CONTENTS

02 VISION & MISSION 02 COMMITMENT 03 KEY CORPORATE OBJECTIVES 03 CORE VALUES 04 QUALITY POLICY 05 ENVIRONMENTAL POLICY 06 OCCUPATIONAL SAFETY & HEALTH POLICY 07 RISK MANAGEMENT POLICY 08 OUT-GOING CHAIRMAN’S MESSAGE 09 NEW CHAIRMAN’S MESSAGE 11 CEO’S PROFILE 12 CEO’S MESSAGE 14 CORPORATE INFORMATION 15 CORPORATE STRUCTURE 16 FINANCIAL HIGHLIGHTS 17 FINANCIAL CALENDAR 2007 18 DIRECTORS’ PROFILE 23 SENIOR MANAGEMENT TEAM 24 CORPORATE CALENDAR 28 CORPORATE SOCIAL RESPONSIBILITY 30 AWARDS RECEIVED BY PIHAK BERKUASA AIR PULAU PINANG (PBA) 31 AWARDS RECEIVED BY PERBADANAN BEKALAN AIR PULAU PINANG SDN. BHD. (PBAPP)

REPORT FOR SUBSIDIARY COMPANY PERBADANAN BEKALAN AIR PULAU PINANG SDN. BHD. (PBAPP) 32 BOARD OF DIRECTORS 33 SENIOR MANAGEMENT TEAM 34 PENANG WATER SUPPLY STATISTICS 35 WATER TREATMENT PROCESS 36 PENANG STATE WATER SUPPLY INFRASTRUCTURE 37 OPERATIONS REVIEW 40 ADMINISTRATION REPORT

42 STATEMENT ON CORPORATE GOVERNANCE 46 STATEMENT ON INTERNAL CONTROL 48 AUDIT COMMITTEE REPORT 52 ADDITIONAL COMPLIANCE INFORMATION

FINANCIAL STATEMENTS 54 DIRECTORS’ REPORT 57 STATEMENT BY DIRECTORS/ STATUTORY DECLARATION 58 REPORT OF THE AUDITORS TO THE MEMBERS 59 INCOME STATEMENTS 60 BALANCE SHEETS 62 STATEMENTS OF CHANGES IN EQUITY 64 CASH FLOW STATEMENTS 66 NOTES TO THE FINANCIAL STATEMENTS

106 ANALYSIS OF SHAREHOLDINGS 108 TOP 10 PROPERTIES OF THE GROUP 109 NOTICE OF ANNUAL GENERAL MEETING 111 NOTICE OF DIVIDEND ENTITLEMENT 112 STATEMENT ACCOMPANYING NOTICE OF ANNUAL GENERAL MEETING 113 PROXY FORM

VISION Meeting all your water supply needs MISSION PBAPP will be the leading organisation in water supply

COMMITMENT We will be environmentally sensitive, responsible, proactive, professional, innovative and committed to excellence and sustainable development.

We will be responsible for the development of water supply and delivering the best possible service by being customer- oriented.

02 PBA HOLDINGS BHD (515119-U) KEY CORPORATE OBJECTIVES

• Uninterrupted water supply • Customer satisfaction • Skilled, competent and motivated workforce • Effective teamwork • Timely and orderly development of water resources • Productive utilization of financial and other resources • Continuous improvement in all fields • Compliance with all relevant legislations • Effective relations with government agencies and industrial organisations

CORE VALUES

• Accountability • Communication • Teamwork • Integrity • On-Going Learning • New Ways of Improvement

PBA HOLDINGS BHD (515119-U) 03 QUALITY POLICY

In line with its corporate objectives, Perbadanan Bekalan • Provide the best possible training opportunities to Air Pulau Pinang Sdn Bhd (PBAPP) is fully committed encourage its employees to continuously upgrade towards continual improvement as it strives to provide their competency levels, knowledge and skills; high quality services and products that will satisfy and delight customers. • Uphold its reputation as a model water supply organization in Malaysia; Accordingly, PBAPP will: • Ensure the protection, preservation and conservation • Continually improve and update its Quality of the environment; Management System which is based on international ISO9001:2000 standards; • Provide a safe and healthy working environment for all its personnel; and • Sustain a corporate culture driven by continual improvement by promoting and encouraging • Ensure that all its personnel are fully committed innovation, teamwork, diligence and creativity, as towards promoting and implementing this quality well as a proactive approach to water supply services; management policy in all aspects of its operations and services.

04 PBA HOLDINGS BHD (515119-U) ENVIRONMENTAL POLICY

In line with its corporate objectives, Perbadanan Bekalan • Conduct its business in a professional manner with Air Pulau Pinang Sdn Bhd (PBAPP) is fully committed emphasis on measurable key performance indicators towards protecting, preserving and conserving the and results, good corporate governance and environment while striving to meet all of Penang’s corporate social responsibility; water supply needs. • Prevent and avoid, as far as possible, any form of Accordingly, PBAPP will: pollution by practicing proper procedures, implementing control and monitoring mechanism, • Continually improve, update and expand its and conducting ISO14001:2004 audit practices Environmental Management System which is based and reviews; on international ISO14001:2004 standards; • Comply with all related environmental legislative • Strive to conduct its operations in a manner that is and legal standards, requirements and laws set by in harmony with nature; the Malaysian Government; and

• Reduce and/or control wastage of natural water • Ensure that all its personnel are fully committed resources and consumption of energy and chemicals; towards promoting and implementing this environmental management policy in all aspects of its operations and services.

PBA HOLDINGS BHD (515119-U) 05 OCCUPATIONAL SAFETY & HEALTH POLICY

In line with its corporate objectives, Perbadanan Bekalan Air Pulau Pinang Sdn Bhd (PBAPP) is fully committed towards protecting, sustaining and supporting the well-being of its workforce.

Accordingly, PBAPP will:

• Continually improve and update its Occupational Safety & Health Management System which is based on international OHSAS18001:1999 specification;

• Promote safe and healthy work practices in all its offices, complexes and installations by identifying the hazards, assessing the risks and implementing control measures;

• Ensure that all its business activities are conducted without compromising the safety and health of its employees, contractors, suppliers, customers and visitors;

• Prevent and avoid, as far as possible, any workplace mishap by practicing proper procedures, implementing control and monitoring mechanisms, and conducting OHSAS18001:1999 audit practices and reviews;

• Comply with all legislative and legal requirements and laws set by the Malaysian Government in relation to occupational safety and health; and

• Ensure that all its personnel are fully committed towards promoting and implementing this occupational safety & health management policy in all aspects of its operations and services.

06 PBA HOLDINGS BHD (515119-U) RISK MANAGEMENT POLICY

• Continuously identifying and assessing risks and improving control measures steered by clear guidelines for preventing, detecting and minimizing risks.

• Maintaining a continuous effort towards prioritizing and managing business risk based on the likelihood of occurrence (possibility) and magnitude of impact (severity) to: > Ensure business continuity; > Minimize any unexpected damage to reputation, shareholders’ value and confidence, and > Prevent capital leakage, wastage and loss of earnings.

• There shall be a continuous effort by management to create, promote and sustain a company-wide culture of risk awareness and management.

• Daily operating business risks shall be the primary responsibility of the management and employees of the Company whilst corporate risks and responsibilities shall remain with the Board.

PBA HOLDINGS BHD (515119-U) 07 OUT-GOING CHAIRMAN’S MESSAGE

TAN SRI DR. KOH TSU KOON Chairman, PBA Holdings Bhd. (resigned with effect from 18 April 2008)

As the first and now the out-going Chairman of the PBA Group, I mention these past achievements and future challenges in my it is my duty and privilege to briefly report on the past and out-going message for three reasons. The first is to point out reflect on the future in my last message. that the past nine years have been extremely challenging yet rewarding for a Group that has evolved rapidly and strived In 1999, by virtue of my position as the Chief Minister of relentlessly to serve its customers better. Penang, I was appointed as the Chairman of Perbadanan Bekalan Air Pulau Pinang Sdn Bhd (PBAPP) when the State Government The second is that I wish to highlight and acknowledge the decided to corporatise the water supply agency. I was also achievements of the management and staff who often delivered privileged to serve as the Chairman of PBA Holdings Bhd outstanding results in the face of tough challenges. First led (PBAHB) since its public listing on Main Board of Bursa Malaysia by Dato’ Ir Liew Chook San (who retired in 2007), and now by in 2002. Ir. Jaseni Maidinsa, the men and women in the PBA workforce have proven that they are amongst the best in Malaysia’s water For the past nine years, my colleagues in the Board, all the supply industry. warga PBA and I have always strived to serve our stakeholders conscientiously with three considerations in mind - progress, I would also like to record my sincere appreciation to my fellow profitability and public responsibility. PBAHB Board Members for their invaluable support and contribution. Please accept my heartfelt appreciation for all for During my tenure, PBAPP managed to excel and gain recognition your kind support and co-operation. Together, we have shown as the best water supply corporation in Malaysia, serving almost that it is possible to succeed as a public-listed group that is all of Penang’s population while sustaining the lowest water performance-driven, yet socially responsible. tariffs and lowest non-revenue water (NRW) percentage. PBAPP also secured three key international certifications - for continuous Thirdly, following a change of government in the State of improvement (ISO 9001:2000), environment-friendly operations Penang, after the March 2008 Malaysian General Election, the (ISO 14001:2004) and occupational health and safety (OHSAS time has come for me to make way for the new Chief Minister, 18001:1999). Y.A.B Lim Guan Eng, to take over as the new Chairman of the PBA Group. It is now his responsibility to steer the Group We have seen a 34.0 per cent increase in water consumption towards greater heights. I wish him well and urge all warga in Penang, from 195.8 billion litres in 1999 to 262.5 billion PBA to sustain their strong spirit of excellence in service. litres in 2007. Our customer base, in terms of water consumers in Penang, also increased by 36.0 per cent, from 338,523 Looking into the future, it will always be a great challenge for registered accounts in 1999 to 461,327 in 2007. PBAPP the PBA Group to maintain a fine balance between meeting continued to provide good continuous water supply, with 100 social and human needs for affordable potable water and per cent urban supply coverage and 99.5 per cent rural coverage. managing the rising costs of water supply. At the same time, the Group has to also deliver reasonable returns to shareholders. Along the way, the PBAPP also opened eight one-stop customer service centres, a 24-hour call centre, four one-stop Without sufficient in-state raw water resources, Penang will operations complexes and launched its website – also have to eventually tap other water resources from http://www.pba.com.my. In the PBA Group’s first joint venture neighbouring states. While we treasure state control over land, overseas, as a partner in Pinang Water Limited, we successfully and hence, water resources (including dams and reservoirs) we completed the development of a new water treatment plant in need financial support from the Federal Government for major Yichun City in the People’s Republic of China. water infrastructure works, as well as federal mediation and coordination to facilitate cross-border sharing of water resources. With 99 per cent bill collection efficiency, the PBA group has This calls for patience and perseverance, as well as political consistently posted healthy profits after tax (PAT) from its will and wisdom, from all parties concerned. operations yearly since 2002; and rewarded investors with good returns in the form of annual dividends. Having done my best during my tenure, I step down with a clear conscience and a fervent hope that the PBA Group will Having said that, we are keenly aware that water is an essential continue to chart new and exciting horizons, efficiently and resource for life and livelihoods. Therefore, water supply is a responsibly, for the benefit of its stakeholders and customers, public service that cannot be solely, or even primarily, profit- and the people of Penang. driven. As a responsible water supply group, we have strived to supply water to as many customers as possible, as efficiently as possible. As far as possible, we have kept water tariffs Tan Sri Dr. Koh Tsu Koon low. We have also supported initiatives in educating the people April 2008 on water conservation through sponsorship of activities by Water Watch Penang.

08 PBA HOLDINGS BHD (515119-U) NEW CHAIRMAN’S MESSAGE

Y.A.B. MR. LIM GUAN ENG Chairman, PBA Holdings Bhd. (appointed with effect from 18 April 2008) “ 2007 proved to be another successful year for the PBA Group of Companies. “ The Group set a new record for group operational revenue Chief Ministers – Yang Berhormat Mohd. Fairus Khairuddin in a year – RM181.5 million. This represents a 5.5% (as Non-Executive Deputy Chairman) and Yang Berhormat increase over the revenue for 2006. Prof. Dr. P. Ramasamy (as a Non-Executive Director). Tan Sri Dr. Koh Tsu Koon, Dato’ Seri Abdul Rashid bin More importantly, our profit after tax (PAT) for 2007 was Abdullah and Dato’ Koay Kar Huah have seized to hold recorded as RM42.62 million, representing an increase office as government appointed directors of the company of 29.58% in PAT as compared to the previous year with effect from 18 April 2008. (RM32.89 million). This significant increase is attributable to higher revenue coupled with enhanced efficiency. As part of its corporate governance, PBA Group of Companies is expected to adopt the “C.A.T.” philosophy The Board of Directors has proposed a final dividend of of the new Penang State Government. Competency, 7% less tax (at 27%), giving our shareholders a net Accountability and Transparency are the hallmarks of dividend proposed and declared of approximately 10% good governance and installing these values will make for the financial year ending 31 December 2007. the PBA Group more efficient, productive and profitable, as well as more successful, in meeting all of Penang’s water supply needs. NEW MEMBERS OF THE BOARD The Penang Government’s public goal is to try to ensure On behalf of the Board of Directors, I would like to record “Triple A” or “A.A.A” service – service that is Available, our sincere appreciation to the management and staff of Accessible and Affordable. The PBA Group has done the PBA Group of Companies, led by Ir. Jaseni Maidinsa, Penang proud by being the most profitable, in terms of for their good performance in 2007. revenue, and the most efficient, in terms of the lowest NRW percentage. As the newly elected Chief Minister of Penang, I took office as the Non-Executive Chairman of the Board with The present Board would like to assure all stakeholders effect from 18 April 2008. The other new Members who that we intend to guide the Group towards healthy growth, were appointed on the same day are Penang’s two Deputy positive results and sustainable profitability in the future.

PBA HOLDINGS BHD (515119-U) 09 NEW CHAIRMAN’S MESSAGE (CONT’D)

PROSPECTS FOR THE FUTURE value of RM4.8 billion for implementation in the State of Penang. So long as the economy of Penang continues In the foreseeable future, water supply in the State of to thrive, the PBA Group will continue to record healthy Penang will continue to be the core business, and hence, growth in revenue from the sale of water. the core revenue source for the PBA Group of Companies. As reflected in the corporate targets towards 2010, the Meanwhile, the Group’s other ventures, are expected to Group intends to further enhance its efficiency levels to generate additional income, albeit on a modest scale at maximise returns within our operational framework. the point of initial start-ups, in the next few years. In line with its policy of prudent diversification, the PBA The sale of water in Penang will continue to increase in Group will continue to explore other avenues for revenue the years to come. The 5.2% increase in consumption that will help to increase earnings with minimal risk. in the State of Penang in 2007 is indicative of a prevailing trend of upward spiraling water demand, supported by population growth as well as increasing business and Lim Guan Eng industrial activities. Industrial companies are amongst April 2008 the top water consumers in Penang. In 2007, the Malaysian Industrial Development Authority (MIDA) approved 134 industrial projects with a total investment

10 PBA HOLDINGS BHD (515119-U) CEO’S PROFILE

IR. JASENI BIN MAIDINSA aged 50, Malaysian citizen Chief Executive Officer of PBA Holdings Bhd (PBAHB) and General Manager of Perbadanan Bekalan Air Pulau Pinang Sdn Bhd (PBAPP)

Ir. Jaseni Maidinsa was appointed Chief Executive Officer Works Department (JKR), Kuala Lumpur (1979 – 1982), of PBA Holdings Bhd (PBAHB) and General Manager of Road Engineer in JKR Penang (1984 – 1985), Distribution Perbadanan Bekalan Air Pulau Pinang Sdn Bhd (PBAPP) and Workshop Engineer for Penang Island, PBA Penang with effect from 1 April 2007. (1985 – 1987), Consumer Engineer for Penang Island, PBA Penang (1987 – 1991), Senior Executive Engineer Ir. Jaseni holds a Diploma in Civil Engineering from for Planning and Development for Penang Island, PBA Universiti Teknologi Malaysia (1979); a BSc. (Hons.) Penang (1991 – 2001) and Development Manager, Civil Engineering degree from the University of Glasgow PBAPP (2001-2007). (1984); a Diploma in Management (Merit) from the Malaysian Institute of Management (1991); and a Masters He holds 53,000 ordinary shares in the Company but Degree in Business Administration from Universiti Sains does not hold any directorship in other public company. Malaysia (2001). He is a registered Professional Engineer He has no family relationship with any other Directors with the Board of Engineers, Malaysia (BEM), and is also and / or substantial shareholders of the Company, no a member of the Malaysian Water Association (MWA). conflict of interest with the Company and has had no conviction for any offences within the past ten (10) Ir. Jaseni has been serving in PBAPP, and previously in years. Pihak Berkuasa Air (PBA), for a total of 23 years. His previous appointment as Technical Assistant in the Public

PBA HOLDINGS BHD (515119-U) 11 CEO’S MESSAGE

As before, the core business of the Group in 2007 was the sale of water in the State of Penang. The group revenue of RM181.5 million in 2007 was derived from RM170.6 million in sales of water, RM10.6 million in trunk mains contributions and interest income.

Our higher revenue from the sale of water is directly related to a corresponding increase in recorded water consumption in the State of Penang in 2007. During the year in review, the recorded consumption was 262,475,731 cubic metres (1 cu.m. is equivalent to 1,000 litres). This represents a 5.2% increase in consumption as compared to 2006.

Other than the revenue mentioned above, the Group also recorded a total of RM22.9 million in other operating income comprising bad debt recovery, gross dividends from investments, disposal of investments, miscellaneous income, rental earnings, revenue from miscellaneous income.

PBAPP: OPERATIONAL HIGHLIGHTS

PBAPP continued to sustain 100% urban and 99.5% rural supply coverage during the year in review although the number of registered water consumers in the State of Penang had increased by 3.2%, from 447,034 consumers in 2006 to 461,327 consumers in 2007. At the same time, the company further enhanced its productivity quotient by increasing its employee to consumer ratio to 1 employee for every 427 registered consumers.

At the same time, Perbadanan Bekalan Air Pulau Pinang Sdn Bhd (PBAPP), our 100% owned subsidiary that serves as the water supply company for the State of Penang, successfully reduced the non-revenue water (NRW) percentage in Penang to 16.9% in 2007 as compared to 18.6% in 2006.

12 PBA HOLDINGS BHD (515119-U) CEO’S MESSAGE (CONT’D)

During the year in review, random independent water water supply. Its initial scope of operations test results revealed that the treated water supplied in encompasses the management and operation of the Penang continued to comply with the National Standards Air Itam Teambuilding Centre (AITC), a teambuilding for Drinking Water set by the Ministry of Health (MOH). facility developed near the Air Itam Dam in Penang and the Penang Water Services Academy (PWSA), Meanwhile, bill collection efficiency was recorded at 99%. a joint-venture business initiative with Penang Skills Development Centre (PSDC).

OTHER BUSINESSES • Pinang Water Ltd (PWL) - Yuan He Water Treatment APPRECIATION & ACKNOWLEDGEMENTS Plant PWL is a joint-venture amongst Ranhill Water On behalf of the management and staff of the Group, Technologies Sdn Bhd, PBA Holdings Bhd (PBAHB) I would like to record our sincere appreciation to the and YLI Holdings Bhd on a 37% : 26% : 37% equity previous Members of the Board - Tan Sri Dr. Koh Tsu basis. PWL has successfully constructed a treatment Koon, Dato Seri Abdul Rashid bin Abdullah and Dato’ plant in Yichun City in the People’s Republic of China. Koay Kar Huah - for their guidance in 2007. Now being managed by PWL’s 100% owned China- registered subsidiary - Yichun Pinang Water Co. Ltd At the same time, my colleagues and I welcome the new - this plant has commenced initial supply of 5 million Members of the Board with effect from 18 April 2008 - litres per day (MLD) since June 2006. PBAHB’s Yang Amat Berhormat Lim Guan Eng as Non-Executive accumulated share of pre-tax profits from this venture, Chairman of PBA Holdings Bhd and PBAPP, Yang for the period June 2006 – December 2007, totaled Berhormat Mohd. Fairus Khairuddin as Non-Executive RM687,000. Deputy Chairman, and Yang Berhormat Prof. Dr. P. Ramasamy as a Non-Executive Director. With their • Island Springwater Sdn Bhd good direction and support, I am confident that the PBA In November 2007, PBAHB incorporated its second Group can further enhance its performance and results wholly-owned subsidiary - Island Springwater Sdn in the future. Bhd. The company’s water bottling plant is under construction near the Guillemard Treatment Plant in In closing, I would like to thank all my colleagues and Tanjung Bungah, Penang. The company is projecting employees in the PBA Group for their good work and to commence production of drinking water from constructive contributions in 2007. The Group’s success November 2008. is your success. On behalf of the Group, I would also like to thank all our stakeholders, customers and business • PBA Resources Sdn Bhd partners for their kind support during the year in review. In December 2007, a third wholly-owned subsidiary was incorporated – PBA Resources Sdn Bhd. This company will manage and operate businesses involving Ir. Jaseni Maidinsa the PBA Group that are not directly related to potable April 2008

PBA HOLDINGS BHD (515119-U) 13 CORPORATE INFORMATION

PBA Holdings Bhd (515119-U) PBA Group of Companies

BOARD OF DIRECTORS • Y.A.B. Mr. Lim Guan Eng (Non-Executive Chairman) • Y.B. Encik Mohammad Fairus bin Khairuddin (Non-Executive Deputy Chairman) • Y.B. Prof. Dr. P. Ramasamy A/L Palanisamy (Non-Executive Director) • Y.B. Dato’ Jamaludin bin Hasan DMPN., SMP., SDK., AMN., AMP., (Non-Executive Director) • Y.B. Dato’ Supiah bt. Md Yusof DSPN., DJN., BCN., AMN., PJK., (Non-Executive Director) • Y. Bhg. Dato’ Chew Kong Seng DMPN., (Independent Non-Executive Director) • Y. Bhg. Dato’ Dr. M. SHANmughalingam REGISTERED OFFICE DPMP., KMN., (Independent Non-Executive Director) 32nd Floor, Komtar, 10000 Penang • Y. Bhg. Dato’ Haji Adlan bin Hj Mohamed Daud Tel : (604) 263 3704 DSPN., (Independent Non-Executive Director) Fax : (604) 263 3735 Website : http://www.pba.com.my

COMPANY SECRETARY Thum Sook Fun (MAICSA 7025619)

AUDITORS Ernst & Young

Perbadanan Bekalan Air Pulau Pinang Sdn Bhd (475961-X) PRINCIPAL BANKER Perbadanan Bekalan Air Pulau Pinang Sdn Bhd (475961-X) Malayan Banking Berhad, Penang BOARD OF DIRECTORS • Y.A.B. Mr. Lim Guan Eng STOCK EXCHANGE LISTING (Non-Executive Chairman) Main Board of Bursa Malaysia Securities Berhad • Y.B. Encik Mohammad Fairus bin Khairuddin (Trading Services) (Non-Executive Deputy Chairman) Stock Name : PBA • Y.B. Prof. Dr. P. Ramasamy A/L Palanisamy (Non-Executive Director) Stock Code : 5041 • Y.B. Dato’ Jamaludin bin Hasan DMPN., SMP., SDK., AMN., AMP., REGISTRAR (Non-Executive Director) Securities Services (Holdings) Sdn Bhd • Y.B. Dato’ Supiah bt. Md Yusof Suite 18.05, MWE Plaza, DSPN., DJN., BCN., AMN., PJK., No.8, Lebuh Farquhar, (Non-Executive Director) • Y.B. Puan Faiza bt. Zulkifli 10200 Penang. (Non-Executive Director) Tel : (604) 263 1966 • Tuan Haji Shahawai bin Awang Fax : (604) 262 8544 (Non-Executive Director)

14 PBA HOLDINGS BHD (515119-U) CORPORATE STRUCTURE

ISLAND SPRINGWATER SDN BHD (795967-A)

100%

PERBADANAN BEKALAN PBA AIR RESOURCES PULAU 100% 100% PBA HOLDINGS BHD SDN BHD PINANG (799680-A) SDN BHD (Company No. 515119-U) (475961-X)

26%

PINANG WATER LTD Incorporated in Federal Territory of Labuan, Malaysia (LL 03802)

PBA HOLDINGS BHD (515119-U) 15 FINANCIAL HIGHLIGHTS

Financial Year Ended 31 December 2003 2004 2005 2006 2007 RM'000 RM'000 RM'000 RM'000 RM'000

Revenue 148,970 153,737 162,618 172,057 181,549 Profit Before Tax 50,827* 47,473* 39,187* 43,748* 51,595 Profit After Tax 40,715* 36,382* 26,858* 32,889* 42,617 Paid Up Share Capital 165,500 165,500 165,550 165,579 165,603 Shareholders' Equity 474,880* 494,712* 505,081* 521,965* 547,573 Earnings Per Share - Basic (Sen) 12.30* 10.99* 8.11* 9.93* 12.87 Net Tangible Assets Per Share (RM) 1.43* 1.49* 1.53* 1.58* 1.65

Revenue (RM’000)

2003 148,970

2004 153,737

2005 162,618

2006 172,057

2007 181,549

Profit before tax (RM’000) Profit after tax (RM’000)

2003 50,827* 2003 40,715*

2004 47,473* 2004 36,382*

2005 39,187* 2005 26,858*

2006 43,748* 2006 32,889*

2007 51,595 2007 42,617

Paid up share capital (RM’000) Shareholders' equity (RM’000)

2003 165,500 2003 474,880*

2004 165,500 2004 494,712*

2005 165,550 2005 505,081*

2006 165,579 2006 521,965*

2007 165,603 2007 547,573

Earnings per share - basic (sen) Net tangible assets per share (RM)

2003 12.30* 2003 1.43*

2004 10.99* 2004 1.49*

2005 8.11* 2005 1.53*

2006 9.93* 2006 1.58*

2007 12.87 2007 1.65

* as restated

16 PBA HOLDINGS BHD (515119-U) FINANCIAL CALENDAR 2007

FINANCIAL CALENDAR 2007

FINANCIAL YEAR ENDED 31 DECEMBER 2007

7th Annual General Meeting 14 June 2007

Announcement of interim results * First Quarter 24 May 2007 * Second Quarter 02 August 2007 * Third Quarter 26 October 2007 * Fourth Quarter 04 February 2008

Dividends paid and payable in 2007 Final - 31 December 2006 * Declaration Final Dividend of 7% less tax at 27% * Entitlement date 29 June 2007 * Payment date 20 July 2007

Interim - 31 December 2007 * Declaration Interim Dividend of 7% less tax at 27% * Entitlement date 30 November 2007 * Payment date 17 December 2007

Final - 31 December 2007 * Declaration Recommended Final Dividend of 7% less tax at 26% * Record date (Book Closing date) 4 July 2008 * Payment date (If approve by shareholders at the 21 July 2008 forthcoming 8th Annual General Meeting)

PBA HOLDINGS BHD (515119-U) 17 DIRECTORS’ PROFILE

Y.A.B MR. LIM GUAN ENG aged 47, Malaysian citizen Non-Executive Chairman of PBA Holdings Bhd (PBAHB)

YAB Mr. Lim Guan Eng was appointed to the Board of Directors of PBAHB on 18 April 2008.

Presently, YAB Mr. Lim Guan Eng is the Chief Minister of Penang. He received his tertiary education in Australia, where he earned his Bachelor Degree in Economics from Monash University and was a qualified professional accountant by 1983. He was also the president of MUMSU (Monash University Malaysian Student Union).

He started his career as a Senior Executive at a foreign bank after his graduation before he got involved in politics. He was first elected as a Member of Parliament for Kota Melaka after winning the Kota Melaka Parlimentary seat in 1986 and subsequently was re-elected in 1990 and 1995. He was appointed as the Socialist Youth Chairman of Democratic Action Party (DAP) in 1989 and was elected to that post in 1992. In 1995, he was elected as the DAP Deputy Secretary- General before being elected as the party Secretary- General in 2004, and has held the position since. He was also elected by Asiaweek as one of the key Young Asian Leaders to shape Asia’s destiny in the new millenium in 1999.

He does not hold any ordinary shares in the Company or its subsidiaries, has no family relationship with any other Director and / or substantial shareholder of the Company, no conflict of interest with the Company and has had no conviction for any offences within the past ten (10) years.

He did not attend any of the Board Meetings of the Company held during the financial year ended 31 December 2007 as his appointment to the Board was made subsequent to the said financial year end.

18 PBA HOLDINGS BHD (515119-U) DIRECTORS’ PROFILE (CONT’D)

Y.B. ENCIK MOHAMMAD FAIRUS BIN KHAIRUDDIN Y.B. PROF. DR. P. RAMASAMY A/L PALANISAMY aged 31, a Malaysian citizen aged 59, Malaysian citizen Non-Executive Deputy Chairman of PBA Holdings Bhd (PBAHB) Non-Executive Director of PBA Holdings Bhd (PBAHB)

YB Encik Mohammad Fairus bin Khairuddin was appointed YB Prof. Dr. P. Ramasamy a/l Palanisamy was appointed to the Board of Directors of PBAHB on 18 April 2008. to the Board of Directors of PBAHB on 18 April 2008.

Presently, YB Encik Mohammad Fairus is the Deputy Presently, YB Prof. Dr. P. Ramasamy is the Deputy Chief Chief Minister I of Penang. He holds a Bachelor Degree Minister II of Penang and is also a Member of Parliament, in Political Sciences (Hons.), specializing in International Batu Kawan Parliamentary Constituency, Malaysia and Relations, IIUM. a Member of State Assembly, Perai Constituency, Penang State. Before his political career, he served in various companies, namely, Hong Leong Assurance Bhd., Franklin Covey He graduated from McGill University, Canada, in Masters Malaysia and Ford Motor Company Malaysia as Manager. in Political Science and subsequently from University of He was also the Head of Human Resources and Malaya in Doctor of Philosophy (Ph.D.) in Political Science Administration Department in Fuji Photo Optical (M) in the year 1991. He also obtained a Bachelor of Arts Sdn Bhd and a Professional Trainer (Executive) in Uni. in Political Science from Indiana University, U.S.A., in Asia Life Assurance Bhd. He currently serves as an 1977. Advisor & Consultant Trainer to Student Learning & Enhancement unit (SLEU) of International Islamic YB Prof. Dr. P. Ramasamy joined Universiti Kebangsaan University Malaysia. Malaysia (UKM) in 1981. He was promoted to Associate Professor in 1993 and Professor in 1998. Following his He does not hold any shares in the Company or its retirement in 2006, he joined the Institute of Southeast subsidiaries, has no family relationship with any other Asian Studies, Singapore. He is currently serving as a Director and / or substantial shareholder of the Company, Consultant for the Peace Building Organisations. In year no conflict of interest with the Company and has had 2005, he was appointed as the Democratic Action Party no conviction for any offences within the past ten (10) (DAP) International Secretary, and has held the position years. since.

He did not attend any of the Board Meetings of the He does not hold any shares in the Company or its Company held during the financial year ended subsidiaries, has no family relationship with any other 31 December 2007 as his appointment to the Board Director and / or substantial shareholder of the Company, was made subsequent to the said financial year end. no conflict of interest with the Company and has had no conviction for any offences within the past ten (10) years.

He did not attend any of the Board Meetings of the Company held during the financial year ended 31 December 2007 as his appointment to the Board was made subsequent to the said financial year end.

PBA HOLDINGS BHD (515119-U) 19 DIRECTORS’ PROFILE (CONT’D)

Y.B. DATO’ JAMALUDIN BIN HASAN Y.B. DATO’ SUPIAH BT. MD YUSOF aged 56, Malaysian citizen aged 55, Malaysian citizen Non-Executive Director of PBA Holdings Bhd (PBAHB) Non-Independent Non-Executive Director of PBA Holdings Bhd (PBAHB)

YB Dato’ Jamaludin bin Hasan was appointed to the YB Dato’ Supiah bt. Md Yusof was appointed to the Board of Directors of PBAHB on 13 August 2004. He Board of Directors of PBAHB on 1 June 2006. She is was also assigned to be the Chairman of Tender Board also a member of the Audit Committee of PBAHB. of PBAHB Group. Presently, she is the Penang State Financial Officer and Presently, he is the Penang State Secretary and was was appointed to this position in April 2006. She holds appointed to this position on 1 July 2004. He holds a a Bachelor of Economics (Honours) degree from University Bachelor of Economic (Honours) degree from University of Malaya in 1975 and Business Executive Scholar of Malaya in 1975 and a Masters degree in Development (MBA) (Finance) from ASTON University of United Administration from Western Michigan University, U.S.A. Kingdom in 1986. in 1984. Prior to that, he was the Chief Executive Officer of Labuan Corporation, an agency under Finance Ministry YB Dato’ Supiah started her career with the Public and held various positions in the public service. Service Department in 1975 and had then served in various capacities in the Department. She was also a YB Dato’ Jamaludin is also an ex-officio member of the Member holding various positions in the Majlis Agama State Executive Council of Penang and currently sits on Islam Negeri Pulau Pinang. the Board of Invest-In-Penang Berhad. In year 1996, YB Dato’ Supiah served in the Bahagian He is deemed to be related to the substantial shareholder Penyelarasan Penyertaan Bumiputera Pulau Pinang, Unit of PBAHB, State Secretary, Penang by virtue of his Penyelarasan in the Prime Minister’s Department as the position as Penang State Secretary. He does not have Assistant Director. She then served as the Deputy State any conflicts of interest with the Company and has had Financial Officer for the State of Penang in year 2001. no conviction for any offences within the past ten (10) In year 2004, she was the Deputy Secretary in the years. State Secretariat Department, before being promoted as State Financial Officer of Penang in April 2006. He has attended all 6 (six) Board Meetings held in the Currently, she also sits on the Board of Penang financial year ended 31 December 2007. Development Corporation.

YB Dato’ Supiah does not hold any shares in the Company or its subsidiaries, has no family relationship with any other Director and / or substantial shareholder of the Company, no conflict of interest with the Company and has had no conviction for any offences within the past ten (10) years.

She has attended five (5) out of six (6) Board Meetings held in the financial year ended 31 December 2007.

20 PBA HOLDINGS BHD (515119-U) DIRECTORS’ PROFILE (CONT’D)

Y. BHG. DATO’ CHEW KONG SENG Y. BHG. DATO’ DR. M. SHANMUGHALINGAM aged 70, Malaysian citizen aged 68, Malaysian citizen Independent Non-Executive Director of PBA Holdings Bhd (PBAHB) Independent Non-Executive Director of PBA Holdings Bhd (PBAHB)

Y. Bhg Dato’ Chew Kong Seng was appointed to the Y. Bhg Dato’ Dr. M. SHANmughalingam was appointed Board of Directors of PBAHB on 12 December 2001. to the Board of Directors of PBAHB on 12 December He is also the Chairman of the Audit Committee of the 2001. Company. He holds a Bachelor of Arts (Honours) degree in Economics from University of Malaya in 1962, a Masters Y. Bhg Dato’ Chew is a Fellow of the Institute of degree in Economics and Government from Harvard Chartered Accountants in England and Wales as well University, USA in 1971, a Doctorate of Philosophy in as a member of both the Malaysian Association of Economics and Government from Oxford University, U.K. in 1978 and is a Fellow, Economic Development Certified Public Accountants and the Malaysian Institute Institute, World Bank, U.S.A. of Accountants. He had worked in United Kingdom from 1964 until 1970 and returned to Malaysia to join He served in the Treasury, Ministry of Finance from Turquand Young & Co (now known as Ernst & Young). 1962 to 1978 his last post being Deputy Secretary He held various senior positions in Ernst & Young and (Economic) and in PETRONAS from 1979 to 1991 his last post being General Manager. He was Managing was Managing Partner from 1990 to 1996. His long Director of Sri Inderajaya Sdn Bhd from 1992 to April accounting work experience in the profession covers a 1996. Since May 1996, he is Managing Director of wide variety of industries including banking and financial Trilogic Sdn Bhd and sits on the advisory panels to the institutions, timber based, manufacturing, trading and Malaysian Institute of Economic Research (MIER) and foreign investment. Asian Strategy and Leadership Institute (ASLI). He also sits on the Boards of Main Board public listed He also sits on the Boards of Great Wall Plastic Industries companies, Delloyd Ventures Berhad, Mamee-Double Berhad, Petronas Gas Berhad, Petronas Dagangan Bhd, Decker (M) Berhad and several unlisted companies, Industrial Concrete Products Bhd, AEON Co. (M) Bhd., including Trilogic Sdn Bhd and Commerce International Encorp Berhad, GuocoLand (Malaysia) Berhad and several Merchant Bankers (L) Ltd. private limited companies in Malaysia. He was a Director of Edaran Otomobil Nasional Berhad (EON), CIMB Discount House Bhd, CIMB Securities Sdn He does not hold any shares in the Company or its Bhd, MIDF Aberdeen Asset Management Sdn Bhd and subsidiaries, has no family relationship with any other Malaysian International Merchant Bankers (MIMB), a Director and / or major shareholder of the Company, no subsidiary of MIDF and an associate of Barclays Bank Group, U.K.. He was on the Committee of the Malaysian conflict of interest with the Company and has had no Administrative and Diplomatic Service (P.T.D.) Alumni conviction for any offences within the past ten (10) Association and on the Board of Selectors, Rhodes years. Scholarship to Oxford University. On invitation by Harvard University U.S.A., he helped in the design of He has attended all six (6) Board Meetings held in the a new Executive Programme for Leaders in Development: Managing Economic and Political Reform. financial year ended 31 December 2007. He does not hold any shares in the Company or its subsidiaries, has no family relationship with any other Director and / or substantial shareholder of the Company, no conflict of interest with the Company and has had no conviction for any offences within the past ten (10) years. He has attended all six (6) Board Meetings held in the financial year ended 31 December 2007.

PBA HOLDINGS BHD (515119-U) 21 DIRECTORS’ PROFILE (CONT’D)

Y. BHG. DATO’ HAJI ADLAN BIN HJ MOHAMED DAUD aged 68, Malaysian citizen Independent Non-Executive Director of PBA Holdings Bhd (PBAHB)

Y. Bhg Dato’ Haji Adlan bin Hj Mohamed Daud was appointed to the Board of Directors of PBAHB on 14 December 2001. He is also a member of the Audit Committee of PBAHB.

After finishing his secondary education at Penang Free School, Penang, he furthered his studies in the United Kingdom. He read Law at the Inns of Court, Middle Temple, and was called to the English Bar as a Barrister- At-Law in 1970. Upon his return to Malaysia, he commenced his chambering with Messrs R.R. Chelliah Brothers in 1970 and was called to the Malaysian Bar as an Advocate and Solicitor of the High Court of Malaya in 1971. He set up the legal practice of Messrs Adlan & Haji Suhaimi with two other partners in 1971 and the firm Messrs Adlan, YP Cheong & Leong in September 1994. At present, he is a consultant to Messrs Harun Idris, Yeoh & Partners.

He had served on the Board of Directors of Trust Insurance (M) Sdn Bhd, C.I. Holdings Bhd and CME Group Bhd. He has been a member of the Executive Committee of Majlis Kraf Malaysia (Crafts Council of Malaysia) since inception.

He does not hold any shares in the Company or its subsidiaries, has no family relationship with any other Director and / or substantial shareholder of the Company, no conflict of interest with the Company and has had no conviction for any offences within the past ten (10) years.

He has attended five (5) out of six (6) Board Meetings held in the financial year ended 31 December 2007.

22 PBA HOLDINGS BHD (515119-U) SENIOR MANAGEMENT TEAM PBA HOLDINGS BHD (515119-U)

Amiruddin bin Kemat Ir. Jaseni bin Maidinsa Business Development Manager Chief Executive Officer

PBA HOLDINGS BHD (515119-U) 23 CORPORATE CALENDAR

2 3 4

1 26 March 2007 3 10 April 2007 NRW BRIEFING FOR LEMBAGA AIR SIBU CORPORATE APPRECIATION DINNER Venue : PBAPP Prai Office Complex Venue : Traders Hotel Penang

PBAPP hosted a technical visit for the Non-Revenue During this dinner hosted by the PBA Group, Tan Water (NRW) Unit of the Lembaga Air Sibu who Sri Dr. Koh Tsu Koon thanked the top 100 water visited Penang in March to learn more about NRW consumers in Penang, as well as mass media management. representatives, for their continuing support.

4 21 April 2007 2 2 April 2007 WORLD WATER DAY “RETRO NITE” ANNUAL DINNER Venue : Penang Botanic Gardens Venue : Equatorial Hotel Penang To promote water awareness and wiser usage of Some 1,000 people, comprising staff and special water amongst domestic consumers in Penang, guests, attended “Retro Night.” Tan Sri Dr. Koh PBAPP sponsored and participated in the state-level Tsu Koon, who was then Chief Minister of Penang commemoration of World Water Day 2007 that was and Chairman of PBA Holdings Bhd (PBAHB) and organised by Water Watch Penang. The Waterfall Perbadanan Bekalan Air Pulau Pinang Sdn Bhd Treatment Plant, the oldest in Malaysia, was opened (PBAPP), was the guest-of-honour. Highlights of the to public visitors to promote wider and better evening included a “live” performance by David understanding of conventional treatment processes. Arumugam from “The Alleycats” and a “retro” fancy dress parade. 5 5 May 2007 NATIONAL-LEVEL LABOUR DAY CELEBRATION Venue : Stadium Putra, Bukit Jalil, Kuala Lumpur

A contingent of 80 personnel representing the PBA Group traveled to Kuala Lumpur to participate in this annual event that was staged at the Putra Stadium, National Sport Complex in Bukit Jalil.

24 PBA HOLDINGS BHD (515119-U) CORPORATE CALENDAR (CONT’D)

6 7 9

6 17 May 2007 8 25 June 2007 WATER SUPPLY MANAGEMENT BRIEFING FOR A 17TH PBAPP-MWAC FRIENDLY GAMES & STUDY DELEGATION FROM THE LAO PEOPLES’ TOUR DEMOCRATIC REPUBLIC Venue : Bangkok, Thailand Venue : Traders Hotel Penang/Teluk Bahang Dam About 100 PBAPP personnel, led by Ir. Jaseni The Deputy Minister for Communication, Transport, Maidinsa, visited Bangkok as guests of the Post & Construction from the Lao Peoples’ Metropolitan Water Authority (MWA) during the Democratic Republic, H.E. Sithong Thongkeo, led 17th Annual PBAPP-MWAC Friendly Games & Study a delegation here in May to learn more about water Tour. This yearly exchange programme sustains supply management in Penang. PBAHB Chief good relationships and promotes the sharing of ideas Executive Officer Ir. Jaseni Maidinsa briefed the between both organisations. delegation before they visited the Teluk Bahang Dam. 9 25 July 2007 SITE VISITS FOR THE ASEAN WORKING GROUP 7 14 June 2007 ON WATER RESOURCES MANAGEMENT 7TH ANNUAL GENERAL MEETING (AGM) Venue : Batu Ferringhi Water Treatment Plant/Teluk Venue: Traders Hotel Penang Bahang Dam

About 300 shareholders and proxy holders attended A total of 30 senior officials from various ASEAN the 7th AGM of PBAHB. water supply organisations visited the Batu Ferringhi Treatment Plant and Teluk Bahang Dam in July.

PBA HOLDINGS BHD (515119-U) 25 CORPORATE CALENDAR (CONT’D)

10 11 12

10 3 August 2007 12 31 August 2007 WATER SUPPLY MANAGEMENT BRIEFING FOR A GOLDEN JUBILEE MERDEKA DAY CELEBRATION DELEGATION FROM THE SOCIALIST REPUBLIC OF Venue : Dataran Merdeka, Butterworth VIETNAM Venue : PBAPP Prai Office Complex 60 personnel represented PBAPP during the state-level “Golden Jubilee Merdeka Day Parade” A delegation of 22 officials from Socialist Republic that commemorated the 50th anniversary of of Vietnam paid a visit on PBAPP to seek views on Independence. how to improve water supply in their country. The delegation also visited the Sungai Dua Water Treatment Plant. 13 21 August 2007 PRIVATISATION BRIEFING FOR THE PARTICIPANTS OF THE MALAYSIAN TECHNICAL COOPERATION 11 6 August 2007 PROGRAMME OPENING CEREMONY OF JAWI ONE-STOP OFFICE Venue : City Bayview Hotel Penang COMPLEX Venue : PBAPP Jawi Office Complex A total of 17 participants from various countries under the Malaysian Technical Cooperation Dato' Seri Hj. Abdul Rashid bin Abdullah (who was Programme (MTCP) organised by National Institute then Deputy Chief Minister of Penang) officiated Of Public Administration (INTAN) visited PBAPP to the opening of this new integrated facility at learn more about PBAPP’s experiences in privatisation. Changkat, Sungai Jawi. Amongst the guests were about 300 recipients of PBAPP’s interest-free “kampung loans”.

26 PBA HOLDINGS BHD (515119-U) CORPORATE CALENDAR (CONT’D)

16 17

14 22 November 2007 and the Penang Skills Development Centre (PSDC) CALL CENTRE BRIEFING FOR TENAGA NASIONAL to formalise the establishment of the PWSA. Penang BERHAD PENANG State Secretary, Y.B. Dato' Jamaludin Hasan, who Venue : PBAPP Prai Office Complex also serves as a Director of PBAHB and PBAPP, represented Tan Sri Dr. Koh Tsu Koon (who was A group of 15 personnel from TNB visited PBAPP’s then Penang Chief Minister and Chairman of PBAPP 24-hour Call Centre to learn more about the centre’s and PBAHB) in witnessing the signing ceremony operations. and unveiling the PWSA logo.

15 30 November 2007 17 18 December 2007 SITE VISIT AND BRIEFING FOR THE THAI EXTENDING THE LAND LEASE FOR THE PENANG PERANAKAN ASSOCIATION FROM PHUKET, INTERNATIONAL SQUASH CENTRE (PISC) THAILAND Venue : PISC, Bukit Dumbar Venue : Batu Ferringhi Treatment Plant/Teluk Bahang Dam Tan Sri Dr. Koh Tsu Koon and Nicol David, the top ranked women’s squash player in the world, PBAPP conducted a briefing and hosted site visits witnessed the signing of documents between PBAPP for a delegation of 65 representatives from the and the operators of the PISC to extend the lease association, led by its president, Dr. Kosol Taeng- of the land on which the PISC is located for a nominal Uthai. sum of RM6,000 per annum until 2010. PBAPP had been leasing the land to the PISC at nominal sums since 1985 to support the growth of the sport. 16 17 December 2007 Nicol started her squash career at the PISC, and she OFFICIAL AGREEMENT SIGNING AND LOGO continues to train at the centre whenever she is in LAUNCHING CEREMONY OF THE PENANG WATER Penang. SERVICES ACADEMY (PWSA) Venue : Penang Skills Development Centre

This ceremony saw the signing of documents by PBA Resources Sdn Bhd (a subsidiary of PBAHB)

PBA HOLDINGS BHD (515119-U) 27 CORPORATE SOCIAL RESPONSIBILITY

Meeting All of Penang’s Water Supply Needs Efficiently Additionally, PBAPP is also providing special assistance to 91 underprivileged households whose incomes fall Water is an essential element for daily life and socio- below the RM460 per month mark. These beneficiaries, economic progress in the State of Penang. In 2007, the classified as PPRT (Program Perumahan Rakyat Termiskin) recorded water consumption in Penang increased by consumers, were supplied with up to 30,000 litres per 5.2% while the number of registered water consumers month. increased by 3.2% as compared to the previous year. Extending the Scope of Environment-Friendly Operations The PBA Group, through its 100% owned subsidiary, Perbadanan Bekalan Air Pulau Pinang Sdn Bhd (PBAPP), In 2006, PBAPP had received an international ISO continued to fulfill its primary corporate social responsibility 14001:2004 certification for an environment-friendly in the State of Penang by continuously sustaining 100% water supply management system that was successfully urban and 99.5% rural water supply coverage efficiently, implemented at the Batu Ferringhi Treatment Plant and as reflected by: the Teluk Bahang Dam.

• Maintenance of the lowest domestic tariffs in Malaysia In 2007, PBAPP secured an additional ISO 14001:2004 and competitive trade tariffs; and certification for a third water supply facility in the State of Penang – the Waterfall Treatment Plant. Looking • Supply of potable water that complies with the National ahead, PBAPP will continue to strive towards conserving Standards for Drinking Water and the Quality Assurance the environment while supplying water in Penang Programme established by the Ministry of Health, responsibly. Accordingly, PBAPP is targeting to secure Malaysia; ISO 14001:2004 certifications for two more key facilities by 2010 – the Air Itam Dam and the Rifle Range One- Interest-free Loans and Special Assistance for Stop Operations Centre. Underprivileged Households Supporting the Development of Sports and Squash During the year in review, PBAPP provided interest-free “kampung loans” totaling RM293,707 to 212 village During the year in review, PBAPP contributed RM500,000 households so that they too may enjoy continuous good to the State Sports Committee (Majlis Sukan Negeri) to supply of treated water. Under this scheme, loans of up help finance the development of various sports in Penang. to RM1,500 were made available to qualified applicants who met certain conditions, including a total household In support of the development of future squash champions income of less than RM1,000 per month. The repayment from the State of Penang, PBAPP also signed an agreement amount is RM30 every two months. As at 31 December with the operators of the Penang International Squash 2007, a total of 429 “kampung loan” accounts were Centre (PISC) that is sited on PBAPP land at Bukit Dumbar. active, representing a total outstanding loan amount of Under the agreement, signed in December 2007, the land RM241,192.

28 PBA HOLDINGS BHD (515119-U) CORPORATE SOCIAL RESPONSIBILITY (CONT’D)

will be leased to the PISC for a nominal sum of RM6,000 more than 100 teams representing 22 countries. On its per year. Since the PISC was built in 1985, the land had part, PBAPP has made an allocation of RM500,000 to been leased at a nominal sum. It was at the PISC that further expand infrastructure and upgrade equipment so Nicol David, the world’s No. 1 ranked women’s squash as to support Penang’s successful hosting of this world- player, started her playing career. As at 2007, Nicol still class event. trained at the centre whenever she returned to Penang. The PISC is also the key training centre for the Squash Promoting a Water Saving Society Racquets Association of Penang’s Under-11, Under-13, Under-15, Under-17 and Under-19 state squads. In view of the fact that Penang is a water-stressed state that has limited raw water resources, PBAPP continued Major sponsor for the International Dragon Boat Festivals to promote the development of a water saving society in 2007. The Teluk Bahang Dam, managed by PBAPP, served again as the site for the 28th Penang International Dragon Boat The company provided grant of RM40,000 to Water Festival (PIDBF) in July 2007. A total of 76 international Watch Penang (WWP), a non-government organisation, and local teams participated in this event. The company set up under the Sustainable Penang Initiative. WWP’s invested RM350,000 to upgrade infrastructure and main objective is to create awareness for water equipment for the PIDBF in July; and an additional conservation amongst the general public, research on RM30,000 to support the organisation of the Pesta Pulau water issues, tips on water saving, consultancy on water Pinang Dragon Boat Competition in December. recycling and water education in the schools.

Dragon boat racing is sport that emphasises on teamwork, PBAPP also provided sponsorship and participated in the cooperation and discipline. It has been popular in Penang commemoration of state-level “World Water Day 2007” since the 1930s when local teams raced in the sea. event at the Penang Botanic Gardens. The primary focus However, for safety reasons, international dragon boat of this annual function is to encourage the people to races have been staged at the Teluk Bahang Dam since reduce their domestic consumption so as to reduce the 2002. Accordingly, this dam has also been identified as urgency and slow down the development of new multi- the venue for the 6th International Dragon Boat Federation million ringgit water infrastructure projects. The objective (IDBF) Club Crew World Championships 2008 – the is to get the people involved in ensuring long-term biggest international dragon boat event ever planned sustainability of continuous good water supply at in South-East Asia, with projected participation from reasonable costs in Penang.

PBA HOLDINGS BHD (515119-U) 29 AWARDS RECEIVED BY PIHAK BERKUASA AIR PULAU PINANG (PBA)

12 3

4

567

1. Anugerah Kualiti 5. Anugerah Kualiti Ketua Menteri Pulau Pinang Year : 1991 Year : 1993 Awarded By : Ketua Pengarah MAMPU Awarded By : Kerajaan Negeri Pulau Pinang

2. Anugerah Pejabat Terbaik Negeri Pulau Pinang 6. Naib Johan Majlis Perarakan Maal Hijrah (1420H/1999M) Year : 1991 Year : 1999 Awarded By : Kerajaan Negeri Pulau Pinang Awarded By : Kerajaan Negeri Pulau Pinang

3. Anugerah Khas Perkhidmatan Awam 7. Tempat ke3 Majlis Perarakan Maulidurrasul Anugerah Pengurusan Kewangan (1420H/1999M) Year : 1992 Year : 1999 Awarded By : JPA Awarded By : Kerajaan Negeri Pulau Pinang

4. Anugerah Khas Perkhidmatan Awam Anugerah Pengurusan Teknologi Maklumat Year : 1993 Awarded By : JPA

30 PBA HOLDINGS BHD (515119-U) AWARDS RECEIVED BY PERBADANAN BEKALAN AIR PULAU PINANG SDN. BHD. (PBAPP)

8 9 1011 12

13 14 15 16

8. Pintu Gerbang SUKMA VIII 2000 13. ISO 14001 : 2004 (Management and Treatment of Year : 2000 Raw Water Supply of Potable Water for Batu Ferringhi Awarded By : Kerajaan Negeri Pulau Pinang PBA Water Treatment Plant and Teluk Bahang Dam) Year : 2005 Certified by : SGS 9. Outstanding Award for Management Year : 2001 Awarded By : The Malaysian Water Association 14. Gold (Class II) OSH Awards in recognition of a very good Achievement Year : 2006 10. Silver Award - OSH Awards in recognition of an Awarded By : Malaysian Society for Occupational Excellent Achievement Safety & Health Year : 2001 Awarded By : Malaysian Society for Occupational Safety & Health 15. OHSAS 18001 : 1999 (Treatment and Supply of Water with Provision of Customer Services) Year : 2006 11. Kontijen Terbaik (Sektor Swasta & Pertubuhan) Certified by : SGS Perhimpunan & Perarakan Hari Kebangsaan Ke-45 Year : 2002 Awarded By : Kerajaan Negeri Pulau Pinang 16. ISO 14001 : 2004 (Management and Treatment of Raw Water Supply of Potable for Water Waterfall Treatment Plant) 12. ISO 9001 : 2000 Quality Certificate (Treatment and Year : 2007 Supply of Water with Provision of Customer Services) Certified by : SGS Year : 2003 Certified by : SGS

PBA HOLDINGS BHD (515119-U) 31 BOARD OF DIRECTORS

Memenuhi segala keperluan bekalan air anda Meeting all your water supply needs PERBADANAN BEKALAN AIR PULAU PINANG SDN. BHD. (PBAPP)

1

2 3

4 5

6 7

1. Y.A.B. Lim Guan Eng 4. Y.B. Dato’ Jamaludin bin Hasan Chairman Director (appointed with effect from 18 April 2008) 5. Y.B. Dato’ Supiah bt. Mohd Yusof 2. Y.B. Mohammad Fairus Khairuddin Director bin Abdullah Deputy Chairman 6. Y.B. Puan Faiza bt. Zulkifli (appointed with effect from 18 April 2008) Director

3. Y.B. Prof. Dr. P. Ramasamy A/L Palanisamy 7. Y.Bhg. Tuan Hj. Shahawai bin Awang Director Director (appointed with effect from 18 April 2008)

32 PBA HOLDINGS BHD (515119-U) SENIOR MANAGEMENT TEAM

Memenuhi segala keperluan bekalan air anda Meeting all your water supply needs

1. Ir. Jaseni bin Maidinsa 6. Encik Raffiq Raveendran bin Abdullah General Manager Human Resources Manager

2. Ir. Kan Cheong Weng 7. Puan Cheang Lai Juang 6 Strategic Planning Manager Internal Audit Assistant Manager 4 5 7

3. Ir. K. Jeyabalan 8. Ir. Dr. Koay Ban Hing 2 1 3 Corporate Affairs Manager Operations Manager (not in picture) 4. Puan Joyce Lee Suan Imm Finance Manager 9. Puan Yen Choi Fong Information Technology Manager 5. Ir. Leow Hup Hong (not in picture) Quality, Safety & Health Manager

PBA HOLDINGS BHD (515119-U) 33 PENANG WATER SUPPLY STATISTICS (as at 31 December 2007)

Memenuhi segala keperluan bekalan air anda Meeting all your water supply needs

Area of Penang State 1031 sq km

Population 1.52 million people

Number of Registered Water Consumers Domestic : 405235

Trade : 56092

TOTAL : 461327

Gazetted Water Catchment Area 62.9 sq km

Number of Dams 6

Total Raw Water Storage Capacity 46013 million litres

Main Source of Raw Water Sungai Muda

Number of Treatment Plants 9

Designed Capacity of Treatment Plants 1273 million litres / day

Number of Treated Water Reservoirs 55

Number of Treated Water Towers 28

Average Daily Production of Treated Water 865 million litres / day

Average Recorded Consumption of Treated Water 719 million litres / day

Non-Revenue Water (NRW) Percentage 17%

Total Length of Pipes (100 millimetres and above) 3744 km

34 PBA HOLDINGS BHD (515119-U) WATER TREATMENT PROCESS

Memenuhi segala keperluan bekalan air anda Meeting all your water supply needs

Raw water

Supply to Consumers

Storage

Storage Reservoir

• Screening • Addition of Chemicals • Mixing • Flocculation & Coagulation • Sedimentation Treated • Filtration Water Pumps • Clear Water Tank

PBA HOLDINGS BHD (515119-U) 35 36 PBA HOLDINGS BHD (515119-U) OPERATIONS REVIEW

Water Production & Consumption in Penang

The volume of treated water produced by Perbadanan Bekalan Air Pulau Pinang Sdn Bhd (PBAPP) to meet the needs of the State of Penang increased by 2.98% in 2007 as compared to 2006. The total volume of treated water for the year in review was 315,716,753 cubic metres (cu.m. – 1 cu.m. is equivalent to 1,000 litres) as compared to 306,577,533 cubic metres in 2006.

With a non-revenue water (NRW) or water loss of 16.9% (the lowest in Malaysia), the recorded water consumption for the State of Penang that was billable in 2007 was 262,475,731 cu.m. This represents a 5.2% increase in recorded consumption as compared to 2006 statistics (249,439,229 cu.m.).

An analysis of consumption by category of consumers indicated that trade consumers were billed for 106,787,088 cu.m. or 40.7% of overall recorded consumption. The remaining 155,688,643 cu.m. or 59.3% were billed to domestic consumers.

As at 31 December 2007, as Penang’s sole water supplier, PBAPP served a client base of 461,327 registered water consumers in Penang, comprising 56,092 trade consumers and 405,235 domestic consumers.

Production, NRW and Consumption

Year Water production NRW Recorded consumption in cu.m. percentage in cu.m.

2005 298,984,724 19.4% 240,998,868 2006 306,577,533 18.6% 249,439,229 2007 315,716,753 16.9% 262,475,731

Key Development Projects

In 2007, PBAPP continued to plan and implement key water infrastructure projects to ensure sufficient water supply for the future while improving service levels for the benefit of customers. Key projects undertaken include:

• On-going projects under the Muda River Water Supply Scheme Phase 4A to increase capacity for raw water abstraction from the river and water treatment at the Sungai Dua Water Treatment Plant;

• Construction of a new high-lift pumping station at the Sungai Dua Water Treatment Plant to facilitate improved pumping operations;

• A water treatment sludge handling system at the Sungai Dua Water Treatment Plant to support environment- friendly operations;

• Construction of the new water treatment plant in Kepala Batas to address increasing water demand;

• Construction of an enlarged Mengkuang Dam to increase its storage capacity as a strategic drought reserve;

• Completion of two 45 million litre reservoirs at Batu Kawan and Bukit Indera Muda to store higher volumes of treated water;

• Construction of a 45 million litre reservoir at Pulau Jerejak to ensure the availability of more treated water near the Bayan Lepas Industrial Park;

• Completion of the 1.6km of new mains from the Sungai Dua Water Treatment Plant to Kampung Teluk to improve water supply to the area;

• Completion of the pumping station in Farlim, Paya Terubong, to facilitate better water pressure to this high- density development area;

• Completion of a one-stop operations complex in Jawi to serve the needs of water consumers in the Seberang Perai Selatan area;

PBA HOLDINGS BHD (515119-U) 37 OPERATIONS REVIEW (CONT’D)

Key Development Projects (Cont’d)

• Installation of new trunk mains from Batu Ferringhi Aquaduct to the Jalan Batu Ferringhi to facilitate water transfers; and

• Construction of an extension to Rifle Range Complex to accommodate additional operations department activities.

Pipe Works & Meter Replacement Programme

PBAPP received 1,508 burst pipe reports during the year in review. All pipe repair works were completed within 24 hours.

A total of 4,539 km of mains and pipes were also scoured in 2007 to improve water quality.

Meanwhile, in support of NRW reduction measures, a total of 75.25 km of outdated mains that were prone to breakage and leaking were replaced. PBAPP also replaced a total of 29,952 water meters that were more than 9 years old to ensure accurate metering of water consumption.

Strumap Geographical Information System (GIS)

In seeking to enhance its GIS capabilities, PBAPP has initiated implementation of an “All (Water) Mains Model.” When ready, this model will facilitate the following enhanced functions:

• Hydraulic modeling of the entire Penang water supply mains network to support the planning and design of upgrading works;

• Hydraulic simulation of scenarios affecting the status of Penang’s water supply system in the event of major pipe bursts as well as planned and unplanned water interruptions;

• On-line data reporting to Customer Service Centers to provide accurate information on how to address customer complaints and issues; and

• A more comprehensive and effective monitoring mechanism for Penang’s water supply network.

NRW Management

PBAPP’s non-revenue water (NRW) management programme continued to yield positive results in terms of significant water savings for the State of Penang. The NRW percentage for Penang in 2007 was 16.9%, the lowest ever recorded in the state.

In terms of actual volume, water loss was reduced from 57,138,000 cu.m. in 2006 to 53,241,000 cu.m. in 2007, representing an additional reduction of 3,897,000 cu.m.. The volume of water “saved” is equivalent to the production output from a 10.6 million litre a day (MLD) water treatment plant.

Research, Development & Innovation

In line with a key direction of the company to focus on research, development and innovation in water supply, PBAPP continued its studies on the following:

• Recovery of Sungai Prai as an in-state raw water resource by implementing methods to treat pollutants;

• Options for the treatment and disposal of water treatment process residues so as to reduce operational costs while still complying to ISO 14001:2004 environment-friendly requirements; and

38 PBA HOLDINGS BHD (515119-U) OPERATIONS REVIEW (CONT’D)

Research, Development & Innovation (Cont’d)

• Alternative water production processes including desalination of seawater and recycling wastewater for non- potable consumption.

Submissions to SPAN

In 2007, PBAPP submitted a 30-year business plan and a 3-year rolling business plan to the National Water Services Commission (SPAN - Suruhanjaya Perkhidmatan Air Negara) in compliance with regulatory changes in the Malaysian water industry.

The Water Services Industry Act 2006 (Act 655) came into effect from January 2008. As the national regulatory body that licenses and monitors the activities of all water supply services operators in Malaysia, SPAN is empowered to regulate and enforce the provisions of the Act.

Quality, Safety & Health

PBAPP won a gold medal award from the Malaysian Society Of Occupational Safety & Health (MSOSH) in 2007, following the successful implementation of its OHSAS 18001:1999 system that was internationally certified in 2006. This award was exceptional in that it was for the full range of the company’s activities and all its facilities. Meanwhile, PBAPP is already making preparations to seek the latest OHSAS 18001:2007 certification by 2008.

At the same time, PBAPP successfully extended its ISO 14001:2004 environment-friendly certification to another facility – the Waterfall Treatment Plant - in 2007.

The company also complied with the Quality Assurance Programme (QAP) introduced by the Ministry of Health in 2007. Following a year-long continuous water quality monitoring programme, PBAPP achieved QAP results that were well within the set parameters.

Finally, PBAPP has initiated the groundwork for full integration of its three internationally certified systems for quality, environment-friendly operations, and occupational safety and health. The entire integration process is projected to be completed in three years.

Disaster Recovery IT Centre

As a fail-safe information technology (IT) measure, PBAPP has established a Disaster Recovery Center. This center replicates all data stored in the company’s IT systems and will ensure business continuity in the case of unforeseen mishaps.

Meanwhile, PBAPP managed to sustain a 99% network “up-time” for its on-line resources in 2007; and a programme is underway to further upgrade the system.

PBA HOLDINGS BHD (515119-U) 39 ADMINISTRATION REPORT

Employment Statistics

A total of 1,080 employees were serving in the PBA Group of Companies as at 31st December 2007.

The composition of employees in the Group were as follows:

• Managers & Assistant Managers : 21 • Engineers & Executives : 34 • Clerical and Technical Personnel : 451 • Industrial Manual Group (IMG) : 574 TOTAL : 1,080

The majority of the employees were aged between 41 to 50 years old, representing 34.5% of the total workforce. A total of 35 personnel retired, while 44 personnel resigned in 2007. One employee passed away while in service.

Human Resource Development (HRD) Programmes

In acknowledging that the Group workforce as its most important resource, the management has set a key corporate objective to minimise staff turnover to 6% by 2010.

Accordingly, HRD programmes were implemented on a more strategic level to fulfill the objective. Strategies that were implemented include continuous training and learning, knowledge management, cultivation of a wholesome corporate culture and values, and increasing usage of technology to improve productivity.

Training programmes focused on the acquisition of new knowledge as well as knowledge sharing amongst the workforce to upgrade individual performance as well as organisational effectiveness. Meanwhile, career development initiatives were also implemented to lead employees towards on-going professional and career growth; by strengthening their core competencies while exposing them to more management, decision-making and technology-oriented processes.

A summary of employee attendance in HRD programmes carried out by the Group in 2007 is as follows:

Attendances in HRD programmes 2007 Technical Management I.T. Programmes Programmes Programmes Total

Executives 2 88 0 90 Non-executives 180 1198 7 1385 TOTAL 182 1286 7 1475

Air Itam Teambuilding Centre (AITC)

The AITC represents one of the two major initiatives implemented by the Group to drive training and human resource development to more professional and effective levels for the benefit of its workforce.

Developed in a private green environment near the picturesque Air Itam Dam, the AITC offers a comprehensive range of facilities that support corporate teambuilding programmes with maximum impact. The facilities in the centre include high elements and low elements that challenge the body as well as the mind while promoting teamwork and good camaraderie. AITC also offers overnight accommodation in a bungalow and a hostel, as well as food and beverage services.

Since launching in January 2007, the AITC has hosted 50 training events for 925 Group employees. Besides serving as a primary teambuilding and experiential training centre for the Group, the AITC will also be opening its doors to other corporate customers from 2008. By marketing its facilities and services to other corporations and even government bodies, the management is converting the AITC from a cost centre into a new revenue centre for the Group in the future.

40 PBA HOLDINGS BHD (515119-U) ADMINISTRATION REPORT (CONT’D)

Penang Water Services Academy (PWSA)

The PWSA is the second major training initiative undertaken by the Group that was launched in December 2007. A joint-venture project between PBA Resources Sdn Bhd (a wholly-owned subsidiary of PBA Holdings Bhd that will also manage the AITC) and the Penang Skills Development Centre (PSDC), this is the first academy in Malaysia to focus on water supply management and technology.

Founded on the precept that knowledge, skills and technology were the keys towards effective water supply management in the future, the PWSA is housed in the PSDC premise in the Bayan Lepas Industrial Park to optimize costs. Its formation combines the Group’s expertise in water supply management with PSDC strengths as a premier talent-building centre in Malaysia.

PBA Resources and PSDC has begun developing a formal curriculum for courses that will be conducted by key PBA Group managers and assistant managers. The PWSA will initially run programmes targeted at enhancing the performance and productivity of the PBA Group workforce. Eventually, this academy will also run programmes for employees of other water companies. The academy also plans to offer government-endorsed (SKM - Sijil Kemahiran Malaysia) technical training programmes for school-leavers to train the next generation of water supply workers for Penang and Malaysia.

Trade Unions

In 2007, the Group continued to cultivate a cordial relationship with the two in-house trade unions that represent the non-executive personnel - Kesatuan Kakitangan PBAPP Sdn Bhd and Kesatuan Pekerja-Pekerja PBAPP Sdn Bhd. There were no disputes for the year, and moreover, both unions contributed significantly towards the success of the Group’s efforts in training and career development. The unions also helped to motivate their members to deliver good results that ultimately led to the PBA Group’s good performance in 2007.

PBA HOLDINGS BHD (515119-U) 41 STATEMENT ON CORPORATE GOVERNANCE

The Board of Directors (“the Board”) of PBA Holdings Bhd (“the Company”) fully subscribes to the principles of the Malaysian Code on Corporate Governance (“the Code”). The Board reaffirms its commitment to upholding the highest standard of corporate governance throughout the Group as a fundamental part of discharging its responsibilities to enhance the satisfaction of shareholders and stakeholders and to safeguard their interests. The Board deems that it has generally applied the principles and best practices laid out in the Code. Any departures from the best practices have been explained for in the respective sections below.

A. BOARD OF DIRECTORS

(i) The Board

The Board exercises effective leadership and assumes responsibility for its stewardship functions. It oversees the proper management of the Group’s business operations, effective utilization of its resources for profitable returns on investment by shareholders and any matter relating to succession planning. The Board has confirmed Ir. Jaseni Maidinsa, previously the Development Manager of Perbadanan Bekalan Air Pulau Pinang Sdn Bhd (PBAPP), as the Chief Executive Officer of the Company and the General Manager of PBAPP with effect from 1 April 2007 following his initial appointment as the Acting Chief Executive Officer of the Company and the Acting General Manager of PBAPP on 13 January 2007. Ir. Jaseni succeeded Dato’ Ir. Liew Chook San, who left the Company on his own accord to spend more time with his family and to pursue his own interests.

In accordance with the Code, there is a clear division of responsibilities between the Chairman and Chief Executive Officer (“CEO”), who is not a Board member. The CEO’s responsibility is to run the business and to ensure implementation of policies and strategies approved by the Board and to communicate to the Board on matters pertaining to the business results and performance of the Group. The Chairman is responsible for leading the Board to ensure its effectiveness and integrity and the entrenchment of good corporate governance practices within the Group.

(ii) Board Composition and Balance

The Group is led by Board members who have a wide range of competencies and experiences ranging from the accounting, business, legal and public service sectors. Presently, there are eight Board members in total, all holding non-executive positions. The requirement of the Code for an effective Board balance is fulfilled with three of the eight Board members assuming independent non-executive positions, together with the requirement for a Director who is a member of the Malaysian Institute of Accountants to sit in the Audit Committee. The number of independent non-executive Board members is sufficient to lend independent objectivity and added perspectives to the Board’s decision-making process.

Balance is also ensured by way of the active and unrestricted participation of the independent non-executive Directors in the deliberations and decision-making process of the Board. All Directors have full access to the background information pertaining to all matters placed before them for decision-making. All Directors are entitled to call for full disclosure by the Management to ensure that matters moved by the Management for decision-making by the Board can be discussed and examined in a balanced manner that takes into account the long term interests, not only of the shareholders, but also of the employees, customers and the communities at large.

(iii) Directors’ Continuing Development

The Board oversees the training needs of the Directors. Directors are regularly updated on the Group’s business and the regulatory environment in which they operate. During the financial year 2007, several discussion sessions were held to understand new water regulatory requirements as introduced by the government in Malaysia. All Directors have attended those sessions held during the year.

All the Directors of the Company have completed the Mandatory Accreditation Programme as prescribed by Bursa Malaysia Securities Berhad (“Bursa Securities”) in compliance with the Listing Requirements of Bursa Securities except for the 3 newly appointed Directors who are required to comply the said requirement within 4 months from their date of appointment to the Board.

The Directors of the Company are encouraged to attend various professional programmes necessary to enable them to keep abreast with the changes in guidelines issued by the relevant authorities as well as on the latest developments in the market place which can complement their services to the Group.

42 PBA HOLDINGS BHD (515119-U) STATEMENT ON CORPORATE GOVERNANCE (CONT’D)

A. BOARD OF DIRECTORS (CONT’D)

(iv) Board Meetings held during the financial year 2007

During the financial year 2007, 6 Board meetings were held. The following is the record of attendance by the Board members:

Names of Present Directors Attendance Record YAB Mr. Lim Guan Eng (appointed w.e.f 18/04/2008) N/A *Note 1 YB Encik Mohammad Fairus bin Khairuddin (appointed w.e.f 18/04/2008) N/A *Note 1 YB Prof. Dr. P. Ramasamy a/l Palanisamy (appointed w.e.f 18/04/2008) N/A *Note 1 Y.B. Dato’ Jamaludin bin Hasan 6 out of 6 Y.B. Dato’ Supiah bt. Md Yusof 5 out of 6 Y.Bhg. Dato’ Chew Kong Seng 6 out of 6 Y.Bhg. Dato’ Dr. SHANmughalingam a/l Murugasu 6 out of 6 Y.Bhg. Dato’ Haji Adlan bin Hj Mohamed Daud 5 out of 6 Y.A.B. Tan Sri Dr. Koh Tsu Koon (resigned w.e.f 18/04/2008) 6 out of 6 Y.B. Dato’ Seri Haji Abd Rashid bin Abdullah (resigned w.e.f 18/04/2008) 4 out of 6 Y.B. Dato’ Koay Kar Huah (resigned w.e.f 18/04/2008) 6 out of 6 Y.B. Puan Faiza binti Zulkifli (resigned w.e.f 18/02/2008) N/A *Note 2 Y.B. Dato’ Hinshawati binti Shariff (resigned w.e.f 01/07/07) 3 out of 3

*Note 1 The attendance record is not applicable as their appointment to the Board are made after the financial year 31 December 2007. *Note 2 The attendance record is not applicable as Y.B. Puan Faiza binti Zulkifli was appointed to the Board on 2 August 2007 and subsequently resigned on 18 February 2008.

The Board would have at least four regular scheduled meetings annually, with additional meetings convened as and when necessary.

In the intervals between Board meetings, for exceptional matters requiring urgent Board decisions, the Board decisions are obtained via circular resolutions to which sufficient information required are attached to facilitate the Board making informed decisions.

(v) Access to and Supply of Information and Advice

Notice of meetings setting out the agenda together with the relevant supporting Board papers containing financial and performance-related information on business activities are given to the Board members well in advance to enable them to peruse, obtain additional information and/or seek further clarifications on the matters to be deliberated prior to the Board meeting to facilitate the decision-making process.

All Board members have direct access to the advice and services of the Company Secretary as well as to all the information within the Company, whether as full Board or in their individual capacity, in furtherance of their duties to make informed decisions. Where independent professional advice on specialized issues is required by the Board members to discharge their duties proficiently, outside expertise may be engaged at the Company’s expense.

(vi) Appointment and Re-election of Directors

Presently, the need for setting up a nomination committee does not arise as the full Board is composed exclusively of non-executive Directors. As such, the appointment of any new Board member will be a matter for the full Board to deliberate upon.

In accordance with the Company’s Articles of Association, one-third of the Board of Directors shall retire at the Company’s Annual General Meeting (“AGM”) so that each Director shall retire from office at least once in every three years but shall be eligible for re-election. Any Directors appointed by the Board during the year are subject to retirement and re-election by the shareholders at the Company’s AGM subsequent to their appointments. Directors over seventy years of age are required to submit themselves for re-appointment annually in accordance with section 129(6) of the Companies Act, 1965.

PBA HOLDINGS BHD (515119-U) 43 STATEMENT ON CORPORATE GOVERNANCE (CONT’D)

B. DIRECTORS’ REMUNERATION

The Director’s remuneration is a matter for the full Board to decide based on market conditions, responsibilities held and the Group’s overall financial performance. Individual Directors abstain from decisions in respect of their own remuneration. No remuneration committee is established by the Board at the moment as none of the Directors is holding any executive position.

A summary of the remuneration of the Directors in the Company and of its subsidiary for the financial year ended 31 December 2007 is as follows:-

a. The aggregate remuneration of the Directors for the financial year 2007 is set out below:

l. PBA HOLDINGS BHD

Directors Basic Salary Directors’ Fees Allowance Benefit-In-Kind (RM) (RM) (RM) (RM) Non-Executive Chairman NIL NIL 8,900 NIL Non-Executive Deputy Chairman NIL NIL 8,900 NIL Non-Independent Non-Executive Directors NIL NIL 35,108 NIL Independent Non-Executive Directors NIL NIL 122,700 NIL

ll. PERBADANAN BEKALAN AIR PULAU PINANG SDN BHD

Directors Basic Salary Directors’ Fees Allowance Benefit-In-Kind (RM) (RM) (RM) (RM) Non-Executive Chairman NIL NIL 40,500 NIL Non-Executive Deputy Chairman NIL NIL 23,400 NIL Non-Independent Non-Executive Directors NIL NIL 76,416 NIL

b. The respective remuneration of each of the nine non-executive Board members in the Company falls below the range of remuneration of RM50,000 for the financial year 2007.

C. RELATIONSHIP WITH SHAREHOLDERS AND INVESTORS

(i) Investor Relations and Shareholder Communication

The Board is ever conscious of the importance and need to communicate with its shareholders, stakeholders and potential investors to keep them well informed concerning the Group’s operations and latest development. Information disseminated to the investment community conform to the Bursa Securities’ disclosure rules and regulations. Care has been taken to ensure that no market-sensitive information such as corporate proposals, financial results and other material information is disseminated to any party without first making an official announcement to the Bursa Securities.

The Company maintains a website at www.pba.com.my to facilitate access on pertinent information concerning the Group and its operations by the shareholders, consumers and public. Y. Bhg. Dato’ Haji Adlan bin Hj Mohamed Daud has been appointed as the Senior Independent Non-Executive Director to whom concerns regarding the Group may be conveyed.

(ii) Company’s Annual and Extraordinary General Meeting

The Company’s AGM is a vital forum used to communicate and interact with its shareholders. At each AGM, the Board presents the financial performance and future direction of the Group and encourages shareholders to participate in the question and answer session. Each item of special business included in the notice of the AGM will be accompanied by an explanatory statement to facilitate full understanding and evaluation of issues involved. A full explanation is given of all the proposed resolutions to be passed at the AGM. A press conference is held immediately after the Company’s AGM to disseminate information pertaining to the Group’s financial performance and operations and to clarify on any issues raised by the media. An Extraordinary General Meeting is held as and when shareholders’ approvals are required on specific matters.

44 PBA HOLDINGS BHD (515119-U) STATEMENT ON CORPORATE GOVERNANCE (CONT’D)

D. ACCOUNTABILITY AND AUDIT

Responsibility Statement by Directors

The Directors acknowledge responsibility in ensuring that the financial statements of the Company and Group give a true and fair view of the state of affairs of the Company and Group at the end of the financial year and of their results and cash flows for the financial year then ended. The Directors have also ensured that the applicable approved accounting standards in Malaysia and the accounting provisions of the Companies Act, 1965 have been complied with.

In preparing the financial statements, the Directors have: • applied consistently the appropriate accounting policies adopted; • made reasonable and prudent judgments and estimates; and • maintained proper accounting records to enable the preparation of the financial statements with reasonable accuracy.

In addition, the Directors are also responsible for taking reasonable steps to safeguard the assets of the Company and Group as well as shareholders’ interests.

Financial Reporting

In presenting the annual financial statements and quarterly announcements of results to the shareholders and to regulatory authorities, the Board aims to present a balanced and meaningful assessment of the Group’s financial position and prospects.

The Audit Committee assists the Board in ensuring the accuracy, adequacy and completeness of the financial information to be disclosed. The financial reports would be reviewed by the Audit Committee prior to tabling them to the Board of Directors for approval and subsequent release to the Bursa Securities.

Internal Control

The Board acknowledged its overall responsibility for maintaining a sound system of internal control to safeguard shareholders’ investments and the Group’s assets. An internal audit department has been established to assist the Audit Committee to ensure a sound system of internal control and risk management is implemented enterprise- wide. The Statement on Internal Control furnished on pages 46 and 47 of the Annual Report provides an overview of the nature and scope of internal control within the Group.

Relationship with the Auditors

A formal and transparent relationship is established with the Group’s external and internal auditors through the Audit Committee. The key features outlining the relationship of the Audit Committee with both the external and internal auditors are included in the Audit Committee Report furnished on pages 48 to 51 of the Annual Report.

COMPLIANCE WITH THE BEST PRACTICES OF THE CODE

Save for the exceptions set out above, the Group is in substantial compliance through the financial year with the Principles and Best Practices of the Code.

This Statement on Corporate Governance is made in accordance with the resolution of the Board of Directors dated 18 April 2008.

PBA HOLDINGS BHD (515119-U) 45 STATEMENT ON INTERNAL CONTROL

The Board of Directors (“the Board”) is pleased to provide the following Statement on Internal Control, which is made pursuant to the Listing Requirements of Bursa Malaysia Securities Berhad with regards to the nature and scope of internal control within the Group during the financial year.

Responsibility

The Board has overall responsibility for the Group’s system of internal control and for reviewing its effectiveness whilst the role of management is to implement the Group’s policies on internal control. Notwithstanding that, in view of the limitations that are inherent in any system of internal control, this system is designed to manage rather than to eliminate risks that may hinder the achievement of the Group’s corporate objectives. In pursuing these objectives, internal controls can only provide reasonable and not absolute assurance against material mis-statement or loss.

Nature and Scope of Internal Control

The approach to internal control has always been holistic and process-embedded covering all aspects of the business and functional risk controls. These integrated controls are designed to mitigate both the internal and external risks in order to optimise the Group’s ability to achieve its corporate objectives. The organisation’s risk management process has been formalized via its enterprise-wide Risk Management Framework, which in the Board’s opinion provides an adequate and satisfactory mechanism for an on-going process of identification, evaluation, managing and monitoring of significant risks. In that regard, the Board acknowledges that the nature and scope of internal control of the Group is satisfactory and adequate in addressing its current principal risks. The Board reviews the risk management process on a regular basis to ensure proper management of risks and that appropriate measures are taken to address any identified weaknesses.

Risk Management Framework

With the setting up of the Risk Management Committee (“RMC”) in April 2002 by the Board and the promulgation of its Risk Management Policy, a risk management framework has since been established. The RMC, consisting of Heads of Department (“HODs”), meet from time to time to identify and manage risks to a manageable level. The risks are being continually monitored and appropriate actions taken to address any change in existing risks or new risks identified as part of an on-going proactive control measure.

Before the end of each year, the HODs will review the level of internal control in their respective departments by filling up the Departmental Risk and Control Assessment Checklist. The checklist helps to assess each department’s overall risk and control environment based on five control components viz., a) effective control environment, b) effective risk assessments, c) effective control activities, d) effective information and communication and e) effective monitoring and review. The five control components enumerated are not exhaustive but are sufficient in concluding whether a positive control environment exists. A numerical rating is given for each relevant control criterion assessed and an overall rating is computed to give an indication of the level of internal control being achieved for each department. The completed checklists are then submitted to the Internal Audit Department for evaluation and safekeeping. The HODs would then collectively assess the overall state of internal control at the corporate level by completing the Risk and Control Assessment Checklist based on the aforementioned five control components. A numerical rating is similarly given for each control criterion assessed and an overall rating is computed at the end of the assessment to indicate the level of achievement for the organisation’s state of internal control.

The risk management process is cascaded down to the departmental level, as well. The relevant departmental personnel identify, evaluate, prioritize, control and communicate the significant risks in their respective operational work environment via the Operational Risk Scorecard cum Internal Control Self Assessment (“ORSICSA”) Report. Besides controlling the identified risks, the relevant personnel have to perform control self assessment by monitoring and verifying that the controls specified in the report to mitigate or eliminate the identified risks have been duly carried out. The risks and control actions identified in the report by the supervisors and executives have to be approved by the respective HODs before they are displayed in the organisation’s intranet Docspace. The Internal Auditor interacts with the relevant executives to help them streamline their risk identification and control process.

The RMC Chairman updates the Audit Committee from time to time with a summary report of the significant risks identified at the corporate level and on the status of control measures specified to address and mitigate the risks. The Board on its part does meet to review and deliberate on the risks and control issues reported to them by the Audit Committee.

46 PBA HOLDINGS BHD (515119-U) STATEMENT ON INTERNAL CONTROL (CONT’D)

Key Elements of Internal Control

The other key elements of the Group’s internal control system are described below:

• The Audit Committee and the Board meet every quarter to discuss matters raised by Management on business and operational matters including potential risks and control issues.

• Clearly defined delegation of responsibilities to the Board Committee and Management includes authority limits to minimise risks of unauthorised transactions. The Board has delegated the responsibilities to the relevant committees to implement and monitor the Board’s policies on controls, for example, capital expenditures have to be properly tendered and approved by the Tenders’ Board before any contracts are awarded.

• The Group has established an organisation structure with clearly defined lines of accountability and appropriate degrees of empowerment, which enables adequate monitoring of the activities and ensures effective flow of information across the organisation. Delegation of authority and appropriate authorisation limits imposed at various levels of Management including those requiring the Board’s approval are documented to ensure accountability and responsibility.

• Standard operating procedures (“SOP”) and policies are set in place for maintaining a sound system of internal control and they are reviewed and revised, whenever the need arises, to meet the evolving business, operational and statutory requirements.

• Perbadanan Bekalan Air Pulau Pinang Sdn. Bhd. (“PBAPP”), a wholly-owned subsidiary, has been accredited with the ISO 9001:2000, ISO 14001:2004 (for 3 sites) and OHSAS 18001:1999 certifications which confirm the good standing of the organisation’s quality, environment and safety management systems, respectively.

• A detailed budgeting process is established, requiring all departments in the Group to prepare budgets annually including capital expenditure proposals, which are discussed and approved by the Board of Directors. A yearly review of the annual budget is undertaken to deliberate and, where appropriate, to address significant variances from the said budget.

• Ongoing training is provided to the organisation’s staff to improve their skills and work competencies.

The Internal Audit Function

The Board recognizes that the internal audit function is an important integral component of the governance process. The Internal Audit Department (“Internal Audit”) performs internal audit in diverse areas comprising the management, financial and operational activities within the Group.

The principal responsibility of the Internal Audit is to assist the Audit Committee in monitoring compliance with policies and procedures and the effectiveness and adequacy of the risk management and control systems in operation. The Internal Audit undertakes a regular and systematic review of the internal controls of the various operational and administrative activities to provide the Audit Committee and the Board with a reasonable and independent assurance that the system of internal control being implemented is effective in addressing the risks and concerns identified.

The Group, in issuing this statement, has taken into consideration the scope of internal control of its subsidiaries whilst excluding that of Pinang Water Limited, a jointly controlled entity, which is deemed to be immaterial to the Group.

This statement is made in accordance with the resolution of the Board of Directors dated 18 April 2008.

PBA HOLDINGS BHD (515119-U) 47 AUDIT COMMITTEE REPORT

1. Composition

Chairman : Y. Bhg. Dato’ Chew Kong Seng (Independent & Non-Executive Director)

Members : Y.Bhg. Dato’ Haji Adlan bin Haji Mohamed Daud (Independent & Non-Executive Director) Y.B. Dato’ Supiah bt. Mohd Yusof (Non-Independent & Non-Executive Director)

2. Terms of Reference of Audit Committee (as revised on 17th April 2008)

2.1 Objective

The principal objectives of the Audit Committee are to assist the Board of Directors (“the Board”) in discharging its statutory duties and responsibilities relating to accounting and financial reporting practices of the Company and its subsidiaries. In addition, the Audit Committee shall:

(a) Evaluate the quality of the audits performed by the internal and external auditors;

(b) Provide assurance that the financial information presented by management is relevant, reliable and timely;

(c) Oversee compliance with laws and regulations and observance of a proper code of conduct; and

(d) Determine the quality, adequacy and effectiveness of the Group’s control environment and quality of the audits.

2.2 Composition

The Audit Committee shall be appointed by the Board from amongst the directors of the Company and shall consist of no fewer than three (3) members. All the Audit Committee members must be non-executive directors, with a majority of them being independent. No alternate director is to be appointed as a member of the Audit Committee.

At least one member of the Audit Committee:

(i) Must be a member of the Malaysian Institute of Accountants; or

(ii) If he is not a member of the Malaysian Institute of Accountants, he must have at least three (3) years’ working experience and

(a) he must have passed the examinations specified in Part I of the 1st Schedule of the Accountants Act, 1967; or

(b) he must be a member of one of the associations of accountants specified in Part II of the 1st Schedule of the Accountants Act, 1967; or

(iii) Fulfills such other requirements as prescribed or approved by Bursa Malaysia Securities Berhad (“Bursa Securities”).

The definition of “independent directors” shall have the meaning given in Chapter 1.01 of the Listing Requirements of Bursa Securities.

The Chairman of the Audit Committee shall be appointed among the members of the Audit Committee who shall be an independent director.

48 PBA HOLDINGS BHD (515119-U) AUDIT COMMITTEE REPORT (CONT’D)

2. Terms of Reference of Audit Committee (Cont’d) 2.3 Meetings

The audit committee shall hold at least four (4) regular meetings per year, with due notice of issues to be discussed, and shall record its conclusions in discharging its duties and responsibilities. In addition, the Chairman may call for additional meetings at any time at the Chairman’s discretion.

The quorum for the Audit Committee meeting shall be the majority of members present whom must be independent directors.

Upon the request of the external auditors, the Chairman of the Audit Committee shall convene a meeting of the Audit Committee to consider any matter the external auditors believe should be brought to the attention of the directors or shareholders.

Notice of Audit Committee meetings shall be given to all the Audit Committee members unless the Audit Committee waives such requirement.

The Finance Manager, the Head of Internal Audit and representatives of the external auditors shall normally attend meetings. Other Board members and employees may attend meetings upon the invitation of the Audit Committee. However, the Audit Committee shall meet with the external auditors, the internal auditors or both, without other Board members and management present at least twice a year and whenever deemed necessary.

Questions arising at any meeting of the Audit Committee shall be decided by a majority of votes of the members present, and in the case of equality of votes, the Chairman of the Audit Committee shall have a second or casting vote.

The Company Secretary shall be the secretary of the Audit Committee.

2.4 Authority

The Audit Committee shall, in accordance with a procedure to be determined by the Board and at the expense of the Company,

(a) Have explicit authority to investigate any matter within its terms of reference, the resources to do so, and full access to information. All employees shall be directed to co-operate as requested by members of the Audit Committee.

(b) Have full and unlimited/unrestricted access to all information and documents/resources, which are required to perform its duties, as well as to the internal and external auditors and senior management of the Company and Group.

(c) Obtain independent professional or other advice and to invite outsiders with relevant experience to attend, if necessary.

(d) Have direct communication channels with the external auditors and person(s) carrying out the internal audit function or activity.

(e) Where the Audit Committee is of the view that the matter reported by it to the Board has not been satisfactorily resolved resulting in a breach of the Listing Requirements, the Audit Committee shall promptly report such matter to Bursa Securities.

2.5 Duties and Responsibilities

The duties and responsibilities of the Audit Committee are as follows:

1. To nominate a person or persons as auditor;

2. To discuss with the external auditors before the audit commences the nature and scope of the audit, ensure co-ordination where more than one audit firm is involved;

3. To review with the external auditors their evaluation of the system of internal controls and their audit report;

PBA HOLDINGS BHD (515119-U) 49 AUDIT COMMITTEE REPORT (CONT’D)

2. Terms of Reference of Audit Committee (Cont’d) 2.5 Duties and Responsibilities (Cont’d)

4. To review the quarterly and annual financial statements before submission to the Board, focusing particularly on:

a. The consistency of and any changes to the accounting policies and practices b. Major judgemental areas c. Significant adjustments resulting from the audit d. The going concern assumption e. Compliance with accounting standards and legal requirements;

5. To discuss problems and reservations arising from the interim and final audits, and any matter the auditor may wish to discuss (in the absence of management, where necessary);

6. To review the external auditors’ management letter and management’s response;

7. To do the following, in relation to the internal audit function:

a. Review the adequacy of the scope, functions, competency and resources of the internal audit function, and that it has the necessary authority to carry out its work;

b. Review the internal audit programme and results of the internal audit process and, where necessary, ensure that appropriate actions are taken on the recommendations of the internal audit function;

c. Review any appraisal or assessment of the performance of members of the internal audit function;

d. Approve any appointment or termination of senior staff members of the internal audit function; and

e. Take cognizance of resignations of internal audit staff members and provide the resigning staff member an opportunity to submit his reasons for resigning.

Pursuant to the Bursa Securities’s Listing Requirements, the Company must establish an internal audit function which is independent of the activities it audits and to ensure its internal audit function reports directly to the Audit Committee;

8. To consider and make recommendations to the Board, to be put to shareholders for approval at the general meeting in relation to the appointment, re-appointment and removal of the Company’s external auditors;

9. To verify the allocation of the employees’ share option scheme (“ESOS”) in compliance with the criteria as stipulated in the by-laws of ESOS of the Company, if any;

10. To review any related party transaction and conflict of interest situation that may arise within the Company or Group including any transaction, procedure or course of conduct that raises questions of management integrity;

11. To report its findings on the financial and management performance, and other material matters to the Board;

12. To consider the major findings of internal investigations and management’s response;

13. To determine the remit of the internal audit function; and

14. To consider other functions as may be agreed to by the Audit Committee and the Board.

2.6 Reporting Procedures

Minutes of each meeting shall be distributed to each member of the Audit Committee. The Audit Committee Chairman shall report on each meeting to the Board.

The minutes of the Audit Committee meeting shall be signed by the Chairman of the meeting at which the proceedings were held or by the Chairman of the next succeeding meeting.

50 PBA HOLDINGS BHD (515119-U) AUDIT COMMITTEE REPORT (CONT’D)

3. Attendance at Audit Committee Meetings

During the financial year 2007, the Audit Committee met 4 times and the meeting attendance record is as follows:-

Name of Committee Members Attendance Record

Y.Bhg. Dato’ Chew Kong Seng 4 out of 4 Y.Bhg. Dato’ Haji Adlan bin Hj Mohamed Daud 4 out of 4 Y.B. Dato’ Supiah bt. Mohd Yusof 3 out of 4

Subsequent to year end, the Audit Committee has complied with best practice of the Code and met with the external auditors on 1st February 2008, without management present.

4. Summary of Activities

The Audit Committee had carried out the following activities during the financial year 2007:-

a) Reviewed and approved the internal audit plan after being satisfied with the contents’ suitability, adequacy and scope of coverage;

b) Reviewed and adopted the audit plan of the external auditor so as to meet the requirements of both parties for the financial year;

c) Reviewed the progress report on the risk management activities from the Head of Internal Audit;

d) Reviewed the quarterly and annual financial statements with the Management prior to the submission of these statements to the Board for approval;

e) Made recommendation to the Board on the re-appointment of the external auditor;

f) Highlighted to the Board on significant issues and concerns discussed during the Audit Committee meetings and, where appropriate, recommended for the Board’s approval on proposed corrective solutions or adjustments;

g) Reviewed and advised on the contents of the Audit Committee Report, Corporate Governance Statement and the Internal Control Statement in the Annual Report; and

h) Reviewed related party transactions of the Company and of the Group.

5. Internal Audit Function

The internal audit function is carried out by the Group’s own Internal Audit Department to assist the Audit Committee in the governance of the organization by performing the following fundamental activities:-

• Providing an independent review and reasonable assurance on the soundness and adequacy of the organisation’s risk management and control systems and making recommendations for improvements, where necessary;

• Ascertaining compliance with established policies, directives and procedures; and

• Ascertaining accountability and safeguarding of the Group’s assets.

6. Statement Verifying Allocation of Options

During the year, the Group did not allocate or offer any share options to employees pursuant to the Company’s employee share option scheme.

PBA HOLDINGS BHD (515119-U) 51 ADDITIONAL COMPLIANCE INFORMATION

Utilisation of Proceeds

There was no corporate exercise with proceeds from the shareholders during the financial year.

Share Buybacks

There were no share buybacks during the financial year.

Options, Warrants or Convertible Securities

There were no other issue or exercise of options, warrants or convertible securities during the financial year.

American Depository Receipt ("ADR") or Global Depository Receipt ("GDR") Programme

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

Imposition of Sanctions and Penalties

There were no public impositions of sanctions or penalties imposed on the Company and its subsidiaries, directors or management by the relevant regulatory bodies during the financial year.

Non-Audit Fees

The amount of non-audit fees paid to the external auditors by the Group and by the Company for the financial year amounted to RM69,533 and RM21,863 respectively for professional fees on tax advisory/services and other services.

Variation in Results

There was no variation between the audited results for the financial year ended 31 December 2007 and the unaudited for the year ended 31 December 2007 of the Group as previously announced.

Profit forecast

This is not applicable to the Company for the financial year ended 31 December 2007.

Profit Guarantee

The Company did not give any profit guarantee to any parties during the financial year.

Material Contracts

There were no material contracts entered into by the Company and its subsidiaries involving Directors' and major shareholders' interests.

Revaluation Policy on Landed Properties

The Group currently has not adopted a policy of regular revaluation on its landed properties and will do so only when the need arises. The existing system of showing the assets at cost less accumulated depreciation is a generally accepted accounting practice as well as a cost-saving measure.

52 PBA HOLDINGS BHD (515119-U) FINANCIAL STATEMENTS

54 DIRECTORS’ REPORT 57 STATEMENT BY DIRECTORS/ STATUTORY DECLARATION 58 REPORT OF THE AUDITORS TO THE MEMBERS 59 INCOME STATEMENTS 60 BALANCE SHEETS 62 STATEMENTS OF CHANGES IN EQUITY 64 CASH FLOW STATEMENTS 66 NOTES TO THE FINANCIAL STATEMENTS DIRECTORS' REPORT

The directors have pleasure in presenting their report together with the audited financial statements of the Group and of the Company for the financial year ended 31 December 2007.

PRINCIPAL ACTIVITIES

The principal activity of the Company is that of an investment holding company.

The principal activities of the subsidiaries are described in Note 11 to the financial statements.

The principal activities of the jointly controlled entity are to construct water-infrastructure projects, water treatment, management and supply of treated water for government, industries, commercial and domestic consumers.

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

RESULTS

Group Company RM'000 RM'000

Profit for the year 42,617 26,429

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

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

DIVIDENDS

The amount of dividends paid by the Company since 31 December 2007 were as follows:

RM'000 In respect of the financial year ended 31 December 2006 as reported in the directors' report of that year: - Final dividend of 7% less tax at 27%, paid on 20 July 2007 8,462

In respect of the financial year ended 31 December 2007 : - Interim dividend of 7% less tax at 27%, paid on 17 December 2007 8,462

The directors recommend a final dividend of 7% less tax at 26% for the financial year ended 31 December 2007 subject to the approval of shareholders at the forthcoming Annual General Meeting. The financial statements for the current financial year do not reflect this proposed final dividend. Such dividend, if approved by the shareholders, will be accounted for in shareholders' equity as an appropriation of retained earnings in the next financial year ending 31 December 2008.

54 PBA HOLDINGS BHD (515119-U) DIRECTORS' REPORT (CONT’D)

DIRECTORS

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

Y.A.B. Tuan Lim Guan Eng (Chairman) (Appointed on 18/4/2008) Y.B. Tuan Mohammad Fairus bin Khairuddin (Deputy Chairman) (Appointed on 18/4/2008) Y.B. Prof. Dr. P. Ramasamy A/L Palanisamy (Appointed on 18/4/2008) Y.B. Dato' Jamaludin bin Hasan Y.B. Dato' Supiah bt. Md. Yusof Y.Bhg. Dato' Chew Kong Seng Y.Bhg. Dato' Dr. SHANmughalingam A/L Murugasu Y.Bhg. Dato' Haji Adlan bin Hj. Mohamed Daud Y.A.B. Tan Sri Dr. Koh Tsu Koon (Chairman) (Resigned on 18/4/2008) Y.B. Dato' Haji Abd. Rashid bin Abdullah (Deputy Chairman) (Resigned on 18/4/2008) Y.B. Dato' Koay Kar Huah (Resigned on 18/4/2008) Y.B. Puan Faiza binti Zulkifli (Appointed on 2/8/2007) (Resigned on 18/2/2008) Y.B. Dato’ Hinshawati Bte Shariff (Resigned on 1/7/2007)

DIRECTORS' BENEFITS

Neither at the end of the financial year, nor at any time during that year, did there subsist any arrangement to which the Company was a party, whereby the directors might acquire benefits by means of acquisition of shares in or debentures of the Company or any other body corporate.

Since the end of the previous financial year, no director has received or become entitled to receive a benefit (other than benefits included in the aggregate amount of emoluments received or due and receivable by the directors as shown in the financial statements) by reason of a contract made by the Company or a related corporation with any director or with a firm of which the director is a member, or with a company in which the director has a substantial financial interest required to be disclosed by Section 169(8) of the Companies Act, 1965.

DIRECTORS' INTERESTS

None of the directors who held office at the end of the financial year had, according to the register required to be kept under Section 134 of the Companies Act, 1965, an interest in shares in the Company or its subsidiaries.

ISSUE OF SHARES

During the financial year, the Company increased its issued and fully-paid ordinary share capital from RM165,578,901 to RM165,602,701 by way of the issuance of 47,600 ordinary shares of RM0.50 each for cash pursuant to the Company's Employee Share Options Scheme (ESOS) at an exercise price of RM1.12 per ordinary share.

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

EMPLOYEES SHARE OPTION SCHEME (ESOS)

The Company's ESOS is governed by the by-laws approved by the shareholders at an Extraordinary General Meeting held on 9 June 2005. The ESOS was implemented on 15 July 2005 and is to be in force for a period of 5 years from the date of implementation.

The salient features and other terms of the ESOS are disclosed in Note 20.2 to the financial statements.

No directors of the Company were granted any options under the ESOS.

PBA HOLDINGS BHD (515119-U) 55 DIRECTORS' REPORT (CONT’D)

OTHER STATUTORY INFORMATION

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

(i) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of provision for doubtful debts and satisfied themselves that there were no known bad debts and that adequate provision had been made for doubtful debts; and

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

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

(i) it necessary to write off any bad debts or the amount of the provision for doubtful debts in the financial statements of the Group and of the Company inadequate to any substantial extent; and

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

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

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

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

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

(ii) any contingent liability in respect of the Group and of the Company which has arisen since the end of the financial year.

(f) In the opinion of the directors:

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

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

AUDITORS

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

Signed on behalf of the Board in accordance with a resolution of the directors dated 18 April 2008.

DATO' JAMALUDIN BIN HASAN DATO’ SUPIAH BT. MD. YUSOF

56 PBA HOLDINGS BHD (515119-U) STATEMENT BY DIRECTORS PURSUANT TO SECTION 169(15) OF THE COMPANIES ACT,1965

We, DATO' JAMALUDIN BIN HASAN and DATO’ SUPIAH BT. MD. YUSOF, being two of the directors of PBA HOLDINGS BHD., do hereby state that, in the opinion of the directors, the accompanying financial statements set out on pages 59 to 105 are drawn up in accordance with the provisions of the Companies Act, 1965 and applicable Financial Reporting Standards in Malaysia so as to give a true and fair view of the financial position of the Group and of the Company as at 31 December 2007 and of the results and the cash flows of the Group and of the Company for the year then ended.

Signed on behalf of the Board in accordance with a resolution of the directors dated 18 April 2008.

DATO' JAMALUDIN BIN HASAN DATO’ SUPIAH BT. MD. YUSOF

STATUTORY DECLARATION PURSUANT TO SECTION 169(16) OF THE COMPANIES ACT,1965

I, JOYCE LEE SUAN IMM (I/C No. 660512-07-5772), being the officer primarily responsible for the financial management of PBA HOLDINGS BHD., do solemnly and sincerely declare that the accompanying financial statements set out on pages 59 to 105 are in my opinion correct, and I make this solemn declaration conscientiously believing the same to be true and by virtue of the provisions of the Statutory Declarations Act, 1960.

Subscribed and solemnly declared by the abovenamed JOYCE LEE SUAN IMM at Georgetown in the state of Penang on 18 April 2008. JOYCE LEE SUAN IMM

Before me,

Commissioner for Oaths

PBA HOLDINGS BHD (515119-U) 57 REPORT OF THE AUDITORS TO THE MEMBERS OF PBA HOLDINGS BHD. (Incorporated in Malaysia)

We have audited the financial statements set out on pages 59 to 105. These financial statements are the responsibility of the Company's directors.

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

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

In our opinion:

(a) the financial statements have been properly drawn up in accordance with the provisions of the Companies Act, 1965 and applicable Financial Reporting Standards in Malaysia so as to give a true and fair view of:

(i) the financial position of the Group and of the Company as at 31 December 2007 and of the results and the cash flows of the Group and of the Company for the year then ended; and

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

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

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

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

ERNST & YOUNG LIM ENG HUAT AF : 0039 2403/04/09 (J) Chartered Accountants Partner

Penang, Malaysia Date: 18 April 2008

58 PBA HOLDINGS BHD (515119-U) INCOME STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007

Group Company Restated 2007 2006 2007 2006 Note RM'000 RM'000 RM'000 RM'000

Revenue 3 181,549 172,057 38,337 33,333 Cost of sales (121,823) (112,629) - - Gross profit 59,726 59,428 38,337 33,333 Other operating income 4 22,993 15,275 - - Administrative expenses (31,372) (31,355) (1,649) (1,763) Operating profit 51,347 43,348 36,688 31,570 Finance cost (29) (10) (6) (4) Share of profit of jointly controlled entity 277 410 - - Profit before tax 5 51,595 43,748 36,682 31,566 Income tax expense 6 (8,978) (10,859) (10,253) (4,688) Profit for the year 42,617 32,889 26,429 26,878

Attributable to: Equity holders of the Company 42,617 32,889 26,429 26,878 Minority interests - - - - 42,617 32,889 26,429 26,878

Earnings per share attributable to equity 7 holders of the Company (sen): - Basic 12.87 9.93 - Diluted 12.54 9.66

Net dividends per share (sen) 8 5.10 5.02 5.10 5.02

The accompanying notes form an integral part of the financial statements

PBA HOLDINGS BHD (515119-U) 59 BALANCE SHEETS AS AT 31 DECEMBER 2007

Group Company Restated 2007 2006 2007 2006 Note RM'000 RM'000 RM'000 RM'000

ASSETS

NON-CURRENT ASSETS

Property, plant and equipment 9 619,730 649,854 33 58 Prepaid land lease payments 10 18,502 18,646 - - Investments in subsidiaries 11 - - 266,610 266,018 Investment in a jointly controlled entity 12 499 756 * * Investments 13 22,877 30,267 - - 661,608 699,523 266,643 266,076

CURRENT ASSETS

Inventories 14 15,400 13,900 - - Trade receivables 15 14,801 16,561 - - Other receivables 16 12,286 17,575 323 413 Amounts due by subsidiaries 17 - - 86,379 77,714 Amount due by a jointly controlled entity 18 6,079 5,730 6,079 5,730 Tax recoverable 9,071 6,370 162 112 Fixed deposits 19 104,400 75,500 10,900 10,000 Cash and bank balances 4,458 8,049 96 596 166,495 143,685 103,939 94,565 TOTAL ASSETS 828,103 843,208 370,582 360,641

* RM99

60 PBA HOLDINGS BHD (515119-U) BALANCE SHEETS (CONT’D) AS AT 31 DECEMBER 2007

Group Company Restated 2007 2006 2007 2006 Note RM'000 RM'000 RM'000 RM'000

EQUITY AND LIABILITIES Equity attributable to equity holders of the Company

Share capital 20 165,603 165,579 165,603 165,579 Reserves 21 381,970 356,386 204,696 194,767 Total equity 547,573 521,965 370,299 360,346

NON-CURRENT LIABILITIES

Retirement benefit obligations 22 20,814 17,476 140 158 Term loans (unsecured) 23 84,892 137,236 - - Deferred tax liabilities 24 70,769 63,113 - - 176,475 217,825 140 158

CURRENT LIABILITIES

Trade payables 25 1,862 1,581 - - Other payables 26 94,542 94,396 47 137 Retirement benefit obligations 22 1,099 889 96 - Term loans (unsecured) 23 6,552 6,552 - - 104,055 103,418 143 137 Total liabilities 280,530 321,243 283 295

TOTAL EQUITY AND LIABILITIES 828,103 843,208 370,582 360,641

The accompanying notes form an integral part of the financial statements

PBA HOLDINGS BHD (515119-U) 61 STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2007

Non-Distributable Distributable Foreign Share currency Share Share Reserve on option translation Retained Total capital premium consolidation reserve reserve earnings Equity Group Note RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

At 1 January 2007 As previously stated 165,579 161,881 - 197 346 212,440 540,443 Prior year adjustments: 2.5 Depreciation on completed capital projects - - - - - (10,102) (10,102) Overprovision of income tax - - - - - 5,101 5,101 Deferred taxation on completed capital projects - - - - - (13,477) (13,477) - - - - - (18,478) (18,478) As restated 165,579 161,881 - 197 346 193,962 521,965 Issuance of shares pursuant to ESOS 24 29 - - - - 53 Share options granted under ESOS - - - 395 - - 395 Exchange Fluctuation Reserve, representing net expense recognised directly in equity - - - - (533) - (533) Profit after tax - - - - - 42,617 42,617 Total recognised income and expense for the year - - - - (533) 42,617 42,084 Dividends 8 - - - - - (16,924) (16,924) At 31 December 2007 165,603 161,910 - 592 (187) 219,655 547,573

Group

At 1 January 2006 As previously stated 165,550 161,836 53,780 - - 154,339 535,505 Prior year adjustments: 2.5 Depreciation on completed capital projects - - - - - (5,902) (5,902) Overprovision of income tax - - - - - 3,366 3,366 Deferred taxation on completed capital projects - - - - - (9,557) (9,557) - - - - - (12,093) (12,093) 165,550 161,836 53,780 - - 142,246 523,412 Effect of adopting FRS 3 - - (53,780) - - 53,780 - Effect of change in accounting policy - FRS 112 - - - - - (18,330) (18,330) As restated 165,550 161,836 - - - 177,696 505,082 Issuance of shares pursuant to ESOS 29 45 - - - - 74 Share options granted under ESOS - - - 197 - - 197 Exchange Fluctuation Reserve, representing net income recognised directly in equity - - - - 346 - 346 Profit for the year - - - - - 32,889 32,889 Total recognised income and expense for the year - - - - 346 32,889 33,235 Dividends 8 - - - - - (16,623) (16,623)

At 31 December 2006, as restated 165,579 161,881 - 197 346 193,962 521,965

62 PBA HOLDINGS BHD (515119-U) STATEMENTS OF CHANGES IN EQUITY (CONT’D) FOR THE YEAR ENDED 31 DECEMBER 2007

Non-Distributable Distributable Share Share Share option Retained Total capital premium reserve earnings Equity Company Note RM'000 RM'000 RM'000 RM'000 RM'000

At 1 January 2007 165,579 161,881 197 32,689 360,346 Issuance of shares 24 29 - - 53 Share options granted under ESOS: - recognised in income statement - - 3 - 3 - included in investments in subsidiaries - - 392 - 392 Profit for the year, representing total recognised income and expense for the year - - - 26,429 26,429 Dividends 8 - - - (16,924) (16,924) At 31 December 2007 165,603 161,910 592 42,194 370,299

At 1 January 2006 165,550 161,836 - 22,434 349,820 Issuance of shares 29 45 - - 74 Share options granted under ESOS: - recognised in income statement - - 4 - 4 - included in investments in subsidiaries - - 193 - 193 Profit for the year, representing total recognised income and expense for the year - - - 26,878 26,878 Dividends 8 - - - (16,623) (16,623) At 31 December 2006 165,579 161,881 197 32,689 360,346

The share capital includes 1 Special Rights Redeemable Preference Share (Special Share) of RM0.50 each. Refer to Note 20.1 to the financial statements for details of the terms and rights attached to the Special Share.

The accompanying notes form an integral part of the financial statements

PBA HOLDINGS BHD (515119-U) 63 CASH FLOW STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007

Group Company Restated 2007 2006 2007 2006 RM'000 RM'000 RM'000 RM'000

CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax 51,595 43,748 36,682 31,566 Adjustments for: Amortisation of prepaid land lease payments 221 515 - - Bad debts written off - 48 - - Depreciation of property, plant and equipment 29,735 29,677 26 45 (Gain)/Loss on disposal of investments (9,437) 116 - - Loss/(Gain) on disposal of property, plant and equipment 4 (2) - - Property, plant and equipment written off 281 46 - - Inventories written off 182 186 - - Provision for doubtful debts 740 1,644 - - Provision for retirement benefits 4,741 3,751 (28) 43 Share options granted and vested under ESOS - 197 - 4 Underprovision of share options granted and vested under ESOS in prior year 395 - 3 - Share of results in jointly controlled entity (277) (410) - - Dividend income (1,175) (951) (37,976) (33,023) Interest income (2,755) (3,689) (361) (310) Writeback of provision for diminution in value of investments - (2,798) - - Operating profit/(loss) before working capital changes 74,250 72,078 (1,654) (1,675) (Increase)/Decrease in inventories (1,682) 6,358 - - Decrease/(Increase) in trade and other receivables 6,309 (1,534) (3) (50) Increase in amount due by subsidiaries - - (8,466) (9,361) Increase in amount due by a jointly controlled entity (349) (774) (349) (774) Increase/(Decrease) in trade and other payables 26,415 4,429 (90) 115 Cash generated from/(used in) operations carried forward 104,943 80,557 (10,562) (11,745)

64 PBA HOLDINGS BHD (515119-U) CASH FLOW STATEMENTS (CONT’D) FOR THE YEAR ENDED 31 DECEMBER 2007

Group Company Restated 2007 2006 2007 2006 RM'000 RM'000 RM'000 RM'000

Cash generated from/(used in) operations brought forward 104,943 80,557 (10,562) (11,745)

Retirement benefits paid (1,193) (715) - - Tax (paid)/refunded (3,783) (2,761) (50) 241 Net cash from/(used in) operating activities 99,967 77,081 (10,612) (11,504)

CASH FLOWS FROM INVESTING ACTIVITIES Dividends received (net) 935 736 27,723 28,400 Interest received 2,755 3,689 361 310 Investments in subsidiaries - - (200) - Proceeds from disposal of investments 97,900 32,279 - - Proceeds from disposal of property, plant and equipment 13 4 - - Purchase of investments (81,073) (33,167) - - Purchase of property, plant and equipment (71,688) (118,962) (1) (11) Prepaid land lease payments (77) - - - Net cash (used in)/from investing activities (51,235) (115,421) 27,883 28,699

CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid (16,924) (16,623) (16,924) (16,623) Proceeds from issuance of shares 53 74 53 74 Repayment of term loans (6,552) (6,552) - - Net cash used in financing activities (23,423) (23,101) (16,871) (16,549)

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 25,309 (61,441) 400 646 CASH AND CASH EQUIVALENTS AT 1 JANUARY 83,549 144,990 10,596 9,950 CASH AND CASH EQUIVALENTS AT 31 DECEMBER 108,858 83,549 10,996 10,596

CASH AND CASH EQUIVALENTS AT 31 DECEMBER Fixed deposits 104,400 75,500 10,900 10,000 Cash and bank balances 4,458 8,049 96 596 108,858 83,549 10,996 10,596

The accompanying notes form an integral part of the financial statements

PBA HOLDINGS BHD (515119-U) 65 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2007

1. CORPORATE INFORMATION

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

The registered office of the Company is located at Level 32, KOMTAR, 10000 Penang.

The principal activity of the Company is that of an investment holding company.

The principal activities of the subsidiaries are described in Note 11 to the financial statements.

The principal activities of the jointly controlled entity are to construct water-infrastructure projects, water treatment, management and supply of treated water for government, industries, commercial and domestic consumers.

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

The financial statements were authorised for issue by the Board of Directors in accordance with a resolution of the directors on 18 April 2008.

2. SIGNIFICANT ACCOUNTING POLICIES

2.1 Basis of Preparation

The financial statements comply with the provisions of the Companies Act 1965 and applicable Financial Reporting Standards (FRSs) in Malaysia. At the beginning of the current financial year, the Group and the Company had adopted new and revised FRSs which are mandatory for financial periods beginning on or after 1 January 2007 as described fully in Note 2.3.

The financial statements of the Group and of the Company have also been prepared on a historical basis. The financial statements are presented in Ringgit Malaysia (RM) and all values are rounded to the nearest thousand (RM'000) except when otherwise indicated.

2.2 Summary of Significant Accounting Policies

(a) Subsidiaries and Basis of Consolidation

i. Subsidiaries

Subsidiaries are entities over which the Group has the ability to control the financial and operating policies so as to obtain benefits from their activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group has such power over another entity.

In the Company’s separate financial statements, investments in subsidiaries are stated at cost less impairment losses. On disposal of such investments, the difference between net disposal proceeds and their carrying amounts is included in profit or loss.

ii. Basis of Consolidation

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at the balance sheet date. The financial statements of the subsidiaries are prepared for the same reporting date as the Company.

66 PBA HOLDINGS BHD (515119-U) NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

2.2 Summary of Significant Accounting Policies (Cont’d)

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

ii. Basis of Consolidation (Cont’d)

Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. In preparing the consolidated financial statements, intragroup balances, transactions and unrealised gains or losses are eliminated in full. Uniform accounting policies are adopted in the consolidated financial statements for like transactions and events in similar circumstances.

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

Any excess of the cost of the acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities represents goodwill. Any excess of the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition is recognised immediately in profit or loss.

Minority interests represent the portion of profit or loss and net assets in subsidiaries not held by the Group. It is measured at the minorities’ share of the fair value of the subsidiaries’ identifiable assets and liabilities at the acquisition date and the minorities’ share of changes in the subsidiaries’ equity since then. Minority interests have not been disclosed as the amount is immaterial.

(b) Jointly Controlled Entity

The Group has an interest in a joint venture which is a jointly controlled entity. A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control, and a jointly controlled entity is a joint venture that involves the establishment of a separate entity in which each venturer has an interest.

Investment in a jointly controlled entity is accounted for in the consolidated financial statements using the equity method of accounting based on the management financial statements of the jointly controlled entity. Under the equity method of accounting, the Group's share of profits less losses of a jointly controlled entity during the year is recognised in the consolidated income statement. The Group's interest in a jointly controlled entity is carried in the consolidated balance sheet at cost plus the Group's share of post-acquisition retained profits or accumulated losses and other reserves.

Unrealised gains or losses on transactions between the Group and the jointly controlled entity are eliminated to the extent of the Group's interest in the jointly controlled entity. Unrealised losses are eliminated unless cost cannot be recovered.

In the Company's separate financial statements, investment in a jointly controlled entity is stated at cost less impairment losses.

On disposal of such investments, the difference between the net disposal proceeds and their carrying amounts is recognised in the income statement.

PBA HOLDINGS BHD (515119-U) 67 NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

2.2 Summary of Significant Accounting Policies (Cont’d)

(c) Property, Plant and Equipment and Depreciation

All items of property, plant and equipment are initially recorded at cost. 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 are charged to the income statement during the financial period in which they are incurred.

Subsequent to recognition, property, plant and equipment, except for freehold land, are stated at cost less accumulated depreciation and any accumulated impairement losses.

Freehold land has an unlimited useful life and therefore is not depreciated. Capital work-in-progress are also not depreciated as these assets are not available for use. Depreciation of other property, plant and equipment is provided for on a straight line basis to write off the cost of each asset to its residual value over the estimated useful life, at the following annual rates:

Buildings 2% Building improvements 33% Reservoirs 2% Plant and machinery 2% - 10% Motor vehicles 20% Equipment and furnitures 10% - 33 %

Property, plant and equipment which were acquired from Pihak Berkuasa Air Pulau Pinang upon the corporatisation of the subsidiary on 1 March 1999 are depreciated over their remaining useful lives.

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

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. The difference between the net disposal proceeds, if any and the net carrying amount is recognised in the income statement.

(d) Leases

A lease is recognised as a finance lease if it transfers substantially to the Group all the risks and rewards incidental to ownership. Leases of land and buildings are classified as operating or finance leases in the same way as leases of other assets and the land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification. All leases that do not transfer substantially all the risks and rewards are classified as operating leases.

i. Operating Leases - the Group as Lessee

Operating lease payments are recognised as an expense on a straight-line basis over the term of the relevant lease.

68 PBA HOLDINGS BHD (515119-U) NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

2.2 Summary of Significant Accounting Policies (Cont’d)

(d) Leases (Cont’d)

i. Operating Leases - the Group as Lessee (Cont’d)

In the case of a lease of land and buildings, the minimum lease payments or the up-front payments made are allocated, whenever necessary, between the land and the buildings elements in proportion to the relative fair values for leasehold interests in the land element and buildings element of the lease at the inception of the lease. The up-front payment represents prepaid lease payments and are amortised on a straight-line basis over the lease term.

ii. Operating Leases - the Group as Lessor

Assets leased out under operating leases are presented on the balance sheets according to the nature of the assets. Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight- line basis over the lease term.

(e) Impairment of Non-Financial Assets

The carrying amounts of assets, other than inventories and deferred tax assets, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated to determine the amount of impairment loss.

For goodwill, intangible assets that have an indefinite useful life and intangible assets that are not yet available for use, the recoverable amount is estimated at each balance sheet date or more frequently when indicators of impairment are identified.

For the purpose of impairment testing of these assets, recoverable amount is determined on an individual asset basis unless the asset does not generate cash flows that are largely independent of those from other assets. If this is the case, recoverable amount is determined for the cash- generating unit ("CGU") to which the asset belongs to. Goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's CGUs, or groups of CGUs, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or group of units.

An asset's recoverable amount is the higher of an asset's or CGU's fair value less costs to sell and its value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. When an asset-specific rate is not directly available from the market, the Group uses surrogates to estimate the discount rate. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Impairment losses recognised in respect a CGU or groups of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to those units or group of units and then, to reduce the carrying amount of the other assets in the unit or groups of units on a pro-rata basis.

An impairment loss is recognised in profit or loss in the period in which it arises, unless the asset is carried at revalued amount, in which case the impairment loss is accounted for as a revaluation decrease to the extent that the impairment loss does not exceed the amount held in the asset revaluation reserve for the same asset.

PBA HOLDINGS BHD (515119-U) 69 NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

2.2 Summary of Significant Accounting Policies (Cont’d)

(e) Impairment of Non-Financial Assets (Cont’d)

Impairment loss on goodwill is not reversed in a subsequent period. An impairment loss for an asset other than goodwill is reversed if, and only if, there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised. The carrying amount of an asset other than goodwill is increased to its revised recoverable amount, provided that this amount does not exceed the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised for the asset in prior years. A reversal of impairment loss for an asset other than goodwill is recognised in profit or loss, unless the asset is carried at revalued amount, in which case, such reversal is treated as a revaluation increase.

(f) Inventories

Inventories which consist of spare parts and consumables are stated at lower of cost and net realisable value after adequate provision has been made for damaged, obsolete and slow moving inventories.

Cost is determined using the weighted average cost basis.

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

(g) Provisions for Liabilities

Provisions for liabilities are recognised when the Group has a present obligation as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount can be made. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to passage of time is recognised as financial cost.

(h) Income Tax

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

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

70 PBA HOLDINGS BHD (515119-U) NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

2.2 Summary of Significant Accounting Policies (Cont’d)

(h) Income Tax (Cont’d)

Deferred tax is measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax is recognised in the income statement, except when it arises from a transaction which is recognised directly in equity, in which case the deferred tax is also charged or credited directly in equity, or when it arises from a business combination that is an acquisition, in which case the deferred tax is included in the resulting goodwill or negative goodwill.

(i) Employee Benefits

i. Short Term Benefits

Wages, salaries, bonuses and social security contributions are recognised as an expense in the year in which the associated services are rendered by employees 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. Defined Contribution Plans

As required by law, companies in Malaysia make contributions to the statutory pension scheme, the Employees Provident Fund ("EPF"). Such contributions are recognised as an expense in the income statement as incurred.

iii. Defined Benefit Plans

The Group operates an unfunded defined benefit plan ("the Plan") for its employees. The Group's obligation under the plan is determined based on actuarial computations by independent actuaries using the Projected Unit Credit Method, through which the amount of benefit that employees have earned in return for their services in the current and prior years is estimated. That benefit is discounted in order to determine its present value. Actuarial gains and losses are recognised as income or expense over the expected average remaining working lives of the participating employees when the cumulative unrecognised actuarial gains or losses for the Scheme exceed 10% of the higher of the present value of the defined benefit obligation and the fair value of plan assets. Past service costs are recognised as an expense on a straight-line basis over the average period until the benefits become vested. If the benefits are already vested immediately following the introduction of, or changes to, a pension plan, past service costs are recognised immediately.

The amount recognised in the balance sheet represents the present value of the defined benefit obligations adjusted for unrecognised past service costs, and reduced by the fair value of plan assets. Any asset resulting from this calculation is limited to the net total of any unrecognised past service costs and the present value of any economic benefits in the form of refunds from the plan or reductions in future contributions to the plan.

PBA HOLDINGS BHD (515119-U) 71 NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

2.2 Summary of Significant Accounting Policies (Cont’d)

(i) Employee Benefits (Cont’d)

iv. Share-based Compensation

The Company's ESOS, an equity-settled share-based compensation plan, allows the Group's employees to acquire ordinary shares of the Company. The total fair value of share options granted to employees is recognised as an employee cost with a corresponding increase in the compensation reserve within equity over the vesting period and taking into account the probability that the options will vest. The fair value of share options is measured at grant date, taking into account, if any, the market vesting conditions upon which the options were granted but excluding the impact of any non-market vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exerciseable on vesting date.

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

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

(j) Financial Instruments

Financial instruments are recognised in the balance sheet when the Group has become a party to the contractual provisions of the instrument.

Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement. Interest, dividends, gains and losses relating to a financial instrument classified as a liability, are reported as expense or income. Distributions to holders of financial instruments classified as equity are recognised directly to equity. Financial instruments are offset when the Group has a legally enforceable right to offset and intends to settle either on a net basis or to realise the asset and settle the liability simultaneously.

i. Non-Current Investments

Non-current investments are stated at cost less provision for any permanent diminution. Such provision is made when there is a decline other than temporary in the value of investments and is recognised as an expense in the year in which the decline occurred.

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

ii. Receivables

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

72 PBA HOLDINGS BHD (515119-U) NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

2.2 Summary of Significant Accounting Policies (Cont’d)

(j) Financial Instruments (Cont’d)

iii. Cash and Cash Equivalents

For the purpose of the cash flow statements, cash and cash equivalents include cash on hand and at bank, deposits at call and short term highly liquid investments which have an insignificant risk of changes in value, net of outstanding bank overdrafts.

iv. Payables

Payables are stated at the fair value of the consideration to be paid in the future for goods and services received.

v.Equity Instruments

Ordinary and preference shares are classified as equity. Dividends on ordinary shares are recognised in equity in the year in which they are declared.

(k) Foreign Currencies

i. Functional and Presentation Currency

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

ii. Foreign Currency Transactions

Transactions in foreign currencies are initially recorded in Ringgit Malaysia at rates of exchange ruling at the date of the transaction. At each balance sheet date, foreign currency monetary items are translated into Ringgit Malaysia at exchange rates ruling at that date. Non-monetary items initially denominated in foreign currencies, which are carried at historical cost are translated using the historical rate as of the date of acquisition and non-monetary items which are carried at fair value are translated using the exchange rate that existed when the values were determined.

All exchange rate differences are taken to the income statement.

iii. Foreign Operations

The results and financial position of a foreign jointly controlled entity that have a functional currency different from the presentation currency (RM) of the consolidated financial statements are translated into RM as follows:

- Assets and liabilities for each balance sheet presented are translated at the closing rate prevailing at the balance sheet date;

- Income and expenses for each income statement are translated at average exchange rates for the year, which approximates the exchange rates at the dates of the transactions; and

- All resulting exchange differences are taken to the foreign currency translation reserve within equity.

PBA HOLDINGS BHD (515119-U) 73 NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

2.2 Summary of Significant Accounting Policies (Cont’d)

(l) Revenue Recognition

Revenue is recognised when it is probable that the economic benefits associated with the transaction will flow to the Group and the Company and the amount of the revenue can be measured reliably.The following specific recognition criteria must also be met before revenue is recognised.

i. Sale of Water

Revenue from water supplied to consumers are recognised when invoiced and upon services being rendered.

ii. Contribution for Trunk Mains

Contribution for trunk mains is recognised as income when invoiced and upon services being rendered.

iii. Interest Income

Interest income on fixed deposits is recognised on an accrual basis using the effective interest method.

iv. Dividend Income

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

(m) Cash and Cash Equivalents

For the purposes of the cash flow statements, cash and cash equivalents include cash on hand and at bank, deposits at call and short term highly liquid investments which have an insignificant risk of changes in value, net of outstanding bank overdrafts.

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

On 1 January 2007, the Group and the Company adopted the amendment to FRS: Amendment to

FRS1192004: Employee Benefits – Actuarial Gains and Losses, Group Plans and Disclosures.

The MASB has also issued FRS 6: Exploration for and Evaluation of Mineral Resources which is effective for financial periods beginning on or after 1 January 2007. This FRS is, however, not applicable to the Group and the Company.

The adoption of the Amendment to FRS 1192004 did not result in significant changes in accounting policies of the Group and the Company.

74 PBA HOLDINGS BHD (515119-U) NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

2.4 Standards and Interpretations Issued but Not Yet Effective

At the date of authorisation of these financial statements, the following new and revised FRSs, amendments to FRSs and Interpretations were issued but not yet effective and have not been applied by the Group and the Company:

Effective for financial periods beginning FRSs, Amendments to FRSs and Interpretations on or after

FRS 139: Financial Instruments: Recognition and Measurement Deferred Amendment to FRS 121: The Effects of Changes in Foreign Exchange Rates - Net Investment in a Foreign Operation 1 July 2007 FRS 107: Cash Flow Statements 1 July 2007 FRS 111: Construction Contracts 1 July 2007 FRS 112: Income Taxes 1 July 2007 FRS 118: Revenue 1 July 2007 FRS 120: Accounting for Government Grants and Disclosure of Government Assistance 1 July 2007 FRS 134: Interim Financial Reporting 1 July 2007 FRS 137: Provisions, Contingent Liabilities and Contingent Assets 1 July 2007 IC Interpretation 1: Changes in Existing Decommissioning, Restoration and Similar Liabilities 1 July 2007 IC Interpretation 2: Members' Shares in Co-operative Entities and Similar Instruments 1 July 2007 IC Interpretation 5: Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds 1 July 2007 IC Interpretation 6: Liabilities arising from Participating in a Specific Market - Waste Electrical and Electronic Equipment 1 July 2007 IC Interpretation 7: Applying the Restatement Approach under

FRS 1292004 - Financial Reporting in Hyperinflationary Economies 1 July 2007 IC Interpretation 8: Scope of FRS 2 1 July 2007

The above new and revised FRSs, amendments to FRSs and Interpretations are expected to have no significant impact on the financial statements of the Group and the Company upon their initial application other than:

(a) FRS 112: Income Taxes

The Group does not recognise deferred tax assets on unused reinvestment allowances as required

by paragraph 36 of FRS 1122004 Income Taxes. Under the revised FRS 112 Income Taxes, the Group will have to recognise deferred tax assets on such unused reinvestment allowances to the extent that it is probable that future taxable profit will be available against which the unused reinvestment allowances can be utilised. Upon initial adoption of the revised FRS, retained earnings as at 1 January 2008 shall be increased by approximately RM64,931,000 as there are unused reinvestment allowances of approximately RM249,733,000. The directors are unable to determine if the initial adoption of this revised FRS will have a material impact on the consolidated financial statements for the financial year ending 31 December 2008.

PBA HOLDINGS BHD (515119-U) 75 NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

2.4 Standards and Interpretations Issued but Not Yet Effective (Cont’d)

(b) Amendment to FRS 121: The Effects of Changes in Foreign Exchange Rates - Net Investment in a Foreign Operation

This amendment requires that where an entity has a monetary item that forms part of its net investment in a foreign operation, the exchange differences arising from such monetary items should always be recognised in equity in the consolidated financial statements and should not be dependent on the currency of the monetary item. Prior to this amendment, exchange differences arising on a monetary item that forms part of the Company’s and Group’s net investment in a foreign operation are recognised in equity in the consolidated financial statements only when that monetary item is denominated either in the functional currency of the reporting entity or the foreign operation. The Company and Group will apply this amendment from financial periods beginning 1 January 2008. As it is not possible to reasonably estimate the exchange rates applicable to such monetary items for future periods, the directors are therefore unable to determine if the initial adoption of this amendment will have a material impact on the consolidated financial statements for the financial year ending 31 December 2008.

The Group and the Company is exempted from disclosing the possible impact, if any, to the financial statements upon the initial application of FRS 139.

2.5 Prior Year Adjustments

Certain completed and ready for use property, plant and equipment amounting to RM144,446,000 as at 1 January 2007 of the Group were classified as capital work in progress and were not depreciated. Accordingly, prior year adjustments were made during the year to reclassify the capital work-in-progress to buildings, plant and machinery as well as equipment and furniture, and to account for the respective depreciation charge on a retrospective basis. The effects of the prior year adjustments are as follows:

Group

i. Income statement

2007 2006 RM'000 RM'000

Increase in cost of sales - (4,115) Increase in administrative expenses - (85) Increase in income tax expense - (2,185) Decrease in profit for the year - 6,385

ii. Balance sheet At 1 January At 1 January 2007 2006 RM '000 RM '000

Decrease in property, plant and equipment 10,102 5,902 Increase in tax recoverable 5,101 3,366 Decrease in retained earnings 18,478 12,093 Increase in deferred tax liabilities 13,477 9,557

Certain comparative amounts have been restated as disclosed in Note 2.6.

76 PBA HOLDINGS BHD (515119-U) NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

2.6 Restatement of Comparatives

The following comparative amounts have been restated as a result of the prior year adjustments in Note 2.5.

Group As previously Increase/ reported (Decrease) Restated Description of change RM '000 RM '000 RM '000

i. Income statement

For the year ended 31 December 2006

Cost of sales (108,514) 4,115 (112,629) Administrative expenses (31,270) 85 (31,355) Income tax expense (8,674) 2,185 (10,859) Profit for the year 39,274 (6,385) 32,889

ii. Balance sheet

At 1 January 2006

Property, plant and equipment: - Freehold land 4,990 - 4,990 - Buildings and building improvements 44,791 7,553 52,344 - Reservoirs 19,291 - 19,291 - Plant and machinery 226,990 76,483 303,473 - Motor vehicles 2,138 - 2,138 - Equipment and furniture 4,934 158 5,092 - Capital work-in-progress 263,795 (90,096) 173,699 566,929 (5,902) 561,027

Tax recoverable 1,129 3,366 4,495 Retained earnings 189,789 (12,093) 177,696 Deferred tax liabilities 43,800 9,557 53,357

At 31 December 2006

Property, plant and equipment: - Freehold land 4,803 - 4,803 - Buildings and building improvements 46,741 7,416 54,157 - Reservoirs 21,780 14,551 36,331 - Plant and machinery 282,324 112,107 394,431 - Motor vehicles 2,505 - 2,505 - Equipment and furniture 3,551 270 3,821 - Capital work-in-progress 298,252 (144,446) 153,806 659,956 (10,102) 649,854

Tax recoverable 1,269 5,101 6,370 Retained earnings 212,440 (18,478) 193,962 Deferred tax liabilities 49,636 13,477 63,113

PBA HOLDINGS BHD (515119-U) 77 NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

2.7 Significant Accounting Estimates and Judgements

(a) Critical Judgements Made in Applying Accounting Policies

There are no critical judgements made by management in the process of applying the Group's accounting policies that has a significant effect on the amounts recognised in the financial statements.

(b) Key Sources of Estimation Uncertainty

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

i. Depreciation of Plant and Machinery

Plant and machinery are depreciated using the appropriate basis as outlined in Note 2.2(c) over the estimated useful lives of these assets. The carrying amount of the Group’s plant and machinery at 31 December 2007 was RM397,823,000 (2006: RM394,431,000). Changes in the expected level of usage and technological developments could impact the economic useful lives and the residual values of these assets, therefore, future depreciation charges could be revised.

ii. Provision for Doubtful Debts

The provision for doubtful debts of the Group is based on the evaluation of collectibility and ageing analysis of the receivables and on management’s judgment. A considerable amount of judgment is required in assessing the ultimate realization of these receivables, including the current credit-worthiness and the past collection history of each receivable. If the financial conditions of the receivables of the Group were to deteriorate, additional allowances may be required.

3. REVENUE

Revenue of the Group and of the Company consists of the following:

Group Company 2007 2006 2007 2006 RM'000 RM'000 RM'000 RM'000

Gross dividend from a subsidiary - - 37,976 33,023 Interest income 361 310 361 310 Sale of water 170,597 162,245 - - Contribution for trunk mains 10,591 9,502 - - 181,549 172,057 38,337 33,333

78 PBA HOLDINGS BHD (515119-U) NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

4. OTHER OPERATING INCOME

Group 2007 2006 RM'000 RM'000

Bad debts recovered 79 36 Gross dividends received from investments quoted in Malaysia 1,175 951 Gain on disposal of investments 9,437 - Interest income 2,394 3,379 Miscellaneous income 1,062 1,257 Rental income - building 451 730 - meters and plant and machinery 684 670 Revenue from miscellaneous job 5,000 2,826 Revenue from reconnection fees and final connection charges 2,711 2,628 Writeback of provision for diminution in value of investments - 2,798 22,993 15,275

5. PROFIT BEFORE TAX

Group Company Restated 2007 2006 2007 2006 RM'000 RM'000 RM'000 RM'000 The following amounts have been included in arriving at profit before tax:

Amortisation of prepaid land lease payments 221 515 - - Auditors' remuneration - current year 87 87 9 9 - under provision in prior year - 8 - 1 Dams and mains lease charges 7,627 7,627 - - Debts - bad debts written off - 48 - - - provision for doubtful debts 740 1,644 - - Directors' allowances - present directors 307 323 172 180 - past directors 9 13 4 7 Equipment lease charges 207 137 - - Loss on disposal of investments - 116 - - Inventories written off 182 186 - - Property, plant and equipment - depreciation 29,735 29,677 26 45 - loss/(gain) on disposal 4 (2) - - - written off 281 46 - - Provision for retirement benefits 4,741 3,751 (28) 43 Rental - plant and machinery 1,997 1,988 - - - premises 411 418 - 34

PBA HOLDINGS BHD (515119-U) 79 NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

6. INCOME TAX EXPENSE

Group Company Restated 2007 2006 2007 2006 RM'000 RM'000 RM'000 RM'000 Tax expense for the year: Malaysian income tax - Company and subsidiaries 1,286 1,225 10,253 4,683

Under/(Over)provided in prior years - Malaysian income tax 36 (122) - 5 1,322 1,103 10,253 4,688 Deferred tax (Note 24): - Relating to origination and reversal of temporary differences 9,994 11,320 - - - Relating to changes in tax rates (2,338) (1,564) - - 7,656 9,756 - - 8,978 10,859 10,253 4,688

Domestic income tax is calculated at the Malaysian statutory tax rate of 27% (2006: 28%) of the estimated assessable profit for the year.

The domestic statutory tax rate will be reduced to 26% from the current year's rate of 27%, effective year of assessment 2008 and to 25% in subsequent years of assessment. The computation of deferred tax as at 31 December 2007 has reflected these changes.

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

Restated 2007 2006 RM'000 RM'000 Group

Profit before tax 51,595 43,748

Taxation at Malaysian statutory tax rate of 27% (2006: 28%) 13,931 12,254 Effect of changes in tax rates on opening balance of deferred tax (2,338) (1,564) Deferred tax recognised at different tax rates (384) (300) Income not subject to tax (2,548) (805) Expenses not deductible for tax purposes 920 1,396 Utilisation of current year's reinvestment allowances (639) - Under/(Over)provision of tax in prior years 36 (122) Tax expense for the year 8,978 10,859

80 PBA HOLDINGS BHD (515119-U) NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

6. INCOME TAX EXPENSE (CONT’D)

2007 2006 RM'000 RM'000 Company

Profit before tax 36,682 31,566

Taxation at Malaysian statutory tax rate of 27% (2006: 28%) 9,904 8,838 Income not subject to tax - (4,623) Expenses not deductible for tax purposes 349 468 Underprovision of tax in prior years - 5 Tax expense for the year 10,253 4,688

7. EARNINGS PER SHARE

Basic

Basic earnings per share is calculated by dividing the profit for the year by the weighted average number of ordinary shares in issue during the financial year. Group Restated 2007 2006

Net profit for the year (RM'000) 42,617 32,889 Weighted average number of ordinary shares in issue ('000) 331,188 331,142 Basic earnings per share (sen) 12.87 9.93

Diluted

For the purpose of calculating diluted earnings per share, the profit for the year and the adjusted weighted average number of ordinary shares in issue during the financial year have been adjusted for the dilutive effects on share options granted to employees.

Group Restated 2007 2006

Net profit for the year (RM'000) 42,617 32,889

Weighted average number of ordinary shares in issue ('000) 331,188 331,142 Effect of dilution in share options ('000) 8,791 9,417 Adjusted weighted average number of ordinary shares in issue ('000) 339,979 340,559

Diluted earnings per share (sen) 12.54 9.66

PBA HOLDINGS BHD (515119-U) 81 NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

8. DIVIDENDS

Amount Net dividends per share 2007 2006 2007 2006 RM'000 RM'000 Sen Sen

In respect of financial year ended 31 December 2005:

Final dividend of 7% less tax at 28% paid on 21 July 2006 - 8,344 - 2.52

In respect of financial year ended 31 December 2006:

Interim tax exempt dividend of 5% paid on 22 December 2006 - 8,279 - 2.50

In respect of financial year ended 31 December 2006:

Final dividend of 7% less tax at 27% paid on 20 July 2007 8,462 - 2.55 -

In respect of financial year ended 31 December 2007:

Interim dividend of 7% less tax at 27% paid on 17 December 2007 8,462 - 2.55 - 16,924 16,623 5.10 5.02

The directors recommend a final dividend of 7% less tax at 26% for the financial year ended 31 December 2007 subject to the approval of shareholders at the forthcoming Annual General Meeting. The financial statements for the current financial year do not reflect this proposed final dividend. Such dividend, if approved by the shareholders, will be accounted for in shareholders' equity as an appropriation of retained earnings in the next financial year ending 31 December 2008.

82 PBA HOLDINGS BHD (515119-U) NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

9. PROPERTY, PLANT AND EQUIPMENT

Group Buildings and Equipment Capital Freehold building Plant and Motor and work-in- land improvements Reservoirs machinery vehicles furnitures progress Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 2007

At cost At 1 January 2007, as restated 4,803 60,232 42,612 507,315 7,547 13,470 153,806 789,785 Additions - 809 1,337 7,255 1,540 908 59,839 71,688 Disposals/Write offs/ Reclassifications - - - (1,221) (98) (54) (71,780) (73,153) Transfer in/(out) - 9,730 (1,337) 21,105 - 1,473 (30,971) - At 31 December 2007 4,803 70,771 42,612 534,454 8,989 15,797 110,894 788,320

Accumulated depreciation At 1 January 2007, as restated - 6,075 6,281 112,884 5,042 9,649 - 139,931 Charge for the year - 1,388 1,049 24,681 954 1,663 - 29,735 Writeback on disposals/ Write offs - - - (934) (97) (45) - (1,076) At 31 December 2007 - 7,463 7,330 136,631 5,899 11,267 - 168,590

Net carrying amount At 31 December 2007 4,803 63,308 35,282 397,823 3,090 4,530 110,894 619,730

During the year, the subsidiary, Perbadanan Bekalan Air Pulau Pinang Sdn Bhd has reclassified certain capital work-in-progress comprising mainly replacement of mains and water resource projects carried out on behalf of Jabatan Bekalan Air Pulau Pinang (JBAPP) amounting to RM71,780,000 to its account.

Freehold land of a subsidiary, Perbadanan Bekalan Air Pulau Pinang Sdn. Bhd. with a net carrying amount of RM364,000 (2006: RM364,000) are in the process of being registered under the name of the subsidiary.

PBA HOLDINGS BHD (515119-U) 83 NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

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

Group Buildings and Equipment Capital Freehold building Plant and Motor and work-in- land improvements Reservoirs machinery vehicles furnitures progress Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 2006

At cost At 1 January 2006 As previously stated 4,990 49,586 24,485 311,846 6,202 10,913 263,795 671,817 Prior year adjustments - 7,642 - 82,221 - 233 (90,096) - As restated 4,990 57,228 24,485 394,067 6,202 11,146 173,699 671,817 Additions - 4 46 8,442 1,188 481 108,801 118,962 Reclassification (187) - - (167) - 167 - (187) Disposals/Write offs - - - (330) - (254) - (584) Transfer in/(out) - 3,000 18,081 105,303 157 1,930 (128,694) (223) At 31 December 2006, as restated 4,803 60,232 42,612 507,315 7,547 13,470 153,806 789,785

Accumulated depreciation At 1 January 2006 As previously stated - 4,795 5,193 84,856 4,064 5,980 - 104,888 Prior year adjustments - 89 - 5,738 - 75 - 5,902 As restated - 4,884 5,193 90,594 4,064 6,055 - 110,790 Charge for the year, as restated - 1,191 1,088 22,690 978 3,730 - 29,677 Reclassification - - - (115) - 115 - - Writeback on disposals/ Write offs - - - (285) - (251) - (536) At 31 December 2006, as restated - 6,075 6,281 112,884 5,042 9,649 - 139,931

Net carrying amount At 31 December 2006, as restated 4,803 54,157 36,331 394,431 2,505 3,821 153,806 649,854

84 PBA HOLDINGS BHD (515119-U) NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

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

Company Building Equipment improvements and furniture Total RM'000 RM'000 RM'000 2007

At cost At 1 January 2007 84 86 170 Additions - 1 1 At 31 December 2007 84 87 171

Accumulated depreciation At 1 January 2007 68 44 112 Charge for the year 16 10 26 At 31 December 2007 84 54 138

Net carrying amount At 31 December 2007 - 33 33

2006

At cost At 1 January 2006 84 75 159 Additions - 11 11 At 31 December 2006 84 86 170

Accumulated depreciation At 1 January 2006 40 27 67 Charge for the year 28 17 45 At 31 December 2006 68 44 112

Net carrying amount At 31 December 2006 16 42 58

10. PREPAID LAND LEASE PAYMENTS Group 2007 2006 RM'000 RM'000

At 1 January 18,646 18,751 Additions 77 - Reclassification - 187 Transfer from capital work-in-progress - 223 Amortisation for the year (221) (515) At 31 December 18,502 18,646

Prepaid land lease payments of a subsidiary, Perbadanan Bekalan Air Pulau Pinang Sdn. Bhd. with a net carrying amount of RM2,504,000 (2006: RM2,547,000) are in the process of being registered under the name of the subsidiary.

The prepaid land lease payments have unexpired lease terms of between 52 to 91 years.

PBA HOLDINGS BHD (515119-U) 85 NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

11. INVESTMENTS IN SUBSIDIARIES Company 2007 2006 RM'000 RM'000

Unquoted shares at cost 266,610 266,018

Details of the subsidiaries are as follows:

Country of Equity Name of subsidiary incorporation interest held Principal activities 2007 2006

Perbadanan Bekalan Air Malaysia 100% 100% Water supplier involved in the Pulau Pinang Sdn. Bhd. abstraction of raw water, treatment of water, supply and sale of treated water to consumers.

Island Springwater Sdn. Bhd. Malaysia 100% - Water bottling business. (Incorporated on 14 November 2007)

PBA Resources Sdn. Bhd. Malaysia 100% - Providing training facilities, education (Incorporated on and other non-water related businesses. 16 December 2007)

(a) Incorporation of Subsidiaries

The subsidiaries have contributed the following results to the Group:

2007 RM'000

Revenue - Loss for the year 24

The effect of the incorporation on the financial position of the Group as at 31 December 2007 is as follows:

Property, plant and equipment 69 Cash and bank balances 200 269 The cash outflow on incorporation is as follows:

Share capital contribution paid in cash (200) Total cash outflow of the Company (200) Cash and cash equivalents of subsidiaries 200 Net cash outflow of the Group -

86 PBA HOLDINGS BHD (515119-U) NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

12. INVESTMENT IN A JOINTLY CONTROLLED ENTITY

Group Company 2007 2006 2007 2006 RM'000 RM'000 RM'000 RM'000

Unquoted shares at cost * * * * Share of jointly controlled entity's post acquisition reserve 499 756 - - 499 756 * *

* RM99

Details of the jointly controlled entity are as follows:

Name of jointly Country of Equity controlled entity incorporation interest held Principal activities 2007 2006

Pinang Water Limited Federal 26% 26% Constructing water-infrastructure Territory of projects, water treatment, management Labuan, and supply of treated water for Malaysia government, industries, commercial and domestic consumers

The Group's aggregate share of the non-current assets, current assets, non-current liabilities, current liabilities, income and expenses of the jointly controlled entity is as follows:

2007 2006 RM'000 RM'000 Assets and liabilities Non-current assets 6,797 7,074 Current assets 265 221 Total assets 7,062 7,295

Non-current liabilities (565) (743) Current liabilities (5,998) (5,796) Total liabilities (6,563) (6,539)

Results Revenue 495 1,300 Other income 306 - Expenses, including finance costs and taxation (524) (890)

PBA HOLDINGS BHD (515119-U) 87 NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

13. INVESTMENTS

These investments are managed by external fund management companies in accordance with the terms of the respective Investment Management Mandate.

As at the year end, the funds were invested as follows:

Group 2007 2006 RM'000 RM'000

Shares quoted in Malaysia, at cost 11,457 22,788 Fixed deposits with licensed banks 4,430 2,335 Money market placement 6,990 5,144 22,877 30,267

Market value of quoted shares 15,556 26,785

14. INVENTORIES

Group 2007 2006 RM'000 RM'000 At cost: Spare parts and consumables 15,400 13,900

The cost of spare parts and consumables recognised as an expense during the financial year amounted to approximately RM1,880,000 (2006: RM1,545,000).

15. TRADE RECEIVABLES

Group 2007 2006 RM'000 RM'000

Trade receivables 18,906 20,063 Provision for doubtful debts (4,105) (3,502) 14,801 16,561

The Group's normal trade credit term is 14 days.

The Group has no significant concentration of credit risk that may arise from exposures to a single debtor or to groups of debtors.

88 PBA HOLDINGS BHD (515119-U) NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

16. OTHER RECEIVABLES

Group Company 2007 2006 2007 2006 RM'000 RM'000 RM'000 RM'000

Deposits 6,756 10,890 - - Prepayments 276 112 - - Other receivables 5,356 6,687 323 413 Employees' receivables 417 347 - - 12,805 18,036 323 413 Provision for doubtful debts (519) (461) - - 12,286 17,575 323 413

The Group's normal credit term is 30 days.

The Group has no significant concentration of credit risk that may arise from exposures to a single debtor or to groups of debtors.

17. AMOUNTS DUE BY SUBSIDIARIES

The amounts due by the subsidiaries are unsecured, non-trade related, interest-free and have no fixed terms of repayment.

18. AMOUNT DUE BY A JOINTLY CONTROLLED ENTITY

The amount due by the jointly controlled entity comprises shareholders' advances and payment on behalf which are recoverable when it commences operations.

19. FIXED DEPOSITS

Group Company 2007 2006 2007 2006 RM'000 RM'000 RM'000 RM'000

Deposits with licensed banks 104,400 75,500 10,900 10,000

The interest rates earned during the financial year and the maturities of deposits placed with licensed banks as at 31 December 2007 were as follows:

Interest rates Maturities per annum within a year % RM'000

Group 2007 2.30 to 3.75 104,400 2006 2.70 to 4.10 75,500

Company 2007 2.90 to 3.70 10,900 2006 2.90 to 4.00 10,000

PBA HOLDINGS BHD (515119-U) 89 NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

20. SHARE CAPITAL Group/Company Number of Shares Amount 2007 2006 2007 2006 '000 '000 RM'000 RM'000

Authorised: Special rights redeemable preference share of RM0.50 each ** ** * * Ordinary shares of RM0.50 each 1,000,000 1,000,000 500,000 500,000 1,000,000 1,000,000 500,000 500,000 Issued and fully paid:

Special rights redeemable preference share of RM0.50 each At 1 January / At 31 December ** ** * *

Ordinary shares of RM0.50 each At 1 January 331,158 331,100 165,579 165,550 Issued during the year pursuant to ESOS 48 58 24 29 At 31 December 331,206 331,158 165,603 165,579 331,206 331,158 165,603 165,579

* RM0.50 ** 1 Special share

During the year, the Company issued 47,600 new ordinary shares (2006: 58,000 new ordinary shares) of RM0.50 each for cash pursuant to the Company's ESOS at an issue price of RM1.12 per ordinary share. The share premium of RM29,000 (2006: RM45,000) arising from the issuance of ordinary shares has been included in the share premium account. The new ordinary shares issued during the financial year rank pari passu in all respects with the existing ordinary shares of the Company.

20.1 Special Share

The Special Share would enable the State Government of Penang through the State Secretary, Penang to ensure that certain major decisions affecting the operations of the Company are consistent with the State Government of Penang's policies. The Special Share can only be held by the State Secretary, Penang or its successor, or the Chief Minister or any person acting on behalf of the State Government of Penang.

The Special Shareholder is not entitled to any dividend or to participate in the capital distribution upon the dissolution of the Company but shall rank for repayment of the capital paid-up on the Special Share in priority to all other shares. The Special Shareholder may, subject to the provisions of the Companies Act, 1965, require the Company to redeem the Special Share at par at any time. Other rights and restrictions attached to the Special Share are set out in Article 21 of the Company's Articles of Association.

90 PBA HOLDINGS BHD (515119-U) NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

20. SHARE CAPITAL (CONT’D)

20.2 Employees Share Option Scheme ("ESOS")

Other than the Retirement Benefit Obligations in Note 22 to the financial statements, the Company has an ESOS which allows eligible executive directors and employees of the Group and of the Company to subscribe for new shares of the Company.

(a) The salient features of the ESOS are as follows:

(i) The Options Committee appointed by the Board of Directors to administer the ESOS may from time to time grant options to eligible employees of the Group to subscribe for new ordinary shares of RM0.50 each in the Company.

(ii) Subject to the discretion of the Options Committee, any employee whose employment has been confirmed and any executive director holding office in a full-time executive capacity of the Group, shall be eligible to participate in the ESOS.

(iii) The total number of shares to be issued under the ESOS shall not exceed in aggregate 15% of the issued share capital of the Company at any point of time during the tenure of the ESOS and out of which not more than 50% of the shares shall be allocated, in aggregate, to directors and senior management. In addition, not more than 10% of the shares available under the ESOS shall be allocated to any individual director or employee who, either singly or collectively through his/her associates, holds 20% or more in the issued and paid-up capital of the Company.

(iv) The option price for each share shall be the weighted average of the market price as quoted in the Daily Official List issued by Bursa Malaysia Securities Berhad for the 5 market days immediately preceding the date on which the option is granted less, if the Options Committee shall so determine at their discretion from time to time, a discount of not more than 10% or the par value of the shares of the Company of RM0.50 each.

(v) The options shall become exercisable to the extent of the shares granted on each date of grant. The employees' entitlements to the options are vested as soon as they become exercisable.

(vi) All new ordinary shares issued upon exercise of the options granted under the ESOS will rank pari passu in all respects with the existing ordinary shares of the Company other than as may be specified in a resolution approving the distribution of dividends prior to their exercise dates.

(vii) The persons to whom the options have been granted have no right to participate by virtue of the options, in any share issue of any other company.

(viii) The total number of options offered under the ESOS shall not reduce the shareholding of the State Secretary, Penang in the Company to less than fifty-one percent (51%) of the issued and paid-up share capital of the Company at any point in time during the duration of the ESOS.

PBA HOLDINGS BHD (515119-U) 91 NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

20. SHARE CAPITAL (CONT’D)

20.2 Employees Share Option Scheme ("ESOS") (Cont’d)

(b) The movements of the share options during the year and the number of the share options outstanding as at the end of the financial year, and their exercise price are as follows:-

Number of Share Options Exercise Movements during the year Price per Grant Ordinary Granted and Vest Share At and At Date RM 1 January Vested Exercised Forfeited 31 December

2007 27 July 2005 1.29 6,070,900 - - 396,700 5,674,200

8 Nov 2006 1.12 3,346,000 - 47,600 181,200 3,117,200

2006 27 July 2005 1.29 6,428,400 - 58,000 299,500 6,070,900

8 Nov 2006 1.12 - 3,358,100 - 12,100 3,346,000

The expiry date of the ESOS is 14 July 2010 and there are no expired share options.

All the share options outstanding as at 31 December 2007 are exerciseable.

(c) Details of share options exercised and its exercise price during the financial year and the weighted average share price (WASP), at exercise date, of ordinary shares issued are as follows :

WASP Exercise at date Number of price of exercise shares issued Exercise dates RM RM (per ordinary share)

February 2006 1.29 1.43 9,900 May 2006 1.29 1.30 6,100 June 2006 1.29 1.37 42,000 58,000

92 PBA HOLDINGS BHD (515119-U) NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

20. SHARE CAPITAL (CONT’D)

20.2 Employees Share Option Scheme ("ESOS") (Cont’d)

WASP Exercise at date Number of price of exercise shares issued Exercise dates RM RM (per ordinary share)

January 2007 1.12 1.21 5,000 February 2007 1.12 1.19 11,000 April 2007 1.12 1.31 3,400 June 2007 1.12 1.29 3,000 August 2007 1.12 1.25 18,800 September 2007 1.12 1.30 2,000 October 2007 1.12 1.28 4,400 47,600

(d) Fair value of share options granted and vested in year 2006

The fair value of share options granted and vested in the year 2006 was estimated by an external valuer using the Black Scholes model, taking into account the terms and condition upon which the options were granted. The fair value of share options measured at grant date and the assumptions were as follows:

Fair value of share option at 8 November 2006 (RM) 0.06 Weighted average share price (RM) 1.18 Weighted average exercise price (RM) 1.12 Expected volatility (%) 18.32 Expected life (years) 3.70 Risk free rate (%) 4.19 Expected dividend yield 5.26

The expected life of the options is based on historical data and is not necessarily indicative of the exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessary be the actual outcome.

No other features of the share options were incorporated into the measurement of fair value.

PBA HOLDINGS BHD (515119-U) 93 NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

21. RESERVES

Group Company Restated 2007 2006 2007 2006 RM'000 RM'000 RM'000 RM'000

Distributable Retained earnings 219,655 193,962 42,194 32,689

Non-distributable Share premium 161,910 161,881 161,910 161,881 Share option reserve 592 197 592 197 Foreign currency translation reserve (187) 346 - - 381,970 356,386 204,696 194,767

Prior to the year of assessment 2008, Malaysian companies adopted the full imputation system. In accordance with the Finance Act 2007 which was gazetted on 28 December 2007, companies shall not be entitled to deduct tax on dividend paid, credited or distributed to its shareholders, and such dividends will be exempted from tax in the hands of the shareholders ("single tier system"). However, there is a transitional period of six years, expiring on 31 December 2013, to allow companies to pay franked dividends to their shareholders under limited circumstances. Companies also have an irrevocable option to disregard the 108 balance and opt to pay dividends under the single tier system. The change in the tax legislation also provides for the 108 balance to be locked in as at 31 December 2007 in accordance with Section 39 of the Finance Act 2007.

The Company did not elect for the irrevocable option to disregard the 108 balance. Accordingly, during the transitional period, the Company may utilise the credit in the 108 balance as at 31 December 2007 to distribute cash dividend payments to ordinary shareholdings as defined under the Finance Act 2007. As at 31 December 2007, the Company has sufficient credit in the 108 balance to pay franked dividends amounting to RM21,034,000 (2006: RM9,752,000) out of its retained earnings. If the balance of the retained earnings of RM21,160,000 were to be distributed as dividends, the Company may distribute such dividends under the single tier system.

The Company has, pending agreement with the tax authorities, tax exempt income of approximately RM28,887,000 (2006: RM28,887,000) available for distribution as at 31 December 2007.

94 PBA HOLDINGS BHD (515119-U) NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

21. RESERVES (CONT’D)

21.1 The movements and analysis of the retained earnings account were as follows:

Group Company Restated 2007 2006 2007 2006 RM'000 RM'000 RM'000 RM'000

At 1 January As previously stated 212,440 154,339 32,689 22,434 Prior year adjustments: Depreciation on completed capital projects (10,102) (5,902) - - Overprovision of income tax 5,101 3,366 - - Deferred taxation on completed capital projects (13,477) (9,557) - - (18,478) (12,093) - - 193,962 142,246 32,689 22,434 Effect of adopting FRS 3 (Note 21.3) - 53,780 - - Effect of change in accounting policy - FRS 112 - (18,330) - - As restated 193,962 177,696 32,689 22,434 Profit for the year 42,617 32,889 26,429 26,878 Dividends (16,924) (16,623) (16,924) (16,623) At 31 December 219,655 193,962 42,194 32,689

Group Restated 2007 2006 RM'000 RM'000 Retained by: The Company 42,194 32,689 Subsidiaries 176,774 160,863 Jointly controlled entity 687 410 219,655 193,962

21.2 The movements in share premium account were as follows:

Group / Company 2007 2006 RM'000 RM'000

At 1 January 161,881 161,836 Issuance of shares pursuant to ESOS (Note 20.2) 29 45 At 31 December 161,910 161,881

During the year the Company issued 47,600 (2006 :58,000) ordinary shares of RM0.50 each for cash pursuant to the Company's ESOS at an exercise price of RM1.12 (2006: RM1.29) per ordinary share.

PBA HOLDINGS BHD (515119-U) 95 NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

21. RESERVES (CONT’D)

21.3 The movements in reserve on consolidation account were as follows:

Group 2007 2006 RM'000 RM'000

At 1 January - 53,780 Reclassified to retained earnings - effect of adopting FRS 3 (Note 21.1) - (53,780) At 31 December - -

21.4 Share Option Reserve

The share option reserve represents the equity-settled share options granted to employees. This reserve is made up of the cumulative value of services received from employees recorded on grant of share options.

21.5 Foreign Currency Translation Reserve

The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of the jointly controlled entity whose functional currency is different from that of the Group's presentation currency. It is also used to record the exchange differences arising from monetary items which form part of the Group's net investment in foreign operations, where the monetary item is denominated in either the functional currency of the reporting entity or the foreign operation.

22. RETIREMENT BENEFIT OBLIGATIONS

The Group operates an unfunded defined benefit plan for all its employees.

i. Income statement

The amounts recognised in the income statement are as follows:

Group Company 2007 2006 2007 2006 RM'000 RM'000 RM'000 RM'000

Current service cost 3,329 2,572 42 33 Interest cost 1,233 1,179 11 10 Net actuarial losses 260 - - - Transitional liability (81) - (81) - Total, included in employee benefits expense (Note 28) 4,741 3,751 (28) 43

96 PBA HOLDINGS BHD (515119-U) NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

22. RETIREMENT BENEFIT OBLIGATIONS (CONT’D)

ii. Balance sheet

The amounts recognised in the balance sheet are determined as follows:

Group Company 2007 2006 2007 2006 RM'000 RM'000 RM'000 RM'000

Present value of unfunded defined benefit obligations 26,723 18,365 236 158 Unrecognised actuarial losses (4,810) - - - Net liability 21,913 18,365 236 158

Analysed as: Current 1,099 889 96 -

Non-current: Later than 1 year but not later than 2 years 1,817 748 - - Later than 2 years but not later than 5 years 4,817 3,406 - - Later than 5 years 14,180 13,322 140 158 20,814 17,476 140 158 21,913 18,365 236 158

The movements in the net liability of the defined benefit obligations in the current year are as follows:

Group Company 2007 2006 2007 2006 RM'000 RM'000 RM'000 RM'000

At 1 January 18,365 15,329 158 115 Amounts recognised in the income statement 4,741 3,751 (28) 43 Contributions paid (1,193) (715) - - Adjustment arising from transfer of employees - - 106 - At 31 December 21,913 18,365 236 158

iii. Actuarial Assumptions

Principal actuarial assumptions used for the purpose of the actuarial valuation were as follows:

Group Company 2007 2006 2007 2006 % % % %

Discount rate 5.40 7.00 5.40 7.00 Expected rate of salary increases 5.00 5.00 5.00 5.00

PBA HOLDINGS BHD (515119-U) 97 NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

23. TERM LOANS (UNSECURED)

Group 2007 2006 RM'000 RM'000

At 31 December 91,444 143,788 Repayable after the next 12 months (84,892) (137,236) Repayable within the next 12 months 6,552 6,552

Maturity of term loans:

Within 1 year 6,552 6,552 More than 1 year and less than 2 years 6,552 6,552 More than 2 years and less than 5 years 19,656 65,448 5 years or more 58,684 65,236 84,892 137,236 91,444 143,788

The unsecured term loans were obtained from the State Government of Penang to finance major water projects.

The term loans are non-interest bearing and are repayable over a period of 11 to 20 years (2006: 12 to 20 years) by yearly instalments ranging between RM14,800 and RM2,940,000 (2006: RM14,800 and RM2,940,000) per annum.

During the year, based on an agreement with the respective parties, an amount of RM45,792,000 due to the State Government of Penang has been reclassified to amount due to JBAPP included under current liabilities as advances from JBAPP for future water resources projects' progress payments to be made on its behalf.

24. DEFERRED TAX LIABILITIES Group Restated 2007 2006 RM'000 RM'000

At 1 January 63,113 53,357 Recognised in the income statement (Note 6) 7,656 9,756 At 31 December 70,769 63,113

Presented after appropriate offsetting as follows: Deferred tax liabilities 70,769 63,113 Deferred tax assets - - 70,769 63,113

98 PBA HOLDINGS BHD (515119-U) NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

24. DEFERRED TAX LIABILITIES (CONT’D)

The components and movements of deferred tax liabilities and assets during the financial year prior to offsetting are as follows:

Deferred tax liabilities Property, Contribution Plant and for Trunk Equipment Mains Total RM'000 RM'000 RM'000

At 1 January 2007, as restated 64,332 5,437 69,769 Recognised in the income statement 6,232 453 6,685 At 31 December 2007 70,564 5,890 76,454

At 1 January 2006, as restated 57,687 5,327 63,014 Recognised in the income statement 6,645 110 6,755 At 31 December 2006, as restated 64,332 5,437 69,769

Deferred tax assets Unabsorbed Retirement Capital Benefit Allowances Obligations and others Total RM'000 RM'000 RM'000

At 1 January 2007, as restated (4,916) (1,740) (6,656) Recognised in the income statement (720) 1,691 971 At 31 December 2007 (5,636) (49) (5,685)

At 1 January 2006, as restated (4,260) (69) (4,329) Recognised in the income statement, as restated (656) (1,671) (2,327) At 31 December 2006, as restated (4,916) (1,740) (6,656)

Deferred tax assets have not been recognised in respect of the following items:

Restated 2007 2006 RM'000 RM'000

Unused reinvestment allowances 249,733 236,638 Unabsorbed capital allowances - 6,190

The unused reinvestment allowances and unabsorbed capital allowances of the Group amounting to RM249,733,000 (2006: RM236,638,000) and RM Nil (2006: RM6,190,000) respectively are available indefinitely for offsetting against future taxable profits of the Group and in the case of unabsorbed capital allowances, subject to no substantial change in shareholdings of the subsidiary under the Income Tax Act, 1967 and guidelines issued by the tax authority.

25. TRADE PAYABLES

The normal trade credit terms granted to the Group range from 30 to 90 days.

PBA HOLDINGS BHD (515119-U) 99 NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

26. OTHER PAYABLES

Group Company 2007 2006 2007 2006 RM'000 RM'000 RM'000 RM'000

Other payables 38,267 37,606 47 108 Refundable deposits 56,275 56,761 - - Amounts due to directors - 29 - 29 94,542 94,396 47 137

Included in other payables are advances received from JBAPP for future water resources projects' payments to be made on its behalf amounting to RM15,096,000 (2006: RM11,164,000).

Refundable deposits comprise mainly water supply deposits, reticulation mains deposits, security deposits and pipe maintenance deposits from consumers.

27. OPERATING LEASE ARRANGEMENTS

The Group has entered into non-cancellable operating lease agreements with JBAPP for the use of dams and mains. These leases have an average life of 5 and 20 years.

The future aggregate minimum lease payments under non-cancellable operating lease contracted for as at the balance sheet date but not recognised as liabilities, are as follows:

Group 2007 2006 RM'000 RM'000 Future minimum rentals payments: Not later than 1 year 7,627 7,627 Later than 1 year and not later than 5 years 25,926 27,452 Later than 5 years 48,800 54,900 82,353 89,979

The lease payments recognised in income statements during the financial year are disclosed in Note 5.

28. EMPLOYEE BENEFITS EXPENSE

Group Company 2007 2006 2007 2006 RM'000 RM'000 RM'000 RM'000

Wages and salaries 32,946 32,139 328 409 Social security costs 474 434 6 4 Short-term accumulating compensated absences (13) 225 - - Post-employment benefits: - defined contribution plan 3,528 3,408 42 46 - defined benefit plan (Note 22) 4,741 3,751 (28) 43 Share options granted under ESOS - 197 - 4 Underprovision of share options granted and vested under ESOS in prior year 395 - 3 - Other staff related expenses 5,031 4,236 78 37 47,102 44,390 429 543

100 PBA HOLDINGS BHD (515119-U) NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

29. SIGNIFICANT RELATED PARTY TRANSACTIONS

(a) Transactions with jointly controlled entity

Group / Company 2007 2006 RM'000 RM'000

- Advances during the year 306 583 - Reimbursement of expenses 43 191

(b) No further disclosure of related party transactions is required in the financial statements of state-controlled enterprises of transactions with other state-controlled enterprises as permitted by FRS 124- Related Party Disclosures.

(c) Compensation of Key Management Personnel

The remuneration of members of key management during the year were as follows:

Group Company 2007 2006 2007 2006 RM'000 RM'000 RM'000 RM'000

Short term employee benefits 2,102 2,078 320 328 Post-employment benefits: - defined contribution plan 181 205 15 15 - defined benefit plan 1,158 866 34 34 Share-based payment 43 20 4 2 Estimated money value of benefits-in-kind 58 49 5 - 3,542 3,218 378 379

There are no share options granted to directors of the Group and the Company. Other members of key management have been granted the following number of options under the Employees Share Option Scheme ("ESOS"):

Number of share options Group Company 2007 2006 2007 2006

At 1 January 896,500 653,300 87,600 58,400 Granted - 332,600 - 29,200 Exercised - (31,000) - - Forfeited (267,000) (58,400) (87,600) - At 31 December 629,500 896,500 - 87,600

The share options were granted on the same terms and conditions as those offered to other employees of the Group (Note 20.2)

PBA HOLDINGS BHD (515119-U) 101 NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

30. CAPITAL COMMITMENTS

Group 2007 2006 RM'000 RM'000

Approved Capital Expenditures : Contracted but not provided for 151,000 72,000

Approved but not contracted for 331,000 338,000

31. SIGNIFICANT EVENT

The Group has been granted a licence by the State Government of Penang via JBAPP to operate and maintain the state’s water supply system until 31 December 2010.

Amendments to the Federal Constitution were made to transfer the jurisdiction of water supply services from the State List to the Concurrent List. These amendments were gazetted on 10 February 2005 and they enable the Federal Government to regulate water supply services while the State Government regulates the raw water resources.

New acts were subsequently enacted, namely the Water Services Industry Act 2006 (Act 655) (WSIA 2006) and the Suruhanjaya Perkhidmatan Air Negara Act 2006 (Act 654) (SPAN 2006). The WSIA 2006, which came into force on 1 January 2008, provides for the regulation of water supply services and sewerage services and the establishment of a licensing and regulatory framework to promote the national policy objectives for the water supply services and sewerage services industries. The SPAN 2006, which was approved by Parliament in June 2006 and came into force on 1 February 2007, provides for the establishment of the regulatory body called Suruhanjaya Perkhidmatan Air Negara (SPAN) to carry out the provisions of WSIA 2006.

SPAN would license, supervise and monitor the activities of the water supply service operators and sewerage service operators and would regulate and enforce the provisions of the WSIA 2006.

The WSIA 2006 requires all water supply operators to obtain its operating licence from SPAN when it comes into force on 1 January 2008.

The Board of Directors of the Group and the Company have approved the 30-year Business Plan of the Group at its meeting on 2 August 2007. The Group has submitted its application for its operating licence for the water supply service operations in Penang to SPAN on 20 September 2007. The Group is still awaiting the issuance of its subsidiary's operating licence from SPAN. Upon the issuance of an official operator individual licence to the Group by SPAN, it is envisaged that the licence from State Government of Penang to the Group would cease.

32. CONTINGENT LIABILITY (UNSECURED) Group / Company 2007 2006 RM'000 RM'000

Corporate guarantee given to a bank in respect of credit facilities granted to a jointly controlled entity 565 743

102 PBA HOLDINGS BHD (515119-U) NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

33. SUBSEQUENT EVENT

Subsequent to the year end, the Company gave a corporate guarantee to a bank in respect of banking facilities granted to a subsidiary amounting to RM35,000,000.

34. SEGMENTAL REPORTING

Based on risks and returns, the directors consider that the primary reporting format is by business segments. The directors further consider that there is only one business segment and one geographical segment being to abstract raw water, treat, supply and distribute water in the state of Penang. Hence, required segmental information has already been disclosed in the financial statements.

Other operation of the Group mainly comprises investment holding, rendering consultancy services in water management and trading of water treatment equipment, neither of which constitutes a separately reportable segment.

35. FINANCIAL INSTRUMENTS

(a) Financial Risk Management Objectives and Policies

The Group's financial risk management policy seeks to ensure that adequate financial resources are available for the development of the Group's businesses whilst managing its interest rate, foreign exchange, liquidity, credit and market price risks. The Group operates within clearly defined guidelines that are approved by the Board and the Group's policy is not to engage in speculative transactions. It is the Group's policy that no trading in derivative financial instruments shall be undertaken.

(b) Interest Rate Risk

Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates. As the Group has no significant interest-bearing financial assets, the Group’s income and operating cash flows are substantially independent of changes in market interest rates. The Group’s interest-bearing financial assets are mainly short term in nature and have been mostly placed in fixed deposits or occasionally, in short term commercial papers.

The information on maturity dates and effective interest rates of financial assets that are exposed to interest rate risks are disclosed in Note 19 to the financial statements.

(c) Foreign Currency Risk

The Group and the Company do not have significant exposures to foreign currency risk.

(d) Liquidity Risk

The Group manages its debt maturity profile, operating cash flows and the availability of funding so as to ensure that all refinancing, repayment and funding needs are met. As part of its overall prudent liquidity management, the Group maintains sufficient levels of cash or cash convertible investments to meet its working capital requirements. The Group raises committed fundings from the State Government of Penang.

PBA HOLDINGS BHD (515119-U) 103 NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

35. FINANCIAL INSTRUMENTS (CONT’D)

(e) Credit Risk

Credit risk comprises the risk of counterparties defaulting and the risk associated with the fixed deposits placed with licensed banks. The risk of counterparties defaulting is controlled by the application of credit approvals, limits and monitoring procedures. Credit risks are minimised and monitored via deposits received from consumers and notices sent to consumers 7 days after due date for settlement of debt. Trade receivables are monitored on an ongoing basis via Group management reporting procedures. The risk associated with the fixed deposits placed with licensed banks is managed by placing the fixed deposits with licensed banks with good credit rating.

The Group and the Company do 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.

(f) Market Price Risk

As at 31 December 2007, the Group owned quoted investments amounting to RM11,457,000 (2006: RM22,788,000) and the estimated market value of these quoted investments was RM15,556,000 (2006: RM26,785,000).

The market price risk associated with quoted investments is the potential loss resulting from a decrease in market prices.

(g) Fair Values

The carrying amounts of the financial assets and liabilities of the Group and of the Company at the balance sheet date approximated their fair values except for the followings:

Group Company Carrying Carrying amount Fair value amount Fair value Note RM'000 RM'000 RM'000 RM'000 As at 31 December 2007

Investments in quoted shares 13 11,457 15,556 - - Amounts due by subsidiaries 17 - - 86,379 * Amount due by a jointly controlled entity 18 6,079 * 6,079 * Term loans (unsecured) 23 91,444 66,336 - -

As at 31 December 2006

Investments in quoted shares 13 22,788 26,785 - - Amounts due by subsidiaries 17 - - 77,714 * Amount due by a jointly controlled entity 18 5,730 * 5,730 * Term loans (unsecured) 23 143,788 98,314 - -

* It is not practical to estimate the fair value of amounts due by subsidiaries and amount due by a jointly controlled entity due principally to a lack of fixed repayment terms entered into by the parties involved and without incurring excessive cost.

104 PBA HOLDINGS BHD (515119-U) NOTES TO THE FINANCIAL STATEMENTS (CONT’D) 31 DECEMBER 2007

35. FINANCIAL INSTRUMENTS (CONT’D)

(g) Fair Values (Cont’d)

The nominal / notional amount and net fair value of financial instrument not recognised in the balance sheet of the Group and of the Company as at the end of the financial year are as follows:

Group / Company Group / Company 2007 2006 Nominal / Nominal / Notional Net Notional Net amount fair value amount fair value RM'000 RM'000 RM'000 RM'000

Contingent Liability (unsecured) (Note 32) 565 # 743 #

# The fair value of contingent liability has not been estimated as it is insignificant and the possibility of the corporate guarantee crystallising is remote.

The following methods and assumptions are used to estimate the fair values of the following classes of financial instruments:

i. Cash and Cash Equivalents and Trade and Other Receivables/Payables

The carrying amounts approximate fair values due to the relatively short term maturity of these financial instruments.

ii. Investments

The fair value of quoted shares is determined by reference to stock exchange quoted market bid prices at the close of the business on the balance sheet date.

36. COMPARATIVES

The presentation and classification of items in the current year financial statements have been consistent with the previous financial year except that certain comparative amounts have been adjusted as a result of the prior year adjustments disclosed in Note 2.5.

PBA HOLDINGS BHD (515119-U) 105 ANALYSIS OF SHAREHOLDINGS AS AT MAY 8, 2008

Authorised Capital : RM500,000,001 Issued and Fully Paid-Up Capital : RM165,588,601 Class of Equity Securities : Comprising of 331,205,401 Ordinary Shares of RM0.50 each (“Shares”) and 1 Special Rights Redeemable Preference Share of RM0.50 Voting Rights : 1 vote per Share

Distribution Schedule of Shareholders

No. of Holders Holdings No. of Shares % 4 Less than 100 200 0.00 7,232 100 - 1,000 7,204,700 2.18 2,495 1,001 - 10,000 10,514,900 3.17 538 10,001 to 100,000 shares 16,040,200 4.84 79 100,001 to less than 5% of issued shares 57,085,200 17.24 3 5% and above of issued shares 240,360,201 72.57 10,351 331,205,401* 100.00

Note * Exclude 1 Special Rights Redeemable Preference Share of RM0.50 which is not listed on the Bursa Malaysia Securities Berhad

List of the 30 Largest Securities Account Holders

No. Name No. of Shares held %

1 State Secretary, Penang 182,050,001* 54.97 2 Perbadanan Pembangunan Pulau Pinang 33,100,000 9.99 3 Employees Provident Fund Board 25,210,200 7.61 4 EB Nominees (Tempatan) Sendirian Berhad 13,567,000 4.10 Pledged Securities Account for Yayasan Bumiputra Pulau Pinang Bhd 5 Alliancegroup Nominees (Tempatan) Sdn Bhd 9,504,300 2.87 PHEIM Asset Management Sdn Bhd for Employees Provident Fund 6 Amanah Raya Nominees (Tempatan) Sdn Bhd 4,530,000 1.37 Skim Amanah Saham Bumiputera 7 Malaysia Nominees (Tempatan) Sendirian Berhad 2,113,000 0.64 Great Eastern Life Assurance (Malaysia) Berhad 8 Amanah Raya Nominees (Tempatan) Sdn Bhd 1,991,900 0.60 Amanah Saham Didik 9 Lee Joo Ping 1,591,100 0.48 10 Citigroup Nominees (Asing) Sdn Bhd 1,502,500 0.45 CBNY for DFA Emerging Markets Fund 11 Mayban Nominees (Tempatan) Sdn Bhd 1,380,000 0.42 Mayban Trustees Berhad for MAAKL Value Fund (950290) 12 Emerald Lodge Sdn. Bhd. 1,198,000 0.36 13 PM Nominees (Tempatan) Sdn Bhd 1,170,000 0.35 PCB Asset Management Sdn Bhd for MUI Continental Insurance Berhad 14 Valuecap Sdn Bhd 1,139,800 0.34 15 Ong Hong Lian 1,108,000 0.33

106 PBA HOLDINGS BHD (515119-U) ANALYSIS OF SHAREHOLDINGS (CONT’D) AS AT MAY 8, 2008

List of the 30 Largest Securities Account Holders

No. Name No. of Shares held %

16 Onn Kok Puay (Weng Guopei) 895,600 0.27 17 Leung Sook Mee 610,600 0.18 18 Neoh Choo Ee & Company, Sdn. Berhad 591,000 0.18 19 High Technology Computer Sdn Bhd 565,000 0.17 20 Lim Kim Poh 526,000 0.16 21 Neo Suan Keong 511,500 0.15 22 Butterworth Iceworks Sdn Berhad 500,000 0.15 23 Golden Fresh Sdn Bhd 500,000 0.15 24 Wong Kam Mun 480,000 0.14 25 Quarry Lane Sdn Bhd 440,000 0.13 26 Hiap Tatt Credit Sendirian Berhad 400,000 0.12 27 Teoh Guan Kok & Co Sdn Berhad 378,000 0.11 28 Ban Hong Leong & Co Sdn Bhd 362,000 0.11 29 Chu Saik In 325,000 0.10 30 Public Nominees (Tempatan) Sdn Bhd 320,000 0.10 Pledged Securities Account for Tan Hock Cheng

SUBSTANTIAL SHAREHOLDERS (excluding those who are bare trustees pursuant to Section 69 of the Companies Act, 1965)

No. of Shares held Name of Substantial Shareholders Direct Interest % Indirect Interest % State Secretary, Penang 182,050,001* 54.97 - - Employees Provident Fund Board 34,714,500 10.48 - - Perbadanan Pembangunan Pulau Pinang 33,100,000 9.99 - -

DIRECTORS’ SHAREHOLDINGS

No. of Shares held Name of Directors Direct Interest % Indirect Interest % Y.A.B. Mr. Lim Guan Eng - - - - Y.B. Encik Mohammad Fairus bin Khairuddin - - - - Y.B. Prof. Dr. P. Ramasamy a/l Palanisamy - - - - Y.B. Dato’ Jamaludin bin Hasan - - - - Y.B. Dato' Supiah bt. Md Yusof - - - - Y. Bhg. Dato' Chew Kong Seng - - - - Y. Bhg. Dato' Dr. SHANmughalingam a/l Murugasu - - - - Y. Bhg. Dato’ Haji Adlan bin Hj Mohamed Daud - - - -

INTEREST IN THE RELATED CORPORATIONS

None of the above Directors have any interest in Shares in the related corporations of the Company.

PBA HOLDINGS BHD (515119-U) 107 TOP 10 PROPERTIES OF THE GROUP

Details of Top 10 Properties of the Group are as follows:-

LOCATION NET BOOK (MUKIM, VALUE AS AT BANDAR/ LAND AREA 31 DECEMBER PROPERTY LOT NO. DAERAH) TYPE TENURE (HECTARE) 2007 RM’000

Batu Ferringhi 443 17, DTL Quarters In perpetuity 10.294 53,263 Quarters, & Treatment Bungalow & Plant Treatment Plant

Sungai Dua 2394 11, SPU Treatment 99 yrs leasehold 1.441 Treatment Plant 2395 “ Plant “ 13.149 14.590 43,275

Rifle Range Road PT2023 Sect. 2, Workshop, 99 yrs leasehold 1.058 Workshop PT16 & 17 Georgetown, Store Quarters 97 yrs leasehold 0.859 Stores & Office 726 DTL & Office In perpetuity 0.304 2.221 18,589

Jawi Office & 4953 11, SPS Office/Store 99 yrs leasehold 1.071 Store 4954 “ “ 5.920 6.991 15,621

Reservoir at PT1135 SPS Reservoir In perpetuity 1.5116 14,711 Batu Kawan

Bukit Dumbar 144 Sect. 4, Reservoir In perpetuity 5.623 Reservoir 646 Jelutong, “ 8.802 658 DTL “ 2.430 659 “ “ 0.289 661 “ “ 0.930 18.074 10,321

Kepala Batas PT2462 6, SPT Office 99 yrs leasehold 1.262 8,489 Office, Bertam

Perai Store Plot 12 (part) 6, Kaw. Store 99 yrs leasehold 1.214 7,100 Workshop & Prai IV, SPT Workshop & Office Office

Prai Intake/ - 11, SPU Intake In perpetuity 1.325 4,596 Sg. Perai pumping station

Balik Pulau PT123 4, DBD Office, In perpetuity 0.347 3,506 Office & Store Quarters & Workshop

108 PBA HOLDINGS BHD (515119-U) NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN THAT the Eighth (8th) Annual General Meeting of PBA Holdings Bhd. (or "the Company") will be held at Grand Ballroom, G Hotel, 168A Persiaran Gurney, 10250 Penang on Thursday, 26 June 2008 at 10.00 a.m. for the following purposes:-

AGENDA

1. To receive the Audited Financial Statements for the financial year ended 31 December 2007 Resolution 1 together with the Directors’ and Auditors’ Reports thereon.

2. To re-elect the following Directors who are retiring in accordance with Article 112 of the Company’s Articles of Association and are offering themselves for re-election:-

a) Y.A.B Mr. Lim Guan Eng Resolution 2 b) Y.B. Encik Mohammad Fairus bin Khairuddin Resolution 3 c) Y.B. Prof. Dr. P. Ramasamy a/l Palanisamy Resolution 4

3. To re-elect Y.Bhg. Dato’ Haji Adlan bin Hj Mohamed Daud, who is retiring in accordance with Article 114 of the Company’s Articles of Association and is offering himself for re- election. Resolution 5

4. To re-appoint Y.Bhg. Dato’ Chew Kong Seng, who is retiring in accordance with Section 129(6) of the Companies Act, 1965 to hold office until the conclusion of the next Annual General Meeting of the Company. Resolution 6

5. To approve the declaration of a final dividend of 7% less 26% income tax for the financial year ended 31 December 2007. Resolution 7

6. To re-appoint Messrs Ernst & Young as Auditors of the Company until the conclusion of the next Annual General Meeting and to authorise the Directors to fix their remuneration. Resolution 8

AS SPECIAL BUSINESS:-

7. To consider and if thought fit, to pass the following resolutions with or without modifications:-

7.1 Special Resolution: - Proposed Amendments to the Articles of Association of the Company

“THAT, the Articles of Association of the Company be and are hereby amended in the manner as set out in the Circular to Shareholders dated 4 June 2008 AND THAT the Directors of the Company be and are hereby authorised to give full effect to the said amendments, alteration, modification and deletion to the Articles of Association of the Company as may be required by any relevant authorities as they deem fit, necessary or expedient in order to give full effect to the Proposed Amendments to the Articles of Association of the Company.” Resolution 9

PBA HOLDINGS BHD (515119-U) 109 NOTICE OF ANNUAL GENERAL MEETING (CONT’D)

7.2 Ordinary Resolution: - Authority for the Directors to issue and allot shares pursuant to Section 132D of the Companies Act, 1965

“THAT subject to Section 132D of the Companies Act, 1965 and approvals of the relevant governmental/regulatory authorities, the Directors be and are hereby empowered to issue and allot shares in the Company, at any time to such person or persons 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 per centum (10%) of the issued and paid-up share capital of the Company for the time being and the Directors be and are also empowered to obtain the approval for the listing of and quotation for the additional shares so issued on Bursa Malaysia Securities Berhad; AND THAT such authority shall commence immediately upon the passing of this resolution and continue to be in force until the conclusion of the next Annual General Meeting of the Company.” Resolution 10

Explanatory Notes to Special Business

(i) Resolution No. 9 for the Proposed Amendments to the Articles of Association of the Company

The proposed adoption of the Resolution No. 9 is mainly to streamline the existing Articles of Association with the provisions in the Companies Act, 1965 and the Listing Requirements of Bursa Malaysia Securities Berhad as have been amended from time to time and also to add clarity to the Articles of Association of the Company.

(ii) Resolution No. 10 for the authority to issue and allot shares pursuant to Section 132D of the Companies Act, 1965

The proposed adoption of Resolution No.10 is primarily to give flexibility to the Board of Directors to issue and allot shares at any time in their absolute discretion without convening a general meeting. This authority, unless revoked or varied at a general meeting, will expire at the conclusion of the next Annual General Meeting of the Company, or the expiration of period within which the next Annual General Meeting of the Company is required by law to be held, whichever is earlier.

Further information on the Proposed Amendments to the Articles of Association of the Company is set out in the Circular to Shareholders dated 4 June 2008, which is despatched together with the Company’s Annual Report 2007.

Notes :

1. A member of the Company entitled to attend and vote at the Meeting is entitled to appoint more than two (2) proxies to attend and vote in his stead. A proxy may but need not be a member of the Company and a member may appoint any person to be his proxy without limitation and the provisions of Section 149 (1) (b) of the Companies Act, 1965 shall not apply to the Company. In the case where a Member is an Authorised Nominee as defined under the Securities Industry (Central Depository) Act 1991, it may appoint at least one (1) proxy in respect of each Securities Account it holds with ordinary shares of the Company standing to the credit of the said Securities Account.

2. Where a member appoints two (2) or more proxies, the appointments shall be invalid unless he or she specifies the proportion of his or her holdings to be represented by each proxy.

3. The instrument appointing a proxy shall be in writing under the hand of the appointor or his attorney duly authorised in writing or, if the appointor is a corporation, either under its seal or under the hand of an officer or attorney duly authorised.

4. The instrument appointing a proxy must be deposited at the Company's registered office at 32nd Floor, Komtar, 10000 Pulau Pinang, not less than forty-eight (48) hours before the time for holding the Meeting or any adjournment thereof.

110 PBA HOLDINGS BHD (515119-U) NOTICE OF DIVIDEND ENTITLEMENT

NOTICE IS ALSO HEREBY GIVEN that a final dividend of 7% less 26% income tax in respect of the financial year ended 31 December 2007, if approved by members of the Company, will be paid on 25 July 2008. The entitlement date for the dividend payment is 4 July 2008.

A Depositor shall qualify for entitlement only in respect of:-

(a) Shares transferred into the Depositor’s Securities Account before 4.00 p.m. on 4 July 2008 in respect of ordinary transfers; and

(b) Shares bought on the Bursa Malaysia Securities Berhad on a cum entitlement basis according to the Rules of the Bursa Malaysia Securities Berhad.

By Order of the Board,

THUM SOOK FUN (MAICSA 7025619) Company Secretary

Dated: 4 June 2008 Penang

PBA HOLDINGS BHD (515119-U) 111 STATEMENT ACCOMPANYING NOTICE OF ANNUAL GENERAL MEETING

(1) Directors who are standing for re-election/re-appointment at the Eighth (8th) Annual General Meeting

(a) Retiring pursuant to Article 112 of the Articles of Association of the Company: - (i) Y.A.B Mr. Lim Guan Eng (ii) Y.B. Encik Mohammad Fairus bin Khairuddin (iii) Y.B. Prof. Dr. P. Ramasamy a/l Palanisamy

(b) Retiring pursuant to Article 114 of the Articles of Association of the Company: - (i) Y.Bhg. Dato’ Haji Adlan bin Hj Mohamed Daud

(c) Re-appointment in accordance with Section 129(6) of the Companies Act, 1965: - (i) Y.Bhg. Dato’ Chew Kong Seng

The details of the above Directors who are standing for re-election/re-appointment at the forthcoming 8th Annual General Meeting of the Company are set out in their respective profiles which appear on pages 18 to 22 of the Company’s 2007 Annual Report. Their holdings in the securities of the Company and its related corporations are set out on page 107 of the Company’s 2007 Annual Report.

(2) Details of attendance of Directors at Board meetings held during the financial year ended 31 December 2007

There were six (6) Board meetings held during the financial year ended 31 December 2007. The details of attendance is set out on page 43 in the Corporate Governance Statement of the Company’s 2007 Annual Report.

112 PBA HOLDINGS BHD (515119-U) FORM OF PROXY

PBA HOLDINGS BHD. 515119-U No. of Shares held

I / We NRIC No. (block letters) of (full address) being a member of PBA Holdings Bhd. (Company No. 515119-U) hereby appoint of or failing him, of or failing him, the Chairman of the Meeting as *my/our proxy to vote for *me/us on *my/our behalf at the Eighth (8th) Annual General Meeting of the Company to be held at Grand Ballroom, G Hotel, 168A Persiaran Gurney, 10250 Penang on Thursday, 26 June 2008 at 10.00 a.m. and at any adjournment thereof.

Please indicate your vote by a (X) in the respective box of each resolution. If no specific direction as to voting is given, the proxy will vote or abstain from voting on the resolutions at his/her discretion.

AS ORDINARY BUSINESS: FOR AGAINST Resolution 1 To receive the Audited Financial Statements for the financial year ended 31 December 2007 together with the Directors’ and Auditors’ Reports thereon. Resolution 2 To re-elect Y.A.B Mr. Lim Guan Eng who is retiring pursuant to Article 112 of the Company’s Articles of Association. Resolution 3 To re-elect Y.B. Encik Mohammad Fairus bin Khairuddin who is retiring pursuant to Article 112 of the Company’s Articles of Association. Resolution 4 To re-elect Y.B. Prof. Dr. P. Ramasamy a/l Palanisamy who is retiring pursuant to Article 112 of the Company’s Articles of Association. Resolution 5 To re-elect Y.Bhg. Dato’ Haji Adlan bin Hj Mohamed Daud who is retiring pursuant to Article 114 of the Company’s Articles of Association. Resolution 6 To re-appoint Y.Bhg. Dato’ Chew Kong Seng as Director of the Company pursuant to Section 129(6) of the Companies Act, 1965. Resolution 7 To approve the declaration of a final dividend of 7% less 26% income tax for the financial year ended 31 December 2007. Resolution 8 To re-appoint Messrs Ernst & Young as Auditors of the Company until the conclusion of the next Annual General Meeting and to authorise the Directors to fix their remuneration. AS SPECIAL BUSINESS : Resolution 9 Special Resolution – Proposed Amendments to the Articles of Association of the Company. Resolution 10 Ordinary Resolution – Proposed Authority for Issue of Shares pursuant to Section 132D of the Companies Act, 1965.

* Strike out whichever not applicable

Dated this ______day of ______, 2008.

Signature of Shareholder(s) / Common Seal

Notes:- 1. A member of the Company entitled to attend and vote at the Meeting is entitled to appoint more than two (2) proxies to attend and vote in his stead. A proxy may but need not be a member of the Company and a member may appoint any person to be his proxy without limitation and the provisions of Section 149 (1) (b) of the Companies Act, 1965 shall not apply to the Company. In the case where a Member is an Authorised Nominee as defined under the Securities Industry (Central Depository) Act 1991, it may appoint at least one (1) proxy in respect of each Securities Account it holds with ordinary shares of the Company standing to the credit of the said Securities Account. 2. Where a member appoints two (2) or more proxies, the appointments shall be invalid unless he or she specifies the proportion of his or her holdings to be represented by each proxy. 3. The instrument appointing a proxy shall be in writing under the hand of the appointor or his attorney duly authorised in writing or, if the appointor is a corporation, either under its seal or under the hand of an officer or attorney duly authorised. 4. The instrument appointing a proxy must be deposited at the Company's registered office at 32nd Floor, Komtar, 10000 Pulau Pinang, not less than forty-eight (48) hours before the time for holding the Meeting or any adjournment thereof. 5. Any alteration in this form must be initialed. Please fold across the line and close

stamp

The Company Secretary

PBA Holdings Bhd (515119-U) 32nd Floor, Komtar, 10000 Pulau Pinang.

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