rates of deposits at the balance sheet date were as follows:

Group Company 2006 2005 2006 2005 % % % %

Deposits with: Licensed banks 0.7 - 5.2 0.6 - 4.9 3.3 2.8 Licensed finance companies - 2.6 - 2.8 - -

The average maturities of deposits as at the end of the financial year were as follows:

Average Maturity Group Company 2006 2005 2006 2005 Days Days Days Days

Deposits with: Licensed banks 5 - 226 7 - 360 32 30 Licensed finance companies - 7 - 42 - -

ANNUAL REPORT 2006 125 Notes To The Financial Statements - 31 December 2006

10. RECEIVABLES

The receivables of the Group and the Company are as follows:

Group Company 2006 2005 2006 2005 RM'000 RM'000 RM'000 RM'000

Trade receivables (Note a) 523,432 560,583 - - Other receivables (Note b) 368,431 252,444 38 38 891,863 813,027 38 38

(a) Trade Receivables

Group 2006 2005 RM'000 RM'000

Trade receivables 552,428 594,114 Provision for doubtful debts (28,996) (33,531) 523,432 560,583

The Group's normal trade credit terms range from 30 days to 90 days. Other credit terms are assessed and approved on a case-by-case basis.

(b) Other Receivables

Group Company 2006 2005 2006 2005 RM'000 RM'000 RM'000 RM'000

Due from associated companies 227,603 17,250 - - Accrued income 3,073 3,838 6 6 Tax recoverable 4,978 2,560 - - Deposits 14,841 15,994 5 5 Due from a corporate shareholder of a subsidiary 29,171 27,723 - - Prepayments 4,770 80,586 27 27 Sundry receivables 94,271 115,220 - - 378,707 263,171 38 38

Provision for doubtful debts (10,276) (10,727) - - 368,431 252,444 38 38

126 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

11. INVENTORIES

Group 2006 2005 RM'000 RM'000

At cost: Equipment, unassembled and completed vehicles, attachments and spares 815,687 675,980 Other finished goods 34,262 94,003 Work-in-progress 24,592 27,106 Raw materials and consumables 31,492 178,796 906,033 975,885 At net realisable value: Equipment, unassembled and completed vehicles, attachments and spares 10,007 13,890 Other finished goods 223 654 Raw materials and consumables 971 1,112 11,201 15,656

917,234 991,541

During the financial year, there was a reversal of a write down of inventories of RM18,114,000 (2005: RM8,785,000). The reversal arose from an increase in net realisable value as a result of improving prices of inventories during the financial year.

The cost of inventories recognised as an expense during the financial year in the Group amounted to RM8,786,421,000 (2005: RM8,235,329,131).

12. NON CURRENT ASSETS HELD FOR SALE

This represents long term leasehold land with a carrying value of RM14,989,000 (2005: RM12,935,000). The lease will expire on 5 Jun 2094.

The Group had entered into Sale and Purchase Agreements ("SPA") to dispose part of its leasehold land as detailed below:

Purchase Date of SPA Name of Buyer Consideration RM'000

15 September 2005 Magna Park Sdn. Bhd. 10,300 4 November 2003 Perodua Manufacturing Sdn. Bhd. 18,554 13 July 2006 Oriental Metal Industries (M) Sdn. Bhd. 3,269

The Group is in the process of applying for the subdivision of the relevant land from the Authorities, upon which separate title documents for the said land will be issued and the Sale and Purchase shall be finalised.

ANNUAL REPORT 2006 127 Notes To The Financial Statements - 31 December 2006

13. SHARE CAPITAL

Number of Ordinary Shares of RM1.00 Each Amount 2006 2005 2006 2005 '000 '000 RM'000 RM'000

(a) Authorised: At 1 January/31 December 600,000 600,000 600,000 600,000

(b) Issued and fully paid: At 1 January 506,963 499,058 506,963 499,058 Issued under the ESOS 3,227 598 3,227 598 Exercise of warrants - 7,307 - 7,307 At 31 December 510,190 506,963 510,190 506,963

(c) Warrants

During 2005, 7,307,271 warrants were converted into ordinary shares.

(d) Employee Share Option Scheme

The UMW Holdings Berhad Employee Share Option Scheme ("ESOS") was approved by shareholders at an Extraordinary General Meeting of the Company held on 3 April 2006 and became effective on 18 April 2006.

The main features of ESOS are as follows:

(i) Eligible persons are employees of the Group who have been confirmed in the employment of the Group including full-time salaried executive directors. The eligibility for participation in the ESOS shall be at the discretion of the ESOS Committee appointed by the Board of Directors.

(ii) The total number of shares to be offered shall not exceed in aggregate 15% of the issued and paid-up ordinary share capital of the Company at the point of offer during the duration of the ESOS, which shall be in force for a period of five years from 18 April 2006 and expiring on 17 April 2011.

(iii) The option price for each share shall be determined by the ESOS Committee at its discretion based on the five (5)-day weighted average market price ("5D-WAMP") of the underlying shares of the Company immediately prior to the date of offer provided that the price so determined shall not be at a discount of more than 10% of the 5D-WAMP and shall not be less than the par value of the shares of the Company.

(iv) Not more than 50% of the shares available under the ESOS shall be allocated, in aggregate, to Directors and senior management of the Group and not more than 10% of the shares available under the ESOS shall be allocated to any individual eligible employee, who, either singly or collectively through persons connected with him/her holds 20% or more of the issued and paid-up share capital of the Company.

128 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

13. SHARE CAPITAL (CONT’D.)

(d) Employee Share Option Scheme (Cont’d.)

(v) Options granted under the ESOS shall be capable of being exercised by the grantee in stages upon satisfaction of stipulated service conditions ranging from 1 year to 3 years of service from grant dates whilst he/she is in the employment of the Group, by notice in writing to the Company of his/her intention to exercise an option during the option period.

(vi) The number of shares under option or the option price or both so far as the options remain unexercised, may be adjusted following any alteration in the capital structure of the Company during the option period by way of rights issues, bonus issues, capital reduction, subdivision or consolidation of capital of the Company.

(vii) The new shares to be issued and allotted upon the exercise of any option shall upon issuance, allotment and full payment, rank pari passu in all respects with the existing shares of the Company at the time of allotment and will be subject to all the provisions of the Articles of Association of the Company relating to transfer, transmission and otherwise.

The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share options during the year:

Outstanding Number of Share Options Outstanding Exercisable at <------Movements During the Year ------> at 31 at 31 1 January Granted Exercised Forfeited Expired December December ’000 ’000 ’000 ’000 ’000 ’000 ’000

2006 2006 Options Exercise Price 6.67 - 17,001 1,036 189 - 15,776 4,408 6.66 - 28,209 2,183 179 - 25,847 7,014 6.65 - 2,578 8 10 - 2,560 910 - 47,788 3,227 378 - 44,183 12,332

WAEP - 6.66 6.66 6.66 - 6.66 6.66

2005 Exercise Price 2.92 655 - 359 18 278 - - 3.18 93 - 93 - - - - 5.35 19,116 - 5 442 18,669 - - 4.53 270 - 138 6 126 - - 20,134 - 595 466 19,073 - -

WAEP 5.25 - 3.36 5.24 5.31 - -

ANNUAL REPORT 2006 129 Notes To The Financial Statements - 31 December 2006

13. SHARE CAPITAL (CONT’D.)

(d) Employee Share Option Scheme (Cont’d.)

(aa) Details of share options outstanding at the end of the year:

WAEP Exercise Period RM 2006 2006 Options 6.66 7 June 2006 - 17 April 2011

(bb) Share options exercised during the year

As disclosed in Note 13(d), options exercised during the financial year resulted in the issuance of 3,227,000 (2005: 595,000) ordinary shares at an average price of RM6.66 (2005: RM3.36) each. The related weighted average share price at the date of exercise was RM7.46 (2005: RM5.02).

(cc) Fair value of share options granted

The fair values of share options granted by the Company to the employees of the Group during the year were estimated by using the trinomial option valuation model and take into account the terms and conditions upon which the options were granted. The fair values of share options measured at grant dates and the assumptions are as follows:

<------2006 ------> Option price (RM) 6.65 6.66 6.67 Fair values at grant date: Immediately exercisable (RM) 0.937 1.051 1.635 Exercisable after 1 year of service (RM) 0.927 1.041 1.629 Exercisable after 2 years of service (RM) 0.899 1.014 1.611 Weighted average share price (RM) 7.28 7.38 7.50 Expected volatility (%) 14.17 14.52 23.52 Risk free rate (%) 4.08 4.32 4.35 Expected dividend yield (%) 5.21 5.00 4.62

The expected volatility and dividend yield reflect the assumption that the historical data is indicative of future trends, which may not necessarily be the actual outcome.

14. CAPITAL RESERVE

Capital reserve relates primarily to surplus on revaluation of properties conducted between 1979 and 1985 as disclosed in Note 6(b).

130 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

15. LONG TERM LIABILITIES

Group 2006 2005 RM'000 RM'000 Secured

Term loan 4,132 -

Unsecured

Term loan 376,071 388,384 Less : Amount payable within one year (Note 18) (37,844) (17,579) 338,227 370,805 Finance lease payable (Note 20) 53 101 338,280 370,906

342,412 370,906

The maturity and exposure to interest rate risk of the borrowings are as follows:

Within 1 1 - 2 2 - 5 More than RWAEIR Year Years Years 5 years Total % RM'000 RM'000 RM'000 RM'000 RM'000

31 December 2006 Secured - Floating rate 7.8 - 4,132 - - 4,132

Unsecured - Floating rate 5.9 - 6.0 25,844 62,491 256,816 - 345,151 - Fixed rate 4.0 - 7.4 12,000 8,000 10,920 - 30,920 37,844 70,491 267,736 - 376,071

37,844 74,623 267,736 - 380,203

31 December 2005 Secured - Floating rate ------

Unsecured - Floating rate 4.0 - 5.0 17,579 43,216 294,598 9,071 364,464 - Fixed rate 7.4 - 12,000 11,920 - 23,920 17,579 55,216 306,518 9,071 388,384

17,579 55,216 306,518 9,071 388,384

* Range of Weighted Average Effective Interest Rate (“RWAEIR”)

ANNUAL REPORT 2006 131 Notes To The Financial Statements - 31 December 2006

15. LONG TERM LIABILITIES (CONT’D.)

The ranges of weighted average interest rates for borrowings during the financial year were as follows:

Group 2006 2005 % %

Term loan - secured 5.0 - 7.8 - Term loan - unsecured 3.9 - 7.8 3.9 - 7.4

The term loan is secured by fixed and floating charges over the assets and undertakings of a subsidiary.

16. PROVISION FOR LIABILITIES

Retirement Benefits Warranties Total RM'000 RM'000 RM'000 Group At 1 January 2005 4,732 33,215 37,947 Charged to income statement 4,013 42,269 46,282 Utilised during the year (1,380) (10,072) (11,452) Reversed during the year - (996) (996) Exchange translation differences (17) (59) (76) At 31 December 2005 7,348 64,357 71,705 Charged to income statement 4,189 25,255 29,444 Utilised during the year (5,717) (11,956) (17,673) Reversed during the year (443) (734) (1,177) Exchange translation differences (15) 86 71 At 31 December 2006 5,362 77,008 82,370 At 31 December 2006 Current 613 55,131 55,744 Non-current: Later than 1 year but not later than 2 years 2,091 15,185 17,276 Later than 2 years but not later than 5 years 1,586 6,654 8,240 Later than 5 years 1,072 38 1,110 4,749 21,877 26,626

5,362 77,008 82,370 At 31 December 2005 Current 840 63,621 64,461 Non-current: Later than 1 year but not later than 2 years 2,865 254 3,119 Later than 2 years but not later than 5 years 2,174 422 2,596 Later than 5 years 1,469 60 1,529 6,508 736 7,244

7,348 64,357 71,705

132 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

16. PROVISION FOR LIABILITIES (CONT’D.)

(a) Retirement Benefit Obligations

The Group operates funded, defined benefit plans ("the Plans") for its eligible employees. Contributions to the Plans are made to separately administered funds. Under the Plans, eligible employees are entitled to retirement benefits after serving the Group for a period of not less than 5 years.

The amounts recognised in the balance sheet are determined as follows:

Group 2006 2005 RM'000 RM'000

Present value of funded defined contribution obligations 19,331 16,409 Fair value of plan assets (13,807) (8,918) Present value of unfunded defined contribution obligations 5,524 7,491 Unrecognised actuarial loss (162) (143) Obligations representing net liability 5,362 7,348

The amounts recognised as operating expenses in the income statement are as follows:

Group 2006 2005 RM'000 RM'000

Current service cost 1,974 2,712 Interest cost 944 842 Expected return on plan assets (494) (401) Net actuarial loss recognised during the year 1,168 646 Past service cost 154 - Transitional liability - 214 Total (included in staff costs)(Note 23) 3,746 4,013

The actual return on the plan assets of the Group was RM185,617 (2005: RM215,004).

Principal actuarial assumptions used:

2006 2005 % %

Discount rate 6.2 7.0 Expected return on plan assets 5.8 3.5 Expected rate of salary increases 4.0 - 12.0 5.0 - 11.0

ANNUAL REPORT 2006 133 Notes To The Financial Statements - 31 December 2006

16. PROVISION FOR LIABILITIES (CONT’D.)

(b) Warranties

The Group gives 1 to 10 years of warranties on certain products and undertakes to repair or replace items that fail to perform satisfactorily. A provision is recognised for expected warranty claims on products sold during the last 1 to 10 years, based on past experience of the level of repairs and returns. It is expected that most of these costs will be incurred between one year to 5 years from the balance sheet date. Assumptions used to calculate the provision for warranties were based on sales levels and current information available about repairs and returns during warranty periods for all products sold.

17. DEFERRED TAXATION

Group 2006 2005 RM'000 RM'000

At 1 January 3,767 3,301 Recognised in the income statement (Note 26) 4,706 514 Acquisition of subsidiary 445 - Disposal of subsidiary 679 - Exchange differences 121 (48) At 31 December 9,718 3,767

Presented as follows:

Deferred tax assets (26,724) (32,151) Deferred tax liabilities 36,442 35,918 9,718 3,767

The components and movements of deferred tax liabilities and assets during the financial year are as follows:

Deferred Tax Liabilities of the Group:

Revaluation Accelerated of Capital Property Allowances Others Total RM'000 RM'000 RM'000 RM'000

At 1 January 2006 3,048 32,108 762 35,918 Recognised in income statement (76) (453) (253) (782) Exchange differences - 95 - 95 Acquisition of subsidiaries (Note 4(a)(iii)) - 1,211 - 1,211 At 31 December 2006 2,972 32,961 509 36,442

134 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

17. DEFERRED TAXATION (CONT’D.)

Deferred Tax Liabilities of the Group: (Cont’d.)

Revaluation Accelerated of Capital Property Allowances Others Total RM'000 RM'000 RM'000 RM'000

At 1 January 2005 182 33,253 - 33,435 Recognised in income statement 2,866 (1,032) 762 2,596 Exchange differences - (113) - (113) At 31 December 2005 3,048 32,108 762 35,918

Deferred Tax Assets of the Group:

Unabsorbed Provision Capital for Unabsorbed Allowances Liabilities Losses Others Total RM'000 RM'000 RM'000 RM'000 RM'000

At 1 January 2006 (821) (13,022) 466 (18,774) (32,151) Recognised in income statement 263 2,681 (654) 3,198 5,488 Acquisition of subsidiaries (Note 4(a)(iii)) - (766) - - (766) Disposal of a subsidiary (Note 4(a)(iv)) - - - 679 679 Exchange differences - (9) (9) 44 26 At 31 December 2006 (558) (11,116) (197) (14,853) (26,724)

At 1 January 2005 (3,320) (10,811) (1,340) (14,663) (30,134) Recognised in income statement 2,499 (2,232) 1,796 (4,145) (2,082) Exchange differences - 21 10 34 65 At 31 December 2005 (821) (13,022) 466 (18,774) (32,151)

Deferred tax assets have not been recognised in respect of the following items:

Group 2006 2005 RM'000 RM'000

Unabsorbed tax losses 161,240 152,435 Unutilised capital allowances 65,513 61,578 226,753 214,013

The availability of the unabsorbed tax losses and unutilised capital allowances for offsetting against future taxable profits of the Group are subject to there being no substantial change in shareholdings of the respective tax entity under Section 44(5A) & Paragraph 75A of the 3rd schedule of the Income Tax Act, 1967, respectively. Deferred tax assets have not been recognised in respect of these item as there is no probable expectation that future taxable income will be sufficient to allow the benefit to be realised.

ANNUAL REPORT 2006 135 Notes To The Financial Statements - 31 December 2006

18. SHORT TERM BORROWINGS

Group 2006 2005 RM'000 RM'000

Secured Short term loan 3,734 - Revolving credits - 253,126 3,734 253,126

Unsecured Short term loan 8,416 - Finance lease payables (Note 20) 45 27 Bank overdrafts 7,118 8,273 Trust receipts 3,504 10,812 Bankers' acceptances and revolving credits 92,012 54,729 Long term loans payable within one year (Note 15) 37,844 17,579 148,939 91,420 152,673 344,546

The secured short term loan of the Group for the year 2006 is secured by the plant and equipment of a subsidiary as disclosed in Note 6(e) and fixed and floating charges over the assets and undertakings of a subsidiary.

The secured revolving credits of the Group for the year 2005 were secured by certain assets of the Group as disclosed in Note 9, Note 6(e) and corporate guarantee from third parties.

The range of weighted average effective interest rates at the balance sheet date for borrowings, excluding finance lease payables, were as follows:

Group 2006 2005 % %

Bank overdrafts 7.0 - 7.3 6.3 - 7.2 Trust receipts 6.8 6.3 - 6.6 Bankers' acceptances 3.7 - 4.1 2.6 - 3.5 Revolving credits 4.2 - 5.5 3.8 - 4.6 Long term loans 4.0 - 7.8 2.5 - 6.8

136 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

19. PAYABLES

Group Company 2006 2005 2006 2005 RM'000 RM'000 RM'000 RM'000

Trade payables 347,997 394,923 - - Bill payables 4,377 154,074 - - Sales tax accruals 41,888 80,969 - - Customer deposits 32,659 64,307 - - Related parties 148,353 412,424 - - Provisions and accruals 208,732 231,840 384 300 Provision for unutilised leave 17,033 12,174 - - Sundry payables 244,651 206,180 317 125 1,045,690 1,556,891 701 425

The related parties balances comprise amounts due to Toyota Motor Corporation, Japan and Toyota Tsusho Corporation, Japan, being corporate shareholders of subsidiary companies and/or their subsidiaries and associated companies for purchase of inventories.

Included in sundry payables is an amount of RM7,375,000 being purchase consideration retained in respect of the acquisition of equity interest in a subsidiary which is payable upon satisfaction of certain financial performance conditions (Note 4(a)(iii)).

20. FINANCE LEASE PAYABLES

Group 2006 2005 RM'000 RM'000 Minimum lease payments: Not later than 1 year 54 31 Later than 1 year and not later than 2 years 39 81 Later than 2 years and not later than 5 years 22 23 115 135 Less: Future finance charges (17) (7) Present value of finance lease liability 98 128

Present value of finance lease liability: Not later than 1 year 45 27 Later than 1 year and not later than 5 years 53 101 98 128

Analysed as: Due within 12 months (Note 18) 45 27 Due after 12 months (Note 15) 53 101 98 128

The weighted average effective interest rate at the balance sheet date for the lease liabilities ranges from 5.20% to 16.88% (2005: 3.3%).

ANNUAL REPORT 2006 137 Notes To The Financial Statements - 31 December 2006

21. REVENUE

Group Company 2006 2005 2006 2005 RM'000 RM'000 RM'000 RM'000

Gross dividend income from a subsidiary - - 201,484 143,102 Sale of goods and services 9,946,123 9,865,262 - - Commission receivable 274 1,024 - - Rental income from investment properties 2,461 1,986 - - Others 1,630 517 - - 9,950,488 9,868,789 201,484 143,102

22. OTHER INCOME

Group Company 2006 2005 2006 2005 RM'000 RM'000 RM'000 RM'000

(a) Other Operating Income

Included in other operating income are:

Gain on disposal of property, plant and equipment and leased assets 16,070 18,188 - - Gain on disposal of investment 2,971 4,439 - - Gain on foreign exchange, net - realised 5,561 3,092 - - - unrealised 806 - - - Bad debts recovered 5,363 524 - - Rental income from operating leases 973 998 - - Commission 42,892 47,477 - -

(b) Investment Income

Investment income comprises:

Gross dividend income on equity, unquoted investment, in Malaysia 280 252 - - Gross dividend income on equity, investment, quoted outside Malaysia 105 - - - Interest income 39,936 37,652 165 148 Sundry income - - 51 - 40,321 37,904 216 148

138 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

23. EMPLOYEE BENEFITS

Group 2006 2005 RM'000 RM'000

(a) Staff costs

Wages and salaries 371,139 344,762 Social security costs 4,524 6,025 Provision for unutilised leave 2,665 148 Pension costs - defined contribution plan 39,467 35,552 Pension costs - defined benefit plans (Note 16(a)) 3,746 4,013 Share options granted under ESOS 33,683 - Other staff related expenses 38,089 46,757 493,313 437,257

(b) Directors’ remuneration is as follows:

Salaries and other emoluments - the Company* 814 804 - subsidiaries 12,977 10,296 Pension costs - defined contribution plan - the Company* 129 125 - subsidiaries 1,310 690 Benefits-in-kind - the Company* 68 131 - subsidiaries 714 512 ESOS - the Company 237 - - subsidiaries 1,699 -

* The details of the salaries and other emoluments of the directors of the Company are as follows:

Salaries and Other Emoluments Benefits-in-kind 2006 2005 2006 2005 RM'000 RM'000 RM'000 RM'000 Group

Executive director Dato' Dr. Abdul Halim bin Harun 943 929 68 131

ANNUAL REPORT 2006 139 Notes To The Financial Statements - 31 December 2006

24. OTHER OPERATING EXPENSES

Included in the other operating expenses are:

Group Company 2006 2005 2006 2005 RM'000 RM'000 RM'000 RM'000

Non-executive directors' fees# - the Company - current year provision 510 458 510 458 - subsidiaries - current year provision 87 41 - - Rental of land and buildings 25,102 13,485 - - Lease rental and hire charges 23,315 9,247 - - Legal fees paid to - Lee Hishammuddin Allen & Gledhill* 282 40 - - - Others 743 - - - Research and development 218 186 - - Auditors' remuneration: Statutory audit - Company's auditors 1,008 981 90 65 - non-principal auditors 1,447 192 - - Other services - Company's auditors 175 386 - - Goodwill amortisation - Subsidiaries included in other operating expenses - 8,687 - - - Associates - 2,239 - - Impairment of goodwill (Note 8(a)(i)) 1,989 - - - Provision for diminution in value of investment 21,741 - - - (Reversal)/provision for doubtful debts (4,986) 9,893 - - Royalty 5,811 6,797 - - Loss on disposal of investment 605 4,992 - - Property, plant and equipment written off 759 1,774 - - Loss on disposal of property, plant and equipment 193 108 - - Loss on unrealised foreign exchange, net - 685 - - Provision for warranty, net of reversals 24,521 41,273 - -

140 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

24. OTHER OPERATING EXPENSES (CONT’D.)

# Details of the directors' fees and benefits-in-kind paid to the Company's directors are as follows:

Group Company 2006 2005 2006 2005 RM'000 RM'000 RM'000 RM'000

Directors' fees:

Tan Sri Datuk Asmat bin Kamaludin 109 105 105 103 Tan Sri Datuk Mohamed Khatib bin Abdul Hamid 77 67 54 50 Tan Sri Dato' Mohamed Noordin bin Hassan 75 54 59 51 Lt. Gen. (R) Dato' Mohd. Yusof bin Din 73 58 62 52 Dato' Ir. Lee Yee Cheong - current years' provision 72 59 61 51 Dato' Haji Darwis bin Mohd. Daid 63 53 54 49 Dato' Thomas Mun Lung Lee 55 50 53 50 Md. Yusof bin Hussin 73 53 62 52

Group 2006 2005 RM'000 RM'000

Benefits-in-kind:

Non-Executive director Tan Sri Datuk Asmat bin Kamaludin 36 123

The number of directors of the Company whose total remuneration falls within the following bands are as follows:

Group Company 2006 2005 2006 2005

Executive director: RM1,000,001 - RM1,050,000 1 - - - RM1,050,000 - RM1,100,000 - 1 - -

Non-executive directors: Up to RM50,000 - 1 - 3 RM50,001 - RM100,000 7 6 7 4 RM100,001 - RM150,000 1 1 1 1

* Lee Hishammuddin Allen & Gledhill is a legal firm of which Dato' Thomas Mun Lung Lee, a director of the Company, is a partner.

ANNUAL REPORT 2006 141 Notes To The Financial Statements - 31 December 2006

25. FINANCE COSTS

Included in finance costs are:

Group Company 2006 2005 2006 2005 RM'000 RM'000 RM'000 RM'000

Interest expense - Bank borrowings 32,915 22,652 - -

26. TAXATION

Group Company 2006 2005 2006 2005 RM'000 RM'000 RM'000 RM'000

Income tax: Malaysian taxes 124,418 132,685 55,102 40,038 Overseas taxes 41,094 23,279 - - 165,512 155,964 55,102 40,038 (Over)/under provision in prior years (875) 1,685 (1) (21) 164,637 157,649 55,101 40,017

Deferred taxation (Note 17): Relating to origination and reversal of temporary differences 7,245 687 - - Relating to reduction/increase in tax rates (165) - - - Over provision in prior years (2,374) (173) - - 4,706 514 - -

169,343 158,163 55,101 40,017

Domestic current income tax is calculated at the statutory tax rate of 28% (2005: 28%) of the estimated assessable profit for the year. The domestic statutory tax rate will be reduced to 27% from the current year's rate of 28%, effective year of assessment 2007 and to 26% effective year of assessment 2008. The computation of deferred tax as at 31 December 2006 has reflected these changes.

Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

142 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

26. TAXATION (CONT’D.)

Reconciliations of income tax expense applicable to profit before taxation at the statutory income tax rate to income tax expense at the effective income tax rate of the Group and of the Company are as follows:

2006 2005 RM'000 RM'000 Group

Profit before taxation 754,281 657,497

Taxation at Malaysian statutory rate of 28% (2005: 28%) 211,199 184,099 Effect of different tax rates in other countries (27,258) (12,114) Tax incentives (193) (2,454) Effect of changes in tax rates on deferred tax opening balance (273) - Income not subject to tax (7,016) (3,440) Expenses not deductible for tax purposes 25,864 12,818 Utilisation of reinvestment allowances (2,456) (17,541) Utilisation of previously unrecognised tax losses (2,426) (709) Utilisation of previously unrecognised capital allowance (36) (177) Deferred tax assets not recognised 7,974 12,154 Overprovision of deferred tax in prior year (2,373) (173) Overprovision of income tax expense (875) 1,685 Effect of share of profits of associated companies (32,788) (15,985) Tax expense for the year 169,343 158,163

Company

Profit before taxation 200,160 141,812

Taxation at Malaysian statutory rate of 28% (2005: 28%) 56,045 39,707 Income not subject to tax (1,002) - Expenses not deductible for tax purposes 59 331 Overprovision of income tax expense in prior year (1) (21) 55,101 40,017

Tax savings recognised during the year arising from: Utilisation of current year tax losses 2,435 - Utilisation of tax losses brought forward from previous years 1,697 709 Unutilised tax losses carried forward 161,240 152,435

The Company’s tax exempt account balances as at 31 December 2006 amounted to RM597,000 (2005: RM597,000) which can be used to declare tax exempt dividends.

The Company has sufficient tax credit under Section 108 of the Income Tax Act, 1967 and tax exempt accounts balances to frank the payment of net dividends amounting to RM91,105,000 (2005: RM92,255,000) and RM597,000 (2005: RM597,000), respectively.

ANNUAL REPORT 2006 143 Notes To The Financial Statements - 31 December 2006

27. EARNINGS PER SHARE

(a) Basic

Basic earnings per share is calculated by dividing the net profit attributable to shareholders by the weighted average number of ordinary shares in issue during the financial year.

Group 2006 2005

Net profit attributable to shareholders (RM'000) 305,904 284,201

Weighted average number of ordinary shares in issue ('000) 507,483 506,087

Basic earnings per share (sen) 60.3 56.2

(b) Diluted

Diluted earnings per share is calculated by dividing the adjusted net profit attributable to shareholders by the adjusted weighted average number of ordinary shares in issue and issuable during the financial year.

The dilutive potential ordinary shares of the Group comprises the employees’ share option. The basis for the maximum number of ordinary shares of RM1.00 each to be issued upon the exercise of share options granted, the latest date for exercise and exercise price are disclosed in Note 13(d).

Group 2006 2005

Net profit attributable to shareholders (RM'000) 305,904 284,201

Weighted average number of ordinary shares in issue ('000) 507,483 506,087

Adjusted for: Assumed shares issued from the exercise of options at no consideration ('000) 3,521 - 511,004 506,087

Diluted earnings per share (sen) 59.9 56.2

The fair value of the shares in respect of the assumed exercise of options of RM7.24 for the year 2006 was determined based on the average weighted market value of the shares traded during the year. The difference between the number of shares issued via the exercise of options and the number of shares that would have been issued at RM7.24 was assumed as issue of shares at no consideration.

144 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

28. DIVIDENDS

Amount Net Dividend Per Share 2006 2005 2006 2005 RM'000 RM'000 Sen Sen

In respect of the financial year ended 31 December 2004 - Final dividend of 10.0% less 28% taxation - 36,468 - 7.2

In respect of the financial year ended 31 December 2005 - Interim dividend of 12.5% less 28% taxation - 45,626 - 9.0 - Special interim dividend of 5.0% less 28% taxation - 18,251 - 3.6 - Final dividend of 20.5% less 28% taxation 74,832 - 14.8 -

In respect of the financial year ended 31 December 2006 - Interim dividend of 17.5% less 28% taxation 63,961 - 12.6 - 138,793 100,345 27.4 19.8

On 26 February 2007, the Board had approved the payment of a special interim dividend in respect of the current financial year ended 31 December 2006, of 10%, less 27% taxation, amounting to a total net dividend of approximately RM38,011,700 (7.3 sen net per share) to be paid on 30 April 2007. The financial statements for the current financial year do not reflect this special interim dividend. Such dividend will be accounted for in the shareholders' equity as an appropriation of retained profits in the next financial year ending 31 December 2007.

At the forthcoming Annual General Meeting, a final dividend in respect of the current financial year ended 31 December 2006, of 13.5%, less 27% taxation, amounting to a total net dividend of approximately RM51,316,000 (9.86 sen net per share) will be proposed for shareholders' approval. The financial statements for the current financial year do not reflect this proposed dividend. Such dividend, if approved by the shareholders, will be accounted for in the shareholders' equity as an appropriation of retained profits in the next financial year ending 31 December 2007.

ANNUAL REPORT 2006 145 Notes To The Financial Statements - 31 December 2006

29. COMMITMENTS

(a) Capital Commitments

Group 2006 2005 RM'000 RM'000

Approved and contracted for: - land and buildings 107,120 156,202 - equipment, plant and machinery 98,543 85,783 - others - 8,066 205,663 250,051

Authorised but not contracted for: - land and buildings 25,225 36,154 - equipment, plant and machinery 154,196 92,099 - others 127 11 179,548 128,264

Total capital commitments 385,211 378,315

(b) Commitments Under Non-Cancellable Operating Leases

Amount payable within 1 year 2,485 1,875 Amount payable later than 1 year but not more than 2 years 2,194 1,886 Amount payable later than 2 years but not more than 5 years 3,630 3,167 Amount payable after 5 years 40,979 37,085

(c) Contingent Liabilities

Unsecured

Bank guarantee issued to third parties 200,214 102,698 Corporate guarantee issued to: - third parties 698 2,320 - others 258 -

201,170 105,018

146 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006 40,321 (14,577) (33,685) 630,546 584,938 305,904 (169,343) (279,034) RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Automotive Equipment & Engineering & Gas Others Eliminations Consolidated expenses associated companies 95,378 - 1,224 20,219 278 - 117,099 2006REVENUE External sales salesInter-segment revenueTotal RESULTS 7,075,438 3,418Segment results 7,078,856 1,026,694Unallocated corporate 1,032,977 6,283Profit from operations 390,768Finance cost 349,532Investment income 1,449,587 Manufacturing 416,536Share of results from 1,449,587 25,768 71,473Taxation 8,001 Oil 21,735Profit after taxation Minority interests -Net profit for the year (49,203) (16,191) 248,046 - 9,950,488 13,734 9,950,488 (49,203) (7,737) - - 645,123 (a) Business Segments 30. SEGMENT REPORTING

ANNUAL REPORT 2006 147 Notes To The Financial Statements - 31 December 2006 5,102,524 1,715,666 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Automotive Equipment & Engineering & Gas Others Consolidated companiesliabilities 546,126 -and impairment loss 9,048 235,611 31,907 - 822,692 1,339 - - - - - 1,989 10,610 - 10,610 3,328 2006 (Cont’d.)ASSETS AND LIABILITIES Segment assetsInvestment in associated assetsTax Other assetsUnallocated corporate assetsConsolidated total assets Segment liabilities liabilitiesTax 2,185,807Other liabilitiesUnallocated corporate 643,451 - ManufacturingConsolidated total liabilities 254,786OTHER INFORMATION 18,888 3,605 465,253 Oil 687,236Capital expenditure - 3,697Depreciation 137,230 198,226 (279)Amortisation of intangible assets 53,129 3,686,527 Other non-cash expenses 4,267 90,483 - 26,104 26,134 - 126,398 187,155 69,319 2,626 169,485 7,398 15,107 25,466 - 2,224 27,018 79,754 12,633 1,117,450 4,072 74,232 242,081 319,522 404,398 31,702 42,471 867 8,358 1,818 319,522 8,735 210,291 14,297 11,768 92,521 495,085 22,108 (21,363) 26,084 489,996 11,022 6,676 31,841 161,231 (a) Business Segments (Cont’d.) 30. (CONT’D.) SEGMENT REPORTING

148 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006 (14,947) 37,904 552,719 (23,594) 499,334 284,201 (158,163) (215,133) RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Automotive Equipment & Engineering & Gas Others Eliminations Consolidated expenses associated companies 81,964 - 725 5,374 2,405 - 90,468 REVENUE External sales salesInter-segment revenueTotal RESULTS 7,500,118 2,740Segment results 7,502,858Unallocated corporate 891,432 897,776 6,344Profit from operations Finance cost 403,436 394,061Investment income 1,068,097 424,912Share of results from 21,476 1,068,097 64,580Taxation 5,706Profit after taxation 18,868Minority interests -Net profit for the year 17,759 (43,722) 9,868,789 13,162 97,753 - 9,868,789 (43,722) (6,487) - - 567,666 2005 Manufacturing Oil (a) Business Segments (Cont’d.) 30. (CONT’D.) SEGMENT REPORTING

ANNUAL REPORT 2006 149 Notes To The Financial Statements - 31 December 2006 5,720,980 2,457,868 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Automotive Equipment & Engineering & Gas Others Consolidated companiesliabilities 500,805 - 8,185 80,566 - 31,629 621,185 - - - 25,245 25,245 2005 (Cont’d.)ASSETS AND LIABILITIES Segment assetsInvestment in associated assetsTax Other assetsUnallocated corporate assetsConsolidated total assets Segment liabilities liabilitiesTax 2,520,127Other liabilitiesUnallocated corporate 593,203 - ManufacturingConsolidated total liabilities 263,723 23,083OTHER INFORMATION 1,233,238 3,534 Oil 988,599Capital expenditure - 3,439 130,179Depreciation 157,548 693Amortisation of intangible assets 4,740,470 57,988Other non-cash expenses 4,415 73,004 - 19,712 15,495 - 1,419 385,138 1,756 67,889 131,875 (27) 7,696 17,313 58,241 - 2,018 89,505 9,483 - 1,621,602 48,781 68,624 (13,372) 3,872 256,138 628,626 34,711 14,204 40,154 68,476 256,138 6,301 1,587 328,700 9,454 - 11,666 15,863 95,569 715,452 6,022 9,476 14,526 (3,731) 570,306 5,779 58,588 31 140,749 10,926 (a) Business Segments (Cont’d.) 30. (CONT’D.) SEGMENT REPORTING

150 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

30. SEGMENT REPORTING (CONT’D.)

(b) Geographical Segments

Malaysia Overseas Consolidated RM'000 RM'000 RM'000 2006

Total revenue from external customers 8,494,901 1,455,587 9,950,488 Profit from operations 403,995 226,551 630,546 Segment assets 3,359,959 326,568 3,686,527 Capital expenditure 252,848 237,148 489,996

2005

Total revenue from external customers 8,792,314 1,076,475 9,868,789 Profit from operations 425,263 127,456 552,719 Segment assets 3,597,871 1,142,599 4,740,470 Capital expenditure 277,454 292,852 570,306

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

31. SUBSIDIARIES

(i) The following are the subsidiaries of the Company:

Group Effective Interest Company 2006 2005 Principal Activities % %

(a) Subsidiaries Incorporated in Malaysia

Subsidiaries of the Company:

UMW Corporation Sdn. Bhd. 100 100 Providing full corporate, administrative, professional, security services and financial support to its subsidiaries and associated companies. In addition, the subsidiary also trades in a range of light and heavy equipment.

UMW Petropipe (L) Ltd. 100 100 Investment holding.

ANNUAL REPORT 2006 151 Notes To The Financial Statements - 31 December 2006

31. SUBSIDIARIES (CONT’D.)

Group Effective Interest Company 2006 2005 Principal Activities % % (a) Subsidiaries Incorporated in Malaysia (Cont’d.)

Subsidiaries of UMW Corporation Sdn. Bhd. or UMW Petropipe (L) Ltd.

UMW Industries (1985) Sdn. Bhd. 100 100 Distribution of industrial and material handling equipment and related spares.

UMW (East Malaysia) Sdn. Bhd. 100 100 Distribution of industrial and heavy equipment and related spares in Sabah and Sarawak.

UMW (Sarawak) Sdn. Bhd. 100 100 Dormant.

UMW Equipment Sdn. Bhd. 100 100 Distribution of industrial and heavy equipment and related spares in Peninsular Malaysia.

UMW Advantech Sdn. Bhd. 100 100 Assembly of heavy equipment, (Formerly known as manufacture of transportation UMW Engineering Sdn. Bhd.) equipment as well as related components and attachments and rebuilding and repair of such equipment.

UMW Industrial Power Sdn. Bhd. 100 100 Distribution of industrial and power equipment and related parts.

UMW ACE (L) Ltd. 60 51 Investment holding.

UMW Linepipe (L) Ltd. 51 - Investment holding.

UMW Drilling Co. Ltd. 100 100 Provision of contract drilling and engineering services for the oil and gas industry and leasing of drilling rigs and vessels.

UMW Oilfield 100 100 Promoting, marketing and International Trading sourcing of oil and gas products (Labuan) Ltd. and related services, as well as investment holding.

152 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

31. SUBSIDIARIES (CONT’D.)

Group Effective Interest Company 2006 2005 Principal Activities % % (a) Subsidiaries Incorporated in Malaysia (Cont’d.)

UMW Oilpipe Services 51 - Provision of tubular inspection, (Turkmenistan) Ltd. repair and maintenance services.

UMW China Ventures (L) Ltd. 100 - Investment holding.

UMW Insurance 100 100 Insurance agency services. Services Sdn. Bhd.

UMW Autocorp Sdn. Bhd. 100 100 Investment holding.

Kelang Pembena 100 100 Dormant. Kereta2 Sendirian Berhad

KPKK Realty Sdn. Bhd. 100 100 Investment in real properties.

UMW Equipment Rental 100 100 Dormant. Services Sdn. Bhd.

UMW Kentruck Sdn. Bhd. 100 100 Investment and holding of real property.

UMW Travel Sdn. Bhd. 100 100 Provision of travel agency services.

UMW Aero Industries Sdn. Bhd. 100 100 Investment and holding of real property.

Tracpart Centre Sdn. Bhd. 100 100 Investment and holding of real property.

UMW E-Technologies Sdn. Bhd. 100 100 Provision of information technology services.

Otomobil Sejahtera Sdn. Bhd. 100 100 Importing CBU vehicles and acting as a dealer for UMW Toyota Motor Sdn. Bhd.

UMW Auto Parts Sdn. Bhd. 100 100 Manufacture and distribution of filters and spare parts for various automotive and industrial applications.

UMW Vehicle Components 100 100 Dormant. Sdn. Bhd.

ANNUAL REPORT 2006 153 Notes To The Financial Statements - 31 December 2006

31. SUBSIDIARIES (CONT’D.)

Group Effective Interest Company 2006 2005 Principal Activities % % (a) Subsidiaries Incorporated in Malaysia (Cont’d.)

UMW Coating 100 100 Providing sandblasting, testing, Technologies Sdn. Bhd. priming, coating, inspection, (Formerly known as maintenance and repair services UMW SAEKAPHEN Coating of equipment and tubes. Sdn. Bhd.)

UMW Oilfield 100 100 Marketing, import and export, International Trading distributing equipment and Sdn. Bhd. component parts and providing technical support and consultancy services for oil and gas industry.

Lubetech Sdn. Bhd. 70 70 Blending and packaging of “Pennzoil” and other branded lubricants.

UMW Petrodril 99 99 Provision of drilling and workover (Malaysia) Sdn. Bhd. related services and supply of drilling related equipment/ materials to support upstream activities of the offshore oil and gas exploration.

UMW JDC Drilling Sdn. Bhd. 85 85 Drilling and other engineering services for oil and gas exploration, development and production.

UPE Systems Services Sdn. Bhd. 100 100 Marketing and rendering of informations technology services.

KYB-UMW Steering 52.1 52.1 Manufacture and assembly of Malaysia Sdn. Bhd. power steering pumps. (Formerly known as Kayaba Hydraulics (Malaysia) Sdn. Bhd.)

KYB-UMW Malaysia Sdn. Bhd. 52.1 52.1 Manufacture and assembly of (Formerly known as Kayaba vehicle shock absorbers. (Malaysia) Sdn. Bhd.)

UMW-PNSB 51 51 Investment holding and Development Sdn. Bhd. property development.

154 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

31. SUBSIDIARIES (CONT’D.)

Group Effective Interest Company 2006 2005 Principal Activities % % (a) Subsidiaries Incorporated in Malaysia (Cont’d.)

UMW Technology 51 51 Investment and holding of real Management Sdn. Bhd. property.

UMW Management 51 51 Investment and holding of real Systems Sdn. Bhd. property.

UMW Properties Sdn. Bhd. 51 51 Investment and holding of real property.

UMW Bumi Hijau Sdn. Bhd. 51 51 Investment and holding of real property.

UMW Bumi Indah Sdn. Bhd. 51 51 Investment and holding of real property.

UMW Toyota Motor Sdn. Bhd. 51 51 Investment holding and importation and distribution of Toyota vehicles and related spares.

Assembly Services Sdn. Bhd. 51 51 Assembly of vehicles, manufacturing of engines and fitting of accessories.

Automotive Industries 51 51 Manufacture of vehicle exhaust Sendirian Berhad systems and kangaroo bars.

Seat Industries 51 51 Manufacture of vehicle seats. (Malaysia) Sdn. Bhd.

Toyota Boshoku UMW 33.15 33.15 Manufacture of seats, interior and Sdn. Bhd. (Formerly known exterior parts and other parts for as Takanichi SIM Sdn. Bhd.) cars and other vehicles.

UMW Oilpipe Services 81 51 Threading of tubings and casings Sdn. Bhd. (Formerly known as and manufacturing of couplings UMW Citra Maju Sdn. Bhd.) for oil and gas industry.

Cladtek (Malaysia) Sdn. Bhd. 54 - Dormant. (Formerly known as Galperti Engineering (Far East) Sdn. Bhd.)

ANNUAL REPORT 2006 155 Notes To The Financial Statements - 31 December 2006

31. SUBSIDIARIES (CONT’D.)

Group Effective Interest Company 2006 2005 Principal Activities % % (b) Subsidiaries Incorporated in Singapore

UMW Equipment & 100 100 Importation, distribution, repair, Engineering Pte. Ltd. maintenance and service of all types of industrial and heavy equipment, automotive parts and related spares in Singapore.

UMW Equipment Systems Pte. Ltd. 100 100 Investment holding.

Vina Offshore Holdings Pte. Ltd.* 70 - Sale of supplies used in the marine and offshore oil rig industry.

PFP Singapore Pte. Ltd. 45 - Sale of piping materials.

(c) Subsidiary Incorporated in Papua New Guinea

UMW Niugini Limited* 94.4 94.4 Distribution of heavy equipment and related parts.

(d) Subsidiary Incorporated in Solomon Islands

UMW Solomon Islands Limited* 85 85 Distribution of heavy equipment and related parts.

(e) Subsidiaries Incorporated in People's Republic of China

UMW Oilfield Services 100 100 Manufacture, process and (Tianjin) Co., Limited assembly of equipment and component parts for the oil and gas industry, sale of self- manufactured products and provision of after-sales services and technical support as well as provision of threading, bucking and workshop services.

UMW Industrial Trading 100 100 Marketing of Toyota industrial (Shanghai) Co., Ltd. equipment, Aerex and other airport ground support equipment and environmental products.

156 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

31. SUBSIDIARIES (CONT’D.)

Group Effective Interest Company 2006 2005 Principal Activities % % (e) Subsidiaries Incorporated in People's Republic of China (Cont’d.)

UMW Industrial 100 100 Provision of after-sales and Equipment (Shanghai) Co., Ltd. repair services for equipment.

(f) Subsidiaries Incorporated in Thailand

UMW Auto Parts (Thailand) Co., Ltd. 100 100 Manufacture of natural fibre- based composite material, i.e., LoPrefin fibre mat and kenboard for automotive interior trim production.

UCM Oil-Tex Threading Limited* 49.2 31 Threading, reconditioning, engineering, repair and maintenance of oil and gas field equipment.

(g) Subsidiaries Incorporated in Republic of Vietnam

Held by Vina Offshore Holdings Pte. Ltd.:

Vietnam Offshore Fabrication & Engineering Ltd.* 70 - Supply of marine engineering services and processes, making exclusive-use equipment for the petroleum industry; supply of technological consultancy service, design, construction, maintenance, repair of industrial works and sea works.

Held by UMW Equipment Systems Pte. Ltd.:

UMW Equipment Systems (Vietnam) 100 100 Provision of service for equipment Company Limited* installation, maintenance, repair, overhaul and lease of equipment in industrial, construction and traffic sectors.

ANNUAL REPORT 2006 157 Notes To The Financial Statements - 31 December 2006

31. SUBSIDIARIES (CONT’D.)

Group Effective Interest Company 2006 2005 Principal Activities % % (h) Subsidiaries Incorporated in Myanmar

UMW Machinery Limited*# 100 100 Importation and distribution of industrial and heavy equipment and related parts.

UMW Engineering 100 100 Provision of after-sales services Services Limited*# for equipment and maintenance and repair of equipment.

(i) Subsidiary Incorporated in British Virgin Islands

Progenic Investments Limited 100 100 Offshore leasing activities.

(j) Subsidiaries Incorporated in Australia

PFP Holdings Proprietary Limited* 60 - Investment holding.

PFP (Tech) Holdings Proprietary 60 - Investment holding. Limited*

PFP Technologies Proprietary 60 - Manufacture of computerised Limited* machineries.

PFP (Aust) Holdings Proprietary 60 - Investment holding. Limited*

PFP (Int) Holdings Proprietary 60 - Dormant. Limited*

PFP (Aust) Proprietary Limited* 60 - Stockist and sales of pipe and fittings to the oil and gas industry.

Cladteck International 42 - Manufacture of cladded pipe for Proprietary Limited* the oil and gas industry.

* Subsidiaries audited by firms of Chartered Accountants other than Ernst & Young.

# The financial year end of the above subsidiaries is 31 March.

158 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

31. SUBSIDIARIES (CONT’D.)

(ii) The following companies, which are under members' voluntary liquidation/deregistration in which the Company has an equity interest of more than 50% are not consolidated as the Company no longer has the power to exercise control over the financial and operating policies.

Group Effective Interest Company 2006 2005 Principal Activities % %

(a) Subsidiaries Incorporated in Malaysia

UMW Toyota (Sabah) Sdn. Bhd. 51 51 Dormant.

Malaysian Electric 100 100 Manufacture of electric vehicles. Vehicles Sdn. Bhd. The company has not commenced operations.

UMW Construction Sdn. Bhd. 100 100 Construction and engineering projects. The company has ceased operations since 1986.

Ulu Balung Estate Sdn. Bhd. 100 100 Dormant.

(b) Subsidiary Incorporated in Brunei

UMW Orient Sdn. Berhad 100 100 Distribution of industrial and heavy equipment and related spares in Brunei. The company has ceased operations.

(c) Subsidiary Incorporated in the Philippines

Held by UMW Industries (1985) Sdn. Bhd.:

UMW Industries (Philippines) Inc. 100 100 Importation and distribution of industrial and material handling equipment and related spares, and the provision of servicing and repair services for such equipment. The company has ceased operations.

ANNUAL REPORT 2006 159 Notes To The Financial Statements - 31 December 2006

32. ASSOCIATED COMPANIES

Group Effective Interest Company 2006 2005 Principal Activities % %

(a) Associated Companies Incorporated in Malaysia

Held by UMW Corporation Sdn. Bhd.:

Rail-Tech Industries Sdn. Bhd. 50 50 Manufacture, repair and service of rolling stock. The company has ceased operations.

Perusahaan Otomobil 38 38 Investment holding and Kedua Sdn. Bhd. provision of management and administrative services.

Perodua Sales Sdn. Bhd. 38 38 Marketing and distribution of motor vehicles, related spare parts and other related activities.

Perodua Casting Sdn. Bhd. 38 38 Dormant.

Perodua Forging Sdn. Bhd. 38 38 Dormant.

Perodua Travel Sdn. Bhd. 38 38 Dormant.

Perodua Tool and Die Sdn. Bhd. 38 38 Dormant.

Perodua Research and 38 38 Dormant. Development Sdn. Bhd.

Perodua Technologies Sdn. Bhd. 38 38 Dormant.

Perodua Components Sdn. Bhd. 38 38 Dormant.

Perodua Stamping Sdn. Bhd. 38 38 Dormant.

Perodua Manufacturing Sdn. Bhd. 28 28 Manufacture and assembly of motor vehicles and other related activities.

Perodua Engine 28 28 Manufacture and distribution Manufacturing Sdn. Bhd. of component parts, including engines, couplings and transmission components.

160 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

32. ASSOCIATED COMPANIES (CONT’D.)

Group Effective Interest Company 2006 2005 Principal Activities % %

(a) Associated Companies Incorporated in Malaysia (Cont’d.)

Held by UMW Corporation Sdn. Bhd.:

Perodua Auto Corporation 19 19 Investment holding and Sdn. Bhd. provision of management and administrative services.

UMW Toyotsu Motors Sdn. Bhd. 30 30 Sales and after-sales services of Toyota and Lexus brands of motor vehicles, parts and other relevant products.

UMW Toyota Capital Sdn. Bhd. 30 30 Hire purchase financing, factoring and trade confirming.

Held by UMW Toyota Capital Sdn. Bhd.:

Seabanc Acceptance Sdn. Bhd. 30 30 Hire purchase financing, debt factoring and money lending.

Seabanc Kredit Sdn. Bhd. 30 30 Hire purchase financing, leasing and debt factoring.

Toyota Lease Malaysia Sdn. Bhd. 30 30 Provision of lease financing.

Held by PFP (Aust) Holdings Proprietary Limited:

PFP (Malaysia) Sdn. Bhd. 24 - Supply of materials to the (Formerly known as Project marine process and petrol Material Services (M) Sdn. Bhd.) chemical industries.

Held by UMW Auto Parts Sdn. Bhd.:

UMW Pennzoil 50 50 Marketing, selling and Distributors Sdn. Bhd. distribution of "Pennzoil" branded lubricants.

Held by UMW Autocorp Sdn. Bhd.:

Lada Motors Sendirian Berhad 40 40 Dormant.

ANNUAL REPORT 2006 161 Notes To The Financial Statements - 31 December 2006

32. ASSOCIATED COMPANIES (CONT’D.)

Group Effective Interest Company 2006 2005 Principal Activities % %

(b) Associated Companies Incorporated in People's Republic of China

Held by UMW Petropipe (L) Ltd.:

Shanghai Tube-Cote 40 40 Provision of internal plastic Petroleum Pipe coating for drill pipes. Coating Co., Ltd.

Held by UMW Linepipe (L) Ltd.:

Shanghai BSW 25 25 Manufacture and trading of Petro-pipe Co., Ltd. steel pipes and pipes anti-corrosion coating and insulation projects, provision of pipe-making and coating technology services.

Held by Shanghai Tube-Cote Petroleum Pipe Coating Co., Ltd. and UMW Petropipe (L) Ltd.:

Jiangsu Tube-Cote 20 20 Manufacture and trading of Shuguang Coating Co., Ltd. steel pipes and pipes anti- corrosion coating and insulation projects, provision of pipe-making and coating technology services.

Wuxi Seamless Oil Pipe 30.6 26 Production, processing and sale Co., Ltd. of oil pipes and other related products.

Held by Wuxi Seamless Oil Pipe Co., Ltd.:

Wuxi Seamless Oil 15.6 13.3 Research and development in Extraction Equipment Co., Ltd. oil drilling equipment; sale and production of oil drill pipes and related accessories.

162 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

32. ASSOCIATED COMPANIES (CONT’D.)

Group Effective Interest Company 2006 2005 Principal Activities % %

(b) Associated Companies Incorporated in People's Republic of China (Cont’d.)

Jiangsu Fanli 21.4 - Production and sale of seamless Pipe Co., Ltd. tubes with bearings, oil drill pipes, boiler tubes, cold drawn shapes (wires) metallurgy products and bearings; and acting as an agent in the import and export of various commodities and technologies.

(c) Associated Company Incorporated in Brunei Darussalam

Held by UMW Oilpipe Services Sdn. Bhd. (Formerly known as UMW Citra Maju Sdn. Bhd.):

Premium Tubular Services Sdn. Bhd. 40.5 25.5 Under liquidation.

(d) Associated Company Incorporated in Thailand

Held by UMW Oilpipe Services Sdn. Bhd. (Formerly known as UMW Citra Maju Sdn. Bhd.):

Oil-Tex (Thailand) 16.2 10.2 Provision of logistic services. Company Limited

(e) Associated Company Incorporated in British Virgin Islands

Held by UMW China Venture (L) Ltd.:

First Space Holdings Limited 30.6 - Investment holding.

ANNUAL REPORT 2006 163 Notes To The Financial Statements - 31 December 2006

32. ASSOCIATED COMPANIES (CONT’D.)

Group Effective Interest Company 2006 2005 Principal Activities % %

(f) Associated Company Incorporated in the Cayman Islands

Held by UMW China Venture (L) Ltd.:

WSP Holdings Ltd. 30.6 - Investment holding. (Formerly known as Eastar Group Holdings Limited)

Other than UMW Toyotsu Motors Sdn. Bhd., UMW Toyota Capital Sdn. Bhd. and its subsidiaries whose financial year end is 31 March, and Oil-Tex (Thailand) Company Limited whose financial year end is 30 June, the financial year end of all of the above associated companies is 31 December.

33. SIGNIFICANT EVENTS

(a) On 23 February 2006, UMW Corporation Sdn. Bhd. (“UMWC”), a wholly-owned subsidiary of the Company, entered into a sale and purchase agreement with P.T. Citra Tubindo, a company incorporated in the Republic of Indonesia, and Blackrock Corporation Sdn. Bhd. for the acquisition of 929,050 ordinary shares of RM1.00 each, representing 21.86% equity interest in its 51%-owned subsidiary, UMW Citra Maju Sdn. Bhd. (“UCM”) for a total cash consideration of RM9,181,200. Upon completion of the acquisition, UMWC's equity interest in UCM increased from 51% to 72.86%.

(b) On 8 May 2006, UMW Petropipe (L) Ltd. (“UMW Petropipe”), a wholly-owned subsidiary of the Company, entered into a sale and purchase agreement with Chua Tee Tee, for the acquisition of 210,000 ordinary shares of par value S$1.00 each in Vina Offshore Holdings Pte. Ltd. ("Vina"), a company incorporated in Singapore, for a total cash consideration of USD2.45 million (equivalent to approximately RM8,893,500). Upon completion of the acquisition, Vina became a 70%-owned subsidiary of the Company.

(c) On 9 May 2006, UMWC, entered into a sale and purchase agreement with P.T. Citra Tubindo, a company incorporated in the Republic of Indonesia, for the acquisition of 345,950 ordinary shares of RM1.00 each, representing 8.14% equity interest in its 72.86%-owned subsidiary, UMW Citra Maju Sdn. Bhd. (“UCM”) for a total cash consideration of RM3,418,800. Upon completion of the acquisition, the Company's equity interest in UCM increased from 72.86% to 81%.

(d) Wuxi Seamless Oil Pipe Co., Ltd. (“WSP”), a 51%-owned subsidiary of UMW ACE (L) Ltd. (“UMW ACE”), entered into joint venture arrangements with Mr Huang Cheng, Mr Huang Xiang and Mr Gu Jianming, in relation to an investment of 70% equity interest in Jiangsu Fanli Pipe Co., Ltd. (“Jiangsu Fanli”) during the quarter ended 30 June 2006. The total investment by WSP was RMB35 million (equivalent to approximately RM16.13 million) in cash, representing 70% of the total new registered capital of RMB50 million. Upon completion of the joint venture arrangements, Jiangsu Fanli became a subsidiary of the Company.

164 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

33. SIGNIFICANT EVENTS (CONT’D.)

(e) On 4 August 2006, UMW Petropipe received the Certificate of Incorporation for the establishment of a joint venture company known as UMW Oilpipe Services (Turkmenistan) Ltd. (“UOS Turkmenistan”), in Wilayah Persekutuan Labuan with ACE Technologies (L) Ltd. of Labuan. UMW Petropipe has a 51% equity interest in UOS Turkmenistan and its share of the initial paid-up capital was USD51 in cash.

(f) On 21 September 2006, UMW Petropipe entered into a Share Sale and Subscription Agreement with Mr Manoj Saraf (“MS”) for the acquisition of 30,000 ordinary shares of par value INR10 each, representing 30% of the issued and paid-up capital of a new company (“Newco”) to be incorporated in India for a total cash consideration of INR28,050,000 (equivalent to approximately RM2.24 million). Newco will take over the business of Multicoat Systems, a partnership registered in India owned by MS and his partners.

Subsequent to the acquisition, UMW Petropipe will subscribe for an additional 75,000 ordinary shares of INR10 each, representing 22.5% of equity interest in Newco for a cash consideration of INR31,500,000 (equivalent to approximately RM2.52 million). Upon completion of the above transactions, Newco will become a 52.5%-owned subsidiary of the Company.

(g) On 2 November 2006, UMW Petropipe received the Certificate of Incorporation for the establishment of a joint venture company known as UMW Linepipe (L) Ltd. (“UMWLP”), in Wilayah Persekutuan Labuan with ACE Technologies (L) Ltd. and Hailong International (L) Ltd. UMW Petropipe has a 51% equity interest in UMWLP and its share of the initial paid-up capital was USD51 in cash.

(h) During the year, the Group had restructured its shareholding in WSP by undertaking the following events:

(i) On 2 August 2006, UMW Petropipe acquired one (1) ordinary share of USD1.00, representing 100% of the total issued and paid-up share capital in UMW China Ventures (L) Ltd. (“UMW CV”), a company incorporated in Wilayah Persekutuan Labuan, for a cash consideration of USD1.00.

(ii) On 18 August 2006, UMW CV, a wholly-owned subsidiary of UMW Petropipe, subscribed to 15,300 new ordinary shares of USD1.00 each, representing 30.6% of the equity interest in First Space Holdings Limited (“FSHL”), a company incorporated in the British Virgin Islands, for a cash consideration of USD15,300 (equivalent to approximately RM56,235).

(iii) On 18 August 2006, UMW Petropipe entered into a Share Sale Agreement with ACE Technologies (L) Ltd. to acquire 1,438,558 ordinary shares of par value USD1.00 each, representing 9% of the total issued and paid-up capital in UMW ACE, a 51%-owned subsidiary of UMW Petropipe, for a total cash consideration of RMB72 million (equivalent to approximately RM33.16 million). Upon completion of the acquisition, UMW ACE became a 60%-owned subsidiary of UMW Petropipe. Consequently, the Company's effective interest in WSP through UMW ACE, is 30.6%.

(iv) On 15 November 2006, UMW ACE effectively transferred its 51% equity interest in Wuxi Seamless Oil Pipe Co., Ltd. (“WSP”) to FSHL for a total consideration of USD23,675,247 (equivalent to approximately RM87,124,908). Upon completion of the disposal, WSP became a 30.6%-owned associated company of the Company.

ANNUAL REPORT 2006 165 Notes To The Financial Statements - 31 December 2006

33. SIGNIFICANT EVENTS (CONT’D.)

(v) On 1 December 2006, WSPHL entered into agreements with UMW CV and Expert Master Holdings Limited to acquire all their respective shares in FSHL, the immediate holding company of WSP, by way of share swaps, resulting in FSHL becoming a wholly-owned subsidiary of WSPHL. The Company’s interest in WSP remained unchanged at 30.6%. On 18 December 2006, WSPHL submitted an application to the Stock Exchange of Hong Kong Limited (“HKEX”) to list WSPHL on the main board of HKEX.

(i) On 16 November 2006 and 1 December 2006, UMW CV subscribed to a total of 612 new ordinary shares of HKD0.01 each, representing 30.6% of the equity interest in WSP Holdings Limited (formerly known as Eastar Group Holdings Limited) (“WSPHL”), a company incorporated in the Cayman Islands, for a cash consideration of HKD6.12.

34. SUBSEQUENT EVENTS

(a) On 9 January 2007, UMW Petropipe (L) Ltd. (“UMW Petropipe”) received the Certificates of Incorporation for the establishment of two wholly-owned subsidiaries known as UMW Naga Two (L) Ltd. (“UMW N2”) and UMW Naga Three (L) Ltd. (“UMW N3”), in Wilayah Persekutuan Labuan. The initial paid-up capital of Naga Two and Naga Three is USD1.00 each, comprising 1 ordinary share of par value USD1.00 each.

(b) On 21 January 2007, UMW Naga Two (L) Ltd. (“UMW N2”), a wholly-owned subsidiary of UMW Petropipe (L) Ltd., which is in turn a 100%-owned subsidiary of the Company, entered into the following agreements with Standard Drilling Far East Pte. Ltd., a company incorporated in Singapore:

(i) A Share Purchase and Investment Agreement for the acquisition of 30,709,206 ordinary shares of USD1.00 each, representing 40.54% of equity interest in Standard 1 Pte. Ltd. (“SD1”) for a total cash consideration of USD33,627,416 (equivalent to approximately RM117,763,211) and the subscription to 7,921,869 new ordinary shares of USD1.00 each in SD1 at a cash consideration of USD8,674,662 (equivalent to approximately RM30,378,666). In addition, UMW N2 will subscribe to 40,785,000 redeemable preference shares at USD1.00 each in SD1. Upon completion of the above transaction, SD1 became a 51% owned subsidiary of the Company.

(ii) An Option Agreement for the right to jointly own a jack-up rig hall no.L203. If such option is exercised, UMW N2 shall purchase 51% equity interest in Standard 3 Pte. Ltd. at a purchase consideration of USD40.7 million (equivalent to approximately RM142.5 million) for cash.

(c) On 29 January 2007, UMW Petropipe entered into a joint venture contract with Baoji Petroleum Steel Pipe Co., Ltd., a company incorporated in the People's Republic of China, for the setting up of a Longitudinal Submerged Arc Welded Steel Pipe Processing Plant. The proposed joint venture will be undertaken through a joint venture company known as Zhongyou BSS (Qinhuangdao) Petropipe Co., Ltd. in which UMW Petropipe will have 49% equity interest at an investment cost of RMB277.83 million (equivalent to approximately RM125.16 million).

166 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

34. SUBSEQUENT EVENTS (CONT’D.)

(d) On 28 March 2007, UMW Petropipe entered into a Share Purchase Agreement with ACE Technologies (L) Ltd. (“ACE Technologies”), a company incorporated in Labuan, for the disposal of 40,000 ordinary shares of par value of USD1.00 each, representing 40% of the equity interest in UMW Oilfield International Trading (L) Ltd., a wholly-owned subsidiary of UMW Petropipe to ACE Technologies, for a total cash consideration of USD767,000.

35. SIGNIFICANT RELATED PARTY DISCLOSURES

Group

(a) Transactions by UMW Holdings Berhad and its subsidiaries with the associated companies of the Group are as follows:

UMW & Its Transacting Nature of 2006 2005 Subsidiaries Parties Transactions RM'000 RM'000

UMW Industries (1985) Sdn. Bhd. ) Lease rental 3,753 5,006 ) UMW Auto Parts Sdn. Bhd. ) Sale of filters 15,458 12,094 ) KYB-UMW Malaysia Sdn. Bhd. ) Sale of shock 78,220 61,912 (Formerly known as Kayaba ) absorbers (Malaysia) Sdn. Bhd.) ) and its subsidiary ) Perodua ) Group* UMW Travel Sdn. Bhd. ) Air tickets 8,705 4,179 ) UMW Toyota Motor Sdn. Bhd. ) Sale of goods 697,652 990,306 and subsidiaries ) and services ) ) Purchase of 1,068,137 1,437,785 ) goods and ) services

UMW Auto Parts Sdn. Bhd. UMW Sale of 667 1,435 Pennzoil lubricants Distributors Sdn. Bhd.

UMW Oilfield Wuxi Purchase of 15,356 - International Trading Seamless goods (L) Ltd. Oil Pipe Co., Ltd.

ANNUAL REPORT 2006 167 Notes To The Financial Statements - 31 December 2006

35. SIGNIFICANT RELATED PARTY DISCLOSURES (CONT’D.)

Group

(a) Transactions by UMW Holdings Berhad and its subsidiaries with the associated companies of the Group are as follows: (Cont’d.)

UMW & Its Transacting Nature of 2006 2005 Subsidiaries Parties Transactions RM'000 RM'000

UMW JDC Japan Drilling Purchase of 25,099 - Drilling Sdn. Bhd. Co. Ltd. and its goods and subsidiaries services

Bare boat 13,316 - charter

(b) Transactions by the Group with Toyota Motor Corporation, Japan (the corporate shareholder of UMW Toyota Motor Sdn. Bhd.) and its subsidiaries are as follows:

UMW & Its Transacting Nature of 2006 2005 Subsidiaries Parties Transactions RM'000 RM'000

UMW Toyota Motor Toyota Motor Sale of goods 796,441 55,133 Sdn. Bhd. and its Corporation, and services subsidiaries Japan and its subsidiaries Purchase of 2,703,154 3,208,949 goods and services

UMW Toyotsu Sale of goods 46,401 - Motor Sdn. Bhd.

Otomobil Sejahtera Toyota Motor Purchase of 223,909 7,050 Sdn. Bhd. Corporation, goods and Japan and its services subsidiaries

168 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006

35. SIGNIFICANT RELATED PARTY DISCLOSURES (CONT’D.)

(c) Transactions by the Group with the corporate shareholders of KYB-UMW Malaysia Sdn. Bhd. (formerly known as Kayaba (Malaysia) Sdn. Bhd.) are as follows:

UMW & Its Transacting Nature of 2006 2005 Subsidiaries Parties Transactions RM'000 RM'000

KYB-UMW Malaysia Kayaba Industry Sale of goods 26,765 17,883 Sdn. Bhd. Co. Ltd., Japan and services (Formerly known as Kayaba and its (Malaysia) Sdn. Bhd.) and subsidiaries Purchase of 5,753 3,681 its subsidiary goods and services

Toyota Tsusho Sale of goods 601 608 Corporation, and services Japan and its affiliated Purchase of 49,550 59,031 company goods and services

* Comprises Perusahaan Otomobil Kedua Sdn. Bhd., its subsidiaries and associated companies.

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

36. FINANCIAL INSTRUMENTS

(a) Forward Exchange Contracts

As at 31 December 2006, the Group has entered into forward foreign exchange contracts to hedge purchases with the following notional amounts:

2006 2005 RM'000 RM'000

Japanese Yen 59,983 55,769 US Dollar 104,803 35,899 Euro 5,973 3,275 Swedish Krone 3,164 4,340 Sterling Pound 838 1,824

All the forward exchange contracts mature within one year.

ANNUAL REPORT 2006 169 Notes To The Financial Statements - 31 December 2006

36. FINANCIAL INSTRUMENTS (CONT’D.)

(b) Fair Values

(i) The aggregate net fair value of financial liabilities which are not carried at fair value on the balance sheet of the Group are represented as follows:

Group Group Carrying Fair Carrying Fair Amount Value Amount Value 2006 2006 2005 2005 RM'000 RM'000 RM'000 RM'000

Financial Liabilities Finance lease payable 98 98 128 153

It is not practicable to determine the fair values of balances due from subsidiaries principally due to a lack of fixed repayment terms.

The fair value of the borrowings is not materially different from the carrying value as the effective cost of funds is estimated not to differ from the current market rate.

The carrying values of all other financial assets and liabilities as at 31 December 2006 are not materially different from their fair values.

(ii) The nominal/notional amount and net fair value of financial instruments not recognised in the balance sheet of the Group as at 31 December 2006 are:

Group Group Nominal/ Nominal/ Notional Net Fair Notional Net Fair Amount Value Amount Value 2006 2006 2005 2005 RM'000 RM'000 RM'000 RM'000

Forward foreign exchange contracts 174,761 (2,507) 101,107 (542)

(iii) The following methods and assumptions are used to estimate the fair values of the following classes of financial instruments:

Borrowings and finance lease payable

The fair value of borrowings is estimated using discounted cash flow analysis, based on current incremental lending rates for similar types of lending and borrowing arrangements.

Forward foreign exchange contracts

The fair value of forward foreign exchange contracts is the estimated amount which the Group would expect to pay on the termination of the outstanding position arising from such contracts. At the end of the financial year, the fair value of such contracts is determined by reference to the current forward foreign exchange rate for contracts of similar maturity profiles.

170 UMW HOLDINGS BERHAD Notes To The Financial Statements (Cont’d.) - 31 December 2006 nal Cash and Held in Non-Functional Currencies Trade Other Other Bank Trade Other RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Receivables Receivables Investments Balances Payables Payables Borrowings Others Ringgit MalaysiaUnited States DollarSingapore DollarEuro 48,659Swedish KroneSterling Pound -Chinese Renminbi 367 490YenJapanese DongVietnamese Thai Baht 5,995 - 75Others - 9,036 24,664 12 - 3,900 80,604 938 - - 8 38 - 310 - - 16 71 - - 7,838 - - - - 58,330 - - 80 1,077 - - 8 7,896 2 71 1,738 4,180 6 - - - 138 58 226 9,778 - - 2,410 - - - 38 ------5 12 1,119 - - - - 248 - - - - 68 ------The unhedged financial assets and liabilities of the Group as at 31 December 2006 that are not denominated in functio currencies are as follows: (c) Foreign Exchange Risk 36. FINANCIAL INSTRUMENTS (CONT’D.)

ANNUAL REPORT 2006 171 Notes To The Financial Statements - 31 December 2006 nal Cash and Cash Held in Non-Functional Currencies Trade Other Other Bank Trade Other RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Receivables Receivables Investments Balances Payables Payables Borrowings Others The unhedged financial assets and liabilities of the Group as at 31 December 2005 that are not denominated in functio currencies are as follows: United States DollarSingapore DollarEuro 37,734Swedish KroneSterling Pound 15,311 17,290Solomon Islands DollarChinese RenminbiYenJapanese 1,227Papua New Guinea Kina - - DongVietnamese - 825 57,767 3,376 13,806Thai Baht 89,585 - 98,406 34,234 14 2,348 148 347 12,702 4,457 - - 412 388,636 3,410 110 - - 2,329 177,691 - - 419 - 62 - - 241,797 958 6,304 35,679 849 - 291 499 126 245,156 - 6,231 - 6,632 22,036 - - - 1,766 - - - - 27 - - - - 11 - 68 430 217 - 2,428 - - - - 393 - - - - - 5,415 - - - - (c) Foreign Exchange Risk (Cont’d.) 36. FINANCIAL INSTRUMENTS (CONT’D.)

172 UMW HOLDINGS BERHAD FORM OF PROXY UMW HOLDINGS BERHAD (090278-P) (Incorporated in Malaysia) 3rd Floor, The Corporate, No. 10, Jalan Utas (15/7), Batu Tiga Industrial Estate, 40200 Shah Alam, Selangor Darul Ehsan.

I/We, ______being a member/members of UMW Holdings Berhad, hereby appoint ______of ______or failing him, ______of ______as my/our proxy to vote for me/us and on my/our behalf at the Twenty-Fifth Annual General Meeting of the Company to be held at the UMW Auditorium, UMW Holdings Berhad, No. 3, Jalan Utas (15/7), Batu Tiga Industrial Estate, 40200 Shah Alam, Selangor Darul Ehsan, Malaysia, on Thursday, 14 June 2007 at 10.00 a.m. and at any adjournment thereof.

My/Our proxy is to vote as indicated below:-

RESOLUTIONS FOR AGAINST

ORDINARY BUSINESS ADOPTION OF REPORTS AND AUDITED FINANCIAL STATEMENTS - Ordinary Resolution 1 DECLARATION OF DIVIDEND - Ordinary Resolution 2 RE-ELECTION OF DIRECTORS PURSUANT TO ARTICLE 123 OF THE ARTICLES OF ASSOCIATION (A) TAN SRI DATUK MOHAMED KHATIB BIN ABDUL HAMID - Ordinary Resolution 3 (B) DATO’ HAJI DARWIS BIN MOHD. DAID - Ordinary Resolution 4 RE-APPOINTMENT OF DIRECTORS PURSUANT TO SECTION 129(6) OF THE COMPANIES ACT, 1965 (A) LT. GEN. (R) DATO’ MOHD. YUSOF BIN DIN - Ordinary Resolution 5 (B) DATO’ IR. LEE YEE CHEONG - Ordinary Resolution 6 APPROVAL OF DIRECTORS’ FEES - Ordinary Resolution 7 RE-APPOINTMENT OF AUDITORS AND AUTHORISING - Ordinary Resolution 8 DIRECTORS TO FIX THEIR REMUNERATION SPECIAL BUSINESS RENEWAL OF SHAREHOLDERS’ MANDATE/NEW SHAREHOLDERS’ - Ordinary Resolution 9 MANDATE FOR RECURRENT RELATED PARTY TRANSACTIONS PROPOSED SHARE BUY-BACK - Ordinary Resolution 10 PROPOSED AMENDMENTS TO ARTICLES OF ASSOCIATION - Special Resolution Please indicate with an “X” in the appropriate spaces provided how you wish your votes to be cast. If you do not indicate how you wish your proxy to vote on any resolution, the proxy will vote as he thinks fit, or, at his discretion, abstain from voting.

Signed this day of 2007.

No. of Shares Held Tel. No./Handphone No. …...... Signature of Member(s)/Common Seal Notes (i) A member entitled to attend and vote at the meeting is entitled to appoint one (1) or more proxies to attend and vote in his stead. A proxy need not be a member of the Company but, in accordance with Section 149 of the Companies Act, 1965 and the Articles of Association of the Company, if not a member of the Company, he must be a qualified legal practitioner, an approved company auditor or a person approved by the Registrar of Companies, Companies Commission of Malaysia, in a particular case. (ii) A member of the Company who is an authorised nominee as defined under the Securities Industry (Central Depositories) Act, 1991, is allowed to appoint at least one (1) proxy in respect of each securities account it holds with ordinary shares of the Company standing to the credit of the said securities account. (iii) The proxy form must be signed by the appointer or his attorney duly authorised in writing or in the case of a corporation executed under its common seal or attorney duly authorised in that behalf. (iv) All proxy forms should be deposited at the Company’s registered office at 3rd Floor, The Corporate, No. 10, Jalan Utas (15/7), Batu Tiga Industrial Estate, 40200 Shah Alam, Selangor Darul Ehsan, Malaysia, not less than forty-eight (48) hours before the time ✁ for holding the meeting or any adjournment thereof. PLEASE FOLD HERE

AFFIX STAMP

UMW Holdings Berhad (090278-P) 3rd Floor, The Corporate, No. 10, Jalan Utas (15/7) Batu Tiga Industrial Estate 40200 Shah Alam Selangor Darul Ehsan Malaysia

PLEASE FOLD HERE