Scomi Engineering Bhd ANNUAL REPORT 2007

Energy & Logistics Engineering

realisingpotential contents 2 Key Financial Highlights 3Corporate Legal Structure 4 Chairman’s Statement 10 Interview with the Group Chief Executive Officer 20 Corporate Social Responsibility 22 Corporate Information 24 Profile of Directors 28 Management Team 29 Statement of Corporate Governance 35 Statement of Internal Control 37 Audit and Risk Management Committee Report 41 Additional Information 41 Statement of Directors’ Responsibility 42 Financial Statements 113 Analysis of Shareholdings 116 List of Properties 117 Corporate Directory 118 Notice of Annual General Meeting 120 Statement Accompanying Notice of 24th Annual General Meeting Form of Proxy

www.scomiengineering.com.my 1 Annual Report 2007 omi Engineering Bhd Sc

24th Annual General Meeting Ballroom 1, 1st Floor 23 June 2008, Monday Sime Darby Convention Centre 3.00 p.m 1A Jalan Bukit Kiara 1 60000 Kuala Lumpur .scomiengineering.com.my www 2 key financial highlights for the year ended 31 december 2007 Annual Report 2007 Annual Report Sc omi Engineering Bhd

Total Assets Shareholders’ Funds 2007 2007 rm601.8m rm395.2m

Net Assets Per Share Net Tangible Assets 2007 2007 rm1.44 rm151.5m

136.3 208.7 323.9 368.8 16.0 25.1 28.3 42.4 nue (rm million) ve re net profit (rm million) net profit

20 20 20 20 20 20 20 20 04 05 06 07 04 05 06 07

NOTE www 2004 & : Unaudited pro forma financial results of the existing Scomi Engineering Bhd group of companies .scomiengineering.com.my 2005 (excluding that of Scomi Transportation Systems Sdn Bhd and its subsidiary companies) 2006 & : Audited financial results of the Scomi Engineering Bhd group of companies. The results include that of the disposed group 2007 (classified as discontinued operations). corporate legal structure as at 8 may 2008 3 Annual Report 2007 omi Engineering Bhd

ENGINEERING BHD Sc

SCOMI SCOMI SPECIAL SCOMI OMS OILFIELD SCOMI OMS OILFIELD TRANSPORTATION VEHICLES HOLDINGS SDN BHD SERVICES PTE LTD 1 5 SYSTEMS SDN BHD SDN BHD (SINGAPORE)

70%

SCOMI OMS SCOMI COACH SCOMI TRADING SCOMI OMS SCOMI RAIL BHD2 OILFIELD SERVICES SDN BHD3 SDN BHD OILFIELD SERVICES SDN BHD ARABIA LTD* (SAUDI ARABIA) SCOMI COACH MARKETING SDN BHD4

95%

SCOMI OMS OILFIELD SCOMI OMS OILFIELD SERVICES SCOMI OMS OILFIELD PT SCOMI OMS SERVICES LTD (AUSTRALIA) PTY LTD SERVICES (THAILAND) LTD OILFIELD SERVICES (BRITISH VIRGIN ISLAND) (AUSTRALIA) (THAILAND) (INDONESIA)

NOTE 1. Formerly known as MTrans Transportation Systems Sdn Bhd. Public listed entity 2. Formerly known as MTrans Technology Berhad *Incorporated on 7 May 2008 3. Formerly known as MTrans Bus Sdn Bhd. i. Except as otherwise expressly stated, all companies in this structure 4. Formerly known as Potensi Serakan Sdn Bhd. are incorporated in Malaysia. 5. Formerly known as Scomi Sdn Bhd. ii. Except as otherwise expressly stated, all companies in this corporate structure are wholly owned by their respective holding companies. .scomiengineering.com.my www 4 Annual Report 2007 Annual Report Sc omi Engineering Bhd www .scomiengineering.com.my Chairman’s statement 5 Annual Report 2007 omi Engineering Bhd Sc

DATUK ZAINUN AISHAH BINTI AHMAD Chairman .scomiengineering.com.my www 6 chairman’s statement (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd dear stakeholder,

“2007 was an important year for Scomi Engineering Bhd (“Scomi Engineering”, “the Group” or “the Company”), during which we strengthened our foundations to position the Company for future growth. We continued to enhance our core businesses and technology expertise as well as build capabilities in areas of high growth potential. In the meantime, our operations expanded and the Company posted record revenue and profits.”

During the year, the Group acquired the expanded by 69 rigs to 3,098 rigs in 2007. The growth came on the back of the remaining interest in the urban There was also an estimated 10% increase strategic investments and acquisitions made transportation solutions business, successfully to USD213 billion in the spending for over the years as well as capacity unveiled the new generation SUTRA monorail drilling and production. (Source: Spears & expansion. Over the past three years, the and raised its business facility and capacity. Associates, Inc – March 2008). Company has recorded an impressive All these were carried out to sustain an average Compounded Annual Growth Rate improved and balanced business as well as Bank Negara Malaysia reported that the (“CAGR”) of 39% in revenue. provide unique expansion opportunities for domestic economy expanded by 6.3% in 2007 the Group. compared to 5.9% in the year before. Growth was fuelled by the services and construction Profits On behalf of the Board of Directors, I am sectors as well as by strong domestic demand. Net profit for the year under review delighted to present you the Annual Report After a contraction in 2006, production of increased by 50% to RM42.4 million from and Audited Financial Statements of Scomi crude oil (including condensates) and natural RM28.3 million recorded in 2006. The Engineering Bhd for the financial year ended gas rose during 2007. Thus ranking among growth was attributable to the exceptional 31 December 2007. the highest growth segments in the export- performance in the Machine Shop business oriented industries were Petroleum Products and the increased contribution from the Rail (including LNG). business. ECONOMIC AND INDUSTRY ENVIRONMENT FINANCIAL PERFORMANCE Dividend According to the World Bank, global In respect of the financial year ended economic growth eased to an estimated Revenue 31 December 2007, the Board of Directors 3.6% in 2007 from 3.9% in 2006. Oil prices Scomi Engineering’s revenue grew by 14% has proposed a first and final tax exempt continued to rise and touched record highs to RM368.8 million in 2007 compared to dividend of 5% per share, amounting to a for the third consecutive year in 2007. It RM323.9 million the year before. Energy dividend payable of approximately RM13.74 continued to rise and in April 2008 at close Engineering or the Machine Shop business million. The final dividend is subject to the www to USD120 per barrel, it was almost remained the primary contributor to approval of the Company’s shareholders at .scomiengineering.com.my doubling what it was the previous year. revenue at 63% followed by Logistics the forthcoming Annual General Meeting of As a consequence, global drilling activity, Engineering at 35%. the Company. measured in rig count, rose as well. The combined onshore and offshore activities 7 Annual Report 2007 omi Engineering Bhd Sc

A final tax exempt dividend of 3% per share engineering business into the former Bell & Bank forecasts that the global economy will in respect of the financial year ended Order Berhad, a then PN17-status Bursa grow by 3.3%, marginally slower compared to 31 December 2006, amounting to RM8.23 Malaysia listed company, before the the estimated 3.6% growth in 2007. Growth million, was paid on 12 September 2007. subsequent re-listing of the injected will be fuelled by strong expansion in business as Scomi Engineering Bhd on developing countries and will compensate for 26 January 2006. The share premium the slowdown in the US economy. Growth for CORPORATE DEVELOPMENTS account has now been reduced to RM32.6 developing countries is expected to be million arising from this proposal which was reasonably strong for the next two years into Acquisition of additional equity interest in completed on 27 December 2007. 2009 due to China and India’s projected a Logistics Engineering business expansion as well as dynamic spending by On 3 April 2007, the Company acquired an Disposal of Scomi Transportation Solutions oil-exporting countries. additional 40% equity interest in Scomi Sdn Bhd (“SCOTS”) Transportation Systems Sdn Bhd (formerly On 31 March 2008, the Company completed Domestic Mtrans Transportation Systems Sdn Bhd) for the disposal of its 100% interest in the fleet Bank Negara Malaysia forecasts that the RM25 million and on 21 June 2007 management and car rental businesses under domestic economy will grow by 5.0% - 6.0% completed the acquisition of the remaining SCOTS, for RM3.8 million cash. The disposal of in 2008 compared to 6.3% growth in 2007. 9% equity interest in Scomi Transportation the non-core businesses was in line with Scomi Resilient domestic demand will support Systems Sdn Bhd, which then became a Engineering’s long term business strategy of growth whilst external demand is expected to wholly-owned subsidiary of the Company. focusing on the Energy and Logistics slow. The country’s increasingly diversified Engineering business. The disposal also helped export market means that it is now less Proposed Share Premium Reduction raise cash that will be utilised to fund dependent on the US and Japan compared to On 14 December 2007, the High Court of expansion plans that will provide better returns. the early 2000s. The outlook for strong Malaya approved the Company’s proposal to economic growth in Asian (excluding-Japan) reduce its share premium account by up to and other emerging markets will continue to RM35.9 million. Following the reverse PROSPECTS support the export sector. takeover of the Company by Scomi Group Bhd on 15 December 2005, the Company ECONOMIC OUTLOOK had an accumulated loss of RM35.9 million Global with a share premium amount of RM68.5 The world economy in 2008 is expected to be million. Scomi Group Bhd injected the weaker in comparison to 2007. The World .scomiengineering.com.my www 8 chairman’s statement (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd www .scomiengineering.com.my 9

INDUSTRY OUTLOOK APPRECIATION

Energy Engineering Industry I wish to thank our shareholders, the The sustained high crude oil price is regulatory authorities, our faithful Annual Report 2007 anticipated to lead towards an increase in customers, business partners, and omi Engineering Bhd Sc global oil and gas exploration, development financiers, for your belief in and support and production activities. This we are of Scomi Engineering. My sincere confident will positively impact the services appreciation goes to my colleagues on we provide under our machine shop business. the Board for their foresight and International rig count (excluding the US, guidance over the course of 2007. Canada, Russia and China) is projected to increase by 10% with the leader being Europe Our results are a reflection of the stellar with a 25% gain in activity, followed by Africa efforts of the management and staff of (+12%), Central & South America and the Far Scomi Engineering to whom we are most East (both +9%), and the Middle East (+6%). grateful. As we face the dawn of a new It is expected that these markets will increase era of globalisation and technological their spending for drilling and production by advancement, I am proud of the Scomi 19% to reach USD98.4 billion in 2008. (Source: Engineering team for bringing us to this Spears & Associates, Inc – March 2008). point in such a short time.

Logistics Engineering Industry I trust that you, our shareholders, are According to the United Nations, by mid pleased with the growth and evolution 2007, the majority of the world population of your Company. The Board of for the first time in history will have lived in Directors and I are excited at the towns or cities. Asia, Africa, Latin America prospect of how we can take Scomi and the Caribbean are estimated to Engineering to its next phase of growth contribute to 93% of urban growth. and discovery. Developing countries such as India, Vietnam and China are experiencing strong Serving this company and its urbanisation rates compared to developed shareholders is a great honour. I am nations. Malaysia’s Ninth Malaysia Plan certain that with the continued support (“9MP”) has an allocation of RM5.2 billion for and commitment of everyone involved, Rail & Urban Transportation projects and Scomi Engineering will rise to the RM15 billion for Defence activities, which challenges ahead and achieve its vision implementation is expected to be continued of becoming a leader in energy and by the Malaysian Government. All these logistics engineering with niche and factors augur well for our Logistics proprietary products and services. Engineering business that specialises in providing urban transit solutions, namely Sincerely, monorail and coaches.

DATUK ZAINUN AISHAH BINTI AHMAD Chairman .scomiengineering.com.my www 10 Annual Report 2007 Annual Report Sc omi Engineering Bhd www .scomiengineering.com.my 11 Annual Report 2007 omi Engineering Bhd Sc

SHAH HAKIM ZAIN Group Chief Executive Officer interview with the Group Chief

Executive Officer .scomiengineering.com.my www 12 interview with the group chief executive officer (cont’d.)c Annual Report 2007 Annual Report Sc omi Engineering Bhd

Scomi Engineering PERFORMED WELL in 2007. Could you guide us through it? Q A 2007 was an exciting year in all respects for Scomi Engineering Bhd ("Scomi Engineering", "the Group" or "the Company"). We embarked on key initiatives, strengthened our market presence and capabilities and invested in technology to gain market niche and a leadership position. Despite our dynamic growth, we remained disciplined in our financial practice. We enhanced our return to equity holders and we ended the year with reduced borrowings compared to the previous year. We are now positioned for further growth in 2008 and beyond.

Our revenue grew by 14% to RM368.8 million with growth in all business divisions, except the fleet management unit that was disposed in March 2008. Net profit for the year rose by 50% to RM42.4 million. Return on Equity rose to 10.7% in 2007 from 7.8% the previous year. The excellent results were attributable to the higher contributions from the Machine Shop business and the Rail unit. We would have posted stronger growth if not for translation losses owing to the weaker US Dollar against the Ringgit. The US Dollar depreciation impacted the Group in two ways: i) lower Ringgit translation given that the majority of our revenue was in US Dollars; and ii) operating costs were denominated in the domestic currency of the country of operation. www .scomiengineering.com.my 13

What were the KEY Annual Report 2007

ACCOMPLISHMENTS omi Engineering Bhd during the year? Sc Q A We made progress on numerous strategic initiatives. Let me share some of the year’s highlights:

•In our 2006 Annual Report, I highlighted that I hoped to see our machine shop presence grow to 10 locations from the then 7 locations. We achieved this expansion plan as by end of 2007, we had added 3 new facilities in Irian Jaya, Johor Bahru and Saudi Arabia. We also successfully enhanced and expanded our existing Labuan and Brunei facilities in the middle of the year.

• Our Machine Shop unit secured a significant order worth RM141 million to supply Saudi Aramco, the national oil company of Saudi Arabia. It was our sixth successful consecutive order from Saudi Aramco since 2003 and our largest to date.

• We successfully unveiled our new generation monorail called SUTRA or Scomi Urban Transit Rail Applications in November 2007 after one year of development by our own R&D team.

•We secured two domestic light rail projects worth RM176 million for the upgrading of the Electrical & Mechanical systems. .scomiengineering.com.my www 14 interview with the group chief executive officer (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd www .scomiengineering.com.my 15 What is Scomi Engineering’s COMPETITIVE EDGE? Annual Report 2007 omi Engineering Bhd Q Sc A We are one of the leading independent machine shop operators with Our monorail technology is one of the three integrated monorail the most comprehensive premium threading licenses in the Asia Pacific systems in the world that offers complete or highly customised design region. We hold multiple licenses for various premium patented packages. Compared to the earlier generation monorails, our latest threads. Having been in the business for the last 27 years, we also generation SUTRA monorail has the advantages of being cost have a strong track record. With 10 machine shop locations in 7 effective to implement, safe, reliable and more environmentally countries, we have a strategic network presence in the region and can friendly. The system also has the distinct benefits of requiring a small offer our clients excellent accessibility. We intend to open 2 new footprint to construct and being relatively more manoeuvrable, facilities in each of the next three to four years. aspects that are crucial for tight city confines in developing countries with an urgent need for an effective urban transit solution. The new SUTRA is also able to accommodate more passengers in shorter travel time and is lighter, with improved fuel economy and ride quality.

Moving forward, what STRATEGIES are the Company employing for COMPETITIVENESS? Q A •We are evaluating the viability of enhancing our connector technology for applications in shallow and deepwater activities in the oil and gas industry. In the next two to three years, deepwater development activities are expected to increase. Today, the connector market segment in Asia Pacific and Middle East is estimated to be worth in excess of USD200 million. Thus we will increase our focus in this segment.

•Further to our expansion plan of opening two new machine shop facilities in each of the next three to four years, we also expect to replicate the offerings of certain products and services, such as casings and connectors, which are currently available only at selected locations, to our other machine shop locations as well. Our Kemaman and Songkhla machine shops will also relocate to larger premises with better facilities to cater for the expected increase in activities in this region.

•We are considering initiating R&D for a more advanced monorail prototype as well as boosting our R&D team and enhancing our development facility. .scomiengineering.com.my www 16 interview with the group chief executive officer (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd In driving your business forward, what are your KEY FOCUS AREAS? Q A

Scomi Engineering is focused on the areas of technology, global focus and the environment. Through a series of initiatives, we continuously pursue technological advances on both the product and process fronts. We are revamping our coaches design and also exploring possibilities for an advanced monorail system with greater emphasis on environmental friendly features. We continue to build our global presence through our machine shop expansion plan as well as expanding our customer base for our urban transit solutions.

What are the GROWTH PROSPECTS for the MACHINE SHOP business? Q A

Demand for our machine shop services is expected to rise from the Also, new oilfield discoveries in Asia Pacific is anticipated to result in projected increase in the oil and gas activities. Spears & Associates, strong growth opportunities for the machine shop business. With Inc expects international rig count (excluding the US, Canada, Russia the expansion of our operations and facilities in 2007, we are fully and China) to rise by 10% in 2008, led by Europe with a 25% gain equipped to support the anticipated increase in orders. in activity, followed by Africa (+12%), Central & South America and the Far East (both +9%) and the Middle East (+6%). Drilling and completion spending will reach USD98 billion in 2008, up by 19%. Spending in the Far East, the biggest spending outside North www America, will grow by 21% to USD31 billion. The fact that we

.scomiengineering.com.my already have a strong presence in the Far East opens up prospects for us. 17 Annual Report 2007 omi Engineering Bhd Sc

What is the POTENTIAL for the LOGISTICS ENGINEERING business? Q A

United Nations estimated that 50% of the world population have been relevant authorities in the Middle East, South East Asia, Africa and the living in cities since the middle of 2007. 93% of the urban growth will Americas. In Malaysia, we are looking at potential project locations occur in Asia and Africa within the next 15 to 20 years. However, cities such as in Penang, Putrajaya, Iskandar Development Region in Johor in these developing countries were not systematically planned, leading and the expansion of the existing KL Monorail. to acute traffic situations. Our monorail system helps alleviate congestion by providing an effective urban mass rapid transit solution. As for the prospect of our coach business, a majority of public transportation buses in this region are relatively old and in some cases, Our venture with Larsen & Toubro Ltd ("L&T") was short-listed for the have fallen well below the minimum safety standards. A progressive Mumbai Monorail project in March 2008. We also reached an replacement cycle is in order. The unit is enhancing its coach design agreement with Hanoi Metropolitan Rail Management Board for a which includes the frontal face of the coach, the overall look and the feasibility study of a monorail system there in April 2008. Some safety features. Further to support our customers, we are planning to positive outcomes are anticipated in Saudi Arabia, Vietnam (Ho Chi set up a Sales, Service and Spares Centre. We are confident of this Minh City), Iran and Thailand within the next two years. Since we business as apart from improved prospects from local municipals, we unveiled our SUTRA monorail, we have received enquiries from also plan to further increase revenue from the export markets. .scomiengineering.com.my www 18 interview with the group chief executive officer (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd What are the STRATEGIC CORPORATE INITIATIVES being undertaken? Q A BRANDING EXERCISE ENRICHING OUR PEOPLE

In line with our parent company, Scomi Group Bhd’s (“Scomi”) Our people are most valuable to us. And thus again we leverage initiative in building Global Recognition, we have also adopted the upon Scomi’s initiatives to attract, retain, develop and continuously same brand under its masterbrand strategy. Hence, with the launch motivate talents to deliver our business goals. Our people are part of the brand on 22 February 2007, all our operations now use the of the comprehensive talent management and development single “Scomi” logo and have incorporated “Scomi” into the company programmes for graduates and management at various levels such names. With this initiative we are now able to build equity in the as Management Trainee Programme, Executive Management brand across all locations and product portfolios, simplify our Programme, Management Development Programme and Senior marketing efforts and more importantly adopt a single unified Management Development Programme. Scomi culture. We have also taken steps to ensure that our global talent is fairly All our employees have been inducted to the Scomi Brand through rewarded and aligned to market practices through the reward the “One Group, One Name, One Brand” brand awareness workshop, structure rolled out by Scomi in mid 2007. aligning ourselves to the brand vision of “Realising Potential”.

We also continue to leverage on the various initiatives introduced MANUFACTURING EXCELLENCE by Scomi to build the brand, such as concentrated market intelligence and marketing efforts to ensure the brand reach; At our Logistics Engineering unit, we initiated a manufacturing aligning our internal processes and developing our people improvement process that involves the revamping of our development. manufacturing facility in Rawang, Malaysia, which houses our monorail, coach and special purpose vehicles operations. We are planning to set up a larger and more technologically enhanced factory this year. PROCESS ALIGNMENT – PROJECT BEST (“BUSINESS EXCELLENCE FOR SCOMI’S TRANSFORMATION”) All these initiatives underpin our commitment to become a globally competitive company. The framework, processes and supporting Project BEST is a major initiative that we are proud to be a part of. infrastructures will be the foundation for our ambition to be a leader Project BEST is about increased efficiency and improved in energy and logistics engineering with niche and proprietary performance. Carried out by Scomi, the implementation process has products and services. started by putting in place a new business solution platform to align our processes globally on a single technology platform. The new business solution platform is scheduled to go-live in the third www quarter of 2008. This initiative is expected to achieve operational

.scomiengineering.com.my efficiency, effectiveness and economies of scale via better cost management and more effective asset mobility and utilisation. 19

Would you like to SHARE any final Annual Report 2007 omi Engineering Bhd

thoughts? Sc Q A 2007 was a year that has strengthened the groundwork in positioning the Company for future growth. Our employees deserve What RISKS & CHALLENGES do you credit for their energy and dedication that have brought us to where we are today. foresee moving forward? 2008 too is poised to be another crucial milestone in Scomi Engineering’s history. Going forward, we will continue to focus on creating value for our stakeholders Q through the various expansion initiatives we have planned. A As we expand our business focus and operations, we recognise the need for effective cost management. As we evaluate opportunities, we will continue to focus on ensuring that assets and investments will meet our return requirements. However we believe the new business solution platform being implemented shall give us a more streamlined and collapsed cost structure to meet challenges.

Any further depreciation of the US Dollar will also affect the Group in the form of a lower Ringgit translation given that the majority of our revenue is in US Dollars To combat this risk, we have put in place a hedging policy for implementation.

SHAH HAKIM ZAIN Group Chief Executive Officer .scomiengineering.com.my www 20 corporate social responsibility Annual Report 2007 Annual Report Sc omi Engineering Bhd “Corporate Social Responsibility is the continuing The Group Chief Executive Officer (“GCEO”) conducts new year, quarterly and special commitment by business to behave ethically and briefings to all employees, to communicate contribute to economic development while strategies, update performance & corporate development, inform of expectations, share improving the quality of life of the workforce and aspirations and highlight progress of key their families as well as of the local community initiatives. These sessions are held to an audience of employees in Kuala Lumpur and society at large.” and accessed by employees globally via teleconference or pod-cast facilities. Annual (Source: World Business Council for Sustainable Development) Town Hall meetings are also conducted by the GCEO at various office locations, as an avenue for employees to have a dialogue At Scomi Engineering, we are conscious of different segments of our people, and these with top management on employment the environment we operate in and are Management Trainee Programme, concern, organisational issues and specific continuously seek to equip our important Introductory Foundation for Professionals, areas that the organisation can improve on. stakeholder, our employees, with the tools Managerial Foundation Programme, and skills they need to effectively support Executive Management Programme, Internal Publications. To supplement the the organisation. We also continue our Management Leadership Programme, briefings, Scomi produces “Focus”, an commitment to society at large, Management Development Programme, internal publication issued five times contributing in meaningful ways to make a Leadership Development Programme and annually for all employees, as a difference in their lives. Senior Management Programme. communication platform to update, exchange ideas and share important events As part of the Scomi Group Bhd (“Scomi”) Employee Training. In addition, for that take place in different locations group of companies, our Corporate Social employees to be effective in their work, throughout the organisation. Additionally, Responsibility (“CSR”) activities and there are also development programme to various electronic publications and initiatives are aligned to the Scomi brand. enhance the functional competencies of announcements are distributed to Leveraging on and in alignment with our employees. This includes participation employees, for regular update on ongoing Scomi’s single brand strategy, many of in external or internally organised trainings projects, initiatives and corporate activities these activities are integrated with Scomi’s and conferences in the areas of rail system, as well as knowledge sharing. CSR programmes. quality, health, safety & environment, manufacturing, finance, human resource, GEM. As for the Senior Management of the Scomi Engineering believes that employees procurement, logistics, contracts, sales and group, Scomi organises an annual Global with good knowledge, high skills and others. Executive Meeting (“GEM”), to align positive attitude are among the strategies and set business direction. GEM is cornerstones for its continuous success. Employee Performance Review. Employees a congregation of the top 1% of Scomi’s Thus, through Scomi we actively create are provided with feedback via the key executives, which also forms a platform opportunities for our employees to develop performance review conducted at least for networking, exchange of ideas, learning and realise their true potential via formal twice a year, specifically measuring experience and strategic discussions on and informal training opportunities, on the competencies and agreed deliverables. The technology, globalisation & people. job and outside the job. outcome of the review is used to establish the employees’ developmental plan, Branding. A series of branding workshops Employee Development Programmes. We training needs, career aspirations and for all employees were conducted globally

www have established targeted learning, appropriate remuneration package. in all countries that we operate in, to

.scomiengineering.com.my engagement and development programmes increase awareness and understanding of for the different levels of employees within GCEO Communications with Employees. our brand. With diversity in our workforce the organisation, cutting across all our Scomi is cognizant of the need for effective in different global locations, the “One global operations in 36 countries. A formal communications across the organisation. Group, One Name, One Brand” workshops leadership programme in Scomi addresses 21

were conducted in various languages by an effectively in leading Scomi Engineering Young Talents. 2007 also saw Scomi internal brand team network. It reached out forward. The Board meets regularly to introducing its Scomi MyKids pilot to all employees, so that they will be able review the implementation of business programme in Malaysia with the aim of to become our good brand ambassadors plans as well as the performance of the unearthing youth talents through football. Annual Report 2007 and positively contribute towards building company to ensure we are making progress. The programme was run in parallel with a omi Engineering Bhd the Scomi brand. Board Committees such as the Audit and football reality show MyTeam, which Scomi Sc Risk Management Committee, Nomination was the main sponsor for its professional Employee Events. Apart from the above, in and Remuneration Committee; and Options football club competing in the Malaysian achieving a better working relationship Committee have been established to assist league. The Scomi MyKids programme will among colleagues, each location office the Board in decision making. continue with other leadership and organises at least an event annually that personal development programmes for the brings people together in an informal Community. As a responsible corporate kids, which will help them to succeed in networking or teambuilding session. citizen, Scomi contributes to and any arena that they venture into. Examples of the events would be an annual participates in various community dinner or a family day. programmes which are aligned to our Youths. GEGAR U! was a youth programme brand vision of Realising Potential. in 2007 that Scomi was involved in, which Health & Safety. We have a policy on health promotes unity among youth and and safety at the workplace with dedicated Yayasan Scomi. This is the foundation set up understanding their roles through various teams overlooking this function. We have by Scomi in 2005 to officially carry out all programmes held in universities in Malaysia appointed personnel with health and safety its community projects. Through Yayasan involving at least one million university responsibility at our locations. There is also Scomi, we provide education assistance and students. a Quality, Health, Safety and Environment scholarships for needy students, rural (“QHSE”) system in place that includes school programmes, motivational SUTRA. In November 2007, we launched our regular audits by internal and external programmes and provision of basic food new generation monorail, SUTRA – Scomi auditors, training, talks, demonstrations and provisions for the orphans, the poor, the Urban Transit Rail Applications. SUTRA educational programmes. underprivileged, the disabled and the offers, amongst many features an improved senior citizen communities. All programmes direct-drive propulsion system and lower Stakeholder Engagement. We have a by Yayasan Scomi are run by Scomi’s staff vehicle weight translating into an energy- dedicated Investor Relations (“IR”) team that through volunteerism. efficient monorail system. Further, the proactively communicates with the monorail also promotes the use of public investing community and assists with any Humanitarian. Scomi has been a supporter transportation which would reduce the use request from our shareholders. This of MERCY Malaysia which is heavily of private vehicles, thus reducing carbon dedicated IR team provides continuous committed in medical relief and emission levels to the environment. updates on the company through meetings, humanitarian aids to those in dire need in conference calls, roadshows and various countries such as Indonesia, Sudan, Our Commitment. As we operate in global conferences. The team also ensures that in Cambodia, Sri Lanka, etc. locations, Scomi Engineering will continue addition to company announcements made to enhance its commitment towards to Bursa Malaysia, important company Sports. Scomi supports sporting talents who Corporate Social Responsibility (“CSR”), to information are made available to the are competing in the international sporting ensure that all stakeholders will be able to public via the website, annual report, arena and showing potential to excel in benefit from our existence. quarterly updates, media announcements leading positions. In line with our brand and other means of communications. vision, sports provide a platform to compete and excel while developing self Corporate Governance. We are governed by a confidence and leadership in individuals. Board of Directors whose composition Examples of these are Scomi’s sponsorship reflects a diversity of backgrounds, skills and of the world’s No. 1 squash player Nicol experience in various aspects of David and the 15 year old 2007 Formula international business that contributes BMW Asia driver champion, Jazeman Jaafar. .scomiengineering.com.my www 22 corporate information Annual Report 2007 Annual Report Sc omi Engineering Bhd

DIRECTORS

Datuk Zainun Aishah Binti Ahmad (Chairman) Dato’ Abdul Rahim Bin Abu Bakar Dato’ Nordin Bin Baharuddin Edlin Bin Ghazaly OPTIONS COMMITTEE NOMINATION & Fad’l Bin Mohamed REMUNERATION COMMITTEE Shah Hakim @ Shahzanim Bin Zain Edlin Bin Ghazaly (Chairman) (Formed on 26 February 2008) Dato’ Abdul Rahim Bin Abu Bakar Datuk Zainun Aishah Binti Ahmad (Chairman) Shah Hakim @ Shahzanim Bin Zain Dato’ Abdul Rahim Bin Abu Bakar Edlin Bin Ghazaly Shah Hakim @ Shahzanim Bin Zain

REGISTERED OFFICE REGISTRAR Suite 5.03, 5th Floor Symphony Share Registrars Sdn Bhd Wisma Chase Perdana Level 26, Menara Multi-Purpose Off Jalan Semantan Capital Square Damansara Heights No 8 Jalan Munshi Abdullah 50490 Kuala Lumpur 50100 Kuala Lumpur Malaysia Malaysia Tel:+603 2080 6222 Tel:+603 2721 2222 Fax:+603 2080 6333 Fax:+603 2721 2530/31

ADMINISTRATIVE & ADVOCATES & SOLICITORS CORRESPONDENCE ADDRESS Albar & Partners Suite 5.03, 5th Floor Advocates & Solicitors Wisma Chase Perdana 6th Floor, Faber Imperial Court Off Jalan Semantan Jalan Sultan Ismail Damansara Heights 50250 Kuala Lumpur 50490 Kuala Lumpur Malaysia www Malaysia

.scomiengineering.com.my Tel:+603 2080 6222 Lee Hishammuddin Allen & Gledhill Fax:+603 2080 6333 Advocates & Solicitors Website : www.scomiengineering.com.my Level 16, Menara Asia Life Email : [email protected] 189, Jalan Tun Razak 50400 Kuala Lumpur Malaysia 23 Annual Report 2007 omi Engineering Bhd Sc

AUDIT & RISK MANAGEMENT COMMITTEE

Dato’ Nordin Bin Baharuddin (Chairman) Dato’ Abdul Rahim Bin Abu Bakar Edlin Bin Ghazaly Fad’l Bin Mohamed

COMPANY SECRETARY PRINCIPAL BANKERS OCBC Bank (Malaysia) Berhad Chong Mei Yan (MAICSA 7047707) United Overseas Bank (Malaysia) Berhad Menara OCBC Menara UOB, Jalan Raja Laut 18, Jalan Tun Perak P. O. Box 11212 50050 Kuala Lumpur AUDITORS 50738 Kuala Lumpur Malaysia PricewaterhouseCoopers Malaysia (AF: 1146) STOCK EXCHANGE LISTING Chartered Accountants CIMB Bank Berhad Level 10, 1 Sentral Bangunan CIMB, Jalan Semantan Second Board of Jalan Travers Damansara Heights Bursa Malaysia Securities Berhad 50706 Kuala Lumpur 50490 Kuala Lumpur Stock Name: Scomien Malaysia Malaysia Stock Code: 7366

RHB Bank Berhad Tower Three, RHB Centre CURRENCY Jalan Tun Razak Ringgit Malaysia (RM) 50400 Kuala Lumpur Malaysia

Malayan Banking Berhad Menara Maybank 100, Jalan Tun Perak 50050 Kuala Lumpur Malaysia .scomiengineering.com.my www 24 profile of directors Annual Report 2007 Annual Report Sc omi Engineering Bhd

Datuk Zainun Aishah Binti Ahmad Independent Non-Executive Director Chairman of Scomi Engineering Bhd

YBhg Datuk Zainun, a Malaysian, aged 61, was appointed to the Board on 15 December 2005. She is also the Chairman of the Company’s Nomination and Remuneration Committee.

YBhg Datuk Zainun graduated from University of Malaya with an Honours Degree in Economics. YBhg Datuk Zainun began her career with Malaysian Industrial Development Authority (“MIDA”), the Malaysian government’s principal agency for the promotion and coordination of industrial development in the country where she worked for 35 years. In her years of service, she held various key positions in MIDA as well as in some of the country’s strategic council, notably her pivotal role as National Project Director in the formulation of Malaysia’s first Industrial Master Plan and as a member of the Industrial Coordination Council in the implementation of the Second Industrial Master Plan. She was the Director-General of MIDA for 9 years and Deputy Director-General for 11 years.

YBhg Datuk Zainun was a Director of Tenaga Nasional Berhad, Kulim Hi-Tech Park and Kelantan Industrial Development Authority. YBhg Datuk Zainun also sits on various committees/authorities at national level, including being a member of the Industrial Coordination Act Advisory Council, Defence Industry Council, National Committee on Business Competitiveness Council, Malaysia Incorporated and the National Project for Majlis Penyelarasan Perindustrian (ICC) before retiring in September 2004.

YBhg Datuk Zainun’s other directorships in public companies are Malayan Banking Berhad, Microlink Solutions Berhad, Degem Bhd and Pernec Corporation Bhd. Save for Pernec Corporation Bhd, all the above companies are listed on Bursa Malaysia Securities Berhad.

YBhg Datuk Zainun attended all six (6) Board Meetings of the Company held during the financial year ended 31 December 2007. www .scomiengineering.com.my 25 Annual Report 2007 omi Engineering Bhd Sc

Dato’ Abdul Rahim Bin Abu Bakar Dato’ Nordin Bin Baharuddin Independent Non-Executive Director Independent Non-Executive Director

YBhg Dato’ Rahim, a Malaysian, aged 62, was appointed to the YBhg Dato’ Nordin, a Malaysian, aged 58, was appointed to the Board on 15 December 2005. He is also a member of the Board on 18 January 2007. He is also the Chairman of the Company’s Options Committee, Nomination and Remuneration Company’s Audit and Risk Management Committee. Committee and Audit and Risk Management Committee. YBhg Dato’ Nordin holds a Bachelor of Science in Economics with YBhg Dato’ Rahim graduated from the Brighton College of Honours from London School of Economics & Political Science. Technology, United Kingdom with B.Sc (Hon) Electrical He is a Chartered Accountant of The Malaysian Institute of Engineering in 1969. YBhg Dato’ Rahim is a member of the Institute of Engineers Malaysia (MIEM) and is a Professional Accountants (“MIA”) and Fellow of the Institute of Chartered Engineer, Malaysia (P.Eng). He also holds the Electrical Engineer Accountants in England and Wales. He is active in local Certificate of Competency Grade 1. YBhg Dato’ Rahim began his professional accounting bodies through his membership of the career in 1969 with the then National Electricity Board. He was Malaysian Institute of Certified Public Accountants (MICPA) where attached to the organisation for 10 years in various technical and he is President and a Council Member. He is also the Chairman of engineering positions before he moved on to the private sector. the Audit Committee of Council and a member of the Financial From 1979 to 1983, he served with Pernas Charter Management Reporting Standards Implementation Committee of MIA. He Sdn Bhd, a management company for the tin mining industry. served for two terms on the Malaysian Financial Reporting Then, from late 1983 to 1991, he was attached to Malaysia Foundation and was also a member of the Working Group on Mining Corporation Berhad (MMC) in various senior positions. Corporate Governance for the Islamic Financial Services Board. Later from 1991 to 1995, he moved on to MMC Engineering Services Sdn Bhd and subsequently to MMC Engineering Group Berhad as the Managing Director. In May 1995, he joined YBhg Dato’ Nordin retired as Chairman of Ernst & Young Malaysia Petronas to assume the position of Managing Director of in 2004 after 35 years in the accounting and auditing profession Petronas Gas Berhad (PGB) and subsequently moved on to in Malaysia and overseas. He also retired as Senior Advisor to Petronas as its Vice President, in charge of the Petrochemical Citibank Berhad on 9 January 2008. Business in 1999. He retired from Petronas on 31 August 2002. YBhg Dato’ Nordin’s other directorships in public companies are YBhg Dato’ Rahim’s other directorships in public companies are KUB Malaysia Berhad, Sarawak Energy Berhad, VisDynamics UEM Builders Berhad, UEM World Berhad, Opus Group Berhad Holdings Berhad and Malaysian Rating Corporation Berhad. Save and Telekom Malaysia Berhad which are all public listed for Malaysian Rating Corporation Berhad, all the above companies and Bank Pembangunan Malaysia Berhad and its companies are listed on Bursa Malaysia Securities Berhad. subsidiaries, namely BI Credit & Leasing Berhad and Global Maritime Ventures Berhad, all non-listed public companies. YBhg Dato’ Nordin attended all six (6) Board Meetings of the YBhg Dato’ Rahim attended all six (6) Board Meetings of the Company held during the financial year ended 31 December 2007. Company held during the financial year ended 31 December 2007. .scomiengineering.com.my www 26 profile of directors (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd

Edlin Bin Ghazaly Fad’l Bin Mohamed Independent Non-Executive Director Independent Non-Executive Director

Encik Edlin, a Malaysian, aged 43, was appointed to the Board on Encik Fad’l, a Malaysian, aged 40, was appointed to the Board on 20 December 2004. He is also the Chairman of the Company’s 15 December 2005. He is also a member of the Company’s Audit Options Committee and a member of the Company’s Nomination and Risk Management Committee. and Remuneration Committee, and Audit and Risk Management Committee. Encik Fad’l holds an Honours Degree in Law from University of London, and a Certified Diploma in Accounting and Finance Encik Edlin read law at the International Islamic University (IIU), (Association of Chartered Certified Accountants). He started his graduating in 1989, and was admitted to the Malaysian Bar in career as a lawyer in Messrs. Rashid & Lee in 1991. He then 1990. Over the past 18 years, he has established a notable career joined the Securities Commission in 1993 to serve in the Take- in the legal profession and set up his own practice in 1994. overs and Mergers Department and subsequently in the Product Development Department. Between 1996 to 1999, he was Encik Edlin attended all six (6) Board Meetings of the Company attached to the Kuala Lumpur offices of Dresdner Kleinwort held during the financial year ended 31 December 2007. Benson, a global investment bank. From 2000 to 2003, he was the Joint-Chief Operating Officer of Kuala Lumpur Industries Holdings Berhad and was involved in its debt and corporate restructuring exercise. He then set up Maestro Capital Sdn Bhd, a licenced Investment Adviser and is currently providing advisory services in the areas of mergers and acquisitions and capital raising. He is also an independent investment committee member of CIMB-Principal Asset Management Berhad and also serves as a Director of Seni Jaya Corporation Berhad, a public listed company, and various other private companies.

Encik Fad’l attended five (5) of the six (6) Board Meetings of the Company held during the financial year ended 31 December 2007. www .scomiengineering.com.my 27 Annual Report 2007 omi Engineering Bhd Sc

Shah Hakim Zain Non-Independent Executive Director Group Chief Executive Officer

Encik Shah Hakim, a Malaysian, aged 43, was appointed to the Board on 15 December 2005. He is also a member of the Company’s Options Committee and Nomination and Remuneration Committee.

He started his career as an auditor with Ernst & Young and was subsequently promoted as Consulting Manager, responsible for servicing large corporations. He went on to be appointed as Executive Director of a regional packaging manufacturer in 1992, with direct operational responsibility.

Encik Shah Hakim’s other directorships in public companies are Sapura Industrial Berhad, Scomi Group Bhd, Scomi Marine Bhd and KMCOB Capital Berhad. Save for KMCOB Capital Berhad, all the above companies are listed on Bursa Malaysia Securities Berhad.

Encik Shah Hakim attended all six (6) Board Meetings of the Company held during the financial year ended 31 December 2007.

Note: None of the Directors have any family relationship with any Director and/or substantial shareholder of the Company;

None of the Directors have any conflict of interest with the Company; and

None of the Directors have been any conviction for offences within the past 10 years (other than traffic offences, if any). .scomiengineering.com.my www 28 management team Annual Report 2007 Annual Report Sc omi Engineering Bhd

Hilmy Zaini Greg Fernandes Alan Tan Mike Dickinson Zubaidi Harun Wong Ley Chan Zainal Chief Financial SVP – Machine SVP – Rail VP – Coach & Group Financial President Officer Shops Special Purpose Controller Vehicles

Johnny Wan Azmi Mark Staib Ibrahim Stephen Hoo Anthony Ng Wan Zakaria

www Boulianne Wan Yusoff Rail – Production Packeer Machine Shops Machine Shops Wan Taib Rail – Engineering – Engineering – Operations & Design Rail – Projects Coach & Special Machine Shops .scomiengineering.com.my Purpose Vehicles – Corporate – Manufacturing Development

Suhaimi Yaacob Project Management (not in picture ) statement of corporate governance 29

The Malaysian Code on Corporate Governance

(“the Code”) sets out Annual Report 2007 omi Engineering Bhd principles and best Sc practices on structures and processes that companies may use in their operations towards achieving the optimal governance framework.

The Code was first issued in March 2000, the interest of the shareholders. The Board is exercises appropriate control to ensure that codifying the principles and best practices pleased to report to the shareholders on the the Company is managed in a manner that of good governance and describing optimal manner that the Company has strengthened fulfils shareholder aspirations and societal corporate governance structures and its application of the principles of corporate expectations. internal processes. The duties, role and governance and on the adoption of corporate composition of the various Board governance best practices laid down in the The Board comprises six (6) Directors, of Committees are governed by a set of Code. which five (5) are Independent Non- comprehensive terms of reference. Executive. Together, these Directors bring a wide range of business and financial The Code was revised by the Securities A. DIRECTORS experience, skills and expertise that are vital Commission in October 2007 in line with for the effective performance of the Board developments in the domestic and THE BOARD and the successful direction of the international capital markets, to further Company. improve corporate governance standards The Company is led and controlled by an and strengthen investor confidence. effective Board that has the overall The profiles of the members of the Board responsibility to provide stewardship of the are set out on pages 24 to 27 of this Annual The Board of Directors (“the Board”) of Company’s business and affairs on behalf of Report. Scomi Engineering Bhd (“the Company”) is the shareholders. In addition, the Board has supportive of the adoption of the principles the responsibility to protect and enhance There is a clear division of roles and and best practices of the Code for the shareholder value through strategic responsibilities between the Chairman of Company. It recognises that the adoption of supervision of the Company and its the Board and the Executive Director / good governance is critical for the wholly- owned subsidiaries. Group Chief Executive Officer (“the GCEO”) protection and enhancement of to ensure that there is a balance of power stakeholders’ value and the overall The Board has clear goals relating to and authority. The Chairman is responsible performance of the Company. shareholder value and its growth. By for ensuring the Board’s effectiveness whilst pursuing its objective of creating the GCEO is responsible for operational and The Board remains committed to ensuring shareholders’ value, the Board takes into business units’ organisational effectiveness that the highest standards of corporate account the interests of all stakeholders in and implementation of directives, strategies culture are practised throughout the Group in its decision making. It provides direction and and decisions. .scomiengineering.com.my www 30 statement of corporate governance (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd

THE BOARD AND ITS COMMITTEES

The composition of the Board and its committees during the year under review is: 3 4 5 ittee ittee ittee ittee ittee udit and Risk Remuneration Comm Board of Directors Board A Management Comm Nomination Comm Options Committee Nomination and Nomination Remuneration Comm

Chairman Datuk Zainun Aishah binti Ahmad C – C C – – Independent Non-Executive Director

Independent Non-Executive Directors Dato’ Abdul Rahim bin Abu Bakar M M M M M1 –

Dato’ Nordin bin Baharuddin M C – – – –

Encik Edlin bin Ghazaly M M M1 –C –

Encik Fad’l bin Mohamed M M – – – –

Non-Independent Executive Director Encik Shah Hakim Zain M – M2 MM –

C – Chairman M – Member

Note: 1 Appointed on 9 February 2007 2 Resigned on 9 February 2007 3 The Nomination Committee was dissolved on 26 February 2008 4 The Remuneration Committee was dissolved on 26 February 2008 5 The Nomination and Remuneration Committee was established on 26 February 2008 www .scomiengineering.com.my 31

BOARD MEETINGS During the financial year ended 31 December 2007, six (6) Board Meetings were held. The attendance record of the Directors at Board meetings, together with their attendance at the committee meetings is: Annual Report 2007 omi Engineering Bhd Sc 2 1 3 ittee ittee ittee ittee udit and Risk Board Meeting Board A Management Comm Remuneration Comm Options Committee Nomination Comm and Nomination Remuneration Comm

Datuk Zainun Aishah binti Ahmad 6/6 – 1/1 – 1/1 –

Dato’ Abdul Rahim bin Abu Bakar 6/6 3/5 1/1 1/1 1/1 –

Dato’ Nordin bin Baharuddin 6/6 4/5 – – – –

Encik Edlin bin Ghazaly 6/6 5/5 – 1/1 1/1 –

Encik Fad’l bin Mohamed 5/6 4/5 – – – –

Encik Shah Hakim Zain 6/6 – 1/1 1/1 – –

Note: 1 The Nomination Committee was dissolved on 26 February 2008 2 The Remuneration Committee was dissolved on 26 February 2008 3 The Nomination and Remuneration Committee was established on 26 February 2008

SUPPLY OF INFORMATION

The Board is committed to establishing long-term shareholder and stakeholder value. Therefore, all matters with regard to the strategy and business conduct proposed by the management and the monitoring of the results of strategies implemented are critically scrutinised and deliberated by the Board.

The Board members are provided with quality and timely information which allows them to discharge their responsibilities effectively and efficiently. The agenda together with a set of Board Papers for each agenda item are delivered to each Director in advance to enable the Directors to review the matters to be deliberated and discussed during the meeting. .scomiengineering.com.my www 32 statement of corporate governance (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd

APPOINTMENT OF DIRECTORS on 21 June 2007. At the same meeting, All committees are guided by their Dato’ Nordin bin Baharuddin retired under respective terms of reference which A formal procedure is in place for Article 87 of the Company’s Articles of specifically outline their objectives, duties appointments to the Board. The Nomination Association and was re-elected. and responsibilities. A brief description of Committee is delegated the responsibility to each Committee is provided below: ensure that there is a formal and transparent procedure for the appointment of new DIRECTORS’ CONTINUING EDUCATION ● AUDIT AND RISK MANAGEMENT Directors to the Board. All members of the Board have attended COMMITTEE The proposed appointment of new Directors the Mandatory Accreditation Programme as The Audit and Risk Management and the proposed re-election of existing required under the Listing Requirements of Committee (“ARMC”) has been established Directors are reviewed and assessed by the Bursa Malaysia Securities Berhad. with the primary objective of assisting Nomination Committee. Thereafter, the the Board to review the adequacy and Nomination Committee submits its The Directors are mindful that they continue integrity of the Company’s internal control recommendation on the proposed to update their skills and knowledge to and management information systems, appointment or re-election of Directors to maximise their effectiveness as Directors including systems for compliance with the Board for approval. The Nomination during their tenure. applicable laws, regulations, rules, Committee ensures an effective process for directives and guidelines. The ARMC also the selection of new Directors and During the financial year ended 31 reviews the quarterly financial statements. assessment of individual Directors which will December 2007, all the Directors attended result in the optimum mix of skills, various training programmes, conferences, The ARMC consists of four (4) experience and responsibilities being seminars and courses organised by the Independent Non-Executive Directors. present in the Board. Group, the relevant regulatory authorities and professional bodies on areas relevant to There were five (5) ARMC meetings held during the year under review. During the year under review, the the Group’s business, Directors’ roles, Nomination Committee comprised a majority responsibilities, effectiveness and/or The Terms of Reference for the ARMC of Independent Non-Executive Directors as corporate governance issues. are highlighted in the Audit and Risk highlighted in the table on page 30 of this Management Committee Report as set Annual Report. The Nomination Committee out on pages 37 to 40 of this Annual meets as and when required, and at least BOARD COMMITTEES Report. once during the financial year as stipulated in their terms of reference. The Board has established and delegated specific responsibilities to four (4) Committees of the Board which operate ● NOMINATION COMMITTEE RE-ELECTION OF DIRECTORS within clearly defined written terms of references on which the Committees The Nomination Committee consists of In accordance with the Articles of deliberate the issues on a broad and in three (3) Independent Non-Executive Association, one-third of the Directors shall depth basis before putting up any Directors. retire from office and be eligible for re- recommendation to the Board. The Board election on a rotational basis each year at Committees are: The role of the Nomination Committee is the Annual General Meeting (“AGM”). In • the Audit and Risk Management to assist the Board in ensuring that the addition, all Directors who were appointed Committee Board is comprised of individuals with the by the Board are subject to re-election by • the Nomination Committee required skills, knowledge, experience, shareholders at the first opportunity after • the Remuneration Committee integrity and professionalism. Its main their appointment. All Directors are required • the Options Committee duties include the following: to retire from office at least once in three • Annual review of the required mix (3) years but shall be eligible for re-election. In February 2008, based on a decision by of skills and experience and other www the Board of Directors, the Nomination and qualities including core

.scomiengineering.com.my During the financial year under review, Remuneration Committee was formed to competencies that the Non- Encik Edlin bin Ghazaly and Encik Fad’l bin provide a holistic view on both nomination Executive Directors should bring to the Board and identifying skills that Mohamed retired in accordance with Article of Directors to the Board and the review may be required 80 of the Company’s Articles of Association and deliberation of Directors’ remuneration. and were re-elected at the 23rd AGM held 33

• Overseeing the assessment of the B. DIRECTORS’ REMUNERATION performance of the Board, the Committees and individual The Non-Executive Directors’ remuneration is based on standard agreed fees. In addition, Directors they receive allowances for attendance at Board and Board Committee meetings. The • Recommendation of suitable Annual Report 2007

Directors are also entitled to options under the Company’s ESOS. omi Engineering Bhd

candidates for Directorship to the Sc Board and Board Committees The aggregate of remuneration paid to the Directors of the Company who served during the financial year, and the bands, are as tabulated below: ● REMUNERATION COMMITTEE

Executive Non-Executive The Remuneration Committee Director Directors Total comprises two (2) Independent Non- (RM’000) (RM’000) (RM’000) Executive Directors and one (1) Non- Independent Executive Director. Salaries – – –

The Remuneration Committee is Fees – 175.8 175.8 responsible for the review of the overall Allowances – 26.1 26.1 remuneration policy of the Directors whereupon recommendations are Bonuses – – – submitted to the Board for approval. Estimated value of benefit-in-kind – – – The Non-Executive Directors’ remuneration is based on standard Total – 201.9 201.9 agreed fees. In addition, they receive allowances for attendance at Board and The aggregate remuneration above is broadly categorised into the following bands: Board Committee meetings. In addition, Directors are also entitled to options Executive Non-Executive under the Company’s Employee Share Director Directors Total Option Scheme (“ESOS”). Up to RM50,000 – 4 4

RM50,001 to RM100,000 – 1 1 ● OPTIONS COMMITTEE RM100,001 to RM200,000 – – – The Options Committee was established by the Board to administer the Company’s ESOS in accordance with the By-Laws thereof and regard to C. COMMUNICATION WITH SHAREHOLDERS AND INVESTORS the eligibility criteria of participating The Board is committed to ensuring that high quality and relevant information is made employees set out therein in addition available to the shareholders and investors in a timely manner to keep them abreast of all to taking all necessary actions to material business matters affecting the Company. ensure effective administration of the Scheme. Regulatory announcements, quarterly financial results and other relevant information are easily accessible via the Scomi Group Bhd’s website at www.scomigroup.com.my. Any The Options Committee comprises two queries or requests from the public may be submitted on the website. (2) Independent Non-Executive Directors and one (1) Non-Independent The Company’s performance is reported quarterly to Bursa Malaysia Securities Berhad and Executive Director as detailed on page on a yearly basis, in the Annual Report. 30 of this Annual Report. .scomiengineering.com.my www 34 statement of corporate governance (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd

The AGM provides the opportunity for The Board is assisted by the ARMC to RELATIONSHIP WITH AUDITORS shareholders to raise queries and serves oversee the Company’s financial as a platform for shareholders to have reporting processes and the quality of its Through the ARMC of the Board, the direct access to the Board. At the AGM, financial reporting. Company has established a transparent the GCEO addresses the shareholders on and appropriate relationship with their the review of the Company’s operations The Statement of Responsibility by internal and appointed external auditors. for the financial year and outlines the Directors in respect of the preparation of prospects of the Company for the next the annual audited financial statements The ARMC meets with external auditors financial year. for the financial year under review is set to further discuss the Company’s audit out on page 41 of this Annual Report. plans, audit findings, financial statements as well as to seek their professional D. ACCOUNTABILITY AND AUDIT advice on other related matters. At least INTERNAL CONTROL once a year (and twice a year from Year FINANCIAL REPORTING 2008 onwards due to changes in the The Board firmly believes in maintaining ARMC Terms of Reference), the ARMC The Board is committed to provide a and strengthening an appropriate control meets the external auditors without the balanced, clear and meaningful environment within the Group in presence of Executive Directors or assessment of the financial position and addition to reviewing its adequacy, Management. prospects of the Group in all reports to integrity and effectiveness. The Board the shareholders, investors and continues to build on its overall The ARMC Report further outlines the regulatory authorities. responsibility for continuous role of the ARMC in relation to both the maintenance of a sound system of internal and external auditors as Timely release of the quarterly financial internal control to safeguard described in pages 37 to 40 of this statements announcements and press shareholders’ investment and the Annual Report. releases reflect the Board’s commitment Company’s assets. Key internal control to provide accurate and transparent areas are detailed in the Statement of disclosures of the Company and the Internal Control as set out on pages 35 to Group’s performance. 36 of this Annual Report. www .scomiengineering.com.my statement of internal control 35

INTRODUCTION

The Board of Directors Annual Report 2007 omi Engineering Bhd

(“the Board”) is fully Sc committed to maintaining a sound and effective system of internal control, and acknowledges its responsibility for ensuring the transparency and efficiency of operational The Malaysian Code on Corporate Governance provides that listed entities should maintain a sound system of internal control to safeguard shareholders’ investments and the Group’s assets. business processes. The Board is pleased to INTERNAL CONTROL FRAMEWORK present the Statement of The internal control framework has been designed to be aligned to the Company’s operating Internal Control for activities and to uphold and promote the adequacy, integrity and effectiveness of the Company’s system of internal control. The internal control framework is supported by the Scomi Engineering Bhd following key components: (“Scomi Engineering”) in line with Paragraph ● REVIEW AND EVALUATION OF THE SYSTEM OF INTERNAL CONTROL 15.27 (b) of the Listing Daily business operations of the Group and the implementation of the system of internal Requirements of Bursa control are delegated to the management team of the Company by the Board. The Board has also assigned to the Audit and Risk Management Committee (“ARMC”) the Malaysia Securities responsibility to review and monitor the effectiveness of the Group’s system of internal Berhad. control. Authorities and delegation of duties and responsibilities between Directors and senior management are clearly defined and distinguished.

● DELEGATED AUTHORITY LIMITS

Clear policy guidelines and delegated authority limits (“DAL”) govern business operations and the decision making process. These policies and procedures are reviewed regularly and updated when necessary.

● COMPLIANCE MONITORING AND REVIEWS

Regular and systematic internal audit reviews are outsourced to Group Internal Compliance (“GIC”), a division of Scomi Group Bhd, Scomi Engineering’s holding company. The periodic reviews evaluate the effectiveness of controls in key business processes of the Company using a risk-based approach. GIC reports directly to the ARMC of Scomi Engineering, and all internal audit review findings and recommendations are presented during the quarterly committee meetings. .scomiengineering.com.my www 36 statement of internal control (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd

To evaluate Machine Shop operation’s controls and quality standards, regular audits are conducted by the premium thread licensors.

● RISK MANAGEMENT SYSTEM

Risk profiling exercises have been actively performed, and management action plans to monitor and mitigate risks have been prepared. Management action plans are consistently monitored and updated to ensure that key risks faced by business operations have been addressed and mitigated. Risk management reports are presented and deliberated by the ARMC.

● QUALITY SYSTEM

The Company continually upholds its ISO accreditation for the Transportation Engineering operations and certifications by the American Petroleum Institute for the Group’s Machine Shop operations in respect of Quality Management Systems.

The Group Quality Health and Safety Environment (“QHSE”) Manager oversees and provides support in the areas of quality, health, safety and environment. In line with achieving their “Zero” Accident and an Incident-free environment, the management continues to monitor Material Safety Data Sheets (MSDS).

● REPORTING AND COMMUNICATION

Regular and comprehensive information is provided to Directors, which include key business, operations and financial performance issues. The management closely monitors monthly actual results against budgets and forecasts. Quarterly reporting of the same is presented to the Board, whereby any significant corporate events are also reported.

Going forward, the Board is committed to continually strengthen efficiency and effectiveness of its operations and internal control. The Board and its management have undertaken a comprehensive review of the governance and internal control framework and steps to enhance and refine the risk management framework are continually planned.

Due to inherent limitations in any system of internal control, the system is designed to manage rather than eliminate risks of the organisation and can only provide reasonable and not absolute assurance against material misstatement or loss.

On-going assessment, independent of operations, on the adequacy and integrity of risks and controls by Scomi Group Bhd’s GIC function will be performed to support the Board’s initiatives. www .scomiengineering.com.my audit and risk management committee report 37

The Board of Directors (“the Board”) of Scomi

Engineering Bhd (“the Annual Report 2007 omi Engineering Bhd

Company” or “Scomi Sc Engineering” and its subsidiaries (“the Group”) is pleased to present the Report of the Audit and Risk Management Committee for the financial year ended 31 December 2007.

CHANGES TO THE MALAYSIAN CODE systems including the management (e) Members of the Audit and Risk OF CORPORATE GOVERNANCE information system and systems for Management Committee shall elect a (“THE CODE”) compliance with applicable laws, regulations, Chairman from among themselves who rules, directives and guidelines. is an Independent Non-Executive As released by the Securities Commission in Director. October 2007, the Malaysian Code of Corporate Governance (“the Code”) has been BALANCE AND COMPOSITION (f) Members of the Committee may revised in line with developments in the relinquish their membership in the domestic and international capital markets, to (a) The members of the Audit and Risk Committee with prior written notice to further improve corporate governance Management Committee shall be the Company Secretary. standards and strengthen investor confidence. appointed by the Board of Directors and The key amendments to the Code are aimed shall comprise at least 4 members, all of (g) In the event of any vacancies arising in at strengthening Board of Directors and Audit whom must be non-executive directors the Committee resulting in the number Committees, and ensuring their roles and with a majority of them being of members of the Committee falling responsibilities are discharged effectively. independent directors. below four (4), the vacancy should be filled within three months of it arising. The Board has ensured that the changes (b) None of the members of the Audit and were adequately reflected and updated in the Risk Management Committee shall be (h) Appointment of each Committee Terms of Reference of the Audit and Risk an alternate director. member shall be for a period of up to Management Committee and the Board three years. The Committee Chairman endeavours to adequately reflect all other (c) A majority of the members of the shall not serve consecutive terms in that changes by the requirement deadline in 2009. committee must be financially literate capacity, although he may remain a with sufficient financial experience and member of the Committee and may ability and at least one member of the serve as Committee Chairman again in a TERMS OF REFERENCE OF THE AUDIT Audit and Risk Management Committee future term. AND RISK MANAGEMENT COMMITTEE must be an Accountant as defined by the Bursa Malaysia Securities Berhad OBJECTIVE Listing Requirements. POWERS OF THE AUDIT AND RISK MANAGEMENT COMMITTEE To assist the Board of Directors to review the (d) The Committee shall have a mixture of adequacy and integrity of the Group’s expertise and experience, including an (a) In carrying out its duties and financial administration and reporting, understanding of the industry(ies) in responsibilities, the Audit and Risk internal control and risk management which the Group operates in. Management Committee shall, at the expense of the Company: .scomiengineering.com.my www 38 audit and risk management committee report (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd

• Have the authority to investigate (i) the adequacy of the Committee’s (i) In relation to the internal audit function: any matter within its terms of policies and procedures for pre- • Review the adequacy of the reference approving the use of the scope, functions, competency and • Have full, free and unrestricted independent auditors for non- resources of the internal audit access to the Company’s and audit services with a view to function, and that it has the Group’s records, properties, auditor independence necessary authority to carry out its personnel and other resources (ii) the non-audit services work • Have direct communication pre-approved in accordance with • Review the internal audit plan and channels with the external the Committee’s policies and results of the internal audit auditors and person(s) carrying procedures process and where necessary out the internal audit function (iii) fees paid to the independent ensure that appropriate action is • Be able to obtain independent auditors for pre-approved non- taken on the recommendation of professional or other advice in audit services the internal audit function furtherance of their duties • Review the independence of the • Be able to convene meetings with (c) Monitor regular rotation of audit internal audit function the external auditors, the internal partners by the independent auditors. • Approve any appointment or auditors or both, excluding the termination of employment of the attendance of the other directors (d) To discuss with the external auditor head of the internal audit function and employees, whenever before the audit commences, the nature and review his/her performance deemed necessary and scope of the audit, and ensure appraisal or assessment co-ordination where more than one • Receive reports from management (b) The Audit and Risk Management audit firm is involved. on resignations of the other Committee is not authorised to internal audit staff members, their implement its recommendations on (e) To act as an intermediary between the reasons for resigning and their behalf of the Board but shall report its management or other employees, and performance appraisal or recommendation back to the Board for the external auditors. assessment conducted by its consideration and implementation. management (f) To review the quarterly and year-end (c) Where the Audit and Risk Management financial statements, focusing (j) To consider and report back to the Committee is of the view that a matter particularly on: Board of Directors any related party reported by it to the Board of Directors • Any changes in accounting policies transactions and conflict of interest has not been satisfactorily resolved and practices situation that may arise within the resulting in a breach of the Listing • Significant adjustments arising Company or Group including any course Requirements of Bursa Malaysia from the audit of conduct that raises questions of Securities Berhad, the Audit and Risk • Litigation that could affect results management integrity. Management Committee is authorised materially to promptly report such matters to • The going concern assumption (k) To consider the major findings of Bursa Malaysia Securities Berhad. • Compliance with accounting internal investigations and standards and other legal management’s response. requirements DUTIES AND RESPONSIBILITIES OF (l) To consider other topics as defined by THE AUDIT AND RISK MANAGEMENT (g) To discuss problems and reservations the Board of Directors. COMMITTEE arising from the interim and final audits, and any matter the auditor may wish to (m) To review and verify that the allocation (a) To consider the appointment of the discuss (in the absence of management of options pursuant to the Company’s external auditor, the audit fee and any where necessary). Employees’ Share Option Scheme (“ESOS”) complies with the criteria

www questions of resignation or dismissal. (h) To review the external auditor’s disclosed to the employees. .scomiengineering.com.my (b) Pre-approve all non-audit services to be management letter and management’s provided by the independent auditors response. (n) To review and consider the to the Company in accordance with the appropriateness and adequacy of Committee's policies and procedures, internal processes for risk oversight and and regularly review: 39

management. In particular, the within the Group’s strategic goals the invitation of the Audit and Risk Committee shall: and that action plans or strategies Management Committee. However, at • Consider whether the Group has to mitigate identified risks are least twice a year the Committee shall effective management systems in adequate meet with the external auditors without place to identify, assess, monitor To conduct meetings with the executive board members or Annual Report 2007

• omi Engineering Bhd

and manage its key risk areas project sponsor(s) and GCEO, if management present. Sc • Review, approve and ensure necessary, to discuss risk matters adherence to the Group’s risk related to the proposal (c) The Company Secretary shall act as management policy and strategies • To make a recommendation to the secretary of the Audit and Risk • Establish the roles and respective Board on the appropriate course Management Committee and shall be accountabilities of the Board, the of action to take responsible, with the concurrence of Committee and Management in the Chairman of the Audit and Risk managing risks (p) To oversee the Group’s internal Management Committee, for drawing • Provide for regular review of the compliance and control systems up and circulating the agenda and effectiveness of the Group’s established by management, including notice of meetings together with implementation of its risk reviewing the effectiveness of these supporting explanatory documentation management system systems and approving management’s to all Audit and Risk Management • Receive regular reports on the risk programmes and policies to ensure Committee members at least five (5) profile of the Group, describing effectiveness. days prior to each meeting. If there is a material risks (both financial and unanimous consent by the members of non-financial) facing the Group the Committee present in the meeting, and action plans taken by MEETINGS AND MINUTES a short notice shall suffice. management to mitigate the risks • Review the appropriateness of (a) The Audit and Risk Management (d) The Secretary of the Audit and Risk management’s response to key Committee shall meet at least 4 times Management Committee shall record all risk areas during a financial year. In order to form proceedings and minutes are to be a quorum, the majority of members prepared and circulated to the Audit (o) In relation to major business investment present must be independent directors. and Risk Management Committee proposals: members and the Board of Directors. In • To review and evaluate the risk (b) The GCEO, the Head of the Group addition, the Chairman of the Audit and associated with any proposal Internal Audit Department and a Risk Management Committee will report prepared by the project representative of the external auditors significant matters and resolutions, at sponsor(s), particularly that all risks shall normally attend meetings. Other each Board of Directors meeting. have been considered and are persons may attend meetings only upon

MEMBERS AND MEETINGS

The members of the Audit and Risk Management Committee during the financial year ended 31 December 2007 comprised the following Board Members:

Audit and Risk Attendance Name Management Committee Designation (Attended/Held)

Dato’ Nordin bin Baharuddin Chairman Independent Non-Executive Director 4/5 Dato’ Abdul Rahim bin Abu Bakar Member Independent Non-Executive Director 3/5 Edlin bin Ghazaly Member Independent Non-Executive Director 5/5 Fad’l bin Mohamed Member Independent Non-Executive Director 4/5

During the financial year under review, the Audit and Risk Management Committee convened five (5) meetings. Meetings were held on 13 February 2007, 12 April 2007, 10 May 2007, 13 August 2007 and 13 November 2007 respectively. .scomiengineering.com.my www 40 audit and risk management committee report (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd

SUMMARY OF ACTIVITIES FOR THE • Reviewed the Group’s systems and The scope of GIC’s audit review covers all YEAR practices for the identification and business operations, including those of the management of risks Group’s subsidiaries. For the financial year The following activities were carried out by • Reviewed and verified the related party under review, the activities of GIC included the Audit and Risk Management Committee transactions and provide the following: in the financial year under review in recommendations on the same to the • Evaluated and appraised the accordance with the Committee’s functions Board of Directors soundness, adequacy and application and duties as outlined the Terms of Reference: • Reviewed and verified that the of accounting, financial and other • Reviewed and recommended the allocation of options pursuant to the controls and promoting effective adoption of amendments to the Audit Company’s ESOS is in compliance with controls in the Group and the and Risk Management Committee Terms the criteria for allocation of options as Company at reasonable cost. of Reference in line with the Revised disclosed to employees of the Company • Ascertained the level of operational and Malaysian Code on Corporate for the financial year business compliance with established Governance • Reviewed and evaluated risk policies, procedures and statutory • Reviewed and recommended to the considerations in relation to major requirements Board the nomination and business investment proposals and • Identified and recommended re-appointment of the external auditors adequacy of action plans to mitigate opportunities for improvements to the • Reviewed and discussed with the risks identified existing system of internal control, external auditor the nature and scope of operations and processes in the Group their audit and the Company • Conducted a meeting with the external INTERNAL AUDIT FUNCTION auditors without the presence of the The Committee continues to acknowledge Executive Board Members and The Group’s Internal Audit function is the need for an effective system of internal management outsourced to Group Internal Compliance control covering all aspects of the Group’s • Reviewed the audit plan and scope of (“GIC”) under its holding company, Scomi activities, and is committed to further work for the year for the Group and the Group Bhd. GIC, which is independent of the enhance and improve the system of Company, prepared by the Group activities and operations, undertakes internal control. Internal Compliance Department independent, regular and systematic reviews • Reviewed the audit reports, both of the system of internal control so as to planned and ad-hoc or investigative provide reasonable assurance that the system audits, which incorporated audit continues to operate satisfactorily and findings, recommendations and effectively. GIC reports directly to the Audit management responses for the Group and Risk Management Committee and assists and the Company by the Group Internal the Board in monitoring internal control to Compliance Department mitigate the risks and identify any weaknesses • Reviewed the external auditor’s and provide recommendations where management letter and management’s necessary. response • Reviewed the quarterly and annual financial reports of the Group and the Company prior to submission to the Board for consideration and approval • Reviewed the status of total planned versus actual audit projects performed throughout the year www .scomiengineering.com.my additional information 41 Annual Report 2007 omi Engineering Bhd

MATERIAL CONTRACTS INVOLVING DIRECTORS’ AND SHARE BUY-BACK Sc MAJOR SHAREHOLDERS’ INTEREST During the financial year, the Company repurchased 1,000 of its Other than contracts entered into and disclosed as Related Party ordinary shares from the open market at a price of RM1.93 per Transactions in Note 36 to the Financial Statements and those share. The total consideration paid for the repurchase including disclosed below, there are no other material contracts, including transaction costs was RM1.946. All shares have been maintained as contracts relating to loans (not being in the ordinary course of treasury shares and there has been no resale of the company business) of the Company, involving Directors’ and major treasury shares nor have there been any shares cancelled during the shareholders’ interests, either still subsisting at the end of the year under review. financial year or, if not then subsisting, entered into since the end of the previous financial year.

statement on directors’ responsibility

The Directors are required by the Companies Act, 1965 (“the Act”) In forming a basis for reasonable grounds that accounting records to prepare financial statements at the end of each financial year maintained by the Company and the Group provide a true and fair for Scomi Engineering Bhd (“the Company”) and its subsidiaries view of the current state of affairs and financial results, the Directors (“the Group”) and present the financial statements at its Annual have relied on the system of internal control within the Company and General Meeting. the Group which ensures that reasonably accurate accounting and other records have been kept to sufficiently explain the transactions In compliance with the Act and the Listing Requirements of Bursa and financial position of the Company and of the Group and so as to Malaysia Securities Berhad, the financial statements, which include the enable the preparation of a true and fair consolidated balance sheet, consolidated balance sheet, cash flows and income statement, give a cashflows and income statement for the Group. true and fair view of the state of affairs of the Company and the Group for the related financial year. The financial statements of the The annual audited financial statements have been prepared based on Company and the Group for the financial year ended 31 December a going concern basis and on the relevant and appropriate accounting 2007 are set out on pages 42 to 112 of this Annual Report. policies with usage of reasonable and prudent judgement and estimates. The Directors also have a general responsibility in taking steps to preserve the interests of stakeholders and to safeguard the assets of the Company and the Group. .scomiengineering.com.my www 42 Annual Report 2007 Annual Report Sc omi Engineering Bhd

Financial statements www .scomiengineering.com.my 43 Annual Report 2007 omi Engineering Bhd Sc

44 Directors’ Report 56 Cash Flow Statements

50 Income Statements 58 Notes to the Financial Statements 51 Balance Sheets 111 Statement by Directors 53 Consolidated Statement of Changes in Equity 111 Statutory Declaration

55 Company Statement of 112 Report of the Auditors Changes in Equity .scomiengineering.com.my www 44 directors’ report Annual Report 2007 Annual Report Sc omi Engineering Bhd

The Directors are pleased to submit their annual report to the members together with the audited financial statements of the Group and Company for the financial year ended 31 December 2007.

PRINCIPAL ACTIVITIES The principal activities of the Company are investment holding and the provision of management services to subsidiaries. The principal activities of the Group comprise the provision of machine shop services for the oil and gas industry, the design and manufacture of monorail, special purposes vehicles, urban transportation solutions and rail solutions.

There were no significant changes in the nature of these activities during the financial year, other than the discontinuance of fleet management services as disclosed in Note 5 to the financial statements.

FINANCIAL RESULTS Group Company RM’000 RM’000

Profit for the year from continuing operations 42,317 15,520 Loss for the year from discontinued operations (375) —

Profit for the year 41,942 15,520

Attributable to: Equity holders of the Company 42,416 15,520 Minority interest (474) —

Profit for the year 41,942 15,520

DIVIDEND The amount of dividend paid by the Company since 31 December 2006 was as follows:

In respect of the financial year ended 31 December 2006, a final tax exempt dividend of 3 sen per share was paid on 12 September 2007:

RM’000

– as shown in the Directors’ report of that year, dividends on 270,627,567 shares 8,119 – dividends on additional 3,712,500 shares due to exercise of employee share options 111

8,230

The Directors now recommend the payment of a final tax exempt dividend of 5 sen per share in respect of the financial year ended 31 December 2007, amounting to RM13,743,578, which is subject to approval of members at the forthcoming Annual General Meeting of the Company. www .scomiengineering.com.my 45

RESERVES AND PROVISIONS Material transfers to or from reserves or provisions during the financial year are as disclosed in the financial statements. Annual Report 2007

ISSUE OF SHARES omi Engineering Bhd Sc During the financial year, the issued and paid-up share capital of the Company was increased from RM270,627,567 comprising 270,627,567 ordinary shares of RM1.00 each, to RM274,871,567 comprising 274,871,567 ordinary shares of RM1.00 each, by the issuance of 4,244,000 new ordinary shares of RM1.00 each for cash pursuant to the exercise of options granted under the Employees’ Share Option Scheme at exercise prices of RM1.00 and RM1.18 per ordinary share, as applicable.

The new ordinary shares issued during the financial year rank pari passu in all respects with the existing ordinary shares of the Company.

Treasury shares During the financial year, the Company repurchased 1,000 of its issued ordinary shares on the open market at the price of RM1.93 per share. The total consideration paid for the repurchase including transaction costs was RM1,946. The shares repurchased are being held as treasury shares in accordance with Section 67A of the Companies Act, 1965.

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

Details of the ESOS are set out in Note 31(c) to the financial statements.

The Company has been granted an exemption by the Companies Commission of Malaysia from having to disclose names of option holders who were granted less than 2,000,000 options under the ESOS during the financial year. This information has been separately filed with the Companies Commission of Malaysia.

Details of options granted under the ESOS over the ordinary shares of RM1.00 each in the Company, which are in respect of 2,000,000 options and above are as follows:

Options over ordinary shares

Exercise At At Name of options holders price 1.1.2007 Granted Exercised 31.12.2007 RM ‘000 ‘000 ‘000 ‘000

Shah Hakim @ Shahzanim bin Zain 1.00 2,000 — — 2,000 Mansor Tahir 1.00 2,700 — (1,080) 1,620 Hilmy Zaini Zainal 1.00 3,800 — (760) 3,040 Rohaida Ali Badaruddin 1.00 2,400 — — 2,400 Zubaidi Harun 1.00 2,100 — — 2,100 Tan Choon Hong 1.00 2,160 — (240) 1,920 Gregory Jerome Gerald Fernandes 1.18 — 2,430 (540) 1,890 Abdul Rahim Awang 1.18 — 2,160 — 2,160

SIGNIFICANT EVENTS DURING AND SUBSEQUENT TO THE FINANCIAL YEAR Significant events completed during and subsequent to the financial year are disclosed in Note 39 to the financial statements. .scomiengineering.com.my www 46 directors’ report (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd

DIRECTORS The Directors who have held office during the period since the date of the last report and at the date of this report are as follows:

Datuk Zainun Aishah binti Ahmad Dato’ Abdul Rahim bin Abu Bakar Dato’ Nordin bin Baharuddin Edlin bin Ghazaly Fad’l bin Mohamed Shah Hakim @ Shahzanim bin Zain

DIRECTORS’ INTERESTS IN SHARES According to the Register of Directors’ Shareholdings, particulars of interests of Directors who held office at the end of the financial year in shares and options over shares in the Company and its related corporations during the financial year are as follows:

Number of ordinary shares of RM0.10 each in the ultimate holding company

Exercise At of share At 1.1.2007 Bought Sold options 31.12.2007 ‘000 ‘000 ‘000 ‘000 ‘000

Scomi Group Bhd Direct interest: Shah Hakim @ Shahzanim bin Zain 2,089 — (1,560) — 529

# Indirect interest: Shah Hakim @ Shahzanim bin Zain 345,337———345,337

Number of ordinary shares of RM1.00 each in the Company

Exercise At of share At 1.1.2007 Bought Sold options 31.12.2007 ‘000 ‘000 ‘000 ‘000 ‘000

Direct interest: Shah Hakim @ Shahzanim bin Zain 100 — (100) — — Fad’l bin Mohamed — — — 120 120

# Indirect interest: Shah Hakim @ Shahzanim bin Zain 192,568———192,568

#Deemed interested by virtue of Section 6A(4) of the Companies Act, 1965 through his shareholding in Kaspadu Sdn Bhd, which holds an interest in Scomi Group Bhd, which in turn is a substantial shareholder of Scomi Engineering Bhd. www .scomiengineering.com.my 47

DIRECTORS’ INTERESTS IN SHARES (CONT’D.) Number of options over ordinary shares of RM1.00 each in the Company

Exercise At At

price 1.1.2007 Granted Exercised 31.12.2007 Annual Report 2007 omi Engineering Bhd

RM/share ‘000 ‘000 ‘000 ‘000 Sc

Datuk Zainun Aishah binti Ahmad 1.00 1,000 — — 1,000 Dato’ Abdul Rahim bin Abu Bakar 1.00 600 — — 600 Edlin bin Ghazaly 1.00 600 — — 600 Fad’l bin Mohamed 1.00 600 — (120) 480 Shah Hakim @ Shahzanim bin Zain 1.00 2,000 — — 2,000

+ Number of options over ordinary shares of RM0.10 each in the ultimate holding company

Exercise At At price 1.1.2007 Granted Exercised 31.12.2007 RM/share ‘000 ‘000 ‘000 ‘000

Scomi Group Bhd Direct interest: Shah Hakim @ Shahzanim bin Zain 0.17 1,357 — — 1,357 1.12 6,000 — — 6,000

+The options held over ordinary shares in Scomi Group Bhd were granted pursuant to Scomi Group Bhd’s Employees’ Share Option Scheme, which was implemented on 28 April 2003.

By virtue of his interests in the shares and options in the ultimate holding company as disclosed above, Shah Hakim @ Shahzanim bin Zain is deemed to have an interest in the shares of all the ultimate holding company’s subsidiary companies.

Other than as disclosed above, according to the Register of Directors’ Shareholdings, none of the other Directors in office at the end of the financial year held any interest in shares and options over shares in and debentures of the Company, or interest in shares, options over shares in and debentures of its related corporations during the financial year.

DIRECTORS’ BENEFITS During and at the end of the financial year, no arrangements subsisted to which the Company is a party, being arrangements with the object or objects of enabling Directors of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate, except for the options over shares granted by the ultimate holding company, Scomi Group Bhd and the Company, to eligible employees including Directors of the Company pursuant to the Scomi Group Bhd’s and the Company’s respective Employees’ Share Option Schemes.

Since the end of the previous financial year, no Director has received or become entitled to receive a benefit (other than Directors’ remuneration as disclosed in Note 11 and Note 36 to the financial statements) by reason of a contract made by the Company or a related corporation with the Director or with a firm of which he is a member, or with a company in which he has a substantial financial interest, except that certain Directors received remuneration as directors of the ultimate holding company. .scomiengineering.com.my www 48 directors’ report (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd

STATUTORY INFORMATION ON THE FINANCIAL STATEMENTS Before the income statements and balance sheets were made out, the Directors took reasonable steps:

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

(b) to ensure that any current assets, other than debts, which were unlikely to realise in the ordinary course of business their values as shown in the accounting records of the Group and Company had been written down to an amount which they might be expected so to realise.

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

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

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

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

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

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

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

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

At the date of this report, the Directors are not aware of any circumstances not otherwise dealt with in this report or the financial statements which would render any amount stated in the financial statements misleading.

In the opinion of the Directors:

(a) other than as disclosed in Note 39 to the financial statements, the results of the operations of the Group and Company during the financial year were not substantially affected by any item, transaction or event of a material and unusual nature; and

(b) other than as disclosed in Note 39 to the financial statements, there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely to affect substantially the results of the operations of the Group or Company for the financial year in which this report is made.

ULTIMATE HOLDING COMPANY The Directors regard Scomi Group Bhd, a public limited liability company incorporated and domiciled in Malaysia, as the ultimate holding company. www .scomiengineering.com.my 49

AUDITORS The auditors, PricewaterhouseCoopers, have expressed their willingness to continue in office. Annual Report 2007

Signed on behalf of the Board of Directors in accordance with their resolution dated 29 April 2008. omi Engineering Bhd Sc

DATUK ZAINUN AISHAH BINTI AHMAD SHAH HAKIM @ SHAHZANIM BIN ZAIN DIRECTOR DIRECTOR .scomiengineering.com.my www 50 income statements for the financial year ended 31 december 2007 Annual Report 2007 Annual Report Sc omi Engineering Bhd

Group Company

Note 2007 2006 2007 2006 RM’000 RM’000 RM’000 RM’000

Continuing operations Revenue 7 362,136 315,668 20,796 16,000 Cost of sales 8 (275,458) (238,774) — —

Gross profit 86,678 76,894 20,796 16,000

Other operating income 8,377 2,294 2,757 1,492 Administrative expenses (25,062) (19,599) (7,364) (6,294) Selling and distribution expenses (9,252) (9,805) — — Other operating expenses (9,810) (5,904) (460) (187) Finance costs 12 (3,184) (3,289) — —

Profit before taxation 9 47,747 40,591 15,729 11,011 Tax expense 13 (5,430) (10,795) (209) —

Profit for the year from continuing operations 42,317 29,796 15,520 11,011

(Loss)/profit for the year from discontinued operations 5 (375) 412 — —

Profit for the year 41,942 30,208 15,520 11,011

Attributable to: Equity holders of the Company 42,416 28,267 15,520 11,011 Minority interest (474) 1,941 — —

Profit for the year 41,942 30,208 15,520 11,011

Earnings per share (sen) attributable to ordinary equity holders of the Company: Basic, for profit from continuing operations 14 15.69 10.43 Basic, for (loss)/profit from discontinued operations 14 (0.14) 0.15

Basic, for profit for the year 14 15.55 10.58

Diluted, for profit from continuing operations 14 14.67 10.17 Diluted, for (loss)/profit from discontinued operations 14 (0.13) 0.15

Diluted, for profit for the year 14 14.54 10.32 www .scomiengineering.com.my

The notes set out in pages 58 to 110 form an integral part of, and should be read in conjunction with, these financial statements. balance sheets as at 31 december 2007 51

Group Company

Note 2007 2006 2007 2006 RM’000 RM’000 RM’000 RM’000 Annual Report 2007

NON-CURRENT ASSETS omi Engineering Bhd Sc Property, plant and equipment 16 90,154 85,380 — — Prepaid land lease payments 17 6,141 4,332 — — Investment in subsidiaries 18 — — 325,491 316,365 Other investments 19 967 627 — — Intangible assets 20 237,551 218,139 — — Deferred tax assets 30 5,270 410 — —

340,083 308,888 325,491 316,365

CURRENT ASSETS Other investments 19 700 7,750 700 7,750 Inventories 21 79,347 97,212 — — Receivables, deposits and prepayments 22 155,401 145,838 23,646 8,817 Amounts due from subsidiaries 18 — — 50,481 32,685 Amounts due from related corporations 24 598 27,288 597 27,588 Tax recoverable 849 1,428 — — Dividend receivable from a subsidiary — — 14,000 12,000 Deposits with licensed banks 25 2,603 7,300 — 6,626 Cash and bank balances 25 18,382 28,991 1,024 1,797

257,880 315,807 90,448 97,263 Assets of disposal group/Non-current assets classified as held for sale 5 16,288 — — —

274,168 315,807 90,448 97,263

LESS: CURRENT LIABILITIES Payables 26 118,346 145,495 2,763 1,600 Finance lease and hire purchase liabilities 27 1,027 4,289 — — Amounts due to ultimate holding company 28 5,588 3,146 5,345 3,232 Amounts due to subsidiaries 18 — — 45,955 60,481 Amounts due to related corporations 24 78 65 26 1 Borrowings (interest bearing) 29 – Bank overdrafts 7,923 4,977 — — – Others 33,929 45,134 — — Current tax liabilities 13,941 20,613 — —

180,832 223,719 54,089 65,314 Liabilities directly associated with assets classified as held for sale 5 10,508 — — —

191,340 223,719 54,089 65,314

NET CURRENT ASSETS 82,828 92,088 36,359 31,949 .scomiengineering.com.my www 52 balance sheets as at 31 december 2007 (cont’d) Annual Report 2007 Annual Report Sc omi Engineering Bhd

Group Company

Note 2007 2006 2007 2006 RM’000 RM’000 RM’000 RM’000

LESS: NON-CURRENT LIABILITIES Finance lease and hire purchase liabilities 27 796 10,660 — — Borrowings (interest bearing) 29 9,259 11,723 — — Deferred tax liabilities 30 4,948 3,497 — —

15,003 25,880 — —

407,908 375,096 361,850 348,314

CAPITAL AND RESERVES ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY Share capital 31 274,871 270,627 274,871 270,627 Share premium 32 45,435 78,598 45,435 78,598 Treasury shares 31 (2) — (2) — Merger relief reserve 21,260 21,260 21,260 21,260 Share option and capital contribution reserves 2,991 2,731 2,961 2,701 Currency exchange reserve (10,086) (4,908) — — Retained earnings/(accumulated losses) 33 73,177 (7,616) 17,325 (24,872)

407,646 360,692 361,850 348,314 Minority interest 262 14,404 — —

Total equity 407,908 375,096 361,850 348,314 www .scomiengineering.com.my

The notes set out in pages 58 to 110 form an integral part of, and should be read in conjunction with, these financial statements. consolidated statement of changes in equity 53 for the financial year ended 31 december 2007

<------Attributable to equity holders of the Company ------> Share option and Retained Merger Currency capital earnings/ Share Treasury Share relief exchange contribution (accumulated Minority Total Annual Report 2007 omi Engineering Bhd

Note capital shares premium reserve reserve reserves* losses) Total interest equity Sc RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

At 1 January 2007 270,627 — 78,598 21,260 (4,908) 2,731 (7,616) 360,692 14,404 375,096

Amount recognised directly in equity in relation to profit guarantee receivable 36(a) ——————12,45012,450—12,450 Currency translation differences arising during the year ————(5,178) — — (5,178) — (5,178)

Net income/(expense) recognised directly in equity ————(5,178) — 12,450 7,272 — 7,272 Profit for the year ——————42,41642,416(474) 41,942

Total recognised income/ (expense) for the year ————(5,178) — 54,866 49,688 (474) 49,214

Share options: – options granted 31(c) —————1,109—1,109—1,109 – shares issued 31(a), 32 4,244 — 849 — — (849) — 4,244 — 4,244 – share premium 32 ——145————145—145 Treasury shares purchased 31(b) —(2) ————— (2)—(2) Share premium reduction 32 ——(34,157) — — — 34,157 — — — Acquisition of additional equity interest in a subsidiary company 4 ————————(13,668) (13,668) Dividend 15 ——————(8,230) (8,230) — (8,230)

At 31 December 2007 274,871 (2) 45,435 21,260 (10,086) 2,991 73,177 407,646 262 407,908 .scomiengineering.com.my www 54 consolidated statement of changes in equity for the financial year ended 31 december 2007 (cont’d) Annual Report 2007 Annual Report Sc omi Engineering Bhd

<------Attributable to equity holders of the Company ------> Share option Merger Currency and capital Share Share relief exchange contribution Accumulated Minority Total Note capital premium reserve reserve reserves* losses Total interest equity RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

At 1 January 2006 211,751 68,516 21,260 — — (35,883) 265,644 — 265,644

Currency translation differences arising during the year — — — (4,908) — — (4,908) — (4,908)

Net expense recognised directly in equity — — — (4,908) — — (4,908) — (4,908) Profit for the year —————28,26728,2671,94130,208

Total recognised income/(expense) for the year — — — (4,908) — 28,267 23,359 1,941 25,300

Share options: – options granted 31(c) ————3,000—3,000—3,000 – shares issued 31(a), 32 1,324 299 — — (299) — 1,324 — 1,324 Issue of shares – rights issue 31(a), 32 57,552 11,510 ————69,062—69,062 – share issue costs 32 — (1,727) ————(1,727) — (1,727) Acquisition of subsidiaries 4 ———————12,46312,463 Options granted on ultimate holding company’s ESOS ————30—30—30

At 31 December 2006 270,627 78,598 21,260 (4,908) 2,731 (7,616) 360,692 14,404 375,096

*Capital contribution reserve of RM30,000 (2006: RM30,000) is in respect of the issuance of the ultimate holding company, Scomi Group Bhd’s Employees’ Share Option Scheme to the Group’s employees. www .scomiengineering.com.my company statement of changes in equity 55 for the financial year ended 31 december 2007

<------Non-distributable ------> Distributable Retained Merger Share earnings/ Share Treasury Share relief option (accumulated Note capital shares premium reserve reserve losses) Total Annual Report 2007 omi Engineering Bhd

RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 Sc

At 1 January 2007 270,627 — 78,598 21,260 2,701 (24,872) 348,314

Amount recognised directly in equity in relation to profit guarantee receivable 36(a) —————750750

Net income recognised directly in equity —————750750 Profit for the year —————15,520 15,520

Total recognised income for the year —————16,270 16,270

Dividend 15 —————(8,230) (8,230) Share premium reduction 32 ——(34,157) — — 34,157 — Share options – options granted 31(c) ————1,109 — 1,109 – shares issued 31(a), 32 4,244 — 849 — (849) — 4,244 – share premium 32 ——145 — — — 145 Treasury shares purchased 31(b) —(2) ———— (2)

At 31 December 2007 274,871 (2) 45,435 21,260 2,961 17,325 361,850

At 1 January 2006 211,751 — 68,516 21,260 — (35,883) 265,644 Issue of shares – rights issue 31(a), 32 57,552 — 11,510 — — — 69,062 – share issue costs 32 — — (1,727) — — — (1,727) Share options – options granted 31(c) ————3,000 — 3,000 – shares issued 31(a), 32 1,324 — 299 — (299) — 1,324 Profit for the year —————11,011 11,011

At 31 December 2006 270,627 — 78,598 21,260 2,701 (24,872) 348,314

The notes set out in pages 58 to 110 form an integral part of, and should be read in conjunction with, these financial statements. .scomiengineering.com.my www 56 cash flow statements for the financial year ended 31 december 2007 Annual Report 2007 Annual Report Sc omi Engineering Bhd

Group Company

Note 2007 2006 2007 2006 RM’000 RM’000 RM’000 RM’000

CASH FLOWS FROM OPERATING ACTIVITIES Profit/(loss) before taxation from: – continuing operations 47,747 40,591 15,729 11,011 – discontinued operations (385) 505 — —

Adjustments for: Net unrealised exchange (gains)/losses (3,951) (473) (2,590) 187 Property, plant and equipment – depreciation 10,480 8,562 — — – gain on disposal (290) (222) — — – written off — 2 — — Write-down of inventories 67 172 — — Write back of impairment loss on investment (340) — — — Allowance for doubtful debts 557 1,005 — — Bad debts written off 316 — — — Interest income (464) (1,522) (359) (1,492) Share option/capital contribution expenses 1,109 3,030 792 1,300 Amortisation of prepaid land lease payments 1 — — — Interest expense 3,803 4,189 — — Dividend income — — (14,000) (12,000) Pre-operating expenses written off 1,030 — — —

Operating profit/(loss) before working capital changes 59,680 55,839 (428) (994)

Movements in working capital: Inventories 14,277 (37,629) — — Receivables, deposits and prepayments (1,153) (58,975) (354) (308) Trade and other payables (18,652) 36,797 1,164 (16,999) Subsidiary companies — — (29,830) 16,041 Related companies 24,614 1,265 27,016 (28,354) Ultimate holding company 2,442 2,248 2,113 2,334

Cash flows from/(used in) operations 81,208 (455) (319) (28,280)

Tax paid (14,379) (7,968) (209) — Interest received 464 310 359 280

Net cash flow from/(used in) operating activities 67,293 (8,113) (169) (28,000) www .scomiengineering.com.my 57

Group Company

Note 2007 2006 2007 2006 RM’000 RM’000 RM’000 RM’000 Annual Report 2007

CASH FLOWS FROM INVESTING ACTIVITIES omi Engineering Bhd Sc Acquisition of property, plant and equipment 16 (27,263) (8,172) — — Proceeds from disposal of property, plant and equipment 445 775 — — Additional interest acquired in a subsidiary group/ acquisition of subsidiary group 4 (30,732) (30,483) (30,732) (30,722) Dividend received — — 12,000 — Upliftment of/(investment) in money market fund 7,050 (7,750) 7,050 (7,750) Development expenditure incurred 20 (14,676) (1,576) — — Profit guarantee monies received 36 8,295 6,226 8,295 6,226 Prepayment of land lease 17 (1,971) — — —

Net cash flow used in investing activities (58,852) (40,980) (3,387) (32,246)

CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of shares – rights issue 31(a), 32 — 69,062 — 69,062 – exercise of ESOS 31(a), 32 4,389 1,324 4,389 1,324 Share issue expenses 32 — (1,727) — (1,727) Dividend paid (8,230) — (8,230) — Purchase of treasury shares (2) — (2) — Drawdown of term loans 7,168 — — — Repayment of term loans (17,783) (7,821) — — Hire purchase and lease principal repayments (4,424) (4,071) — — Interest expense (3,803) (4,189) — — Net utilisation/(repayment) of bankers’ acceptances 3,294 (4,908) — — Net (settlement)/utilisation of trust receipts (4,704) 18,755 — — Short-term deposits (pledged)/released as securities for bank facilities (559) 503 — —

Net cash flow (used in)/from financing activities (24,654) 66,928 (3,843) 68,659

NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS DURING THE FINANCIAL YEAR (16,213) 17,835 (7,399) 8,413

CURRENCY TRANSLATION DIFFERENCES (2,362) (2,470) — —

CASH AND CASH EQUIVALENTS AT BEGINNING OF FINANCIAL YEAR 30,826 15,461 8,423 10

CASH AND CASH EQUIVALENTS AT END OF FINANCIAL YEAR 25 12,251 30,826 1,024 8,423

The notes set out in pages 58 to 110 form an integral part of, and should be read in conjunction with, these financial statements. .scomiengineering.com.my www 58 notes to the financial statements 31 december 2007 Annual Report 2007 Annual Report Sc omi Engineering Bhd

1. GENERAL INFORMATION The principal activities of the Company are investment holding and the provision of management services to subsidiaries. The principal activities of the Group comprise the provision of machine shop services for the oil and gas industry, the design and manufacture of monorail, special purposes vehicles, urban transportation solutions and rail solutions.

There were no significant changes in the nature of these activities during the financial year, other than the discontinuance of fleet management services as disclosed in Note 5 to the financial statements.

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

The Directors regard Scomi Group Bhd, a public limited liability company incorporated and domiciled in Malaysia, as the ultimate holding company. Related companies in the financial statements refer to companies within the Scomi Group Bhd group of companies.

The registered office of the Company is located at Suite 5.03, 5th Floor, Wisma Chase Perdana, Off Jalan Semantan, 50490 Kuala Lumpur.

The address of the principal place of business of the Company is as follows:

Suite 3A.01, Level 3A Wisma Chase Perdana Off Jalan Semantan 50490 Kuala Lumpur

2SIGNIFICANT ACCOUNTING POLICIES Unless otherwise stated, the following accounting policies have been used consistently in dealing with items which are considered material in relation to the financial statements.

2.1 Basis of preparation The financial statements of the Group and Company have been prepared in accordance with the provisions of the Companies Act, 1965 and Financial Reporting Standards, the Malaysian Accounting Standards Board (“MASB”) Approved Accounting Standards in Malaysia for Entities Other Than Private Entities.

The financial statements have been prepared under the historical cost convention except as disclosed in this summary of significant accounting policies.

The preparation of financial statements in conformity with MASB Approved Accounting Standards in Malaysia for Entities Other Than Private Entities requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported financial year. It also requires Directors to exercise their judgment in the process of applying the Company’s accounting policies. Although these estimates and judgment are based on the Directors’ best knowledge of current events and actions, actual results may differ. www .scomiengineering.com.my 59

2SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 2.1 Basis of preparation (cont’d.) The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3 to the financial statements. Annual Report 2007 omi Engineering Bhd

(a) Standards, amendments to published standards and interpretation that are applicable to the Group and are effective Sc The following new and revised Financial Reporting Standards (“FRSs”) that are relevant to the Group have been adopted during the financial year: • FRS 117 – Leases • FRS 124 – Related Party Disclosures

With the adoption of the revised FRS 117, the unamortised carrying amounts of leasehold land are now classified as prepaid land lease payment and amortised over the period of the remaining lease term, as allowed by the transitional provisions of the revised FRS 117. The reclassification of leasehold land as prepaid land lease payment has been accounted for retrospectively and the comparatives in the balance sheet and cash flow statement have been restated.

The effects of the adoption of FRS 117 have been disclosed in Note 40 to the financial statements.

FRS 124 introduced new disclosures relating to related party transactions and does not have any impact on the classification and valuation of the Group’s financial statements.

(b) Standards, amendments to published standards and interpretations that are effective but not applicable to the Group • FRS 6 – Exploration for and Evaluation of Mineral Resources

(c) Standards that are not yet effective and have been early adopted • FRS 112 - Income Taxes. The adoption of FRS 112 did not result in significant changes to the Group’s accounting policies other than as disclosed in Note 40 to the financial statements.

(d) Standards, amendments to published standards and interpretations to existing standards that are not yet effective and have not been early adopted The new standards, amendments to published standards and interpretation that are mandatory for the Group’s financial periods beginning on or after 1 January 2008, but which the Group has not early adopted, are as follows: • FRS 107 Cash Flow Statement. This revised standard has no significant changes as compared to the original standard. • FRS 111 Construction Contracts. This revised standard has no significant changes as compared to the original standard. • FRS 118 Revenue. This revised standard has no significant changes as compared to the original standard. • Amendment to FRS 121 The Effects of Changes in Foreign Exchange Rates – Net Investment in Foreign Operation. This amendment requires exchange differences on monetary items that form part of the net investment in a foreign operation to be recognised in equity instead of in profit or loss regardless of the currency in which these items are denominated in. • FRS 134 Interim Financial Reporting. This revised standard has no significant changes as compared to the original standard. • FRS 137 Provisions, Contingent Liabilities and Contingent Assets. This revised standard has no significant changes as compared to the original standard. • FRS 139 Financial Instruments: Recognition and Measurement. The effective date of this standard has yet to be determined by the MASB. Entities are exempted from disclosing the impact of FRS 139 prior to its effective date. •IC Interpretation 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities. This interpretation deals with changes in the estimated timing or amount of the outflow of resources required to settle the obligation, or a change in the discount rate. • FRS 120 Accounting for Government Grants and Disclosure of Government Assistance. This revised standard allows alternative treatment for non-government grants to be recorded at nominal amount. • IC Interpretation 2 Members’ Shares in Co-operative Entities and Similar Instruments. This interpretation deals with liabilities or equity classification of financial instruments which give the holder the right to request redemption, but subject to limits on whether it will be redeemed. .scomiengineering.com.my www 60 notes to the financial statements 31 december 2007 (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd

2SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 2.1 Basis of preparation (cont’d.) (d) Standards, amendments to published standards and interpretations to existing standards that are not yet effective and have not been early adopted (cont’d.) •IC Interpretation 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds. This interpretation deals with accounting in the financial statements of a contributor for its interests arising from decommissioning funds. •IC Interpretation 6 Liabilities arising from Participating in a Specific Market-Waste Electrical and Electronic Equipment. This interpretation provides guidance on the recognition, in the financial statements of producers, of liabilities for waste management under EU Directive in respect of sales of historical household equipment. • IC Interpretation 7 Applying the Restatement Approach under the FRS 1292004 Financial Reporting in Hyperinflationary Economies. This interpretation provides guidance on how to apply the requirement of FRS 129 in a reporting period in which an entity identifies the existence of hyperinflation in the economy of its functional currency, when that economy was not hyperinflationary in the prior period. •IC Interpretation 8 Scope of FRS 2. This interpretation clarifies that FRS 2 Share-based payment applies even in the absence of specifically identifiable goods or services.

The above standards, amendments to published standards and interpretations to existing standards that are not yet effective are not expected to have a significant impact on the financial statements of the Group and the Company.

2.2 Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and all its subsidiaries made up to the end of the financial year.

Subsidiaries are those corporations, partnerships or other entities (including special purpose entities) in which the Group has power to exercise control over the financial and operating policies so as to obtain benefits from their activities, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.

Subsidiaries are consolidated using the purchase method of accounting. Under the purchase method of accounting, subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. The cost of an acquisition is the amount of cash paid and the fair value at the date of acquisition of other purchase consideration given by the acquirer, together with directly attributable expenses of the acquisition (other than costs of issuing shares and other capital instruments).

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the subsidiary acquired, the difference is recognised directly in the income statement. See accounting policy Note 2.4(i) on goodwill on consolidation.

Intra-group transactions, balances and unrealised gains on transactions are eliminated. Unrealised losses are also eliminated unless cost cannot be recovered. Where necessary, adjustments are made to the financial statements of the subsidiaries to ensure consistency of accounting policies with those of the Group.

Minority interest represents the portion of the profit or loss and net assets of a subsidiary attributable to equity interests that are not owned, directly or indirectly through subsidiaries, by the parent. It is measured at the minorities’ share of the fair value of the www subsidiaries’ identifiable assets and liabilities at the acquisition date and the minorities’ share of changes in the subsidiaries’ equity

.scomiengineering.com.my since that date. 61

2SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 2.2 Basis of consolidation (cont’d.) The Group applies a policy of treating transactions with minority interests as transactions with parties external to the Group. Disposals to minority interests result in gains and losses for the Group that are recorded in the income statement. Purchases from Annual Report 2007

minority interests result in goodwill, being the difference between any consideration paid and the relevant share acquired of the omi Engineering Bhd carrying value of net assets of the subsidiary. Sc

The gain or loss on disposal of a subsidiary which is the difference between net disposal proceeds and the Group’s share of its net assets as of the date of disposal including the cumulative amount of any exchange differences that relate to the subsidiary, is recognised in the consolidated income statement.

2.3 Investments Investment in subsidiaries is shown at cost less accumulated impairment losses. Where an indication of impairment exists, the carrying amount of the investment is assessed and written down immediately to its recoverable amount. See accounting policy Note 2.7 on impairment of non-financial assets.

Investments in other non-current investments are shown at cost and an allowance for diminution in value is made where, in the opinion of the Directors, there is a decline other than temporary in the value of such investments. Where there has been a decline other than temporary in the value of an investment, such a decline is recognised as an expense in the financial year in which the decline is identified.

Short term investments (within current assets) are carried at the lower of cost and market value, determined on an aggregate portfolio basis by category of investment.

On disposal of an investment, the difference between net disposal proceeds and its carrying amount is charged/credited to the income statement.

2.4 Intangible assets (i) Goodwill Goodwill represents the excess of the cost of acquisition of subsidiaries over the Group’s share of the fair values of the identifiable net assets of subsidiaries at the date of acquisition. Goodwill on acquisition of subsidiaries is included in the balance sheet as intangible assets.

Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. See accounting policy Note 2.7 on impairment of non-financial assets. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash generating units or groups of cash generating units that are expected to benefit from the synergies of the business combination in which the goodwill arose. The Group allocates goodwill to its key business segments.

(ii) Research and development Research expenditure is recognised as an expense when incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when the following criteria are fulfilled: (a) it is technically feasible to complete the intangible asset so that it will be available for use or sale; (b) management intends to complete the intangible asset and use or sell it; (c) there is an ability to use or sell the intangible asset; (d) it can be demonstrated how the intangible asset will generate probable future economic benefits; (e) adequate technical, financial and other resources to complete the development and to use or sell the intangible asset are available; and (f) the expenditure attributable to the intangible asset during its development can be reliably measured. .scomiengineering.com.my www 62 notes to the financial statements 31 december 2007 (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd

2SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 2.4 Intangible assets (cont’d.) (ii) Research and development (cont’d.) Other development expenditure that do not meet these criteria are recognised as an expense when incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is ready for use on a straight-line basis over the useful life, not exceeding five years.

Development assets are tested for impairment annually, in accordance with FRS 136 – Impairment of Assets title. See accounting policy Note 2.7 on impairment of non-financial assets.

2.5 Property, plant and equipment Property, plant and equipment are initially stated at cost less accumulated depreciation and impairment losses. The cost of property, plant and equipment comprises purchase costs, together with any incidental costs of acquisition.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance costs are charged to the income statement during the financial year in which they are incurred.

Freehold land is not depreciated as it has an infinite life. Capital work-in-progress is stated at cost. Expenditure relating to capital work-in-progress is capitalised when incurred and will be depreciated only when the asset is available for intended use.

Other property, plant and equipment are depreciated on a straight line basis calculated to write off the cost of the assets to their residual values over their estimated useful lives. The principal annual rates used for this purpose are as follows:

Freehold building 2% Leasehold buildings 2 – 331/3% Rental equipment 121/2% Furniture, fixtures and equipment 10 – 331/3% Motor vehicles 15 – 20% Plant and machinery 81/3 – 20% Monorail test track 31/3%

Depreciation on asset under construction commences when the asset is ready for its intended use.

Residual values and useful lives of assets are reviewed and adjusted if appropriate, at each balance sheet date.

At each balance sheet date, the Group assesses whether there is any indication of impairment. Where an indication of impairment exists, the carrying amount of the asset is assessed and written down immediately to its recoverable amount. See accounting policy Note 2.7 on impairment of non-financial assets.

When property, plant and equipment are disposed of, the resulting gain or loss on disposal is determined by comparing the disposal proceeds with the carrying amount and is included in the income statements. www .scomiengineering.com.my 63

2SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 2.6 Prepaid land lease payment Leasehold land that normally has a finite economic life and title is not expected to pass to the lessee by the end of the lease term is treated as an operating lease. The payment made on entering into or acquiring a leasehold land is accounted for prepaid land Annual Report 2007

lease payment that is amortised over the lease term in accordance with the pattern of benefits provided. omi Engineering Bhd Sc

The Group had previously classified the prepaid land lease payment within its property, plant and equipment. On adoption of FRS 117 - Leases, the Group treats such a lease as an operating lease, with the unamortised carrying amount classified as prepaid land lease payment.

The prepaid lease payments are amortised evenly to the income statements over the respective lease terms of the land which range from 18 to 999 years.

2.7 Impairment of non-financial assets Property, plant and equipment, intangible assets with a finite life and investments in subsidiaries are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Goodwill is tested annually for impairment. Impairment loss is recognised in the income statement for the amount by which the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less cost to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units).

Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

Any impairment loss is charged to the income statements immediately. Any subsequent increase in the recoverable amount of an asset is treated as a reversal of the previous impairment loss and is recognised to the extent of the carrying amount of the asset that would have been determined (net of amortisation and depreciation) had no impairment loss been recognised. The reversal is recognised in the income statements immediately.

2.8 Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined on a weighted average or “first-in, first out” basis. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and an appropriate proportion of production overheads. Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses.

2.9 Trade receivables Trade receivables are carried at invoiced amount less allowance for doubtful debts. Allowance for doubtful debts is made for any debts considered to be doubtful of collection based on a review of outstanding amounts at balance sheet date. Bad debts are written off in the financial year in which they are identified.

2.10 Cash and cash equivalents For purposes of the cash flow statements, cash and cash equivalents comprise cash in hand, bank balances, deposits held at call with banks excluding deposits which are pledged for banking facilities, and other short-term, highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are included within borrowings in current liabilities on the balance sheet. .scomiengineering.com.my www 64 notes to the financial statements 31 december 2007 (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd

2SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 2.11 Employee benefits (i) Short-term employee benefits Wages, salaries and bonuses are recognised as an expense in the financial year in which the associated services are rendered by employees of the Group. 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) Post-employment benefits Defined contribution plan A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior financial years.

Post-employment benefits include the Group’s fixed monthly contributions into the nation’s defined contribution plan, the Employees’ Provident Fund (“EPF”). The Group’s contributions to the EPF are charged to the income statements in the financial year to which they relate. Once the contributions have been paid, the Group has no further payment obligations.

(iii) Share-based compensation The Company operates an equity-settled, share-based compensation plan in the form of an Employees’ Share Option Scheme (“ESOS”). The fair value of the employee services received in exchange for the grant of the options is recognised as an expense in the income statements over the vesting periods of the grant with a corresponding increase in equity.

The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At each balance sheet date, the Group revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision to original estimates, if any, in the income statements, with a corresponding adjustment to equity.

The proceeds received net of any directly attributable transactions costs are credited to share capital (nominal value) and share premium when the options are exercised.

Salient features of the Company’s share options scheme are disclosed in Note 31(c) to the financial statements.

2.12 Assets acquired under finance leases and hire purchase arrangements Finance leases and hire purchase arrangements Leases of property, plant and equipment where the Group assumes substantially all the benefits and risks of ownership are classified as finance leases.

Property, plant and equipment acquired under finance lease and hire purchase agreements are included in property, plant and equipment. Finance leases and hire purchases are capitalised at inception at the lower of fair value of the asset acquired under finance lease and hire purchase arrangements, and the present value of the minimum lease payments. Each lease payment and hire purchase rental is allocated between the liability and finance charges so as to achieve a periodic constant rate of interest on the balance outstanding. The corresponding rental obligations, net of finance charges, are included in borrowings. The interest element of the finance charge is charged to the income statements over the period of the respective lease and hire purchase agreements.

Property, plant and equipment acquired under finance lease and hire purchase arrangements are depreciated over the shorter of the estimated useful lives of the assets and the term of the respective lease and hire purchase agreements.

www Operating leases Leases of assets where a significant portion of risks and rewards of ownership is retained by the lessor are classified as operating .scomiengineering.com.my leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statements on a straight line basis over the lease period. 65

2SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 2.13 Income taxes Current tax expense is determined according to the tax laws of each jurisdiction in which the Group operates and includes all taxes based upon the taxable profits. Annual Report 2007 omi Engineering Bhd

Deferred tax is recognised in full, using the liability method, on temporary differences arising between the amounts attributed to Sc assets and liabilities for tax purposes and their carrying amounts in the financial statements. However deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither the accounting nor taxable profit or loss.

Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which the deductible temporary differences or unused tax losses can be utilised.

Deferred tax is recognised on temporary differences arising on investments in subsidiaries except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax is determined using tax rates that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.

2.14 Share capital (i) Classification Ordinary shares with discretionary dividends are classified as equity.

(ii) Share issue costs Incremental external costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

(iii) Dividends to shareholders of the Company Dividends on ordinary shares are recognised as liabilities when declared before the balance sheet date. Proposed final dividends are accrued as liabilities only after approval by the shareholders.

(iv) Treasury shares Shares repurchased by the Company are held as Treasury shares and are accounted for on the cost method. The amount of the consideration paid, including directly attributable costs, is recognised as cost and set off against equity. Should such shares be cancelled, reissued or disposed of, their nominal amounts will be eliminated, and the differences between their cost and nominal amounts will be taken to reserves, as appropriate.

2.15 Merger relief reserve Merger relief reserve represents the excess over the nominal value of the shares issued as consideration in an acquisition of subsidiaries which meets the requirements of subsection (4) of Section 60 of the Companies Act, 1965. .scomiengineering.com.my www 66 notes to the financial statements 31 december 2007 (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd

2SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 2.16 Construction contracts A construction contract is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and functions or their ultimate purpose or use.

Construction contracts are recognised when incurred. When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs are recognised by using the stage of completion method. The stage of completion is measured by reference to the proportion that contract costs incurred for work performed to date bear to the estimated total costs for the contract.

When the outcome of the construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred that is probable will be recoverable.

Irrespective of whether the outcome of a construction contract can be estimated reliably, when it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.

The aggregate of the costs incurred and the profit/loss recognised on each contract is compared against the progress billings up to the financial year end. Where costs incurred and recognised profits (less recognised losses) exceed progress billings, the balance is shown as amounts due from customers on construction contracts under receivables, deposits and prepayments (within current assets). Where progress billings exceed costs incurred plus recognised profits (less recognised losses), the balance is shown as amounts due to customers on construction contracts under payables (within current liabilities).

2.17 Revenue recognition Revenue from the sale of goods is recognised when significant risks and rewards of ownership of the goods are transferred to the buyer.

Revenue from rendering of services is recognised in the accounting period in which the services are rendered, by reference to completion of the specific transaction, assessed on the basis of the actual service provided as a proportion of the total services to be provided.

Revenue from rental of motor vehicles on a hire and drive basis is recognised upon services being rendered.

Revenue from construction contracts is recognised on the percentage of completion method by reference to the stage of completion of the contract work to date. (See Note 2.16 on construction contracts).

Rental income is recognised on an accrual basis in accordance with the substance of the relevant agreements.

Interest income is recognised on a time proportion basis, taking into account the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the Group.

Dividend income is recognised when the Group’s right to receive payment is established.

Management fee income is recognised on an accrual basis, based on services rendered. www .scomiengineering.com.my 67

2SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 2.18 Foreign currencies (i) Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary Annual Report 2007

economic environment in which the entity operates (the “functional currency”). The financial statements are presented in omi Engineering Bhd Ringgit Malaysia, which is the Company’s functional and presentation currency. Sc

(ii) Foreign currency transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statements.

(iii) Group companies The results and financial position of all the group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; • income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and •all resulting exchange differences are recognised as a separate component of equity.

On consolidation, exchange differences arising from the translation of the net investment in foreign operations are taken to shareholders’ equity. When a foreign operation is partially disposed of, exchange differences that were recorded in equity are recognised in the income statements as part of the gain or loss on sale.

Goodwill and fair value adjustments arising from the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

2.19 Borrowings (i) Classification Borrowings are initially recognised based on the proceeds received, net of transaction costs incurred. In subsequent periods, borrowings are stated at amortised cost using the effective yield method; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the income statements over the period of the borrowings.

Interest, dividends, losses and gains relating to a financial instrument, or a component part, classified as a liability is reported within finance cost in the income statements.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

(ii) Capitalisation of borrowing costs Borrowing costs incurred to finance the construction of property, plant and equipment are capitalised as part of the cost of the asset during the period of time that is required to complete and prepare the asset for its intended use. Borrowing costs incurred to finance property development activities and construction contracts are accounted for in a similar manner. All other borrowing costs are expensed. .scomiengineering.com.my www 68 notes to the financial statements 31 december 2007 (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd

2SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 2.20 Financial instruments (i) Description A financial instrument is any contract that gives rise to both a financial asset of one enterprise and a financial liability or equity instrument of another enterprise.

A financial asset is any asset that is cash, a contractual right to receive cash or another financial asset from another enterprise, a contractual right to exchange financial instruments with another enterprise under conditions that are potentially favourable, or an equity instrument of another enterprise.

A financial liability is any liability that is a contractual obligation to deliver cash or another financial asset to another enterprise, or to exchange financial instruments with another enterprise under conditions that are potentially unfavourable.

(ii) Financial instruments recognised on the balance sheet The particular recognition method adopted for financial instruments recognised on the balance sheet is disclosed in the individual accounting policy note associated with each item.

(iii) Fair value estimation for disclosure purposes The fair value of publicly traded securities is based on quoted market prices at the balance sheet date.

The fair value of financial liabilities is estimated by discounting the future contractual cash flows at the current market interest rate available to the Group for similar instruments.

The carrying amounts of the financial assets (less any estimated credit adjustments) and financial liabilities with a maturity period of less than one year are assumed to approximate their fair values.

2.21 Segment reporting Segment reporting is presented for enhanced assessment of the Group’s risks and returns. A business segment is a group of assets and operations engaged in providing products or services that is subject to risk and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that is subject to risks and returns that are different from those components operating in other economic environments.

Segment revenue, expenses, assets and liabilities are those amounts resulting from the operating activities of a segment that are directly attributable to the segment and the relevant portion that can be allocated on a reasonable basis to the segment. Segment revenue, expenses, assets and liabilities are determined before intra-group balances and intra-group transactions are eliminated as part of the consolidation process, except to the extent that such intra-group balances and transactions are between group enterprises within a single segment. Inter-segment pricing is based on similar terms as those available to other external parties.

2.22 Non-current assets (or disposal groups) classified as assets held for sale Non-current assets (or disposal groups) are classified as assets held for sale and stated at the lower of carrying amount and fair value less costs to sell if their carrying amount is recovered principally through a sale transaction rather than through a continuing use. www .scomiengineering.com.my 69

2SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 2.23 Contingent liabilities and contingent assets The Group does not recognise a contingent liability but discloses its existence in the financial statements. A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or Annual Report 2007

more uncertain future events beyond the control of the Group or a present obligation that is not recognised because it is not omi Engineering Bhd probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in the extremely rare Sc case where there is a liability that cannot be recognised because it cannot be measured reliably.

A contingent asset is a possible asset that arises from past events whose existence will be confirmed by the occurrence or non- occurrence of one or more uncertain future events beyond the control of the Group. The Group does not recognise contingent assets but discloses their existence where inflows of economic benefits are probable, but not virtually certain.

In the acquisition of subsidiaries by the Group under a business combination, the contingent liabilities assumed are measured initially at their fair value at the acquisition date, irrespective of the extent of any minority interest.

The Group recognises separately the contingent liabilities of the acquirees as part of allocating the cost of a business combination where their fair values can be measured reliably. Where the fair values cannot be measured reliably, the resulting effect will be reflected in the goodwill arising from the acquisitions.

Subsequent to the initial recognition, the Group measures the contingent liabilities that are recognised separately at the date of acquisition at the higher of the amount that would be recognised in accordance with the provisions of FRS 1372004 - Provisions, Contingent Liabilities and Contingent Assets, and the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with FRS 118 - Revenue.

3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENT Estimates and judgements are continually evaluated by the Directors and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Critical accounting estimates and assumptions The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. To enhance the information content of the estimates, certain key variables that are anticipated to have a material impact to the Group’s results and financial position are tested for sensitivity to changes in the underlying parameters.

(a) Estimated impairment of goodwill The Group tests goodwill for impairment annually in accordance with its accounting policy. More regular reviews are performed if events indicate that this is necessary.

The recoverable amounts of cash generating units (“CGUs”) were determined based on the value in use calculations / fair value less costs to sell as appropriate. The calculations require the use of estimates as set out in Note 6 to the financial statements.

The Directors are of the opinion that any reasonably expected change in the key assumptions used to determine the recoverable amounts of the CGUs, would not result in any impairment of the goodwill allocated to the respective CGUs. .scomiengineering.com.my www 70 notes to the financial statements 31 december 2007 (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd

3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENT (CONT’D.) Critical accounting estimates and assumptions (cont’d.) (b) Fair value of options granted under ESOS The Group recognises an expense for options granted under its ESOS, by reference to the fair value of the options granted. The calculations require the use of estimates as set out in Note 31(c) to the financial statements.

If the expected volatility of the Company’s share price is measured in relation to the Company’s actual volatility rate of 66% instead of the volatility rate used for the computation of the ESOS of 38% (see Note 31(c) for the explanation), there will be a further expense of RM440,000 to be recognised in the current financial year.

(c)Deferred tax assets Deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. This involves judgement regarding the future financial performance of the particular entity in which the deferred tax asset has been recognised.

Critical judgement in applying accounting policies In determining and applying accounting policies, judgement is often required in respect of items where the choice of specific policy could materially affect the reported results and financial position of the Group.

(a) Recognition of deferred tax assets from double deduction of research and development costs A subsidiary company had undertaken research and development (“R&D”) activities for the development of its product, where this research is expected to satisfy the eligibility criteria of research project/activity under Public Ruling No. 5/2004 which allows such R&D expenditure to qualify for double deduction for income tax purposes.

The tax consultants of the subsidiary company have reviewed the application and the expenses incurred in relation to the R&D project and, based on the application submitted, are of the view that the R&D would satisfy the definition of research as spelt out in the Public Ruling No. 5/2004 and the R&D expenditure should ordinarily qualify for the double deduction based on past experience. The subsidiary company has consequently recognised a double deduction claim on such expenditure in its provisional tax computation for the financial years 2006 and 2007, resulting in the recognition of a deferred tax asset of RM3,464,000 on unabsorbed losses in the current year.

Based on the above, the Directors are of the opinion that the R&D activity would meet the eligibility criteria of a research project/activity under Public Ruling No. 5/2004 and management will undertake the necessary procedures and endeavour to obtain the required approval from the Inland Revenue Board on the research project /activity.

4ACQUISITION OF INTEREST IN SUBSIDIARY GROUP Financial year ended 31 December 2007 During the financial year, the Company completed the acquisition of the remaining balance of 49% equity interest in Scomi Transportation Systems Sdn Bhd (“STS”) (formerly known as MTrans Transportation Systems Sdn Bhd) for a total consideration of RM30,625,000. With this acquisition, STS became a wholly-owned subsidiary of the Group. The acquisition was completed as follows: – On 3 April 2007, the Company acquired an additional 40% equity interest in STS, comprising 10,400,002 ordinary shares of RM1.00 each for a consideration of RM25,000,000. – On 20 June 2007, the Company acquired the balance 9% equity interest in STS, comprising 2,340,000 ordinary shares of RM1.00 each for a consideration of RM5,625,000. www .scomiengineering.com.my 71

4ACQUISITION OF INTEREST IN SUBSIDIARY GROUP (CONT’D.) Financial year ended 31 December 2007 (cont’d.) The effects of the acquisition are summarised below: RM’000 Annual Report 2007 omi Engineering Bhd

Net assets acquired from minority interest 13,668 Sc Purchase consideration * 30,732

Goodwill arising on acquisition of additional interest in subsidiary group (Note 20) 17,064

*Includes incidental cost of acquisition amounting to RM107,000.

The vendor has provided a profit guarantee in relation to the consolidated profit after tax of the subsidiary company acquired for the 12 months period ended 30 April 2007. The Company is in the process of finalising this profit guarantee arrangement with the vendor and the financial effects are not expected to be material to the financial statements of the Group and Company.

Financial year ended 31 December 2006 On 10 July 2006, the Company completed the acquisition of 13,260,000 ordinary shares of RM1.00 each in STS, representing 51% of the issued and paid-up share capital of STS for a purchase consideration of RM30 million. STS has two wholly-owned subsidiaries, Scomi Rail Bhd (formerly known as MTrans Technology Berhad) and Scomi Coach Sdn Bhd (formerly known as MTrans Bus Sdn Bhd).

Details of net assets acquired were as follows:

2006

Acquiree’s carrying value Fair value RM’000 RM’000

Property, plant and equipment (Note 16) 39,770 39,770 Intangible assets (Note 20) 286 2,786 Other investments 85 85 Inventories 17,773 17,773 Receivables, deposits and prepayments 35,179 35,179 Cash and bank balances 239 239 Payables (including contingent liabilities) (44,981) (49,061) Borrowings (6,893) (6,893) Current tax liabilities (11,917) (11,917) Deferred tax liabilities (Note 30) (1,826) (2,526)

Net assets 27,715 25,435

Goodwill on consolidation (Note 20) 17,750 Minority interest in subsidiary company acquired (12,463)

Cost of acquisition * 30,722

*Included incidental costs of acquisition amounting to RM722,000. .scomiengineering.com.my www 72 notes to the financial statements 31 december 2007 (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd

4ACQUISITION OF INTEREST IN SUBSIDIARY GROUP (CONT’D.) Financial year ended 31 December 2006 (cont’d.) Details of cash flows arising from the acquisition were as follows:

2006 Fair value RM’000

Purchase consideration settled in cash 30,722 Less: Cash and cash equivalents of subsidiary acquired (239)

Cash outflow of the Group on acquisition 30,483

Cash outflow of the Company on acquisition 30,722

The acquired business contributed revenue of RM68,573,000 and profit of RM1,977,000 to the Group for the period from date of acquisition to 31 December 2006.

Had the acquisition taken effect on 1 January 2006, the revenue and profit of the Group would have been RM384,005,000 and RM29,289,000 respectively. These amounts have been calculated using the Group’s accounting policies and by adjusting the results of the subsidiaries to reflect the additional amortisation that would have been charged assuming the fair value adjustment to intangible assets had been applied from 1 January 2006, together with the consequential tax effects.

5DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE On 20 March 2007, the Company entered into a share sale agreement to dispose its subsidiary company, Scomi Transportation Solutions Sdn Bhd (“SCOTS”), which in turn holds a wholly-owned subsidiary, Asian Rent-A-Car Sdn Bhd (collectively known as the “SCOTS group”). The subsidiary companies are engaged in the business of the provision of motor vehicles for “Hire and Drive” and fleet management which are both non-core businesses of the Group. This disposal was completed subsequent to the financial year ended 31 December 2007, as further disclosed in Note 39.

As at 31 December 2007, the assets and liabilities of the SCOTS group have been presented on the consolidated balance sheet as a disposal group held for sale and the results of this subsidiary group are presented separately on the consolidated income statement as discontinued operations.

The carrying amount of the investment in this subsidiary has also been presented as a non-current asset held for sale on the Company’s balance sheet as at 31 December 2007, as follows:

Company 2007 RM’000

As at 1 January 2007 3,630 Less: Profit guarantee receivable (3,630)

www As at 31 December 2007 — .scomiengineering.com.my 73

5DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE (CONT’D.) An analysis of the results of the discontinued operations is as follows:

Group Annual Report 2007

2007 2006 omi Engineering Bhd RM’000 RM’000 Sc

Revenue (Note 7) 6,667 8,272 Cost of sales (Note 8) (5,223) (4,251)

Gross profit 1,444 4,021

Other operating income 169 53 Administrative expenses (1,423) (1,451) Selling and distribution expenses (5) (11) Other operating expenses 49 (1,207) Finance costs (Note 12) (619) (900)

(Loss)/profit before taxation (385) 505 Tax expense (Note 13) 10 (93)

(Loss)/profit for the year from discontinued operations (375) 412

The following amounts have been included in arriving at (loss)/profit before tax of the discontinued operations:

Group

2007 2006 RM’000 RM’000

Auditors’ remuneration: – statutory audit 26 25 Depreciation of property, plant and equipment 3,421 3,697 Gain/(loss) on disposal of property, plant and equipment 241 (77) Interest expense: – bank overdrafts 27 19 – finance lease and hire purchase 592 881 Interest income (20) (21) Allowance for doubtful debts 3 — Rental of vehicles – to holding company 303 772 – to related companies 181 892 Rental of premises 94 126 Staff costs 843 884 .scomiengineering.com.my www 74 notes to the financial statements 31 december 2007 (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd

5DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE (CONT’D.) The cash flows attributable to the discontinued operations are as follows:

2007 2006 RM’000 RM’000

Operating cash flows 2,801 3,871 Investing cash flows 223 44 Financing cash flows (3,163) (3,601)

Total cash flows (139) 314

The following classes of assets and liabilities of SCOTS group have been classified as held for sale:

2007 RM’000

Assets Property, plant and equipment (Note 16) 10,705 Intangible asset (Note 20) 2,007 Deferred tax assets (Note 30) 651 Receivables, deposits and prepayments 1,542 Deposit with licensed banks 505 Cash and bank balances 258 Tax recoverable 620

Assets of disposal group classified as held for sale 16,288

Liabilities Bank overdraft 527 Finance lease and hire purchase liabilities 8,982 Payables 687 Current tax liabilities 312

Liabilities directly associated with assets classified as held for sale 10,508

The liabilities under the disposal group do not include the net intercompany balances of RM6,508,000 with Scomi Engineering Bhd’s group of companies which were eliminated at group level upon consolidation. www .scomiengineering.com.my 75

6IMPAIRMENT TESTING OF ASSETS Impairment test for goodwill The carrying amounts of goodwill allocated to the Group’s CGUs (including disposal group classified as held for sale) are as follows:

2007 2006 Annual Report 2007 omi Engineering Bhd

RM’000 RM’000 Sc

Machine shop 183,699 183,699 Logistics engineering — 5,947 Fleet management (Note 5) 2,007 6,381 Bus/monorail 34,814 17,750

220,520 213,777

The recoverable amounts of the CGUs have been based on value in use, other than for fleet management where this was determined based on the net selling price which was assessed based on a sales agreement to dispose of the unit as disclosed in Note 39 to the financial statements.

The value in use calculations use pre-tax cash flow projections based on financial budgets approved by the Directors covering a five-year period. Cash flows beyond the five-year period are extrapolated using the estimated growth rates stated below. The growth rates are not expected to exceed the long-term average growth rates for the relevant CGUs.

2007 2006

Pre-tax Pre-tax Growth rate1 discount rate2 Growth rate1 discount rate2

Continuing operations Machine shop 5% 11.1% 5% 10.3% Logistics engineering 3% 10.4% 3% 10.5% Bus/monorail 3% 10.6% 3% 10.8%

1 Weighted average growth rate used to extrapolate cash flows beyond the budget period 2 Pre-tax discount rate applied to the cash flow projections

The weighted average growth rates were based on expectations from past performances with consideration given to the industries in which the CGUs operate. The discount rates used are pre-tax and reflect specific risks relating to the relevant CGUs. .scomiengineering.com.my www 76 notes to the financial statements 31 december 2007 (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd

7REVENUE Group Company

2007 2006 2007 2006 RM’000 RM’000 RM’000 RM’000

Continuing operations Sale of goods 223,609 252,719 — — Rendering of services 94,943 62,949 — — Construction contracts 43,584 — — — Management fees from subsidiaries — — 6,796 4,000 Tax exempt dividend from subsidiary company — — 14,000 12,000

362,136 315,668 20,796 16,000 Discontinued operations Rendering of services (Note 5) 6,667 8,272 — —

368,803 323,940 20,796 16,000

8COST OF SALES Group Company

2007 2006 2007 2006 RM’000 RM’000 RM’000 RM’000

Continuing operations Cost of inventories sold and services rendered 241,632 238,774 — — Construction contract costs 33,826 — — —

275,458 238,774 — — Discontinued operations Costs of rendering services (Note 5) 5,223 4,251 — —

280,681 243,025 — — www .scomiengineering.com.my 77

9 PROFIT BEFORE TAXATION Group Company

2007 2006 2007 2006

RM’000 RM’000 RM’000 RM’000 Annual Report 2007 omi Engineering Bhd Sc (a) Profit before taxation is stated after charging: Auditors’ remuneration (Note 10) 548 609 70 95 Depreciation of property, plant and equipment (Note 16) 10,139 8,562 — — Property, plant and equipment written off (Note 16) — 2 — — Amortisation of prepaid land lease payments (Note 17) 1 — — — Operating lease rentals – plant and machinery 221 88 — — – property 101 199 — — Rental of premises 2,501 1,757 34 75 Rental of equipment 943 686 — — Rental of vehicles — — 88 167 Write-down of inventories 67 172 — — Allowance for doubtful debts 557 1,005 — — Bad debts written off 316 — — — Pre-operating expenses written off 1,030 — — — Net foreign exchange losses – unrealised — — — 187 – realised 914 639 460 —

Profit before taxation is stated after crediting: Gain on disposal of property, plant and equipment 290 222 — — Interest income – related companies 153 1,212 153 1,212 – deposits 117 135 97 105 – money market fund 98 175 98 175 – others 96 — 11 — Lease income — 199 — — Rental of vehicles – to holding company 303 772 — — – to related companies 181 892 — — Rental income 158 147 — — Unrealised foreign exchange gains 3,951 473 2,590 — Write back of impairment loss on quoted investment 340 — — —

(b) Employee information – staff costs (including Executive Directors) – wages, salaries and bonuses 35,567 26,388 3,984 1,867 – defined contribution plan 2,398 1,652 496 226 – other employment benefits 5,569 4,261 696 220 – share option expense 1,109 2,755 792 1,025

44,643 35,056 5,968 3,338

The profit before taxation above include items charged or credited to the Group income statement in respect of the discontinued operations (Note 5). .scomiengineering.com.my www 78 notes to the financial statements 31 december 2007 (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd

10 AUDITORS’ REMUNERATION Group Company

2007 2006 2007 2006 RM’000 RM’000 RM’000 RM’000

PricewaterhouseCoopers Malaysian firm – statutory audit 177 160 70 70 – non-audit fees — 80 — 25

177 240 70 95 Affiliates of PricewaterhouseCoopers Malaysian firm (including overseas PricewaterhouseCoopers firms) – statutory audit 301 299 — —

Other external auditors – statutory audit 70 70 — —

Total remuneration 548 609 70 95

11 DIRECTORS’ REMUNERATION The Directors who held office during the financial year were as follows:

Executive Directors Shah Hakim @ Shahzanim bin Zain

Non-executive Directors Datuk Zainun Aishah binti Ahmad Dato’ Abdul Rahim bin Abu Bakar Dato’ Nordin bin Baharuddin Edlin bin Ghazaly Fad’l bin Mohamed

The aggregate amount of emoluments receivable by Directors of the Company during the financial year were as follows:

Group Company

2007 2006 2007 2006 RM’000 RM’000 RM’000 RM’000

Executive Directors – share option expense 96 196 96 196

Non-executive Directors – fees 190 176 190 176 – other benefits 26 28 26 28 – share option expense 209 275 209 275 www

.scomiengineering.com.my 521 675 521 675 79

12 FINANCE COSTS Group Company

2007 2006 2007 2006

RM’000 RM’000 RM’000 RM’000 Annual Report 2007 omi Engineering Bhd Sc Continuing operations Interest expense – bank overdrafts 339 219 — — – term loans 1,135 2,115 — — – finance lease and hire purchase 298 209 — — – bankers’ acceptances 1,275 746 — — – others 137 — — —

3,184 3,289 — — Discontinued operations (Note 5) Interest expense – bank overdrafts 27 19 — — – finance lease and hire purchase 592 881 — —

619 900 — —

3,803 4,189 — —

13 TAX EXPENSE Group Company

2007 2006 2007 2006 RM’000 RM’000 RM’000 RM’000

Continuing operations Current tax: Malaysian income tax 1,065 2,501 — — Foreign tax 6,701 8,662 — —

7,766 11,163 — — Under/(over) provision in prior years 1,666 (23) 209 —

9,432 11,140 209 — Deferred tax: Relating to origination and reversal of temporary differences (3,890) (294) — — Relating to change in tax rate (138) — — — Under/(over) provision in prior years 26 (51) — —

(4,002) (345) — —

Total tax expense from continuing operations 5,430 10,795 209 — .scomiengineering.com.my www 80 notes to the financial statements 31 december 2007 (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd

13 TAX EXPENSE (CONT’D.) Group Company

2007 2006 2007 2006 RM’000 RM’000 RM’000 RM’000

Discontinued operations Current tax: Malaysian income tax 362 372 — — Deferred tax: Relating to origination and reversal of temporary differences (372) (279) — —

Total tax expense from discontinued operations (10) 93 — —

Total tax expense 5,420 10,888 209 —

Domestic current income tax is calculated at the statutory tax rate of 27% (2006: 28%) of the estimated taxable profit for the year. The domestic statutory tax rate will be reduced to 26% effective year of assessment 2008 and subsequently to 25% thereafter. The computation of deferred tax as at 31 December 2007 has reflected these changes.

Taxation for other jurisdictions is calculated at rates prevailing in the respective jurisdictions. During the current financial year, the income tax rate applicable to a subsidiary in Singapore was reduced from 20%, in 2006, to 18% in 2007.

A reconciliation of income tax expense applicable to profit before taxation at the statutory tax rate to income tax expense at the effective income tax rate of the Group and Company is as follows:

Group Company

2007 2006 2007 2006 RM’000 RM’000 RM’000 RM’000

Profit/(loss) before taxation: Continuing operations 47,747 40,591 15,729 11,011 Discontinued operations (Note 5) (385) 505 — —

47,362 41,096 15,729 11,011

Tax calculated at the Malaysian tax rate of 27% (2006: 28%) 12,788 11,507 4,246 3,084 Tax effects of: – different tax rate in other countries (2,305) (2,143) — — – expenses not deductible for tax purposes 2,428 2,316 450 414 – previously unrecognised tax losses and capital allowances (1,406) (192) — — – deferred tax assets not recognised in respect of current year’s tax losses and unabsorbed capital allowances 794 497 — 250 – income not subject to tax (2,481) (1,023) (4,696) (3,748) – deferred tax recognised on tax credit (4,578) — — — www – utilisation of reinvestment allowance (552) — — —

.scomiengineering.com.my – change in tax rate on opening temporary differences (138) — — — – others (822) — — — – under/(over) provision of tax expense in prior years 1,666 (23) 209 — – under/(over) provision of deferred tax in prior years 26 (51) — —

Tax expense 5,420 10,888 209 — 81

14 EARNINGS PER SHARE (a) Basic earnings per share Basic and diluted earnings per share of the Group are calculated by dividing the profit attributable to the equity holders of the Company for the financial year by the weighted average number of ordinary shares in issue during the financial year.

Group Annual Report 2007 omi Engineering Bhd

2007 2006 Sc RM’000 RM’000

Profit from continuing operations attributable to ordinary equity holders of the Company 42,791 27,855 (Loss)/profit from discontinued operations attributable to ordinary equity holders of the Company (375) 412

Profit attributable to shareholders 42,416 28,267

Weighted average number of ordinary shares in issue (‘000) 272,738 267,033

Group 2007 2006

Basic earnings/(loss) per share (sen) – Continuing operations 15.69 10.43 – Discontinued operations (0.14) 0.15

15.55 10.58

(b) Diluted earnings per share For the diluted earnings per share calculation, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The Group’s dilutive potential ordinary shares comprise share options granted to employees.

In respect of share options granted to employees, a calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average share price of the Company’s shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated above is compared with the number of shares that would have been issued assuming the exercise of the share options. The difference is added to the denominator as an issue of ordinary shares for no consideration. This calculation serves to determine the ‘bonus’ element in the ordinary shares outstanding for the purpose of computing the dilution. No adjustment is made to profit for the financial year for the share options calculation. Group 2007 2006 RM’000 RM’000

Profit from continuing operations attributable to ordinary equity holders of the Company 42,791 27,855 (Loss)/profit from discontinued operations attributable to ordinary equity holders of the Company (375) 412

Profit attributable to shareholders 42,416 28,267

Weighted average number of ordinary shares in issue (‘000) 272,738 267,033 Adjustment for: – share options (‘000) 18,975 6,928

Weighted average number of ordinary shares (‘000) 291,713 273,961

Group 2007 2006

Diluted earnings/(loss) per share (sen) – Continuing operations 14.67 10.17 – Discontinued operations (0.13) 0.15

14.54 10.32 .scomiengineering.com.my www 82 notes to the financial statements 31 december 2007 (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd

15 DIVIDEND Dividend proposed for financial year ended 31 December 2007 is as follows:

2007 2006

Gross Amount of Gross Amount of dividend tax exempt dividend tax exempt per share dividend per share dividend SenRM’000 Sen RM’000

Proposed final dividend 5 13,744 3 8,230

At the forthcoming Annual General Meeting of the Company, a final tax exempt dividend in respect of the financial year ended 31 December 2007 of 5 sen per share (2006: 3 sen), amounting to RM13,743,578 (2006: RM8,230,202), will be proposed for shareholders’ approval.

16 PROPERTY, PLANT AND EQUIPMENT Furniture, Asset Freehold Freehold Leasehold Rental fixtures and Motor Plant and Monorail under Group land buildings buildings equipment equipment vehicles machinery test track construction Total 2007 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Cost At 1 January 8,020 10,724 4,221 3,653 1,919 18,450 29,960 14,800 — 91,747 Additions — 241 7,147 — 535 201 17,184 — 2,235 27,543 Disposals ——(61) — (12) (70) (12) — — (155) Reclassified as held for sale (Note 5) —— (6) — (108) (17,544) — — — (17,658) Currency translation differences ——(201) — (98) (10) (1,641) — — (1,950)

At 31 December 8,020 10,965 11,100 3,653 2,236 1,027 45,491 14,800 2,235 99,527

Accumulated depreciation At 1 January — 129 592 474 99 3,656 1,170 247 — 6,367 Recognised in income statement (Note 9(a)) — 270 638 474 484 3,611 4,368 294 — 10,139 Capitalised under development costs (Note 20) ————39—10292—341 Charge during the financial year — 270 638 474 523 3,611 4,378 586 — 10,480 Reclassified as held for sale (Note 5) —— (1) — (45) (6,907) — — — (6,953)

www Currency translation

.scomiengineering.com.my differences ——(83) — (39) (7) (392) — — (521)

At 31 December — 399 1,146 948 538 353 5,156 833 — 9,373

Net book value at 31 December 8,020 10,566 9,954 2,705 1,698 674 40,335 13,967 2,235 90,154 83

16 PROPERTY, PLANT AND EQUIPMENT (CONT’D.) Furniture, Long term Short-term fixtures Freehold Freehold leasehold leasehold Leasehold Rental and Motor Plant and Monorail Annual Report 2007

Group land buildings land land buildings equipment equipment vehicles machinery test track Total omi Engineering Bhd 2006 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 Sc

Cost At 1 January – as previously reported — — 1,206 5,600 1,545 3,653 998 12,638 22,196 — 47,836 FRS 117 adjustment (Note 40) — — (1,206) (3,126) ——————(4,332)

At 1 January – as restated — — — 2,474 1,545 3,653 998 12,638 22,196 — 43,504 Additions — — — 328 — — 1,106 5,670 5,620 — 12,724 Disposals ——————(66) (243) (1,740) — (2,049) Write-offs ————(16) — (153) — (16) — (185) Acquisition of subsidiaries (Note 4) 8,020 10,724————1984815,547 14,800 39,770 Reclassification to leasehold building — — — (2,767) 2,767—————— Currency translation differences — — — (35) (75) — (164) (96) (1,647) — (2,017)

At 31 December 8,020 10,724 — — 4,221 3,653 1,919 18,450 29,960 14,800 91,747

Accumulated depreciation At 1 January – As previously reported/restated ——————————— Charge during the financial year (Note 9(a)) — 129 — 166 189 474 445 3,828 3,084 247 8,562 Disposals ——————(57) (166) (1,273) — (1,496) Write-offs ————(16) — (151) — (16) — (183) Reclassification to leasehold building — — — (166) 166—————— Currency translation differences ————253—(138) (6) (625) — (516)

At 31 December — 129 — — 592 474 99 3,656 1,170 247 6,367

Net book value At 31 December – as restated 8,020 10,595 — — 3,629 3,179 1,820 14,794 28,790 14,553 85,380 .scomiengineering.com.my www 84 notes to the financial statements 31 december 2007 (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd

16 PROPERTY, PLANT AND EQUIPMENT (CONT’D.) Certain property, plant and equipment of the Group are charged as security for banking facilities as disclosed in Note 29 to the financial statements.

During the financial year, the Group acquired property, plant and equipment and motor vehicles with an aggregate cost of RM27,543,000 (2006: RM12,724,000), of which RM280,000 (2006: RM4,552,000) was acquired by means of hire purchase and finance lease arrangements. Cash payments of RM27,263,000 (2006: RM8,172,000) were made in respect of these assets.

The net book value of property, plant and equipment and motor vehicles acquired under hire purchase and finance lease arrangements by the Group as at the balance sheet date was *RM15,436,000 (2006: RM18,840,000).

* Net book value of RM10,487,000 (2006: RM13,667,000) is in respect of motor vehicles under hire purchase and finance lease arrangements in relation to assets of disposal group classified as held for sale.

17 PREPAID LAND LEASE PAYMENTS 2007 2006 RM’000 RM’000

Group Cost At 1 January – As previously reported — — – FRS 117 adjustment 4,332 4,367

– As restated 4,332 4,367

Additions 1,971 — Currency translation differences (161) (35)

At 31 December 6,142 4,332

Accumulated amortisation Effect of adoption of FRS 117 At 1 January — — Amortisation 1 —

At 31 December 1 —

Net book value as at 31 December 6,141 4,332

Represented by: Unexpired period less than 50 years 2,965 3,126

www Unexpired period more than 50 years 3,176 1,206 .scomiengineering.com.my 6,141 4,332 85

18 SUBSIDIARIES Company

2007 2006

RM’000 RM’000 Annual Report 2007 omi Engineering Bhd Sc (i)Investment in subsidiaries Unquoted shares, at cost 325,491 316,365

(ii) Amounts due from subsidiaries – trade 4,088 4,000 – non-trade 46,393 28,685

50,481 32,685

The currency exposure profile of amounts due from subsidiaries is as follows: – Ringgit Malaysia 28,918 8,307 – US Dollar 21,563 24,378

50,481 32,685

(iii) Amounts due to subsidiaries – non-trade 45,955 60,481

The currency exposure profile of amounts due to subsidiaries is as follows: – Ringgit Malaysia — 13,563 – US Dollar 45,955 46,918

45,955 60,481

The amounts due to/from subsidiaries are interest free, unsecured and have no fixed terms of repayment.

The details of the subsidiaries are as follows:

Country of Group’s effective Name incorporation equity interest Principal activities

2007 2006 %%

Scomi OMS Oilfield Holdings Sdn Bhd Malaysia 100 100 Investment holding.

Scomi OMS Oilfield Services Pte Ltd @ Singapore 100 100 Investment holding and provision of machine (formerly known as OMS Oilfield shop services. Services Pte Ltd) .scomiengineering.com.my www 86 notes to the financial statements 31 december 2007 (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd

18 SUBSIDIARIES (CONT’D.) Country of Group’s effective Name incorporation equity interest Principal activities

2007 2006 %%

Scomi Special Vehicles Sdn Bhd * Malaysia 100 100 Manufacture and fabrication of road transport (formerly known as Scomi Sdn Bhd) equipment, material handling equipment and provision of related engineering support services.

Scomi Transportation Solutions Malaysia 100 100 Investment holding and provision of motor Sdn Bhd *# vehicles on ‘hire and drive’ basis.

Scomi Transportation Systems Sdn Bhd Malaysia 100 51 Investment holding. (formerly known as MTrans Transportation Systems Sdn Bhd)

Subsidiary of Scomi OMS Oilfield Holdings Sdn Bhd Scomi OMS Oilfield Services Sdn Bhd Malaysia 100 100 Provision of machine shop services for tools and equipment used in the petroleum industry.

Subsidiary of Scomi Special Vehicles Sdn Bhd (formerly known as Scomi Sdn Bhd) Scomi Trading Sdn Bhd * Malaysia 100 100 Marketing agent for road transport equipment and related products.

Subsidiary of Scomi Transportation Solutions Sdn Bhd # Asian Rent-A-Car Sdn Bhd * Malaysia 100 100 Provision of motor vehicles on ‘hire and drive’ basis.

Subsidiaries of Scomi OMS Oilfield Services Pte Ltd (formerly known as OMS Oilfield Services Pte Ltd) PT Scomi OMS Oilfield Services Indonesia 95 95 Provision of machine shop services for tools and (formerly known as PT OMS Oilfield equipment used in the petroleum industry. Services) @

Scomi OMS Oilfield Services (Australia) Australia 100 100 Provision of machine shop services for tools and Pty. Ltd. (formerly known as OMS Oilfield equipment used in the petroleum industry. Services (Australia) Pty. Ltd.)

Scomi OMS Oilfield Services Thailand 100 100 Provision of machine shop services for tools and (Thailand) Ltd (formerly known as equipment used in the petroleum industry. OMS Oilfield Services (Thailand) Ltd) @

Scomi OMS Oilfield Services Ltd British 100 100 Investment holding. www (formerly known as Virgin Island

.scomiengineering.com.my OMS Oilfield Services Ltd) *

PY Oiltools Sdn Bhd *^ Brunei — —Machine shop services and provision of oilfield equipment supplies and services. 87

18 SUBSIDIARIES (CONT’D.) Country of Group’s effective Name incorporation equity interest Principal activities

2007 2006 Annual Report 2007 %% omi Engineering Bhd Sc

Subsidiaries of Scomi Transportation Systems Sdn Bhd (formerly known as MTrans Transportation Systems Sdn Bhd) Scomi Rail Bhd Malaysia 100 51 Design, manufacture and supply of monorail (formerly known as trains and related services. MTrans Technology Berhad)

Scomi Coach Sdn Bhd Malaysia 100 51 Manufacturing, fabrication and assembly of (formerly known as MTrans Bus Sdn Bhd) commercial coaches and truck vehicle bodies.

Subsidiary of Scomi Coach Sdn Bhd (formerly known as MTrans Bus Sdn Bhd) Scomi Coach Marketing Sdn Bhd Malaysia 100 —Marketing agent for commercial coaches and truck vehicles bodies.

*Not audited by PricewaterhouseCoopers. @Audited by a member firm of PricewaterhouseCoopers International Limited which is a separate and independent legal entity firm from PricewaterhouseCoopers Malaysia. ^The results of the company are consolidated as Scomi OMS Oilfield Services Pte Ltd (formerly known as OMS Oilfield Services Pte Ltd) has control over the company through contractual business arrangements. # Classified as held for sale as disclosed in Note 5.

19 OTHER INVESTMENTS Group Company

2007 2006 2007 2006 RM’000 RM’000 RM’000 RM’000

Non-current assets Quoted shares 2,594 2,594 — — Allowance for diminution in value (2,169) (2,509) — —

425 85 — — Unquoted shares 542 542 — —

967 627 — —

Market value of quoted shares 425 85 — —

Current assets Investment in a money market fund 700 7,750 700 7,750

Market value 700 7,750 700 7,750

The money market fund distribution averaged 3.00% (2006: 3.00%) in the financial year. .scomiengineering.com.my www 88 notes to the financial statements 31 december 2007 (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd

20 INTANGIBLE ASSETS Development Goodwill costs Total RM’000 RM’000 RM’000

Group As at 1 January 2007 213,777 4,362 218,139 Adjustment to cost of business combination – profit guarantees receivable (Note 36(a)) (10,526) — (10,526) – adjustment to prior year’s profit guarantee receivable 205 — 205 Acquisition of additional equity interest in a subsidiary (Note 4) 17,064 — 17,064 Reclassified as held for sale (Note 5) (2,007) — (2,007) Additions during the financial year — 14,676 14,676

As at 31 December 2007 218,513 19,038 237,551

As at 1 January 2006 209,487 — 209,487 Adjustment to cost of business combination – profit guarantees received (6,226) — (6,226) – profit guarantees receivable (Note 36(a)) (8,500) — (8,500) – others 1,266 — 1,266 Acquisition of subsidiaries (Note 4) 17,750 2,786 20,536 Additions during the financial year — 1,576 1,576

As at 31 December 2006 213,777 4,362 218,139

In the previous year, development costs comprised an amount of RM2,786,000 in respect of monorail technical know-how and RM1,576,000 in respect of internally generated expenditure on development costs on major projects where it is reasonably anticipated that the costs will be recovered through future commercial activity.

The additions in the current year amounting to RM14,676,000 consist mainly of material, labour and consultancy costs incurred to develop the Gen 2 monorail.

The amortisation of the internally generated development costs will commence when the asset is available for use over a period of 5 years.

21 INVENTORIES Group

2007 2006 RM’000 RM’000

Raw materials 16,023 22,205 Work-in-progress 60,261 72,247 www Finished goods 414 688 .scomiengineering.com.my Consumables 2,649 2,072

79,347 97,212 89

22 RECEIVABLES, DEPOSITS AND PREPAYMENTS Group Company

2007 2006 2007 2006

RM’000 RM’000 RM’000 RM’000 Annual Report 2007 omi Engineering Bhd Sc Trade receivables 83,440 119,366 — — Allowance for doubtful debts (1,764) (1,955) — —

81,676 117,411 — — Construction contracts – Amounts due from customers (Note 23) 28,394 — — —

110,070 117,411 — — Other receivables 36,819 17,236 23,646 8,817 Deposits 3,167 4,081 — — Prepayments 5,345 7,110 — —

155,401 145,838 23,646 8,817

Currency exposure profile: – Ringgit Malaysia 105,206 97,420 23,646 8,817 – US Dollar 47,569 41,946 — — – Singapore Dollar 1,140 2,472 — — – Others 1,486 4,000 — —

155,401 145,838 23,646 8,817

Credit terms of trade receivables range from 30 days to 120 days (2006: 30 days to 120 days).

Included in other receivables is an amount of RM22,976,000 (2006: RM8,500,000) accrued as other receivable under profit guarantee arrangements in relation to subsidiary companies acquired from Scomi Group Bhd, as disclosed in Note 36(a).

23 AMOUNTS DUE FROM CUSTOMER ON CONTRACTS Group

2007 2006 RM’000 RM’000

Construction contract costs incurred to date 33,826 — Attributable profits 9,758 —

43,584 — Less: Progress billings (15,190) —

Amounts due from customers on contracts (Note 22) 28,394 —

Advance received on contract, included under other payables 3,546 — .scomiengineering.com.my www 90 notes to the financial statements 31 december 2007 (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd

23 AMOUNTS DUE FROM CUSTOMER ON CONTRACTS (CONT’D.) The costs incurred on construction contracts include the following charges incurred during the year:

Group

2007 2006 RM’000 RM’000

Staff costs 371 —

24 AMOUNTS DUE FROM/(TO) RELATED CORPORATIONS The amounts due from/(to) related corporations are interest free, unsecured and have no fixed terms of repayment.

The amounts due from related corporations of the Group and Company in the previous year included a receivable of RM23,076,573 (USD6,537,273) which bore interest at a rate of 9.25% per annum. This amount was fully settled on 26 January 2007.

Group Company

2007 2006 2007 2006 RM’000 RM’000 RM’000 RM’000

Currency exposure profile of amounts due from related corporations is as follows: – Ringgit Malaysia 10 67 10 — – US Dollar 588 27,221 587 27,588

At 31 December 598 27,288 597 27,588

The currency exposure profile of amounts due to related corporations is as follows: – Ringgit Malaysia 78 65 26 1

At 31 December 78 65 26 1 www .scomiengineering.com.my 91

25 CASH AND CASH EQUIVALENTS (a) Cash and cash equivalents included in the cash flow statements comprise the following:

Group Company Annual Report 2007

2007 2006 2007 2006 omi Engineering Bhd RM’000 RM’000 RM’000 RM’000 Sc

Deposits with licensed banks 2,603 7,300 — 6,626 Cash and bank balances 18,382 28,991 1,024 1,797

20,985 36,291 1,024 8,423 Bank overdrafts (Note 29) (7,923) (4,977) — —

13,062 31,314 1,024 8,423 Cash and cash equivalents classified as held for sale (Note 5) 236 — — — Deposits with licensed banks pledged as security for bank facilities (1,047) (488) — —

12,251 30,826 1,024 8,423

The currency exposure profile for deposits with licensed banks and cash and bank balances is as follows:

Group Company

2007 2006 2007 2006 RM’000 RM’000 RM’000 RM’000

Currency exposure profile: – Ringgit Malaysia 5,362 17,329 1,024 8,423 – US Dollar 11,091 17,697 — — – Singapore Dollar 3,019 346 — — – Others 1,513 919 — —

20,985 36,291 1,024 8,423

The range of interest rates per annum on deposits that was effective at the balance sheet date for the Group and Company is as follows:

Group Company

2007 2006 2007 2006 %%%%

Deposits with licensed banks 3.00 – 3.70 3.12 – 3.70 — 3.35

Deposits with licensed banks of the Group have a maturity period ranging from 30 to 365 days (2006: 30 to 455 days). Bank balances are deposits held at call with banks.

In the previous year, deposits with licensed banks of the Company had a maturity period of 30 days. .scomiengineering.com.my www 92 notes to the financial statements 31 december 2007 (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd

26 PAYABLES Group Company

2007 2006 2007 2006 RM’000 RM’000 RM’000 RM’000

Trade payables 95,678 114,903 — — Other payables 22,668 30,592 2,763 1,600

118,346 145,495 2,763 1,600

Currency exposure profile: – Ringgit Malaysia 56,283 65,854 2,752 1,600 – US Dollar 54,215 67,569 11 — – Singapore Dollar 6,955 11,010 — — – Others 893 1,062 — —

118,346 145,495 2,763 1,600

Credit terms of trade and other payables granted to the Group and Company vary from no credit to 90 days (2006: no credit to 90 days).

27 FINANCE LEASE AND HIRE PURCHASE LIABILITIES Group

2007 2006 RM’000 RM’000

Current liabilities 1,027 4,289 Non-current liabilities 796 10,660

Total finance lease and hire purchase liabilities 1,823 14,949

Minimum lease payments: – not later than 1 year 1,114 5,142 – later than 1 year and not later than 5 years 816 11,557 – later than 5 years — 37

1,930 16,736 Future finance charges (107) (1,787)

Present value of finance lease and hire purchase liabilities 1,823 14,949

www Present value of finance lease and hire purchase liabilities:

.scomiengineering.com.my – not later than 1 year 1,027 4,289 – later than 1 year and not later than 5 years 796 10,629 – later than 5 years — 31

1,823 14,949 93

27 FINANCE LEASE AND HIRE PURCHASE LIABILITIES (CONT’D.) The currency profile of finance lease and hire purchase liabilities is as follows:

Group Annual Report 2007

2007 2006 omi Engineering Bhd RM’000 RM’000 Sc

– Ringgit Malaysia 1,475 14,169 – Singapore Dollar 348 780

1,823 14,949

Finance lease and hire purchase liabilities were effectively secured as the rights to those assets held under finance lease and hire purchase arrangements revert to the lessors in the event of default.

The effective interest rates applicable for finance lease and hire purchase liabilities range from 2.00% to 10.20% (2006: 2.60% to 7.85%) per annum.

28 AMOUNTS DUE TO ULTIMATE HOLDING COMPANY Amounts due to ultimate holding company are interest free, unsecured and have no fixed terms of repayment.

The amounts are denominated in Ringgit Malaysia.

29 BORROWINGS (INTEREST BEARING) Group

2007 2006 RM’000 RM’000

Secured Current Bank overdrafts (Note 25) 7,923 4,977 Others: Term loans 9,179 18,974 Bankers’ acceptances 10,699 7,405 Trust receipts 14,051 18,755

33,929 45,134

41,852 50,111 Non-current Term loans 9,259 11,723

51,111 61,834 .scomiengineering.com.my www 94 notes to the financial statements 31 december 2007 (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd

29 BORROWINGS (INTEREST BEARING) (CONT’D.) Group

2007 2006 RM’000 RM’000

Total Bank overdrafts 7,923 4,977 Term loans 18,438 30,697 Bankers’ acceptances 10,699 7,405 Trust receipts 14,051 18,755

Total borrowings 51,111 61,834

Currency exposure profile: – Ringgit Malaysia 41,181 33,594 – US Dollar 9,930 28,240

51,111 61,834

Maturity of borrowings: – not later than 1 year 41,852 50,111 – later than 1 year and not later than 2 years 6,009 8,007 – later than 2 years and not later than 3 years 3,250 3,716

51,111 61,834

The contractual terms of borrowings and the effective interest rates as at the balance sheet date are as follows:

Group

2007 2006

Contractual Effective Contractual Effective terms interest rates terms interest rates % per annum % per annum % per annum % per annum

Bank overdrafts BLR + 1.00 7.75 – 8.50 BLR + 1.00 6.00 – 9.00 BLR + 1.25 BLR + 1.25 BLR + 2.25 BLR + 2.25 BLR + 2.50 BLR + 2.50 Term loans BLR + 1.50 5.20 – 8.25 BLR + 1.50 5.87 – 8.75 BLR + 2.00 BLR + 2.00 SIBOR + 0.50 SIBOR + 0.50 Bankers’ acceptances Bank’s cost Bank’s cost

www of fund + 1.00 4.05 – 5.80 of fund + 1.00 3.83 – 5.60 Trust receipts BLR + 2.50 6.00 BLR + 2.50 6.08 .scomiengineering.com.my 95

29 BORROWINGS (INTEREST BEARING) (CONT’D.) The borrowings of the Group are secured as follows:

(i) a bank overdraft and bankers’ acceptances of a subsidiary company are secured by way of a negative pledge over the present and

future, fixed and floating assets of the company; Annual Report 2007 omi Engineering Bhd

(ii) a subsidiary company’s term loan is secured by an Irrevocable Letter of Undertaking from third parties; Sc

(iii) a term loan and overdraft of a subsidiary are secured over its land and building;

(iv) other term loans are secured by negative pledges over the present and future, fixed and floating assets of a subsidiary company; and

(v) the trust receipts of a subsidiary company are secured by an assignment of contract proceeds and also a charge over its land and buildings.

The term loan denominated in USD of RM9,930,000 (USD3,000,000) (2006: RM28,240,000; USD8,000,000) is secured by way of a negative pledge over the present and future fixed and floating assets of a subsidiary and also a Standby Letter of Credit issued by a financial institution. The term loan is repayable in quarterly instalments falling due between 15 March 2006 and 15 June 2009, with minimum prepayment of USD3,000,000 made in 2007.

30 DEFERRED TAX Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred taxes relate to the same tax authority. The following amounts, determined after appropriate offsetting, are shown in the balance sheet:

Group

2007 2006 RM’000 RM’000

Deferred tax assets 5,270 410 Deferred tax liabilities (4,948) (3,497)

322 (3,087)

At 1 January (3,087) (1,116) Credited/(charged) to income statement (Note 13) – property, plant and equipment (828) 490 – tax losses 3,164 (55) – others 1,666 (90)

4,002 345 Acquisition of subsidiaries (Note 4) – property, plant and equipment — (2,526) Reclassified as held for sale (Note 5) (651) — Exchange difference 44 — Others 14 210

At 31 December 322 (3,087) .scomiengineering.com.my www 96 notes to the financial statements 31 december 2007 (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd

30 DEFERRED TAX (CONT’D.) Group

2007 2006 RM’000 RM’000

Subject to income tax Deferred tax assets (before offsetting) Property, plant and equipment 1,157 582 Tax losses 3,164 — Reclassified as held for sale (651) — Exchange difference (8) — Others 1,680 —

5,342 582 Offsetting (72) (172)

Deferred tax assets (after offsetting) 5,270 410

Deferred tax liabilities (before offsetting) Property, plant and equipment 4,492 3,089 Exchange difference (52) — Others 580 580

5,020 3,669 Offsetting (72) (172)

Deferred tax liabilities (after offsetting) 4,948 3,497

The amount of unabsorbed tax losses (which is subject to agreement by the tax authorities) for which no deferred tax asset is recognised on the balance sheet is as follows:

Group Company

2007 2006 2007 2006 RM’000 RM’000 RM’000 RM’000

Unabsorbed tax losses 34,748 34,748 34,748 34,748

Deferred tax assets have not been recognised on the unabsorbed tax losses as it is uncertain that there will be future taxable profits to utilise the unabsorbed tax losses. www .scomiengineering.com.my 97

31 SHARE CAPITAL Group and Company

2007 2006 Annual Report 2007

Number of Nominal Number of Nominal omi Engineering Bhd shares value shares value Sc ‘000 RM’000 ‘000 RM’000

Authorised ordinary shares of RM1.00 each: At 1 January/31 December 400,000 400,000 400,000 400,000

Issued and fully paid ordinary shares of RM1.00 each: At 1 January 270,627 270,627 211,751 211,751 Issued during the financial year – Rights issue ——57,552 57,552 – Exercise of share options 4,244 4,244 1,324 1,324

At 31 December 274,871 274,871 270,627 270,627

(a) Share capital During the financial year, the issued and paid-up share capital of the Company was increased from RM270,627,567 comprising 270,627,567 ordinary shares of RM1.00 each, to RM274,871,567 comprising 274,871,567 ordinary shares of RM1.00 each, by way of the issuance of:

(i) 3,443,000 new ordinary shares of RM1.00 each pursuant to the exercise of options granted under the Employees’ Share Option Scheme (“ESOS”) at the option price of RM1.00 per share for cash;

(ii) 801,000 new ordinary shares of RM1.00 each pursuant to the exercise of options granted under the ESOS at the option price of RM1.18 per share for cash;

In the previous financial year, the issued and paid-up capital of the Company was increased from RM211,751,567, comprising 211,751,567 ordinary shares of RM1.00 each, to RM270,627,567, comprising 270,627,567 ordinary shares of RM1.00 each by way of:

(i) a renounceable rights issue of 57,552,000 shares of RM1.00 each in the Company at an issue price of RM1.20 per share for cash on the basis of three (3) rights issue for every one ordinary share held, the proceeds of which were utilised for settlement pursuant to the scheme of arrangement pursuant to Section 176 of the Companies Act, 1965, expenses in relation to the restructuring exercise undertaken in 2005 and also working capital for business expansion purposes.

(ii) the issue of 1,324,000 new ordinary shares of RM1.00 each pursuant to the exercise of options granted under the ESOS at an option price of RM1.00 per share for cash.

The new ordinary shares issued rank pari passu in all respects with the existing ordinary shares of the Company.

(b) Treasury shares At an Extraordinary General Meeting of the Company held on 21 June 2007, the shareholders of the Company approved the proposed purchase of own shares by the Company up to ten percent of the total issued and paid-up share capital of the Company. The Directors of the Company are committed to enhancing the value of the Company for its shareholders and believe that the repurchase plan can be applied in the best interest of the Company and its shareholders.

During the financial year, the Company repurchased 1,000 of its issued and paid-up capital from the open market at a price of RM1.93 per share. The total consideration paid for the repurchase including transaction costs was RM1,946. The repurchase transaction was financed by internally generated funds. The shares repurchased are being held as Treasury shares in accordance with Section 67A of the Companies Act, 1965. .scomiengineering.com.my www 98 notes to the financial statements 31 december 2007 (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd

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

The principal features of the ESOS are as follows:

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

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

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

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

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

(vi) The options granted are exercisable upon receipt of notice of entitlement to exercise from the Options Committee by or before 1st April of each year. The entitlement to exercise is dependent on the Employee Performance Rating achieved in the preceding year.

Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:

Group and Company

2007 2006

Average Average exercise price Options exercise price Options RM/share ’000 RM/share ’000

At 1 January 1.00 31,166 —— Granted 1.18 7,137 1.00 35,800 Forfeited 1.00 (550) 1.00 (3,310) Exercised 1.03 (4,244) 1.00 (1,324)

At 31 December 1.03 33,509 1.00 31,166

www Out of the outstanding options, 4,073,000 (2006: 3,223,000) units of options were exercisable. Options exercised during the financial

.scomiengineering.com.my year resulted in 4,244,000 (2006: 1,324,000) unit of shares being issued at an average price of RM1.03 each (2006: RM1.00 each). 99

31 SHARE CAPITAL (CONT’D.) (c) Employees’ Share Option Scheme (cont’d.) Share options were exercised on a regular basis throughout the financial year, and the weighted average share price during the financial year was RM2.38 (2006: RM1.46) per share. The exercise price of the share options outstanding at the end of the financial Annual Report 2007

year ranged from RM1.00 to RM1.18 (2006: RM1.00) and had a remaining contractual life of 8 years (2006: 9 years). omi Engineering Bhd Sc

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

The estimated weighted average fair value of options granted during the year determined using the trinomial option pricing model was RM0.20 per option (2006: RM0.20). The significant inputs into the model were as follows:

Group and Company

2007 2006

Weighted average share price at date of grant (RM) 1.18 1.07 Exercise price (RM) – 1st tranche 1.00 1.00 – 2nd tranche 1.18 — Expected volatility of share price 38% 35% Expected life (year) 2 2 Risk free rate (per annum) 3.590% 3.649% Expected dividend yield 3% 3%

The expected volatility of the share price was based on the expected share price volatility of the ultimate holding company, Scomi Group Bhd, as the Company does not have a share price trend history given its recent listing and the Group’s business is primarily in the oil tools business which was acquired from Scomi Group Bhd in 2005. The expected life of options is based historical data and is not necessarily indicative of exercise patterns that may occur.

During the financial year, the Group recognised total expenses of RM1,109,000 (2006: RM3,030,000) in respect of share based payment transactions, all of which are in respect of the ESOS.

32 SHARE PREMIUM Group and Company

2007 2006 RM‘000 RM’000

As at 1 January 78,598 68,516 Issue of shares – rights issue 57,552,000 of new ordinary shares of RM1.00 each at a premium of RM0.20 each — 11,510 – share issue costs — (1,727) – exercise of share options 145 — Transfer from share option reserve on exercise of share options 849 299 Share premium reduction against accumulated losses (Note 39(ii)) (34,157) —

As at 31 December 45,435 78,598 .scomiengineering.com.my www 100 notes to the financial statements 31 december 2007 (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd

33 RETAINED EARNINGS Under the single-tier tax system which will come into effect from the year of assessment 2008, companies are not required to have tax credits under Section 108 of the Income Tax Act 1967 for dividend payment purposes. Dividends paid under this system are tax exempt in the hands of shareholders.

Companies with Section 108 credits as at 31 December 2007 may continue to pay franked dividends until the Section 108 credits are exhausted or 31 December 2013, whichever is earlier unless they opt to disregard the Section 108 credits to pay single-tier dividends under the special transitional provisions of the Finance Act, 2007. As at 31 December 2007 and 31 December 2006, subject to agreement with the tax authorities, the Company has sufficient Section 108 tax credits and tax exempt income to pay all of its retained earnings as franked and exempt dividends.

34 COMMITMENTS (a) Capital commitments Capital expenditure not provided for in the financial statements are as follows:

Group Company

2007 2006 2007 2006 RM’000 RM’000 RM’000 RM’000

Approved and contracted for 35,986 14,340 — — Approved but not contracted for 86,448 60,360 — 25,000

122,434 74,700 — 25,000

Analysed as follows: – property, plant and equipment 76,434 41,900 — — – proposed acquisition of additional interest in a subsidiary (Note 39) — 25,000 — 25,000 – development costs 46,000 7,800 — —

122,434 74,700 — 25,000

(b) Non-cancellable operating lease payments The Group has entered into non-cancellable operating lease agreements for property, plant and equipment. Commitments for future minimum lease payments are as follows:

Group

2007 2006 RM’000 RM’000

Later than 1 year 917 947 Later than 2 years and not later than 5 years 2,575 2,945 Later than 5 years 2,562 3,619 www

.scomiengineering.com.my 6,054 7,511 101

35 CONTINGENT LIABILITIES – UNSECURED Company

2007 2006

RM‘000 RM’000 Annual Report 2007 omi Engineering Bhd Sc Corporate guarantees 110,108 71,140

The corporate guarantees given to financial institutions are in respect of credit facilities to subsidiary companies. The facilities utilised by the subsidiary companies as at 31 December 2007 amounted to RM40,862,000 (2006: RM29,494,000).

36 SIGNIFICANT RELATED PARTY DISCLOSURES (a) In addition to the related party disclosures mentioned elsewhere in the financial statements, set out below are the Group’s other significant related party transactions and amounts outstanding in relation to these transactions:

Group

Transactions Balance outstanding

2007 2006 2007 2006 RM’000 RM’000 RM’000 RM’000

Sales of connectors to a related company – Scomi Oiltools Ltd (formerly known as KMC Oiltools Limited) 6,200 — 1,001 — Interest income on an amount receivable from a related company – KMC Oiltools Bermuda Limited 153 1,212 — 1,212 Lease income received from a related company – KMC Oiltools Overseas (M) Limited — 199 — 199 Rental of vehicles – to ultimate holding company 303 772 303 395 – to related companies – Scomi Oiltools Sdn Bhd (formerly known as Kota Minerals & Chemicals Sdn Bhd) 142 784 92 57 – Scomi Oilserve Sdn Bhd (formerly known as Oilserve Marine Sdn Bhd) — 20 — 3 – Scomi Marine Bhd 2 63 — 3 – Scomi Energy Sdn Bhd 15 20 9 12 – Scomi Sosma Sdn Bhd (formerly known as Sosma Sdn Bhd) — 5 — 5 – Scomi NTC Sdn Bhd 22 — 11 — Management fee paid to ultimate holding company 3,958 2,000 1,042 — Airline ticketing services provided by Lintas Travel & Tours Sdn Bhd, a company connected to a Director 573 187 45 14 Rental of office space from a related company – Scomi Oiltools Sdn Bhd 35 76 23 76 .scomiengineering.com.my www 102 notes to the financial statements 31 december 2007 (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd

36 SIGNIFICANT RELATED PARTY DISCLOSURES (CONT’D.) The Directors are of the view that the above transactions have been entered into in the normal course of business under terms and conditions no less favourable to the Group than those arranged with independent third parties.

In addition to the above, pursuant to profit guarantee arrangements entered into in 2005 with the ultimate holding company (as vendor) in relation to the subsidiary companies Scomi Transportation Solutions Sdn Bhd and Scomi Special Vehicles Sdn Bhd (formerly known as Scomi Sdn Bhd) acquired in the financial year ended 31 December 2005, the Company received an amount of RM8,295,000 in the current financial year being the amount determined as shortfalls in the consolidated profit before tax for the subsidiary companies in respect of the financial year ended 31 December 2006 (2006: RM6,226,000).

The Company has further accrued for a receivable of RM22,976,000 as the estimated shortfall under the profit guarantee arrangements in relation to these subsidiary companies for the financial year ended 31 December 2007. The profit guarantee amounts received/receivable have accordingly been adjusted to the cost of business combination as disclosed in Note 20 to the financial statements and to the statement of changes in equity as a transaction with a shareholder.

(b) Compensation of key management personnel The remuneration of Directors and other members of key management during the financial year was as follows:

Group Company

2007 2006 2007 2006 RM’000 RM’000 RM’000 RM’000

Short-term employee benefits 1,429 559 1,429 559 Post-employment benefits: Defined contribution plan 200 77 200 77 Share-based payment 492 751 492 751

2,121 1,387 2,121 1,387

Included in the total key management personnel are:

Group Company

2007 2006 2007 2006 RM’000 RM’000 RM’000 RM’000

Directors’ remuneration (Note 11) 96 196 96 196

Executive Directors of the Group and the Company and other members of key management have been granted the following number of options under the Employees’ Share Options Scheme (“ESOS”):

Group and Company

2007 2006 RM’000 RM’000

www At 1 January 10,300 — Granted 2,430 10,300 .scomiengineering.com.my Exercised (1,300) —

At 31 December 11,430 10,300

The share options were granted on the same terms and conditions as those offered to other employees of the Group (Note 31 (c)). 103

37 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group’s activities expose it to a variety of financial risks in the normal course of business. The Group’s risk management seeks to minimise the potential adverse effects of these exposures. Annual Report 2007

The Group’s overall financial risk management programme focuses on the unpredictability of financial markets and seeks to minimise omi Engineering Bhd potential adverse effects on the financial performance of the Group. Financial risk management is carried out through risk reviews, Sc internal control systems, a global insurance programme and adherence to Group financial risk management policies. The Board regularly reviews these risks and approves the treasury policies which cover the management of these risks.

The Group does not trade in financial instruments.

(i)Foreign currency exchange risk The Group is exposed to currency risk as a result of the foreign currency transactions entered into by companies in currencies other than their functional currency. The Group has a natural hedge to the extent that payments for foreign currency payables are matched against receivables denominated in the same foreign currency or whenever possible, by intra-group arrangements and settlements.

(ii) Interest rate risk Interest rate price risk The Group is exposed to interest rate price risk through the impact of changes in market interest rates on interest bearing assets and liabilities. The Group monitors the interest rate on borrowings closely to ensure that the borrowings are maintained at favourable rates.

Interest rate cash flow risk The Group’s income and operating cash flows are substantially independent of changes in market interest rates. Interest rate exposure arises from the Group’s borrowings and deposits, and is managed through the use of floating rate debts.

(iii) Credit risk Credit risk, or the risk of counterparties defaulting, is controlled by the application of credit approvals, limits and monitoring procedures. Credit risk is minimised and monitored by limiting the Group’s associations to business partners with high creditworthiness. Trade receivables are monitored on an ongoing basis via Group management reporting procedures.

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

(iv) Liquidity risk The Group reviews its cash flow position regularly to manage its exposure to fluctuations in future cash flows associated with its monetary financial instruments. Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. .scomiengineering.com.my www 104 notes to the financial statements 31 december 2007 (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd

37 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D.) (v) Fair values (a) Financial instruments recognised on the balance sheet The carrying amounts of financial assets and liabilities of the Group and Company at the balance sheet date approximate their fair values except as set out below:

Group

Carrying amount Fair value RM’000 RM’000

2007 Other investments – Unquoted shares 542 542

Finance lease and hire purchase liabilities 1,823 1,694

2006 Other investments – Unquoted shares 542 542

Finance lease and hire purchase liabilities 14,949 12,891

The following methods and assumptions are used to estimate the fair value of each class of financial assets and liabilities:

(i) Cash and cash equivalents, receivables and payables with a maturity period less than one year, short term borrowings and finance lease and hire purchase liabilities (current liabilities) The carrying amounts approximate the fair values due to the relatively short maturity of these financial instruments.

(ii) Short term investments The fair value of the investment in money market fund is determined by reference to the quoted market price on the balance sheet date.

(iii) Other investments The fair value of quoted shares is based on the quoted market price at the balance sheet date.

The fair value of unquoted shares has been estimated using a valuation technique based on assumptions of certain dividend yield and discount rate that are supported by observable market prices or rates.

(iv) Borrowings and finance lease and hire purchase liabilities (non-current liabilities) Borrowings are contracted at floating rates. Hence, the fair value of long term borrowings is assumed to approximate carrying amounts.

The fair value of finance lease and hire purchase liabilities is estimated by discounting the contractual cash flows at the current market rate available to the Group for similar instruments.

www (b) Financial instruments not recognised on the balance sheet

.scomiengineering.com.my It is not practicable to estimate the fair values of contingent liabilities (disclosed in Note 35) reliably due to the uncertainties of timing, cost and eventual outcome. 105

38 SEGMENTAL REPORTING (a) Primary reporting format – business segments The Group is organised into three main business segments: •Logistics engineering – manufacture and fabrication of special purpose vehicles and provision of related engineering support Annual Report 2007

services. omi Engineering Bhd Sc •Machine shop – provision of machine shop services for the oil and gas industry. • Bus/monorail – design, manufacture and supply of monorail, urban transportation (including buses and coaches) and rail solutions.

As disclosed in Note 5, the Group has discontinued its fleet management operations, which has been disclosed under a separate segment as discontinued operations.

Intersegment revenue mainly comprises rendering of vehicle assembly services to other business segments which are based on negotiated terms.

Logistics Machine Bus/ Discontinued 2007 engineering shop monorail Eliminations Total operations Group RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Revenue Revenue from external customers 79,020 232,236 50,880 — 362,136 6,667 368,803 Intersegment revenue ——53,207 (53,207) — — —

Revenue 79,020 232,236 104,087 (53,207) 362,136 6,667 368,803

Results Segment results (1,876) 42,362 3,813 6,796 51,095 214 51,309

Unallocated costs (608) — (608) Interest income 444 20 464 Interest expense (562) (1,374) (1,248) — (3,184) (619) (3,803)

Profit before taxation 47,747 (385) 47,362 Tax expense (5,430) 10 (5,420)

Profit for the year 42,317 (375) 41,942

Assets Segment assets 75,500 415,362 162,706 (87,721) 565,847 14,681 580,528

Unallocated corporate assets 33,723

Total assets 614,251

Liabilities Segment liabilities 49,639 110,987 94,059 (91,899) 162,786 16,368 179,154

Unallocated Corporate liabilities 27,189

Total liabilities 206,343 .scomiengineering.com.my www 106 notes to the financial statements 31 december 2007 (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd

38 SEGMENTAL REPORTING (CONT’D.) (a) Primary reporting format – business segments (cont’d.) Logistics Machine Bus/ Discontinued engineering shop monorail Total operations Group RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

2007 Other information Capital expenditure 343 28,065 15,697 44,105 85 44,190 Depreciation of property, plant and equipment 773 4,374 1,912 7,059 3,421 10,480

The comparatives for 2006 have been restated to classify the segment results from the fleet management operations as discontinued operations.

Logistics Machine Bus/ Discontinued 2006 engineering shop monorail Eliminations Total operations Group RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Revenue Revenue from external customers 63,770 208,263 43,635 — 315,668 8,272 323,940

Intersegment revenue — — 24,938 (24,938) — — —

Revenue 63,770 208,263 68,573 (24,938) 315,668 8,272 323,940

Results Segment results (292) 39,664 5,381 — 44,753 1,405 46,158

Unallocated costs (2,395) — (2,395)

Interest income 1,522 — 1,522

Interest expense (677) (2,051) (561) — (3,289) (900) (4,189)

Profit before taxation 40,591 505 41,096

Tax expense (10,795) (93) (10,888)

Profit for the year 29,796 412 30,208 www .scomiengineering.com.my 107

38 SEGMENTAL REPORTING (CONT’D.) (a) Primary reporting format – business segments (cont’d.) Logistics Machine Fleet Bus/ engineering shop management monorail Eliminations Group Annual Report 2007

RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 omi Engineering Bhd Sc

Assets Segment assets 82,307 421,108 24,957 108,833 (65,341) 571,864

Unallocated corporate assets 52,831

Total assets 624,695

Liabilities Segment liabilities 54,581 132,711 19,690 48,168 (34,838) 220,312

Unallocated corporate liabilities 29,287

Total liabilities 249,599

Logistics Machine Fleet Bus/ engineering shop management monorail Group RM’000 RM’000 RM’000 RM’000 RM’000

2006 Other information Capital expenditure 430 6,848 5,310 62,018 74,606 Depreciation of property, plant and equipment 809 3,130 3,697 926 8,562

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

Capital expenditure comprise additions to property, plant and equipment, prepaid land lease payments and intangible assets. Capital expenditure in the previous year included additions resulting from acquisitions through business combinations.

(b) Secondary reporting format – geographical segments The Group operates in the following geographical areas: •Malaysia* – design, manufacture and supply of monorail, urban transportation (including buses and coaches) and rail solutions. – manufacture and fabrication of special purpose vehicles and provision of related engineering support services. –provision of machine shop services. • Singapore – provision of machine shop services. •Other countries – provision of machine shop services.

*Company’s home country .scomiengineering.com.my www 108 notes to the financial statements 31 december 2007 (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd

38 SEGMENTAL REPORTING (CONT’D.) (b) Secondary reporting format – geographical segments (cont’d.) The fleet management services provided in Malaysia has been disclosed as discontinued operations, and the prior year’s comparatives have accordingly been restated.

2007 Revenue Revenue from from continuing discontinued Total Capital operations operations Total assets expenditure RM’000 RM’000 RM’000 RM’000 RM’000

Malaysia 158,652 6,667 165,319 455,322 31,201 Singapore 171,314 — 171,314 299,059 8,818 Other countries 32,170 — 32,170 36,775 4,171 Eliminations ———(176,905) —

362,136 6,667 368,803 614,251 44,190

2006 Revenue Revenue from from continuing discontinued Total Capital operations operations Total assets expenditure RM’000 RM’000 RM’000 RM’000 RM’000 Restated

Malaysia 124,264 8,272 132,536 394,721 69,491 Singapore 163,385 — 163,385 336,233 4,307 Other countries 28,019 — 28,019 27,948 808 Eliminations — — — (134,207) —

315,668 8,272 323,940 624,695 74,606

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

In determining the geographical segments of the Group, sales are based on the location of the production or service facilities. Total assets and capital expenditure are determined based on where the assets are located. www .scomiengineering.com.my 109

39 SIGNIFICANT EVENTS DURING AND SUBSEQUENT TO THE FINANCIAL YEAR ICompleted during the financial year (i) During the year, the Company completed the acquisition of the balance 49% equity interest in the subsidiary group Scomi Transportation Systems Sdn Bhd (“STS”) (formerly known as MTrans Transportation Systems Sdn Bhd), for a total consideration Annual Report 2007

of RM30,625,000, with STS then becoming a wholly-owned subsidiary of the Group. The acquisition was completed as follows: omi Engineering Bhd Sc – On 3 April 2007, the Company acquired an additional 40% equity interest in STS, comprising 10,400,002 ordinary shares of RM1.00 each, for a consideration of RM25,000,000 which was settled in cash. – On 20 June 2007, the Company acquired the balance 9% equity interest in STS, comprising 2,340,000 ordinary shares of RM1.00 each for a consideration of RM5,625,000 which was settled in cash.

The financial effects of the acquisition are disclosed in Note 4 to the financial statements.

(ii) On 23 February 2007, the Company announced that it intended to reduce its share premium account pursuant to Section 64 of the Companies Act, 1965 by up to RM35,883,000, and utilise the credit arising therefrom to reduce the accumulated losses of the Company.

The proposed share premium reduction was approved by the Company’s shareholders at an Extraordinary General Meeting on 21 June 2007. The application to the High Court of Malaya (“Court”) was filed and on 5 October 2007, the Court granted an order to dispense with the need to hold a creditors’ enquiry. The High Court of Malaya approved the proposal on 14 December 2007.

The share premium reduction effected in the year is disclosed in Note 32 to the financial statements.

(iii) On 10 August 2007, a subsidiary company Scomi Coach Sdn Bhd (formerly known as MTrans Bus Sdn Bhd) acquired a 100% equity interest in Scomi Coach Marketing Sdn Bhd (formerly known as Potensi Serakan Sdn Bhd), comprising 25,000 ordinary shares of RM1.00 each, for a total consideration of RM2.00. The subsidiary is now the marketing agent for commercial coaches and truck vehicle bodies.

II Completed subsequent to the financial year end On 20 March 2007, the Company entered into a share sale agreement to dispose 500,000 ordinary shares of RM1.00 each in Scomi Transportation Solutions Sdn Bhd (“SCOTS”), representing 100% of the issued and paid-up share capital of the company, for a total sale consideration of RM3,800,000 to be satisfied in cash. SCOTS has a wholly-owned subsidiary, Asian Rent-A-Car Sdn Bhd (collectively known as the “SCOTS Group”).

The disposal of the SCOTS Group was completed on 31 March 2008 with all conditions precedent in the sale agreement being met. .scomiengineering.com.my www 110 notes to the financial statements 31 december 2007 (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd

40 CHANGES IN ACCOUNTING POLICIES AND RESTATEMENT OF COMPARATIVE FIGURES The list of new accounting standards, amendments to published standards and interpretations of existing standards that are effective for the Company’s accounting periods beginning on or after 1 January 2007 is set out in Note 2.1 to the financial statements.

•Following the adoption of the new accounting standard FRS 117 – Lease, leasehold land is categorised as an operating lease unless title passes to the lessee at the end of the lease term. With the adoption of the revised FRS 117, the unamortised carrying amounts of leasehold land are now classified as prepaid land lease payment and amortised over the period of its remaining lease term, as allowed by the transitional provisions of the revised FRS 117. The reclassification of leasehold land as prepaid land lease payment has been accounted for retrospectively and the comparatives in the balance sheet and cash flow statement have been restated. The adoption of the accounting policy did not affect the recognition and measurement of the Group and Company’s net assets.

The financial impact to the Group arising from the adoption of this accounting policy is as follows:

2007 Group RM’000

Increase in prepaid land lease payments 6,141 Decrease in property, plant and equipment (6,141)

The effects on the comparatives to the Group on adoption of FRS 117 are as follows:

Effect of As previously adoption of reported FRS 117 As restated RM’000 RM’000 RM’000

As at 31 December 2006 Group Property, plant and equipment 89,712 (4,332) 85,380 Prepaid land lease payments — 4,332 4,332

•The Group has early adopted FRS 112 – Income Taxes which is effective for accounting periods beginning on or after 1 July 2007 as allowed by the new standard. FRS 112 now allows for the recognition of deferred tax assets on reinvestment allowances and investment tax allowances. In line with the requirements of FRS 112, the Group has assessed available investment tax incentives and recognised deferred tax assets where the criterion of recognition are met.

The financial impact to the Group arising from the adoption of this accounting policy is as follows:

2007 Group RM’000

Increase in deferred tax assets 628 Increase in profit for the year 628

There is no impact to the financial statements in prior years. www

.scomiengineering.com.my •The adoption of FRS 124 did not result in substantial changes to the Group’s accounting policies other than enhanced disclosures as disclosed in Note 36 to the financial statements.

41 APPROVAL OF FINANCIAL STATEMENTS The financial statements have been approved for issue in accordance with a resolution of the Board of Directors on 29 April 2008. statement by directors 111 pursuant to section 169(15) of the companies act, 1965

We, Datuk Zainun Aishah binti Ahmad and Shah Hakim @ Shahzanim bin Zain, being two of the Directors of Scomi Engineering Bhd, state that, in the opinion of the Directors, the financial statements set out on pages 50 to 110 are drawn up so as to give a true and fair view of the state of affairs of the Group and Company as at 31 December 2007 and of the results and cash flows of the Group and Company for the financial year ended on that date in accordance with the provisions of the Companies Act, 1965 and MASB Approved Accounting Standards in Malaysia for Entities Other Than Private Entities. Annual Report 2007 omi Engineering Bhd Sc Signed on behalf of the Board of Directors in accordance with their resolution dated 29 April 2008.

DATUK ZAINUN AISHAH BINTI AHMAD SHAH HAKIM @ SHAHZANIM BIN ZAIN DIRECTOR DIRECTOR

statutory declaration pursuant to section 169(16) of the companies act, 1965

I, Gregory Jerome Gerald Fernandes, being the officer primarily responsible for the financial management of Scomi Engineering Bhd, do solemnly and sincerely declare that the financial statements set out on pages 50 to 110 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.

GREGORY JEROME GERALD FERNANDES

Subscribed and solemnly declared by the abovenamed Gregory Jerome Gerald Fernandes at Kuala Lumpur on 29 April 2008, before me.

COMMISSIONER FOR OATHS No. W315 SOH AH KAU, AMN .scomiengineering.com.my www 112 report of the auditors Annual Report 2007 Annual Report Sc to the members of scomi engineering bhd (company no. 111633 m) (incorporated in malaysia) omi Engineering Bhd

We have audited the financial statements set out on pages 50 to 110. 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 these financial statements and to report our opinion to you, as a body, in accordance with Section 174 of the Companies Act, 1965 and for no other purpose. We do not assume responsibility to any other person for the content of this report.

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

In our opinion:

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

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

(ii) the state of affairs of the Group and Company as at 31 December 2007 and of the results and cash flows of the Group and Company for the financial year ended on that date;

and

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

The names of the subsidiaries of which we have not acted as auditors are indicated in Note 18 to the financial statements. We have considered the audited financial statements of these subsidiaries and the auditors’ reports thereon.

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

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

PRICEWATERHOUSECOOPERS SRIDHARAN NAIR (No. AF: 1146) (No. 2656/05/08 (J)) Chartered Accountants Partner of the firm

Kuala Lumpur 29 April 2008 www .scomiengineering.com.my analysis of shareholdings 113

Share Capital as at 30 April 2008 Authorised Share Capital : RM400,000,000.00 divided into 400,000,000 ordinary shares of RM1.00 each Issued and Paid-Up Capital : RM275,680,067.00 divided into 275,680,067 ordinary shares of RM1.00 each. This included 2,000 ordinary shares purchased by the Company under share buy-back scheme and retained as treasury shares. Annual Report 2007

Types of Shares : Ordinary share of RM1.00 each omi Engineering Bhd Sc Voting Rights : One vote per ordinary share

Distribution of Shareholdings as at 30 April 2008

Shareholders Shareholding Size of Shareholdings No. of Holders % of Holders No. of Shares % of Shares

Less than 100 35 1.29 147 0.00 100 to 1,000 801 29.56 590,200 0.21 1,001 to 10,000 1,400 51.66 6,522,856 2.37 10,001 to 100,000 410 15.13 12,935,959 4.69 100,001 to less than 5% of issued shares 62 2.29 66,872,528 24.26 5% and above of issued shares 2 0.07 188,756,377 68.47

Total 2,710 100.00 275,678,067 100.00

Substantial Shareholders as at 30 April 2008

Direct Shareholding Indirect Shareholding Substantial Shareholders No. of Shares % of Shares No. of Shares % of Shares

Scomi Group Bhd (*) 192,567,567 69.85 – – Kaspadu Sdn Bhd – – (1) 192,567,567 69.85 Shah Hakim @ Shahzanim bin Zain – – (2) 192,567,567 69.85 Dato’ Kamaluddin bin Abdullah – – (2) 192,567,567 69.85

Notes:

(*) 19,992,180 Scomi Engineering Shares held through ECML Nominees (Tempatan) Sdn Bhd.

(1) Deemed interested by virtue of Section 6A(4) of the Companies Act, 1965 (“the Act”) through its interest in Scomi Group Bhd, which in turn is deemed interested in Scomi Engineering Bhd.

(2) Deemed interested by virtue of Section 6A(4) of the Act through his shareholding in Kaspadu Sdn Bhd, which in turn is deemed interested in Scomi Engineering Bhd. .scomiengineering.com.my www 114 analysis of shareholdings (cont’d.) Annual Report 2007 Annual Report Sc omi Engineering Bhd

Thirty Largest Registered Shareholders as at 30 April 2008

No. Registered Shareholders No. of % of Shares Shares

1. Scomi Group Bhd 172,575,387 62.60 2. ECML Nominees (Tempatan) Sdn Bhd Lee Hishammuddin Allen & Gledhill for Scomi Group Bhd (A/C No. 2) 16,180,990 5.87 3. HSBC Nominees (Asing) Sdn Bhd Exempt An for Credit Suisse (SG BR-TST-Asing) 11,992,300 4.35 4. Bara Aktif Sdn Bhd 8,949,000 3.25 5. Eagletron Venture Corp. 8,489,000 3.08 6. Nik Awang @ Wan Azmi Bin Wan Hamzah 5,478,714 1.99 7. ECML Nominees (Tempatan) Sdn Bhd Lee Hishammuddin Allen & Gledhill for Scomi Group Bhd (A/C No. 1) 3,811,190 1.38 8. HSBC Nominees (Tempatan) Sdn Bhd Nomura Asset Mgmt Malaysia for Employees Provident Fund 3,436,100 1.25 9. Malaysia Nominees (Tempatan) Sendirian Berhad Great Eastern Life Assurance (Malaysia) Berhad (DR) 3,197,000 1.16 10. Malaysia Nominees (Tempatan) Sendirian Berhad Great Eastern Life Assurance (Malaysia) Berhad (LPF) 3,075,700 1.12 11. Malaysia Nominees (Tempatan) Sendirian Berhad Great Eastern Life Assurance (Malaysia) Berhad (LGF) 2,120,400 0.77 12. Hilmy Zaini bin Zainal 1,124,000 0.41 13. Chew Keat Soon 878,400 0.32 14. Malaysia Nominees (Tempatan) Sendirian Berhad Great Eastern Life Assurance (Malaysia) Berhad (LSF) 860,000 0.31 15. Wong Chock Faa 641,839 0.23 16. Foong Seng 620,662 0.23 17. Malaysia Nominees (Tempatan) Sendirian Berhad Overseas Assurance Corporation (Malaysia) Berhad (MGF) 593,300 0.22 18. Malaysia Nominees (Tempatan) Sendirian Berhad Great Eastern Life Assurance (Malaysia) Berhad (LBF) 540,900 0.20 19. Hew Su Yen 510,800 0.19 20. Ee Bee Pheng 500,000 0.18 21. Hew Tet Ken 489,200 0.18 22. Mansor bin Tahir 484,900 0.18 23. CIMSEC Nominees (Tempatan) Sdn Bhd CIMB Bank for Haris Onn bin Hussein (MM0614) 483,400 0.18 24. Public Nominees (Tempatan) Sdn Bhd Pledge Securities Account for Koay Fan Chim (IMO/TAS) 431,000 0.16

www 25. Ching Teik Ming 363,000 0.13

.scomiengineering.com.my 26. TCL Nominees (Tempatan) Sdn Bhd OCBC Securities Private Limited for Cheong Siew Seng 327,000 0.12 27. Mohammad Allaudin & Co Sdn Bhd 317,000 0.11 115

No. Registered Shareholders No. of % of Shares Shares Annual Report 2007

28. Balakrisnen a/l Subban 300,000 0.11 omi Engineering Bhd Sc 29. Muhd Mawardi bin Hasan 297,500 0.11 30. Public Nominees (Tempatan) Sdn Bhd Pledge Securities Account for Lee Chiah Cheang (KLC/HLG) 285,000 0.10

Total: 249,353,682 90.45

Directors’ Shareholdings as at 30 April 2008 The Directors’ interest in shares in the Company and its related companies as at 30 April 2008 are as follows:

Direct Interest Indirect Interest No. of % of No. of No. of % of Shares Shares Options Shares Shares

The Company Datuk Zainun Aishah binti Ahmad – – 1,000,000 # –– Dato’ Abdul Rahim bin Abu Bakar – – 600,000 # –– Dato’ Nordin bin Baharuddin – – 540,000 # –– Edlin bin Ghazaly – – 600,000 # –– Fad’l bin Mohamed 60,000 0.02 480,000 # –– Shah Hakim @ Shahzanim bin Zain – – 2,000,000 # 192,567,567 ^ 69.85

Related Companies Shah Hakim @ Shahzanim bin Zain * Scomi Group Bhd 529,100 0.05 7,356,500 ** 345,337,025 ^^ 34.33

Notes:- # Options granted pursuant to the Company’s Employees’ Share Options Scheme to subscribe for ordinary shares in the Company. *By virtue of his interests in the shares and options in Scomi Group Bhd ("SGB"), the holding company of the Company, as disclosed above, he is deemed to have an interest in shares in all the subsidiaries of SEB. ** Options granted pursuant to SGB’s Employees’ Share Options Scheme to subscribe for ordinary shares in SGB. ^ Deemed interested by virtue of Section 6A(4) of the Act through his interest in SGB, which in turn is deemed interested in Scomi Engineering Bhd. ^^ Deemed interested by virtue of Section 6A(4) of the Act through his shareholding in Kaspadu Sdn Bhd, which in turn is deemed interested in SGB. .scomiengineering.com.my www 116 list of properties as at 31 december 2007 Annual Report 2007 Annual Report Sc omi Engineering Bhd

Registered Description/ Existing Use Tenure of land: Land area/ Approximate Audited net Owner Location Address ie. freehold or Built-up area age of book value as Leasehold (years)/ building at 31.12.2007 Date of Acquisition (RM'000)

Scomi OMS Oilfield Land (Lot 926C Workshop/Office Leasehold (remaining Land area: 20 years Building: 4,001 Services Pte Ltd Mukim 7) and 10 (ten) years 150,388 sq ft Leasehold Building: 7 months, until Built-up area: 48 Gul Circle 2018) 01.01.1978 28,772 sq ft Singapore 629581

Scomi OMS Oilfield Vacant industrial land: sub-let Leasehold for Land area: N/A Land: 173 Holdings Sdn Bhd Jalan Arsat Federal 999 years (until 1,821 sq metres Territory of Labuan 2868) 28.06.1984 Malaysia

Scomi OMS Oilfield Vacant industrial land: sub-let Leasehold for Land area: N/A Land: 192 Services Sdn Bhd Jalan Arsat Federal 999 years (until 2,023 sq metres Territory of Labuan 2868) 27.06.1984 Malaysia

PT Scomi OMS Land: Workshop, Office Leasehold for Land area: N/A Land: 2,560 Oilfield Services Jl. Mulawarman, and staff house 20 years (until 7,467 sq meters (formerly known as RT 022 RW 07, 24.09.2026) for for workshop, PT OMS Oilfield Sepinggan Balikpapan Office and 7 years office and Services) Selatan, Kalimantan, for staff house 2,440 sq meters Indonesia for staff house

PT Scomi OMS Building: Workshop, Office Leasehold for Land area: 10 years Building: 733 Oilfield Services Jl. Mulawarman, and staff house 20 years (until 2,291 sq metres (formerly known as RT 022 RW 07, 13.03.2012) and for workshop, PT OMS Oilfield Sepinggan Balikpapan 7 years for staff office and Services) Selatan, Kalimantan, house 343 sq meter Indonesia for staff house

Scomi Coach Sdn Land and Building: Factory and Freehold 15.04.1996 Land area: 11 years Building: 10,566 Bhd (formerly known EMR 2751 Lot 795 and Office 61,714 sq metres Land: 8,020 as MTrans Bus Sdn EMR 2616 Lot 796 Built-up area: Bhd) Mukim Serendah, 14,056 sq metres Daerah Hulu Selangor Malaysia

Scomi OMS Oilfield Land: Workshop, Office Leasehold for Land area: N/A Land: 1,971 Services Sdn Bhd Lot No. 31, 60 years (until 2067) 130,680 sq ft Johor Technology Park Senai - Kulai, Johor Bahru, Malaysia

1 Scomi OMS Oilfield Building: Workshop, Office Leasehold for Land area: /2 year Building: 4,806 Services Sdn Bhd Lot 1 of 206291750 10 years 2,466 sq metres Ranca-ranca Industrial (until 31.12.2016) for workshop, www Estate, Jalan Patau-patau, office

.scomiengineering.com.my Territory of Labuan, Malaysia corporate directory 117

LOGISTICS ENGINEERING Australia (Darwin) Malaysia (Johor) SCOMI OMS OILFIELD SERVICES SCOMI OMS OILFIELD SERVICES SDN BHD SCOMI SPECIAL VEHICLES SDN BHD (AUSTRALIA) PTY LTD PLO 31, Jalan Teknologi 2 (formerly known as Scomi Sdn Bhd) (formerly known as OMS Oilfield Services Taman Teknologi Johor

Lot 795, Jalan Monorel (Australia) Pty Ltd) 81400 Senai, Johor Bahru Annual Report 2007 Malaysia omi Engineering Bhd

Sungai Choh, Rawang Lot 1702 Mckinnon Road Sc 48000 Selangor Darul Ehsan Pinelands 0829 Tel:+607 598 9161 Malaysia Northern Territory, Australia Fax: +607 598 9164 Tel:+603 6092 3888 Tel:+618 8939 0900 Fax: +603 6091 9203 Fax: +618 8932 3738 Malaysia (Labuan) SCOMI OMS OILFIELD SERVICES SDN BHD Ranca-Ranca Industrial Estate SCOMI RAIL BHD Brunei Darussalam P O Box 80823 (formerly known as Mtrans Technology PY OILTOOLS SDN BHD 87018 Labuan F T Berhad) Lot 34/40, Light Industrial Area East Malaysia Suite 5.03, 5th Floor Sungai Bera, Anduki Tel:+6087 413 923 Wisma Chase Perdana Seria KB2133 Fax: +6087 416 281 Off Jalan Semantan Negara Brunei Darussalam Damansara Heights Tel:+673 322 8530 Thailand (Songkhla) 50490 Kuala Lumpur Fax: +673 322 8262 SCOMI OMS OILFIELD SERVICES Malaysia (THAILAND) LTD Tel:+603 2080 6222 Indonesia (Balikpapan) (formerly known as OMS Oilfield Services Fax: +603 2080 6328 PT SCOMI OMS OILFIELD SERVICES (Thailand) Ltd (formerly known as PT OMS Oilfield Services) 428, Moo 2, Songkhla-Kho Yor Road, Tambol SCOMI COACH SDN BHD Jl. Mulawarman Rt. 23 No. 115 Phawong, Amphur Muang (formerly known as Mtrans Bus Sdn Bhd) Batakan Kecil Songkhla 90100 SCOMI COACH MARKETING SDN BHD Balikpapan 76115 Thailand (formerly known as Potensi Serakan Sdn Bhd) East Kalimantan, Indonesia Tel:+66 74 333 881 Lot 795, Jalan Monorel Tel:+62 542 770 082 Fax: +66 74 333 421 Sungai Choh, Rawang Fax: +62 542 770 084 48000 Selangor Darul Ehsan Singapore Malaysia Indonesia (Irian Jaya) SCOMI OMS OILFIELD SERVICES PTE LTD Tel:+603 6092 3888 PT SCOMI OMS OILFIELD SERVICES No. 48 Gul Circle Fax: +603 6091 9203 (formerly known as PT OMS Oilfield Services) Jurong Tangguh Shorebase Singapore 629581 District Babo Republic of Singapore ENERGY ENGINEERING Kabupaten Teluk Bintuni 98363 Tel:+65 6861 2677 Irian Jaya Barat Fax: +65 6862 2719 Corporate Indonesia SCOMI OMS OILFIELD SERVICES SDN BHD Tel:+62 21 7854 4317 Saudi Arabia SCOMI OMS OILFIELD SERVICES Suite 3A.1, 3A Floor ARABIA LIMITED Wisma Chase Perdana Malaysia (Kemaman) P O Box 117 Off Jalan Semantan SCOMI OMS OILFIELD SERVICES SDN BHD Abqaiq, Eastern Province 31992 Damansara Heights Warehouse 14, Door No. 1 & 16 Kingdom of Saudi Arabia 50490 Kuala Lumpur Kemaman Supply Base Tel:+966 3 566 1002/22 Malaysia 24007 Kemaman, Terengganu Tel:+603 2080 6222 Malaysia Fax: +603 2080 6333 Tel:+609 863 1948 Fax: +609 863 1830 .scomiengineering.com.my www 118 notice of annual general meeting Annual Report 2007 Annual Report Sc omi Engineering Bhd

NOTICE IS HEREBY GIVEN that the 24th Annual General Meeting of SCOMI ENGINEERING BHD. (the “Company”) will be held at Ballroom 1, 1st Floor, Sime Darby Convention Centre, 1A Jalan Bukit Kiara 1, 60000 Kuala Lumpur on 23 June 2008 at 3.00 p.m. for the following purposes:

AS ORDINARY BUSINESS:

To consider, and if thought fit, to pass the following as Ordinary Resolutions:

1. To receive the Financial Statements for the financial year ended 31 December 2007 and the Reports of the Directors and Auditors thereon.

2. To approve the declaration of a first and final tax exempt dividend of 5 sen per ordinary share of RM1.00 each (Resolution 1) for the financial year ended 31 December 2007 as recommended by the Directors.

3. To re-elect the following Directors who are retiring pursuant to Article 80 of the Company’s Articles of Association and being eligible, offer themselves for re-election: (i) Datuk Zainun Aishah binti Ahmad (Resolution 2) (ii) Dato’ Abdul Rahim bin Abu Bakar (Resolution 3)

4. To approve the payment of Directors’ fees for the financial year ended 31 December 2007. (Resolution 4)

5. To re-appoint Messrs PricewaterhouseCoopers as Auditors of the Company for the ensuing year and to authorise (Resolution 5) the Directors to fix their remuneration.

AS SPECIAL BUSINESS:

To consider and, if thought fit, to pass the following as Ordinary Resolution:

6. Authority to Issue and Allot Shares Pursuant to Section 132D of the Companies Act, 1965 (Resolution 6)

“THAT, subject to the Companies Act, 1965, the Articles of Association of the Company and the approvals of the relevant governmental and/or regulatory authorities where necessary, the Directors be and are hereby authorised, pursuant to Section 132D of the Companies Act, 1965, to issue and allot shares in the Company, at any time and upon such terms and conditions and for such purposes as the Directors may in their absolute discretion deem fit, provided that the aggregate number of shares issued pursuant to this resolution does not exceed ten percent (10%) of the issued and paid-up share capital of the Company for the time being and that the Directors be and are hereby further authorised to obtain approval for the listing of and quotation for the additional shares so issued on Bursa Malaysia Securities Berhad and that such authority shall continue in force until the conclusion of the next Annual General Meeting of the Company.”

7. Proposed Renewal of Authority for the Purchase by the Company of its ordinary shares of up to 10% of the (Resolution 7) issued and paid-up share capital (“Share Buy-back”)

“THAT, subject to the approval of the relevant authorities, approval be and is hereby given for the Company to acquire its own ordinary shares of RM1.00 each of up to 10% of its issued and paid-up capital (“SEB Shares”) from the market of Bursa Malaysia Securities Berhad (“Bursa Securities”), as may be determined by the Directors of the Company from time to time, in the manner set out in the Share Buy-back Statement to the Company’s shareholders dated 30 May 2008 (“Statement”); www .scomiengineering.com.my 119

THAT such authority shall commence upon the passing of this resolution and shall continue to be in force until:

1. the conclusion of the next Annual General Meeting at which time the authority will lapse, unless by an ordinary resolution passed at the next Annual General Meeting, the authority is renewed; or Annual Report 2007 omi Engineering Bhd

2. the expiration of the period within which the next Annual General Meeting after that date is required by law to be held; or Sc

3. revoked or varied by an ordinary resolution of the Company’s shareholders in a general meeting, whichever occurs the earliest, but not so as to prejudice the completion of purchase(s) by the Company before the aforesaid expiry date;

AND THAT the Directors of the Company be and are hereby authorised to take all such steps and do all acts and deeds and to execute, sign and deliver on behalf of the Company all necessary documents to give full effect to and for the purpose of completing or implementing the Share Buy-back in the manner set out in the Statement, which would include the maximum funds to be allocated by the Company for this purpose and that following completion of the Share Buy-back, the power to cancel or retain as treasury shares, any or all of the SEB Shares so purchased, resell on Bursa Securities or distribute as dividends to the Company’s shareholders or subsequently cancel, any or all of the treasury shares, with full power to assent to any condition, revaluation, modification, variation and/or amendment in any manner as may be required by any relevant authority or otherwise as they deem fit in the best interests of the Company.”

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

By Order of the Board

CHONG MEI YAN (MAICSA 7047707) Company Secretary

Kuala Lumpur Date: 30 May 2008

Note 1: Appointment of Proxy (i) A member of the Company entitled to attend and vote at the meeting may appoint a proxy or proxies to attend and vote on his/her behalf. A proxy may but need not be a member of the Company. (ii) Where a member appoints more than one proxy, the appointments shall be invalid unless he/she specifies the proportion of his/her holding to be represented by each proxy. (iii) Where a member is an authorised nominee as defined under the Securities Industry (Central Depositories) Act 1991, it may appoint at least one proxy but not more than two proxies in respect of each securities account it holds with ordinary shares standing to the credit of the said securities account. (iv) The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or, if the appointor is a corporation, either under the seal or under the hand of an officer or attorney duly authorised. If no name is inserted in the space for the name of your proxy, the Chairman of the Meeting will act as your proxy. (v) The instrument appointing a proxy must be completed and deposited at the office of the Share Registrar of the Company, Symphony Share Registrars Sdn Bhd at Level 26, Menara Multi Purpose, Capital Square, No. 8, Jalan Munshi Abdullah, 50100 Kuala Lumpur, not less than forty-eight (48) hours before the time appointed for holding the Annual General Meeting or any adjournment thereof, or in the case of a poll, not less than twenty-four (24) hours before the time appointed for the taking of the poll.

Note 2 : Explanatory Note on Item 6 of the Agenda (Resolution 6) The ordinary resolution under Item 6 above is proposed pursuant to Section 132D of the Companies Act, 1965, and if passed, will give the Directors of the Company authority, from the date of the above Annual General Meeting, to issue and allot shares in the Company at any time up to an aggregate amount not exceeding 10% of the issued and paid-up share capital of the Company for such purposes as the Directors deem fit and in the interest of the Company (“Share Mandate”). This Share Mandate, unless revoked or varied at a general meeting, will expire at the conclusion of the next Annual General Meeting of the Company. With this Share Mandate, the Company will be able to raise capital from the equity market in a shorter period of time compared to a situation without the Share Mandate. In addition, the costs involved will also be lower as the need to have an Extraordinary General Meeting (“EGM”) will be dispensed with. The Company will have to seek shareholders’ approval at an EGM to be convened in the event that the proposed issuance of shares exceeds the 10% threshold contained in the Share Mandate. Note 3 : Explanatory Note on Item 7 of the Agenda (Resolution 7) The ordinary resolution under Item 7 above, if passed, will empower the Directors to purchase the shares of up to ten percent (10%) of the issued and paid-up share capital of the Company by utilising funds not exceeding the retained profits and the share premium account of the Company. This authority, unless revoked or varied at a general meeting, will expire at the earlier of either the conclusion of the next Annual General Meeting of the Company or the expiry of the period within which the next Annual General Meeting is required by law to be held.

The details relating to Resolution no. 7 are set out in the Share Buy-back Statement to Shareholders dated 30 May 2008. .scomiengineering.com.my www 120

Annual Report 2007 Annual Report Sc statement accompanying omi Engineering Bhd notice of 24th annual general meeting

1. DIRECTORS STANDING FOR RE-ELECTION AT THE 24TH ANNUAL GENERAL MEETING OF THE COMPANY Details of Directors standing for re-election are as follows:

Name of Director Director’s Profile (page number in this Annual Report) Datuk Zainun Aishah binti Ahmad please refer to page 24 Dato’ Abdul Rahim bin Abu Bakar please refer to page 25

2. DETAILS OF DIRECTORS’ ATTENDANCE AT BOARD MEETINGS A total of six (6) Board Meetings were held during the financial year ended 31 December 2007.

Name of Director No. of Meetings Attended Datuk Zainun Aishah binti Ahmad 6/6 Dato’ Abdul Rahim bin Abu Bakar 6/6 Dato’ Nordin bin Baharuddin 6/6 Edlin bin Ghazaly 6/6 Fad’l bin Mohamed 5/6 Shah Hakim @ Shahzanim bin Zain 6/6

3. DETAILS OF DATE, TIME AND PLACE OF 24TH ANNUAL GENERAL MEETING The 24th Annual General Meeting of Scomi Engineering Bhd, will be held as follows: Date : 23 June 2008 Time : 3:00 p.m. Place : Ballroom 1, 1st Floor, Sime Darby Convention Centre, 1A Jalan Bukit Kiara 1, 60000 Kuala Lumpur www .scomiengineering.com.my form of proxy

SCOMI ENGINEERING BHD No. of Ordinary Shares Held (Company No: 111633-M) (Incorporated in Malaysia under the Companies Act, 1965) Registered Office: Suite 5.03, 5th Floor, Wisma Chase Perdana, Off Jalan Semantan, Damansara Heights, 50490 Kuala Lumpur, Malaysia Annual Report 2007 omi Engineering Bhd Sc

I/We ______NRIC/Passport No ______(Full name) of______(Full address) being a member/members of Scomi Engineering Bhd, hereby appoint______(Full name and NRIC/Passport No.) of______(Full address) or failing him/her ______(Full name) of______(Full address) or failing him/her, the Chairman of the Meeting as my/our proxy to vote for me/us on my/our behalf at the 24th Annual General Meeting of Scomi Engineering Bhd (the “Company”) to be held at Ballroom 1, 1st Floor, Sime Darby Convention Centre, 1A Jalan Bukit Kiara 1, 60000 Kuala Lumpur on 23 June 2008 at 3.00 p.m., or any adjournment thereof.

Ordinary Business For Against

Resolution 1 To approve the declaration of a first and final tax exempt dividend of 5 sen per ordinary share of RM1.00 each for the financial year ended 31 December 2007 as recommended by the Directors.

To re-elect the following Directors who are retiring pursuant to Article 80 of the Company’s Articles of Association and being eligible, offer themselves for re-election:

Resolution 2 (i) Datuk Zainun Aishah binti Ahmad

Resolution 3 (ii) Dato’ Abdul Rahim bin Abu Bakar

Resolution 4 To approve the payment of Directors’ fees for the financial year ended 31 December 2007.

Resolution 5 To re-appoint Messrs PricewaterhouseCoopers as Auditors of the Company for the ensuing year and to authorise the Directors to fix their remuneration.

Special Business For Against

Resolution 6 Authority to Issue and Allot Shares Pursuant to Section 132D of the Companies Act, 1965.

Resolution 7 Proposed Renewal of Authority for the Purchase by the Company of its ordinary shares of up to 10% of the issued and paid-up share capital (“Share Buy-back”).

Please indicate with a check mark ("√") in the space provided to show how you wish your vote to be cast. If no specific direction as to voting is given, the proxy will vote or abstain at his/her discretion.

Dated this...... day of...... 2008 Signature/Seal...... scomiengineering.com.my www Fold this flap for sealing

Notes: (i) A member of the Company entitled to attend and vote at the meeting may appoint a proxy or proxies to attend and vote on his/her behalf. A proxy may but need not be a member of the Company. (ii) Where a member appoints more than one proxy, the appointments shall be invalid unless he/she specifies the proportion of his/her holding to be represented by each proxy. (iii) Where a member is an authorised nominee as defined under the Securities Industry (Central Depositories) Act 1991, it may appoint at least one proxy but not more than two proxies in respect of each securities account it holds with ordinary shares standing to the credit of the said securities account. (iv) The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or, if the appointor is a corporation, either under the seal or under the hand of an officer or attorney duly authorised. If no name is inserted in the space for the name of your proxy, the Chairman of the Meeting will act as your proxy. (v) The instrument appointing a proxy must be completed and deposited at the office of the Share Registrar of the Company, Symphony Share Registrars Sdn Bhd at Level 26, Menara Multi Purpose, Capital Square, No. 8, Jalan Munshi Abdullah, 50100 Kuala Lumpur, not less than forty-eight (48) hours before the time appointed for holding the Annual General Meeting or any adjournment thereof, or in the case of a poll, not less than twenty-four (24) hours before the time appointed for the taking of the poll.

Then fold here

AFFIX STAMP

The Registrar of Scomi Engineering Bhd Symphony Share Registrars Sdn. Bhd. Level 26, Menara Multi Purpose Capital Square No. 8, Jalan Munshi Abdullah 50100 Kuala Lumpur Malaysia

1st fold here www.scomiengineering.com.my

SCOMI ENGINEERING BHD (111633-M) 5th Floor, Wisma Chase Perdana, Off Jalan Semantan, Damansara Heights, 50490 Kuala Lumpur, Malaysia Tel: +603 2080 6222 Fax: +603 2080 6333