cm Egneig Bhd Engineering Scomi Scomi Engineering Bhd (111633-M)

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

Tel: +603 7717 3000 Fax: +603 7727 7935 www.scomiengineering.com.my 2011 Report Annual

NEW OPPORTUNITIES. MOVING AHEAD. Annual Report 2011 CONTENTS

2 Key Financial Highlights 38 Statement on Corporate 144 Analysis of Shareholdings Governance 3 Corporate Structure 147 Analysis of Irredeemable 44 Statement on Internal Control Convertible Unsecured Loan 4 Corporate Statement of Stocks (“ICULS”) Holdings Scomi Group 46 Audit and Risk Management Committee Report 149 List of Property 5 Corporate Information 50 Additional Information 150 Corporate Directory 8 Profile of Directors 51 Information in Relation to 151 Notice of Annual General 12 Management Team Employees’ Share Option Meeting 14 Chairman’s Statement Scheme 154 Statement Accompanying 22 Chief Executive Officer’s 52 Statement on Directors’ Notice of the Twenty Eighth Review of Operations Responsibility Annual General Meeting 30 Corporate Social 55 Financial Statements • Form of Proxy Responsibility

New Opportunities. Moving Ahead. With a presence in 27 countries, Scomi Group is an accomplished global technology enterprise. Entrusted with numerous high-profile projects, Scomi’s achievements have reinforced its position as a world-class service provider and technology owner in oilfield services, transport solutions and energy logistics.

By consolidating operations and building on its strengths, Scomi will continue to seek out new opportunities in both the domestic and global market. Moving ahead, Scomi will keep delivering value to its stakeholders and making a difference in the communities it helps shape. Ballroom 3 th 1st Floor, Sime Darby Convention Centre 28 1A Jalan Bukit Kiara 1 ANNUAL 60000 Kuala Lumpur GENERAL on 26 June 2012 at 10.00 a.m. MEETING KEY FINANCIAL Highlights

Revenue (RM Million)

2011 246.8

2010 400.8

2009 537.7

2008 434.4

2007 368.8 CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI

Net(Loss)/Profit (RM Million)

2011(81.6)

2010 (11.2)*

2009 60.9 pg 2 2008 12.4

2007 42.4

Total Assets (RM Million) (Loss)/Earnings per Share (basic) RM773.6 • 2011 (23.86) sen • 2011 RM742.7 • 2010 (3.36) sen • 2010 RM829.1 • 2009 22.10 sen • 2009

Shareholders’ Fund (RM Million) Net Assets Per Share RM325.9 • 2011 RM1.14 • 2011 RM410.4 • 2010 RM1.44 • 2010 RM459.9 • 2009 RM1.67 • 2009

Net Tangible Assets (RM Million) RM183.6 • 2011 RM306.1 • 2010 RM182.6 • 2009

Note * Includes the gain arising from the disposal of the Machine Shop business amounting to RM19.7 million Scomi engineering Corporate Structure as of 31 December 2011

100% British Virgin Islands

Scomi OMS Oilfield Services Ltd

India

Urban Transit Pvt Ltd *

Malaysia

Scomi Special Vehicles Sdn Bhd Scomi Trading Sdn Bhd

SCOMI Scomi Transit Projects Sdn Bhd ENGINEERING

BHD Scomi Transportation Systems Sdn Bhd ***

Scomi Coach Sdn Bhd pg 3 Scomi Coach Marketing Sdn Bhd

Scomi Rail Bhd

Scomi Transit Projects Brazil (Sao Paulo) Sdn Bhd

Scomi Transit Projects Brazil Sdn Bhd SCOMI ENGINEERING BHD Annual Report 2011

Brazil

Urban Transit Servicos Do Brasil Ltda** (formerly known as Trams Servicos Mercadologicos De

Consultoria Ltda) * Includes 0.001% held by Scomi Rail Bhd. ** includes 1 quota (“share”) held by Scomi Rail Bhd. *** Malaysia Nominees (Tempatan) Sdn Bhd (“MNTSB”) is the registered shareholder in Scomi Transportation Systems Sdn Bhd (MNTSB is holding in Trust for SEB)

Notes

i. Except as otherwise expressly stated, all companies in this structure are incorporated in Malaysia. ii. Except as otherwise expressly stated, all companies in this structure are wholly owned by their respective holding companies. CORPORATE STATEMENT of Scomi Group

With a presence in 52 locations across 27 countries, the Scomi group of companies is a global technology enterprise in the energy and logistics industries.

We are a global technology We aim to realise potential enterprise. for our stakeholders. CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI Our global reach, capabilities and talent • Our customers: We will develop provide us with the necessary resources and offer customers innovative and to develop and own new technology in competitive products and services all areas of our business. that help them grow their business.

• Our shareholders: We are committed W e focus on E nerg y & to providing long-term superior pg 4 Logistics. returns to our shareholders. All of our 3 business units are focused on the Energy and/or Logistics sectors • Our people: We aim to provide our with the ability to compete globally. All employees with developmental of us in the Scomi family should opportunities so they can succeed remember that any new initiatives we on personal and professional levels. undertake will focus on these areas of business. • Our suppliers: We will treat our suppliers as our partners in the mutual interest of business growth. W e pro v ide inno v ati v e solutions. • Our society/environment: As a good corporate citizen, we will give We innovate to respond to an evolving back to the communities we operate environment. Our products and in worldwide. operations meet today’s needs while anticipating tomorrow’s. We are committed to developing competitive and innovative solutions to create efficiency, add value and grow with our customers to shape our future. CORPORATE INFORMATION

Directors Administrative and Principal Bankers Correspondence Address United Overseas Bank (Malaysia) Datuk Zainun Aishah Binti Ahmad Berhad Chairman Level 17, 1 First Avenue Menara UOB, Jalan Raja Laut Dato’ Abdul Rahim Bin Abu Bakar Bandar Utama 47800 Petaling Jaya PO Box 11212 Edlin Bin Ghazaly Selangor Darul Ehsan, Malaysia 50738 Kuala Lumpur, Malaysia Fad’l Bin Mohamed T +603 7717 3000 Abdul Hamid Bin Sheikh Mohamed F +603 7727 7935 CIMB Bank Berhad Shah Hakim @ Shahzanim Bin Zain w www.scomiengineering.com.my Bangunan CIMB, Jalan Semantan E [email protected] Damansara Heights 50490 Kuala Lumpur, Malaysia Audit and Risk Management Committee Registrar Malayan Banking Berhad Symphony Share Registrars Sdn Bhd Menara Maybank Dato’ Abdul Rahim Bin Abu Bakar Chairman Level 6, Symphony House 100, Jalan Tun Perak Block D13, Pusat Dagangan Dana 1 50050 Kuala Lumpur, Malaysia Edlin Bin Ghazaly Jalan PJU 1A/46 Fad’l Bin Mohamed 47301 Petaling Jaya OCBC Bank (Malaysia) Berhad Abdul Hamid Bin Sheikh Mohamed Selangor Darul Ehsan, Malaysia Menara OCBC T +603 7841 8000 18, Jalan Tun Perak F +603 7841 8008 50050 Kuala Lumpur, Malaysia Nomination and Annual Report 2011 Remuneration Committee Advocates & Solicitors Standard Chartered Bank Malaysia pg 5 Datuk Zainun Aishah Binti Ahmad Berhad Chairman Albar & Partners Menara Standard Chartered Dato’ Abdul Rahim Bin Abu Bakar Advocates & Solicitors 30 Jalan Sultan Ismail 6th Floor, Faber Imperial Court Edlin Bin Ghazaly 50250 Kuala Lumpur Jalan Sultan Ismail Malaysia 50250 Kuala Lumpur, Malaysia Export-Import Bank of Malaysia Options Committee SCOMI ENGINEERING BHD Berhad Edlin Bin Ghazaly Company Secretaries Level 1, EXIM Bank Chairman Chua Hooi Sian (MAICSA 7014565) Jalan Sultan Ismail Dato’ Abdul Rahim Bin Abu Bakar Catherine Mah Suik Ching (LS 01302) 50250 Kuala Lumpur Shah Hakim @ Shahzanim Bin Zain Malaysia

Auditors Registered Office Stock Exchange Listing PricewaterhouseCoopers (AF: 1146) Level 17, 1 First Avenue Main Board of Bursa Malaysia Chartered Accountants Bandar Utama Securities Berhad Level 10, 1 Sentral 47800 Petaling Jaya Stock Name: Scomien Jalan Travers, Kuala Lumpur Sentral Selangor Darul Ehsan, Malaysia Stock Code: 7366 P O Box 10192, 50706 Kuala Lumpur T +603 7717 3000 Malaysia F +603 7727 7935 Currency Ringgit Malaysia (RM)

Reinventing ourselves to realise opportunities

We continue to recognise the importance of re-inventing ourselves, re-evaluating our endeavours and following through with strategies that will increase our opportunities in the global market. PROFILE OF DIRECTORS

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

Datuk Zainun Aishah was a Director of Tenaga Nasional Berhad, Kulim Hi-Tech Park and Malayan Banking Berhad. Datuk Zainun Aishah

CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI Binti Ahmad Currently Datuk Zainun Aishah’s other directorships in public companies are, Chairman, Microlink Solutions Berhad, Degem Bhd, Pernec Corporation Bhd, Berjaya Independent Non-Executive Director Media Berhad, Berjaya Food Bhd, Shell Refinery Company (Federation of Malaysia) Bhd and British American Tobacco (Malaysia) Berhad. Datuk Zainun Aishah, a Malaysian, aged 65, was appointed to the Board on 15 Datuk Zainun Aishah attended all ten (10) Board Meetings of the Company held December 2005. She is also the Chairman during the financial year ended 31 December 2011. of the Company’s Nomination and pg 8 Remuneration Committee.

Dato’ Rahim graduated from the Brighton College of Technology, United Kingdom with B.Sc (Hon) Electrical Engineering in 1969. Dato’ Rahim is a member of the Institute of Engineers Malaysia (“MIEM”) and is a Professional Engineer, Malaysia (P.Eng). He also holds the Electrical Engineer Certificate of Competency Grade 1. Dato’ Rahim began his career in 1969 with the then National Electricity Board. He was attached to the organisation for 10 years in various technical and engineering positions before he moved on to the private sector. From 1979 to 1983, he served with Pernas Charter Management Sdn Bhd, a management company for the tin mining industry. Then, from late 1983 to 1991, he was attached to Malaysia Mining Corporation Berhad (“MMC”) in various senior positions. Later from 1991 to 1995, he moved on to MMC Engineering Services Sdn Bhd and subsequently to MMC Engineering Group Berhad as the Managing Director. In May 1995, he joined Petronas to assume the position of Managing Director of Petronas Gas Berhad (“PGB”) and Datuk Abdul Rahim subsequently moved on to Petronas as its Vice President, in charge of the Bin Abu Bakar Petrochemical Business in 1999. He retired from Petronas on 31 August 2002. Independent Non-Executive Director Dato’ Rahim’s other directorships in public companies are Telekom Malaysia Dato’ Rahim, a Malaysian, aged 66, was Bhd, Scomi Group Bhd and Global Maritime Ventures Bhd. Save for Global appointed to the Board on 15 December Maritime Ventures Bhd, all the other companies are listed on the Bursa Malaysia 2005. He is the Chairman of the Company’s Securities Berhad. He is also a director of a public listed company in India, Audit and Risk Management Committee. Infrastructure Development Finance Corporation Ltd. He is also a member of the Company’s Options Committee and Nomination and Dato’ Rahim attended Nine (9) out of Ten (10) Board Meetings of the Company Remuneration Committee. held during the financial year ended 31 December 2011. Encik Edlin read law at the International Islamic University (IIU), graduating in 1989, and was admitted to the Malaysian Bar in 1990. Over the past 22 years, he has established a notable career in the legal profession and set up his own practice in 1994.

Encik Edlin attended all ten (10) Board Meetings of the Company held during the financial year ended 31 December 2011.

Edlin Bin Ghazaly Independent Non-Executive Director

Encik Edlin, a Malaysian, aged 47, was appointed to the Board on 20 December 2004. He is the Chairman of the Company’s Options Committee. He is also a member of the Company’s Nomination and Remuneration Committee and Audit and Risk Management Committee. pg 9

Encik Fad’l holds an Honours Degree in Law from the University of London, and a Certified Diploma in Accounting and Finance (Association of Chartered Certified Accountants). He started his career as a lawyer in Messrs. Rashid & Lee in 1991 SCOMI ENGINEERING BHD Annual Report 2011 to 1993.

He then joined the Securities Commission in 1993 to serve in the Take-Overs and Mergers Department and subsequently in the new Product Development Department. Between 1996 and 1999, he was attached to the Kuala Lumpur offices of Dresdner Kleinwort Benson, a global investment bank, providing cross- border M&A advice and other corporate advisory services to Malaysian and foreign corporations. He is currently the founder and Managing Director of Maestro Capital Sdn Bhd, a licensed corporate finance advisor providing corporate finance advisory services in the areas of mergers and acquisition and Fad’l Bin Mohamed capital raising. Independent Non-Executive Director Encik Fad’l is a director of CIMB-Principal Asset Management Berhad and holds Encik Fad’l, a Malaysian, aged 44, was directorships in various private companies. He is also an independent investment appointed to the Board on 15 December committee member of CIMB-Principal Asset Management Berhad and CIMC 2005. He is a member of the Company’s Nasional Equity Fund. Audit and Risk Management Committee. Encik Fad’l attended all ten (10) Board Meetings of the Company held during the financial year ended 31 December 2011. PROFILE OF DIRECTORS

Encik Abdul Hamid, a Fellow of the Association of Chartered Certified Accountants, is currently the Executive Director of Symphony House Berhad. He started his career in the accounting firm Messrs Lim Ali & Co/Arthur Young, before moving on to merchant banking with Bumiputra Merchant Bankers Berhad. He later moved on to the Amanah Capital Malaysia Berhad Group, an investment banking and finance group, where he led the corporate planning and finance functions until 1998 when he joined the Kuala Lumpur Stock Exchange (“KLSE”), now known as Bursa Malaysia Berhad. During his five years with the KLSE Group, he held diverse roles and had experience in strategy, corporate finance, business transformation, finance and administration, treasury, external affairs and public relations. He led KLSE’s acquisitions of KLOFFE and COMMEX and their merger to form MDEX, and the acquisition of MESDAQ. He also led KLSE’s demutualisation exercise.

CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI Abdul Hamid Bin Sheikh Mohamed Encik Hamid’s other directorships in public companies are Symphony House Independent Non-Executive Director Berhad, SILK Holdings Bhd and MMC Corporation Berhad.

Encik Abdul Hamid, a Malaysian, aged 47, Encik Hamid attended eight (8) of ten (10) Board Meetings of the Company held was appointed to the Board on 24 February during the financial year ended 31 December 2011. 2010. He is a member of the Company’s Audit and Risk Management Committee. pg 10

Encik Shah Hakim started his career as an auditor with Ernst & Young and was subsequently promoted as Consulting Manager, responsible for servicing large corporations. He went on to be appointed as Executive Director of a regional packaging manufacturer in 1992, with direct operational responsibility. He currently sits on the Board of Sapura Industrial Berhad, Scomi Marine Bhd, Scomi Group Bhd and KMCOB Capital Berhad.

Encik Shah Hakim attended all ten (10) Board Meetings of the Company held during the financial year ended 31 December 2011.

Shah Hakim @ Shahzanim Bin Zain Chief Executive Officer/ Non-Independent Executive Director

Encik Shah Hakim, a Malaysian, aged 47, Notes: was appointed to the Board as Non- None of the Directors have: Independent Executive Director on 15 • Any family relationship with any Director and/or substantial December 2005 and as Chief Executive shareholder of Scomi Engineering Bhd Officer on 1 August 2011. He is also a • Any conflict of interest with Scomi Engineering Bhd; and • Any conviction for offences within the past 10 years (other than member of the Company’s Options traffic offences, if any) Committee.

Management team

CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI Shah Hakim Zain Chief Executive Officer

pg 12

Suhaimi Yaacob Radhi Mohamad President – Rail Chief Financial Officer

Mastura Mansor Zubaidi Harun Vice President Vice President Group Human Resource Business Development Mansor Tahir Revantha Sinnetamby Head – Commercial Vehicles Head – Legal & Secretarial

pg 13

Abdul Wahab Yan Siew Ching Mohamed Khalid Group Financial Controller Head – Engineering SCOMI ENGINEERING BHD Annual Report 2011

Chee Chiak Yang Head – Turnkey Services CHAIRMAN’S STATEMENT Datuk Zainun Aishah Binti Ahmad Chairman Dear Stakeholders, The year 2011 proved to be eventful with significant progress accomplished in on-going projects and a number of new contracts being signed in our Rail segment. Consequently, I have great pleasure in presenting our audited financial statement for the year ended 31 December 2011.

Although the operating environment the Greater KL/KV and have submitted was extremely challenging for global tenders for more projects under this businesses, given the continuing National Key Economic Area (NKEA). economic crises in the US and Europe, there were some bright spots, mainly in emerging markets that have been Financial Performance pg 15 kept afloat by strong internal demand. Our revenue for the year of RM246.8 million was lower than the RM350.0 Public investment into urban transport million achieved in 2010 mainly as a in particular remained strong in rapidly result of delays in our monorail project developing nations such as Brazil and in Mumbai, India. Most of this revenue India, where Scomi Engineering has was derived from our Rail segment, been focusing our energies. Our years which contributed RM202.2 million, or of groundwork in Brazil came to fruition 81.9%, of the total. The remaining SCOMI ENGINEERING BHD Annual Report 2011 when we were awarded two significant RM44.6 million was contributed by our monorail projects – in the cities of Sao Coach and Special Purpose Vehicles Paolo and Manaus. In India, we (SPV) segment. continued to make progress on the Mumbai monorail project and took part We made a net loss of RM81.6 million in various other tenders for monorail as compared to RM30.9 million in development in other major cities. 2010 (excluding the gain of RM19.7 million from the disposal of our machine In Malaysia, too, there is a resurgence shop businesses in June 2010). This in interest in urban public transport, was due to lower work done and Because of the losses incurred and particularly in conjunction with the project cost revisions, mainly from the our projected expansion in the coming Greater Kuala Lumpur/Klang Valley Mumbai monorail delays. However, as years, the Board of Directors has initiative under the Economic we have been given an extension on decided not to pay a dividend for the Transformation Programme. We are time for this project, we expect future year under review. already playing a part in this, following losses to be minimised and our project the award in December 2010 by costs to be mitigated. Along with our Syarikat Prasarana Negara Bhd (SPNB) partner, Larsen & Toubro, we are doing to expand the KL Monorail. However, our best to expedite completion of this we are confident we can play a bigger eagerly anticipated urban transport role in transforming public transport in system in India’s commercial capital. Meanwhile, in India, we are gearing up to get back on track with our Mumbai project and meet the completion date. A significant milestone was achieved in this project when successful we conducted 2.2km monorail a on test 21 February 2012. run Since then, of this portion the of the monorail been running has daily. As in Malaysia significant and potential Brazil, for further therein growth this is sub-continent as a state number of government indicated authorities positive plans have monorail to invest systems in congestion to and ease easeurbanisation. We have the traffic entered strain into a partnership with ITNL Enso Rail of System Ltd (IERS) submitted with proposals whomsystems we for in have monorailCollaborating with Thane Geodesic, we have andsubmitted a Chennai. proposal forAnd we Bangalore. are also looking at the Delhi state and of Kerala. RM36 billion. To be able to in take this part exciting development, we have been working on a Scomi MRT and train, I’m pleased to share prototype that was a completed duringyear under the review. In Brazil, the government has similarly embarked on a very ambitious transport urban programme, spurred by the need to meet the expected demand when the FIFA World Cup 2014 later, the and, 2016 Olympics take place in the country. Consortia that we belong to have been awarded systems two – monorail in the cities and Manaus. However, of the government Sao Paolo is expected monorail tenders toin the next two years, issue and another we would like to be able six to share in these too. To further strengthen our position here, we formed a joint venture company along Projetos with Montagens Especiais Brasell e SA Gestão (MPE) (Brasell) Empresarial, and so as to LTDAwider be product able range, to more offer innovative international enhanced and technologies a expertise in transport. relation to urban rail and T TEMEN STA Key Strategies Developments We began the year on a positive note, after being awarded the KL Fleet Expansion Monorail Project by SPNB. The project involves doubling the capacity of the monorail by replacing the current two-car trains with new four-car-trains, as well as upgrading and all building a the new depot stations and stabling yard. We are extremelyhave been pleased entrusted to major upgrade of the RapidKL withMonorail this service first as it indicates SPNB’s faith the in quality ofproject management skills. our technology and We are planning to participate upcoming in projects the to further improveUrban Public Greater Transport KL/KV NKEA. The government under has proposed an MRT system spanning the 141 kilometres with three major routes serving a radius of 20 kilometres of the city centre. The system is estimated to be able to carry up to 2 by million riders 2020, serving 11%within Greater KL/KV and 64% ofof travel total trips in and out of the KL city the centre. infrastructure Just of this plan will cost S RMAN’ CHAI

SCOMI ENGINEERING BHD16 Annual Report 2011 pg and allow us to be competitive competitive be to us internationally. our allow standards on and global satisfy innovate to products constantly to us SUTRA allowed has cost to 2.1 and quality reliability, attention Gen constant Our prototype. efficient more and better a on working also were we train MRT new the to addition in In 2011, marketplace. global the to in best R&D the on been to focus comparable are products our have ensure our we in time, relentless same the At Brazil. in AG and Almeida CR and India; in Ltd (EPI) (India) Project Engineering Limited and (IL&FS) Services Infrastructure Financial & IERS, Leasing Techniques, as such countries, these in players strong with partner us seen has that planning strategic to attributed and be Brazil can in India date to successes Our

asn Tur (&) Geodesic (L&T), Toubro & Larsen procedures so as to be a preferred preferred partner. a business be or service to as so procedures simplify to processes and systems our improve delivery. further to initiatives embarked several on we project year, last and Accordingly, service of standards in highest our the ensure to practices order re-evaluate engagement customer regularly we and operations, business our at of heart been the always have customers Our pg

SCOMI ENGINEERING BHD17 Annual Report 2011 CHAIRMAN’S STATEMENT

Prospects We are confident that our Rail unit will As I mentioned earlier, the global continue to grow in 2012 and beyond. economic downturn is not affecting all The year under review was a little slow countries equally. A number of emerging for our Coach & SPV unit, but with economies have been able to continue improved efficiencies, better cost with their development plans, driven by management and aggressive marketing, internal forces of demand for products we are positive of seeing some and services. Along with economic substantial returns from it in the near development, these countries are future. experiencing greater urbanisation which in turn creates a need for greater and As we expand our global footprint, more efficient public transport. We Scomi Engineering will continue to believe we are in a position to meet prioritise excellence in product quality the urban transport needs of these and project execution, while maintaining emerging markets with our proven strict cost control. We believe the future monorail technology. Our R&D team at holds many opportunities for our further CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI the Engineering, Technology and growth, and in order to capitalise on Innovation Centre (ETIC), located in the these, we will enhance our Malaysian capital has been working competitiveness by strengthening our assiduously on better, more cost design and manufacturing capabilities so effective and environment-friendly that our best-in-class offerings meet our designs which will help tremendously in global and local customers’ demands. overpopulated and dynamic cities. pg 18 Acknowledgements On behalf of the Board of Directors, I would like to acknowledge all our stakeholders who have made possible the successes that we achieved. We thank our highly valued shareholders for their continued trust in our vision and strategies. We would like to extend our appreciation to our customers, particularly the governments of Brazil, India and Malaysia, for giving us the opportunity to contribute to urban transport development in their countries. We are deeply grateful to our business partners, suppliers and financiers who share the same vision as us and who have made possible our growth and geographic expansion.

I would like to take this opportunity to acknowledge my fellow Board members for their wisdom and guidance. And, finally, I wish to express my sincere gratitude to the management and staff of Scomi Engineering for their hard work and commitment to the company.

Sincerely,

pg 19 Datuk Zainun Aishah Binti Ahmad Chairman SCOMI ENGINEERING BHD Annual Report 2011

Ensuring sustainability through strategic actions

Sustainability is a major focus for our businesses. As such, we have embarked on various key initiatives and strategic measures to add value, realise potential and fortify our balance sheet. chief executive officer’S REVIEW OF OPERATIONS

Shah Hakim Zain Chief Executive Officer Dear Stakeholders, It’s been an eventful year of many exciting starts and a few unexpected stops for Scomi Engineering Berhad (“Scomi Engineering”, “the Group” or “the Company”). Taken as a whole, the events that unfolded have been promising and we have every reason to believe we are on the right track in our journey towards becoming a global transport solutions provider. It gives me great pleasure to report on our achievements for the year ended 31 December 2011.

Overview Gulf and South America has been focuses on the Greater Kuala Lumpur/ Even as growth of the global economy estimated to lie in the region of USD871 Klang Valley as one of 12 National Key dropped from 5.1% in 2010 to 4.3% in billion, of which USD400 billion will be Economic Areas, under which 2011, emerging and developing nations in Asia, USD300 billion in the Middle approximately RM47 billion has been pg 23 maintained a relatively high growth of East and USD171 billion in South earmarked to develop an Integrated 6.6%, with the greatest activity seen in America. Urban Mass Rapid Transit System. Of China (9.6%) and India (8.2%). In other this, RM36 billion is expected to be words, economic growth around the Although there has been a slowdown invested in infrastructure alone. world was unbalanced, with the scales in infrastructure development in the definitely tipped in favour of Asia and Middle East due to the political turmoil There is, therefore, a huge market for other developing regions. that unfolded in the spring of 2011, as the Scomi Urban Transport Rail well as in some countries in Southeast Application, better known as SUTRA, SCOMI ENGINEERING BHD Annual Report 2011 Along with rapid development in these Asia – such as Indonesia, Thailand and which is not only safe, reliable, cost- areas, there is a concomitant increase Vietnam, where other national agendas efficient and energy efficient, but also in urbanisation. According to the World have taken precedence over urban ideal for crowded cities because it runs Bank, in China and India alone, more transport – there is still abundant scope on elevated lines. than 500 million people are expected for the monorail systems for which to migrate by 2020 to urban areas that Scomi Engineering has developed We have been marketing SUTRA already have one million residents or niche expertise. This is especially true extensively in various developing and more. The World Bank goes on to in countries we have targeted, namely emerging economies over the last few note that if there isn’t any efficient and Brazil, India and Malaysia. years. Given the positive responses environment-friendly public transport, we’ve been getting and the immense there will be serious repercussions in In preparation for the FIFA World Cup potential we’ve seen for our global terms of traffic congestion, road 2014, the Brazilian Government has transport solutions, in 2010 we made accidents and pollution. Already, in set aside a budget of BRZ Real 104.5 the strategic decision to focus more many Chinese and Indian cities, motor billion for projects related to transport, intently on this high-growth business vehicle ownership rates are rising faster and is expected to float at least another by disposing of our machine shops. It than population and income. 20 tenders in the next 24 months of was a bold step to take, but it’s been which five or six are projected to be validated by events in 2011 as they Acknowledging the potentially explosive monorail systems. In India, there are unfolded. Year 2011 was in no situation, governments in a number of plans for nine monorail networks uncertain terms the year of SUTRA. emerging nations have embarked on spanning a total of 184km. In Malaysia, And it all happened on the other side massive transformation of their public meanwhile, the Economic of the world – in Brazil. transport systems. Infrastructure spend Transformation Programme (ETP) over the next two decades in Asia, the unveiled by the Government in 2010 Chief Executive Officer’S REVIEW OF OPERATIONS

Financial Performance Highlights of the Year to key locations in the city, in advance Scomi Engineering comprises two main The highlight of the year was definitely of the 2014 World Cup hosted by units – Rail and Coaches & Special the award of two major monorail Brazil. Once completed, the monorail Purpose Vehicles (SPV). In 2011, our projects in Brazil. On 30 July 2011, the line will be able to carry some 35,000 Rail unit achieved total revenue of Consortium Monotrilho Integracao to passengers per hour per direction. RM202.2 million. Despite winning two which we belong – comprising also significant contracts in Brazil, this was Andrade Gutierrez S.A. (AG Group), Together, both projects are expected lower than the revenue of RM276.7 CR Almeida S.A. Engenharia de Obras to bolster our coffers. But more than million in 2010 mainly because of the and Montagens e Projetos Especiais the financial gain, we are extremely lower value of work done on the SA (MPE) – was awarded the Line 17- pleased about these projects as they Mumbai monorail project, which was Gold monorail project in Sao Paulo. reflect confidence in the Group’s stalled by continuing delays in civil The project covers the design works, capabilities as well as our track record works and approvals. We have, manufacture, supply and implementation in managing sizeable and multi-faceted however, been given an extension of of the monorail system for a 17.6-km urban transportation endeavours on an time by our client – the Mumbai line to be served by 18 stations. international scale. We do, also, have Metropolitan Region Development to acknowledge the strength of our CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI Authority – and are pulling all stops to Our scope of work involves the supply consortium partners who no doubt expedite the project’s completion. of 24 train sets of three cars each which played key roles in these wins. are expected to carry some 252,000 Revenue from our Rail unit, which was passengers per day. The award is our main income generator, was also valued at BRZ Real 1.4 billion (RM2.6 affected by the declining value of the billion). Work began as per schedule in Indian Rupee against the Ringgit. July 2011 and is expected to be pg 24 completed in 42 months. Other than the Meanwhile, our Coach & SPV unit, rolling stock, we will also be supplying which offers products ranging from city the vehicle management system (VMS), and inter-city to mini-range buses, the design for switches, system achieved revenue of RM44.6 million. integration and system assurance, as This was lower than its revenue of well as testing and commissioning. RM73.3 million in 2010, mainly as a result of a lower volume of orders Quick on the heels of this Sao Paulo following a freeze on new permits in award came our second Brazilian win the first half of the year which was – announced on 5 August 2011 – for gradually lifted in the second half. a 20km monorail line in the city of Manaus. This BRZ Real 1.46 billion Consequently, the Group’s revenue (RM2.56 billion) project was awarded dropped from RM350.0 million in 2010 to a Consortium comprising Scomi, CR to RM246.8 million. The Group posted Almeida S/A Engenharia De Obras (CR a higher net loss of RM81.6 million as Almeida), Mendes Junior Trading E compared to RM30.9 million in 2010 Engenharia S/A (Mendes Junior) and (excluding the gain of RM19.7 million Serveng-Civilsan S/A Empresas from the disposal of the machine shop Associadas De Engenharia (Serveng). businesses in June 2010). The Manaus Monorail will consist of nine stations, and involve the supply of 10 train sets of six cars each. The project is expected to be completed in 40 months, with six months assisted maintenance, to provide efficient access The AG Group and CR Almeida are Our Mumbai monorail project, as Centre of Excellence is housed, both well-established and highly-proven I mentioned earlier, has been lumbered complete with a dedicated research construction brands not only in Brazil with unavoidable delays. However, our team that developed the very first but more generally in South America. team continued to work hard and SUTRA prototype and where work is Their credentials and technical skills- conducted a successful 2.2km test run on-going to create the Gen 2.1 model sets will be invaluable in our further of the system in Mumbai on which will be bigger, yet just as fuel- expansion in the region. 21 February 2012. With continued efforts efficient. We believe strongly that to to increase the momentum of this maintain an edge in the competitive To further strengthen our position in project, we are targeting to commence global transport solutions market we Brazil, and to facilitate in the supply of operations of the first phase in 2012. need to invest in innovation, hence a rolling stock and other components significant amount of the Group’s for the two projects, on 7 December profits is channeled back into ETIC for 2011 we signed a Memorandum of Key Initiatives this purpose. Understanding with MPE and Brasell Our success in taking our urban Gestão Empresarial, LTDA (Brasell) to transport solutions international can be It is also at this facility that we set up a joint venture company (JVC) distilled to two main factors: excellent manufacture and test our rolling stock to serve as our manufacturing arm product reliability and quality backed and other components for our own and to pursue other rail related by strong R&D capabilities; and monorails as well as for transport units services projects. continuous efforts to engage with as required by customers, such as customers so as to enhance our locomotives, mass rapid transit (MRT) During the year we also embarked on relationships with them. vehicles and coaches. Most recently, the KL Monorail Fleet Expansion Project our team has been working on a new (KL MFEP) which was awarded to us Our Engineering, Technology and MMX bus model, comprising a 12m by Syarikat Prasarana Negara Berhad in Innovation Centre (ETIC), located in the single deck coach powered by a Euro pg 25 December 2010. In this project, valued Malaysian capital, has recently been 2 engine, which we plan to make our at RM494 million, we will replace the awarded world-class quality standards flagship coach in the coming years. existing 12 sets of two-car trains with a certification – the ISO 9001:2008 new fleet of 12 sets of four-car trains, certification for quality management To take our innovative products and to double its passenger capacity as the system, OHSAS 18001:2007 technologies overseas, we have formed current system is running at 35% over- certification for occupational health and synergistic partnerships with leading capacity. We are also upgrading the safety management system and ISO companies in the fast-growing countries Electrical & Mechanical Systems and 14001:2001 for environmental targeted, such as Larsen & Toubro SCOMI ENGINEERING BHD Annual Report 2011 ensuring the 11 stations served are able management system. It is here that our (L&T), Geodesic Techniques, IERS, to accommodate the longer trains. In addition, we have been entrusted with building a new depot and stabling yard for the project, which is scheduled for completion by July 2013. Chief Executive Officer’S REVIEW OF OPERATIONS

CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI Infrastructure Leasing & Financial already yielded positive results in the and capacity of urban rail. It has put Services Limited (IL&FS) and Engineering overall performance and standards of forward plans for the MRT system Project (India) (EPI) Ltd in India; and our monorail car. within the Greater Kuala Lumpur/Klang CR Almeida and AG in Brazil. Valley area to span 141km with three We also believe strongly that the major routes serving a radius of 20km We also form strategic alliances with customer has to be placed foremost in of the city centre. The system is leading technology partners on a project all our plans and programmes. With estimated to be able to carry up to 2 pg 26 by project basis such as Siemens, this in mind, in 2011 we launched million riders by 2020, serving 11% of Thales and Bombardier. Having several customer engagement initiatives total trips within Greater KL/KV and experienced the advantages of these to maintain close relationship with our 64% of travel in and out of the KL city partnerships, we will continue to operate customers as well as business partners. centre. This presents a mine of along these lines to further expand our In addition, as part of efforts to create opportunities for urban transport business in the global arena. closer rapport with our customers, we solutions providers such as Scomi, and regularly arrange for visits to our NKLF, we aspire to participate in the exciting While we have made significant strides where guests are given a comprehensive transformation of Greater KL/KV by in terms of product innovation, we brief on the production and process lending our growing expertise. realise there is a need also to focus on flow of our monorail technology. the processes and procedures that At the same time, we are not deterred support our rapidly expanding business. by the delays experienced in Mumbai. If In order to ensure quality operations Prospects anything, we are more determined than and a high level of customer satisfaction, Despite predictions of a further slow- ever to take on more projects in the we have embarked on an Improvement down in the global economy in 2012, vast Indian subcontinent where we have Plan which will see concerted efforts we are confident of accelerating the made the most critical step of gaining made in the three areas of reliability, growth of our business and especially market entry and now face the much quality and cost. Towards this end, we that of our urban transport solutions easier task of growing our presence. We will be investing more in better testing both in Malaysia and internationally. have formed a consortium with Geodesic equipment, upgrading our test tracks with whom we have proposed to build and improving our endurance tests. In Malaysia, the Government is targeting a 60km monorail in Bangalore, the We will also be enforcing stricter quality to increase the public transport modal capital of the Indian state of Karnataka. controls to improve our manufacturing share (namely the percentage of In June 2011, we were able to sign on capabilities. Finally, in terms of better commuters who use public transport) ITNL Enso Rail System Ltd (IERS), a cost control, we will make concerted in the Klang Valley from just 12% (as subsidiary of IL&FS Transportation efforts to reduce and recover costs of 2009) to over 50%, to match that of Network Limited (ITNL), as our financier while monitoring our procurement more developed nations. This is to be in this project. This is yet another very practices more closely. In terms of supported by an increase in coverage exciting venture as it represents the first quality, the Improvement Plan has Public Private Partnership (PPP) for In Brazil, meanwhile, the government is urban transport in India under the Swiss expected to issue tenders for four Challenge procurement process. We are more major monorail projects in the awaiting final guidelines from the next 12 months. Needless to say, we Karnataka Government before proceeding will be pursuing these in collaboration in this endeavour. with our partners.

Together with IERS we also submitted We are also optimistic of our Coach & a proposal for a 300km monorail SPV unit where, again, we feel the way system in Chennai, after the Chief forward is to form strategic partnerships Minister announced plans to introduce with key players. In December 2010, such a system to ease transport in this we had signed a co-operation traffic-choked city of about 4.6 million agreement with Zonda Bus Co Ltd in people. The first phase, stretching China to leverage on each other’s 111km, is expected to be completed strengths and undertake the supply of within two to three years. Along with chassis, parts and body kits as well as our financial partners, we have also the supply of SKD/CKD buses as part been pre-qualified for a monorail project of integrated urban transport systems proposed by the Thane Municipal in other overseas markets. Our team is Corp. of Maharashtra. In addition, we engaging actively with their counterparts have stated our interest in the Kerala in Zonda and we hope to see some state government’s plans to develop positive outcomes in the near future. monorail systems in the fast growing cities of Thiruvananthapuram and Indeed, we feel fortified by the pg 27 Kozhikode. The state authorities have milestones achieved in 2011 and look set aside Rs5,100 crore for these forward to reinforcing our international projects and are awaiting a detailed reputation by strengthening our design project report before proceeding. We and manufacturing capabilities while are also eyeing the capital Delhi, where maintaining the highest level of project the government has approved in and service delivery, at reasonable principle an 11.5km-long elevated costs, to make further progress as a monorail corridor with 12 stations. global transport solutions provider in SCOMI ENGINEERING BHD Annual Report 2011 2012 and beyond. Neighbouring Bangladesh faces the same challenges of urbanisation and congestion as does India and we have Thank you, capitalised on opportunities here by proposing a monorail in Dhaka, the Sincerely, national capital, to connect the Hazrat Shahjalal International Airport to the suburbs.

Shah Hakim Zain Chief Executive Officer

Reaching out through sustainable practices

We aim to contribute positively towards the advancement of the communities we operate in. Towards this end, we are involved in various projects and initiatives such as conservation activities, philanthropy and volunteerism, amongst others. CORPORATE SOCIAL RESPONSIBILITY In today’s competitive corporate world, companies are judged not only on their financial performance but also on their contributions to society and to the preservation of the environment. At Scomi Engineering, we acknowledge our responsibility to the lives we touch either directly or indirectly, and are committed to making a positive impact in the communities where we have a presence while further strengthening our corporate reputation via upholding a culture of integrity and transparency.

pg 31 SCOMI ENGINEERING BHD Annual Report 2011 We also realise that, given the nature of reinforcing the principles of integrity partners, suppliers, employees and urban transport solutions business, we and corporate citizenry in training other stakeholders. Meanwhile, can make a positive impact on the modules and internal communication, comprehensive information on the environment with our monorail and encouraging a spirit of volunteerism Group is easily accessible via our technology, a low-carbon transport across its operations globally. website and other electronic channels, alternative. Hence, we invest significantly as well as our Annual Report. in R&D to develop ‘green’ products that are efficient, cost-effective and, most The Marketplace Our investment in R&D and our quest importantly, that protect the environment Our marketplace initiatives encompass to continuously innovate led to Scomi and leave a minimal imprint. efforts to engage with our stakeholders Engineering being honoured with the and to better serve our customers. Special Award for Product Excellence Over the years, we have progressed Via our investor relations programme, under the Innovative Product category along with the Group towards a more we hold investor briefings and meetings. at the Malaysian Ministry of International holistic approach to corporate We also make immediate Trade and Industry’s Industry responsibility (CR), which has evolved announcements to Bursa Malaysia on Excellence Awards 2010 held on 24 from individual acts of philanthropy to material activities and events, and March 2011. The award recognised becoming a mindset that influences distribute a quarterly Letter to our the cutting-edge technology behind our every decision and strategy. The Shareholders. Group updates are further our SUTRA monorail system. Group ensures that this mindset is captured in our quarterly newsletter, shared among all employees by Focus, which is shared with customers, CORPORATE SOCIAL RESPONSIBILITY

Towards further strengthening our We take seriously our commitment to GLAD relationship with customers and the creating cleaner, more efficient urban Talent Development general public, we regularly invite key centres and fully support the Group’s Scomi Group has a dedicated Group stakeholders to our Engineering, introduction of a blog, Ideas For Learning and Development (GLaD) Technology and Innovation Centre Tomorrow at which creates a platform team that conducts training programmes (ETIC) in Rawang, Malaysia, where the for individuals around the world to for staff across its international SUTRA monorail was first developed discuss issues relating to urban operations. GLaD is responsible for and where we continue to invest in development. addressing the identified skills and R&D to further improve our prototypes. knowledge gaps, and for managing the We also take part in exhibitions, and Group’s comprehensive talent from 8-10 November 2011 set up The Workplace development programme, which booths along with our Brazilian We realise that Scomi Engineering is comprises the following initiatives: manufacturing partner Montagen E only as good as our strongest asset, • The Work @ Scomi & Induction Projetos Especiais SA at the Negocios our people. We are therefore committed Programme. This two-day training Nos Trihos (Business on Rails) 2011 to nurturing a workplace that attracts is mandatory for all new employees, held in São Paolo, Brazil. And we the best talents and motivates them to CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI introducing them to the Scomi organised a KL Monorail Expansion excel. We do this by creating a culture business, culture and brand. It Project (KL MEP) futsal tournament for that values and rewards performance offers the recruits an insight into all parties involved in this endeavour on while also reinforcing a sense of what Scomi stands for, what it 9 December 2011 at the rooftop of belonging to the Group. In order to expects from its employees and, One Utama New Wing, which attracted bring out the best in our employees, conversely, what employees can six teams – two from Prasarana and they are constantly challenged to expect from the company. Scomi and one each from KL StarRail stretch their abilities via projects and and Microconsult. pg 32 assignments of increasing responsibility • The Management Trainee and complexity. At the same time, Programme. Aimed at fresh We also engaged positively with employees are given training and graduates who are recruited into corporate Malaysia by taking part in professional development opportunities Scomi, this 18-month programme The Edge Bursa Malaysia Kuala Lumpur to acquire relevant knowledge and exposes the new recruits to all Rat Race, held on 20 September 2011. skills for their career progression. All facets of the Group’s operations. Meanwhile Group CEO Shah Hakim executives are required to attend a During this time, the trainees are Zain was a panellist at several high- minimum of 40 hours of training a year, attached to different departments level conferences held in Malaysia and while non-executives need to fulfil at to enable them to pick up relevant abroad. He contributed to a discussion least 20 hours of training a year. skills that will set them on the right on Corporate Sector Wish List: What track for further development in Would Get Malaysian Businesses to In order to create Group unity, we Scomi. Invest More in Malaysia? at the Perdana have various programmes that stamp • The Executive Management Leadership Foundation CEO Forum Scomi’s unique identity and which Programme. This programme brings 2011 on 23 June 2011; and was also draw the participation of our employees. together mid-level management a panelist discussing issues facing a We also create a sense of belonging from our global operations, and is rapidly urbanising Mumbai at the India and ownership by interacting with our geared towards enhancing their Economic Summit, organised employees and maintaining effective leadership skills while allowing them by the World Economic Forum, communication with them. from 12-14 November 2011. Later, on to meet and network with their 17 December 2011, he shared Scomi’s global counterparts. In 2011, an experiences in India at the 3rd Annual Executive Management Programme Young Corporate Malaysians (YCM) was held in Kuala Lumpur drawing Summit in Kuala Lumpur. the participation of managers worldwide. • The Management Leadership Employee Engagement • Internal Communication. All operations Development Programme. This Scomi believes that open communication Group-wide are connected by an aims to develop future leaders for across the Group – within and between intranet, through which employees the Group, hence the high-level all levels – acts as a cohesive force are kept updated on projects, training focuses on effective that is especially important given the initiatives and corporate activities. management and leadership skills. international nature of its organisation. The Group recently launched Vengo+, In 2011, the programme was held Hence, a variety of platforms and tools which enables members of Scomi’s in Kuala Lumpur, attended by are used to engender an inclusive global operations to communicate senior managers from our global culture in which every employee matters with each other more easily, by operations. and every voice is heard. sharing working files, ideas and experiences. • Global Executive Learning (GEL). • Open Communication Sessions. This is a two-day learning The Group promotes the sharing of • Global Executive Meetings (GEM). programme for senior management knowledge, strategic information, This is an annual conference of and is normally held in conjunction business direction, performance senior management from each of with GEM, a conference of senior status and updates across all our Scomi’s Business Units, where the management from Scomi’s global businesses via teleconferences and global heads review and brainstorm operations. webcast facilities. The Group CEO Group strategies. GEM 2011 was himself conducts staff briefings to held in Melaka, Malaysia, from 2-6 • Mentoring Programme. One-to-one present the Group’s quarterly October, attended by 45 members mentoring is offered to managers results and to announce any special of the senior management. who have demonstrated leadership update. In addition, Town Hall potential, to help them deal with sessions are held at which groups challenges and issues as they move of about 15 employees have private up the leadership ladder. It is sessions with the Group CEO or pg 33 geared towards ensuring a secure Presidents of the Business Units at leadership pipeline and forms part which they are at liberty to bring up of Scomi’s succession plan. any issue for clarification or • Project Generating Amazing discussion. Engineers (GAME). This 12-month programme has been developed by

Scomi Engineering to nurture well- SCOMI ENGINEERING BHD Annual Report 2011 rounded young engineers. Project GAME exposes the engineers to various aspects of rail engineering, manufacturing, product assurance and project delivery, in addition to soft skills training, which are crucial for future management positions. CORPORATE SOCIAL RESPONSIBILITY CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI

• Open Days. Every year, the different Work-Life Balance Performance Review pg 34 Divisions within Scomi Group hold The Group promotes a healthy work- In 2011, the Group unveiled a new Open Days to create a better sense life balance and encourages the families Performance Assessment & Capability of understanding among employees of all employees to feel as if they, too, Enhancement (PACE) to replace ACE, of what their colleagues in other are part of the extended Scomi family. the previous performance management divisions do. In 2011, Scomi Towards this end, Scomi’s Sports Club tool. With PACE, employees are Engineering held our Open Day at Malaysia organises a Family Day every assessed on Scomi’s three leadership ETIC on 18 March. year, and this year brought together capabilities, namely People Leadership, 500 staff and their families at the Personal Leadership and Business • Hari Raya Celebration. ETIC held a national Zoo in Kuala Lumpur. Leadership. Its objective is not just to Hari Raya open house on 26 evaluate performance but also to September, at which in-house band, In 2011, the head office in Kuala highlight areas of improvement for Audacious, performed Raya songs. Lumpur also introduced flexi-hours to personal development. Via PACE, Some 300 Scomi employees allow our employees to better manage employees are engaged in a discussion attended the celebration. The KL their work and family obligations. They to explore their strong points and agree Monorail Expansion Project (KL MEP) can now opt to work from either on areas in which they can improve as team, meanwhile, organised its Hari 7.30am-4.30pm, 8.00am-5.00pm, well as to map a career plan that will Raya open house at the KL Monorail 8.30am-5.30pm or 9.00am-6.00pm. allow them to realise their potential. Depot in Brickfields on 23 September As an added bonus to Malaysian 2011, attended by 200 guests that employees, the management extended PACE also allows the management to included staff from Wisma Monorail the lunch hour to two hours on Friday. identify employees with high potential and KL Monorail Station. This enables staff to carry out important who are provided the opportunity to personal errands, or just to enjoy a fast-track their careers. rejuvenating break from work with colleagues or counterparts. Safety at Work The Environment Energy-Efficient Products Scomi places the highest priority on As a responsible corporate citizen, SUTRA, or Scomi Urban Transport Rail maintaining best practices in Quality, Scomi is concerned about environmental Application, has been developed to be Health, Safety and Environment (QHSE) issues and takes every measure we environment friendly. An improved in our workplaces because we value can to minimise the wasteful use of direct-drive propulsion system, combined the well-being of our employees and resources as well as to protect the with lower vehicle weight, translates into contractors, and are also driven to environment in positive ways. an energy-efficient monorail system. In safeguard the assets of our customers. Employees at our corporate offices are addition, the monorail promotes use of At Scomi Engineering, we have QHSE committed to the green cause and public transport which reduces the use teams that function to ensure all have implemented various programmes of private vehicles, thus reducing carbon personnel, contractors, suppliers and to reduce our environmental footprint. emissions. even visitors are aware of our well- At our R&D centres, preservation of defined QHSE policies, and to enforce the environment is always factored into these. Every employee is expected to product development, right from the meet basic QHSE requirements and stage of design. this is taken into account in performance appraisals. Our new global headquarters in 1 First Avenue in Bandar Utama, Selangor, Our Mumbai office reached a milestone Malaysia, has further cemented our during the year, when it did the Group commitment to the environment, making proud by completing three years us immediately a very low-carbon, high- without a single lost time incident on efficiency company as our new home is 26 July 2011. Various programmes a certified Green Building. In this new were run to reinforce the team’s QHSE office, we have also implemented a pg 35 awareness and skills. The Rolling Stock number of environment-friendly initiatives, team underwent a fire drill and training such as reducing the number of printing on using the fire extinguishers, while machines, restricting colour printing as staff at the Wadala Project Office went well as implementing a 3R programme through a HSE Refresher Training to reuse, reduce and recycle. session. Topics included Work-site Accidents, Safe Access On-Site, Working at Height, Ladders and Crane SCOMI ENGINEERING BHD Annual Report 2011 Safety as well as Traffic Vehicles, Electricity and Safety Success.

Meanwhile a half-day Safety Talk, Fire Drill and First Aid Training was organised by the management of the Project Office of the KL Monorail Fleet Expansion Project on 26 July 2011 with the aim of keeping all staff aware of and trained in safety measures. CORPORATE SOCIAL RESPONSIBILITY

THE COMMUNITY The Red Team invited the Women’s No-Hunger GAME Scomi Group believes strongly that all Aid Organisation of Malaysia to present The final stage of Project GAME was a corporate organisations have a duty to a talk at the Global HQ on violence CSR project called Feed the Street, give back to the communities that against women. Red Team members in which aimed at raising awareness support them. This is a principle the Kemaman, meanwhile, donated a among Scomi staff of the problem of Group has adhered to from the bicycle and 40 school bags to homelessness in Malaysia and creating beginning, and which has seen its underprivileged children. They also an opportunity for the young engineers involvement in the community intensify visited a centre for disabled children, to prepare and distribute food packages over the years. In 2005, the Group’s where a talk was given to not only the to the homeless. foundation Scomi was established. It kids but also their parents. They runs a structured programme to extend concluded the visit by presenting the To raise funds for this project, the help, financially or otherwise, to the children with gifts. Team set up a booth at the Scomi underprivileged, marginalised and Family Day in Zoo Negara to run needy. The Blue Team invited a medical various fundraising activities, and practitioner to deliver a talk on breast managed to raise more than RM7,000. At the same time, our own employees cancer, covering topics from the early On 21 July, the Team operated a CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI have joined forces to make a difference symptoms to effective prevention carwash booth at the North Kuala to society, via Project Pyramid, our measures. Held at the Global HQ, the Lumpur Facility to give the staff there flagship social responsibility (CSR) session emphasised that there is hope the opportunity to contribute to this programme that has seen the for breast cancer patients. The Blue cause. In total, they collected RM8,100 involvement of employees from across Team also cleaned the beach at for Feed the Street. our global operations. Project Pyramid Kampung Aru in Labuan, East Malaysia. in Malaysia is led by the captains of Collaborating with Reach Out Malaysia, The Green Team treated Scomi staff at the Blue, Green, Yellow and Red GAME members along with more than pg 36 the Global HQ to free 10-minute Houses of the Scomi Sports Club. 300 Scomi volunteers finally ‘fed the shoulder massages. They also visited These captains are provided with Seed street’ at a Cook and Reach activity the children’s cancer unit at Hospital Funds and, guided by certain held at Sekolah Kebangsaan Sungai Universiti Kebangsaan Malaysia (HUKM), parameters, carry out CSR projects of Way in Petaling Jaya on 24 July 2011. and donated eight LCD TVs to UKM’s their own choosing. All staff are In addition to the food, a total of 150 Paediatric and Oncology Ward to required to take part in their house dry packs containing small towels, create a livelier atmosphere for the projects, their involvement earning them vitamin C tablets, soap, toothbrushes young patients. In Terengganu, the points under PACE. and toothpaste, were distributed to the Green Team donated Year 6 textbooks homeless. Project Pyramid 2011 and school tables to Sekolah Islam In 2011, the Yellow Team invited the Darul Taqwa in Kemaman. With the World Wildlife Fund Malaysia (WWF) to help of other volunteers, they also present a talk on endangered wildlife to painted the classrooms and raised the staff at Scomi’s Global HQ and RM2,000 to purchase additional books launched an interactive educational for the students. website where visitors can acquire facts and knowledge relevant to the projects accomplished by the Yellow Team. Yayasan Scomi recommendations on how Yayasan and needy, and a breaking of fast with Yayasan Scomi continued to take on Scomi can provide further assistance orphans in Lipis, Pahang. Yayasan various acts of philanthropy to help to the families. While helping the Scomi also supported GAME’s Feed those in need. Among its programmes, families, the visits also afford the the Street project. the foundation has been running an volunteers a glimpse of the living annual blood donation activity since its conditions of those in remote, poverty- Meanwhile, Scomi Group continued pg 37 formation in 2005. Last year, it stricken areas. with its tradition of supporting the organised its Blood Donation Drive MERCY Malaysia Humanitarian Fund together with the University Malaya Other activities undertaken by Yayasan by participating in its fund-raising dinner Medical Centre on 10 March at Scomi’s Scomi during the year included a visit held at the Istana Hotel, Kuala Lumpur Global HQ. to the museum and KL Bird Park on 7 October 2011. organized for kids from Wake One

Yayasan Scomi also runs an outreach House, a talk on dyslexia, visit to SCOMI ENGINEERING BHD Annual Report 2011 programme involving 11 families it has Rumah Lindungan Kasih, a welfare adopted in Malaysia. They include 10 home in Tampin, Negeri Sembilan, families in Baling, Kedah and another in various Ramadhan visits to the poor the remote area of Selama, Perak. Every year, the foundation extends financial assistance to these families to help them meet their education, nutrition, health and shelter needs. The foundation also offers counselling to the children in these communities and monitors them closely to ensure they are coping with school and community life.

In 2011, volunteers from across the Scomi Group of Companies visited the 11 families to evaluate their progress. Following these visits, they made STATEMENT ON CORPORATE GOVERNANCE

A Statement on Corporate Governance communicates to stakeholders the philosophy, the policies, the practices and the operating culture adopted by an organisation in pursuit of its objectives and goals. Towards this purpose, the Board of Directors (“the Board”) of Scomi Engineering Bhd (“the Company”) sets out below the various frameworks that were adopted with regards to the governance of the Company and its subsidiaries (the “Group”). In developing its governance framework, the Board was guided by the Malaysian Code on Corporate Governance (“the Code”). CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI

The Board is committed to ensuring The Board meets at least 5 times a A brief description of the background of that the highest standards of integrity year, with special meetings convened each Director is presented within the are maintained throughout the Group when necessary. The Board is Profile of Directors section as set out on and that the managers and employees responsible for setting the goals of the pages 8 to 10 of this Annual Report. of Group companies are cognisant of Group and in reviewing and approving pg 38 the interests of the stakeholders. The medium and long term strategic plans. Board Committees goal is always to ensure that the Group Timely and periodic review of the The Board has established and remains at the forefront of good Group’s performance and delegated specific responsibilities to governance and is recognised as an implementation of the strategic plans three (3) Committees of the Board exemplary organisation in this respect. are conducted by the Board to assess which operate within clearly defined the progress made towards achieving written Terms of Reference. The Board This Statement sets out the practices the overall goals of the Group. Committees deliberate the issues on which the Group has undertaken with an in-depth basis before making respect to key principles and the extent The Board is of the opinion that its recommendations to the Board for of its compliance with best practices current composition and size makes it approval. under the Code. an effective Board, and that the Independent Non-Executive Directors The Board Committees are: are of the calibre necessary to bring • Audit and Risk Management THE BOARD OF DIRECTORS objectivity to Board decision-making. Committee; The Board • Nomination and Remuneration The role of the Chairman of the Board The Company is led and controlled by Committee; and (“the Chairman”) and the Chief an effective Board. The Board consists • Options Committee. of the Chairman and five (5) Directors Executive Officer (“CEO”) are separated who are committed to guiding the with each having a clear scope of Company along its path of sustainable duties and responsibilities. The value creation. The composition of the Chairman is responsible for ensuring Board reflects a diversity of the Board’s effectiveness whilst the backgrounds, skills and experiences in CEO has the overall responsibility for the areas of business, economics, operational and organisational finance, legal, general management effectiveness and implementation of and strategy. Board policies, directives, strategies and decisions. The Composition of the Board and its Committees are as follows: Audit and Risk Nomination and Board of Management Remuneration Options Directors Committee Committee Committee

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

Independent Non-Executive Directors Dato’ Abdul Rahim bin Abu Bakar M C M M Encik Edlin bin Ghazaly M M M C Encik Fad’l bin Mohamed M M – – Encik Abdul Hamid bin Sheikh Mohamed M M – –

Non-Independent Executive Director Encik Shah Hakim @ Shahzanim bin Zain M – – M

Notes

C: Chairman M: Member

pg 39 BOARD MEETINGS AND supply of information During the financial year ended 31 December 2011, ten (10) Board Meetings were held. The attendance record of the Directors at Board meetings, together with their attendance at Board Committees meetings is:

Audit and Risk Nomination and Board Management Remuneration Options Meeting Committee Committee Committee SCOMI ENGINEERING BHD Annual Report 2011 Datuk Zainun Aishah binti Ahmad 10/10 5/5 3/3 – Dato’ Abdul Rahim bin Abu Bakar 9/10 5/5 3/3 1/1 Encik Edlin bin Ghazaly 10/10 5/5 3/3 1/1 Encik Fad’l bin Mohamed 10/10 5/5 – – Encik Abdul Hamid bin Sheikh Mohamed 8/10 4/5 – – Encik Shah Hakim @ Shahzanim bin Zain (“En Shah”) 10/10 – – 1/1

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

APPOINTMENT TO THE BOARD • in the case of candidates (f) To make recommendations to the The Nomination and Remuneration f o r t h e p o s i t i o n o f Board concerning the re-election Committee (“the NRC”), which Independent Non-Executive by shareholders of any Directors comprises of 3 Independent Non- Directors, their ability to under the retirement by rotation Executive Directors, is delegated with d i s c h a r g e s u c h provisions in the Company’s the responsibility to ensure the Board responsibilities/functions as Articles of Association. has the requisite mix of skills and expected from Independent experience to guide the Company, and Non-Executive Directors; (g) Annually, to review and assess has an effective process for assessment • consider, in making its the training needs of individual of directors and selection of new r e c o m m e n d a t i o n s , Directors and propose suitable directors to the Board. The NRC is candidates for directorships training programmes to be additionally responsible for making proposed by the attended. recommendations to the Board on the Management, any Director re-election of Directors. or shareholder; and (h) To establish and recommend to • recommend to the Board, the Board a fair and transparent The NRC is also responsible for Directors to fill the seats Remuneration Policy framework CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI reviewing candidates for appointment on Board Committees. for Executive Directors designed to Board Committees, and makes to attract, retain and motivate appropriate recommendations thereon (b) To conduct an annual review of individuals of the highest quality. to the Board for approval. It is also the required mix of skills and The key elements of this tasked with assessing the effectiveness experience and other qualities, framework, which would form the of the Board and Board Committees including core competencies basis of deliberations on the and the performance of individual which non-executive directors remuneration to be awarded, are: should bring to the Board. pg 40 directors. • The Company’s financial performance which may (c) To assess, on an annual basis, The salient Terms of Reference of include financial indicators the effectiveness of the Board as the NRC include: such as turnover, profitability, a whole, the Committees of the market capitalisation and Board and the contributions of (a) To: achievement of these indicators each individual director, including vis-à-vis pre-determined • recommend to the Board Independent Non-Executive goals; potential candidates for Directors, as well as the CEO and • The skills, knowledge, directorships to be filled by to ensure that all assessments expertise, performance and the shareholders or the Board, and evaluations carried out in the relative experience of the giving consideration to:- discharge of this function are Executive Directors; properly documented. • the requirements of the • The duties and responsibilities Group; borne by the Executive (d) From time to time, to examine the • the candidates’ skills, Director; and size of the Board with a view to knowledge, expertise and • The nature of the Company’s present recommendations to the experience; business e.g. international/ Board on the optimum number of • t h e c a n d i d a t e s ’ regional business presence. professionalism; Directors on the Board to ensure its effectiveness. • the candidates’ integrity; (i) To conduct, on an annual basis and (or when the need arises as in the (e) To ensure that new appointees to case of proposing remuneration the Board undergo an orientation for a new Executive Director), a and education programme. review and thereon provide advice and recommendations to the Board on all aspects of reward structure accorded to Executive Directors in terms of the following components: • Basic salaries and basis of (m) To consider other matters as DIRECTORS’ REMUNERATION increment applied (as a defined by the Board of The NRC is also responsible for the percentage of basic salary, Directors. review of the overall remuneration fixed quantum or merit policy for the Directors and the CEO increment); (n) To develop the CEO’s mission whereupon recommendations are • Annual bonuses (in the form of and objectives, succession for the submitted to the Board for approval. contractual, discretionary or CEO and annual evaluation of the The NRC advocates a fair and lump sum payment); performance of the CEO. transparent remuneration policy to • Directors’ fee (fixed and/or enable the Group to attract, retain and supplementary); Re-election of Directors motivate high quality individuals to • Long term incentive scheme In accordance with the Company’s manage its business. including Employees’ Share Articles of Association, at least one Option Scheme (“ESOS”); third of the Board is subject to The remuneration of the Executive • Benefits in kind which include retirement by rotation at each Annual Director comprises principally of salary a m o n g o t h e r s c l u b General Meeting (“AGM”). Pursuant to and other benefits, taking into membership, company car, Article 80 of the Articles of Association consideration market rates and medical and insurance benefits, of the Company, YBhg Datuk Zainun practices. Additionally, he is entitled to outstation/overseas allowance Aishah binti Ahmad and YBhg Dato’ share options under the Company’s etc; and Abdul Rahim bin Abu Bakar retired ESOS, which are exercisable based on • Other terms of employment/ from the Board in June 2011. Both of overall performance of the Executive directorship. them were re-elected at the 27th AGM Director in achieving the set targets. held on 28 June 2011. (j) To determine the Company’s The Non-Executive Directors’ policy on the duration of contracts Directors’ Continuing Education remuneration is based on standard pg 41 with Executive Directors, and All members of the Board have agreed fees, in addition to allowances notice periods and termination attended the Mandatory Accreditation for attendance at Board and Board payments under such contracts, Programme as required under the Committee meetings. The Directors are with a view to ensuring that any Listing Requirements of Bursa Malaysia also entitled to options under the termination payments are fair to Securities Berhad. Company’s ESOS as have been the individual and the Company, approved by the shareholders of the that failure is not rewarded and The Directors are mindful that they Company. the duty to mitigate loss is fully continue to update their skills and SCOMI ENGINEERING BHD Annual Report 2011 recognised. knowledge to maximise their effectiveness as Directors during their (k) To consider any published tenure. guidelines or recommendations regarding the remuneration of During the financial year ended 31 Directors of listed companies December 2011, the Directors have which it considers relevant or attended individually or collectively appropriate. various training programmes, conferences, seminars and courses (l) To review and, where necessary, organised by the Group, the relevant update these terms of reference regulatory authorities and professional annually or when it deems bodies on areas relevant to the Group’s appropriate. business, Directors’ roles, responsibilities, effectiveness or corporate governance issues. STATEMENT ON CORPORATE GOVERNANCE

All Non-Executive Directors who served in the current financial year are to be paid OPTIONS COMMITTEE an annual Directors’ fee upon shareholders’ approval at the forthcoming AGM. The The Options Committee of the Board is aggregate remuneration paid to the Directors of the Group who served during the entrusted with the responsibility of financial year 2011, and the bands, are as follows: overseeing the administration of the Company’s Employees’ Share Option Non- Scheme (“ESOS”) in accordance with Executive Executive the By-Laws. The Options Committee Directors Directors Total comprises two (2) Independent Non- (RM’000) (RM’000) (RM’000) Executive Directors and the Non- Independent Executive Director. The Salaries 958.6 – 958.6 Options Committee meets as and when Fees – 294.0 294.0 required, and at least once during the Allowances – 68.6 68.6 financial year. Bonuses – – – Estimated value of benefit-in-kind 199.1 199.1 The salient Terms of Reference of the Options Committee are as follows: CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI Total 1,157.7 362.6 1,520.3 • To determine participation eligibility and to decide on the number of options to be offered to eligible The aggregate remuneration above is broadly categorised into the following employees and/or persons as bands: stipulated in the ESOS By-Laws. Non- • To ensure the maximum number of Executive Executive new options that may be offered to pg 42 Directors Directors Total an eligible employees and/or persons shall not exceed the limits set Up to RM50,000 – – – against their respective categories RM50,001 to RM100,000 – 5 5 and subject to the criteria for RM100,000 to RM1,000,000 – – – allocation as set out in the By- RM1,000,000 to RM1,200,000 1 – 1 Laws. Above RM1,200,000 – – – • To evaluate and decide on the eligible employees’ and/or eligible persons’ periodic entitlement to Audit and Risk Management Committee exercise their options as stipulated in the ESOS By-Laws. The primary objective of the Audit and Risk Management Committee (the “ARMC”) • To make offers to eligible employees is to assist the Board of Directors to review the adequacy and integrity of the and/or persons of the Group who Group’s financial administration and reporting, internal control and risk management are entitled to participate in the systems including the management information system and systems for compliance ESOS after taking into consideration with applicable laws, regulations, rules, directives and guidelines. the performance, seniority, number of years in service, employee grading The ARMC comprises four (4) Independent Non-Executive Directors and meets as and/or the potential contribution of and when required but at least four (4) times during the financial year. There were the eligible employees and/or five (5) meetings during the financial year. persons. • To recommend to the Board of The ARMC Report, enumerating its membership, Terms of Reference and activities Directors, when necessary, any during the financial year ended 31 December 2011 is set out on pages 46 to 49 amendments to be made to all or of this Annual Report. any of the provisions of the ESOS, subject to the required approvals of all relevant authorities and the Group’s shareholders at a general meeting. ACCOUNTABILITY AND AUDIT In discharging its fiduciary responsibility, Relationship with Auditors Accountability to Shareholders the Board is assisted by the ARMC to The Board, through the ARMC maintains The Board is responsible for ensuring oversee the financial reporting processes appropriate, formal and transparent that high quality and relevant information and the quality of the Group’s financial relationship with the Group’s internal is made available to shareholders in a statements. and external auditors. The ARMC meets timely manner to keep them abreast of the external auditors without the all material business matters affecting The Statement of Directors’ Responsibility presence of Executive Directors or the the Group. Regulatory Announcements, in respect of the preparation of the Company’s managers whenever Annual Reports, Quarterly Financial annual audited financial statements for necessary, but not less than twice a Results and other relevant information the financial year under review is set out year. Meetings with the external auditors are accessible via the Company’s on page 52 of this Annual Report. are held to discuss the Group’s audit website at www.scomiengineering. plans, audit findings, financial statements com.my. Any persons wishing to Internal Control as well as to seek their professional receive email alerts or make any request The Board firmly believes in maintaining advice on related matters. for documents are able to do so via and strengthening a sound system of email to [email protected]. internal control with a view to The roles of the ARMC in relation to com. safeguarding shareholders’ investment both the internal and external auditors and the Group’s assets. The expanding are described in the ARMC Report as Additionally, shareholders are encouraged size and geographical spread of the set out on pages 46 to 49 of this to attend the Annual General Meeting Group exposes the Group to a wide Annual Report. (“AGM”) and any other meetings of the variety of risks which, if not actively shareholders, including any Extraordinary identified and monitored, could give rise General Meeting where it provides the to unanticipated or unavoidable losses. opportunity for shareholders to raise pg 43 questions or concerns with regards to The ARMC meets on a regular basis to the Group as a whole and it also serves ensure that there is clear accountability as a platform for shareholders to have for managing significant identified risks direct access to the Board. and that identified risks are satisfactorily addressed on an ongoing basis. In Financial Reporting addition, the adequacy and effectiveness The Board is committed to provide a of the internal control system is also SCOMI ENGINEERING BHD Annual Report 2011 balanced and fair view of the Group’s periodically reviewed by the ARMC. financial performance and prospects in all its reports to stakeholders and In establishing and reviewing the system regulatory authorities in a timely manner. of internal control, the Directors The usual channel for release of this recognise that the system of internal information is through the audited control can only provide reasonable but financial statements, quarterly not absolute assurance against the risk announcements of the Group’s of material misstatement or loss. unaudited results as well as the Chairman’s Statement and Chief The Statement of Internal Control is set Executive Officer’s Review of Operations out on pages 44 to 45 of this Annual in the Annual Report. Report. STATEMENT ON INTERNAL CONTROL

INTRODUCTION INTERNAL CONTROL FRAMEWORK Comprehensive Board papers, which The Board of Directors (“the Board”) of The Group’s system of internal control address financial and non-financial Scomi Engineering Bhd (“the Company”) comprises various policies, procedures matters, such as, quarterly results, maintains a sound system of internal and frameworks, amongst which are: business strategies, Group and business control to safeguard shareholders’ division performance, key operational investment in and the assets of the Clear and Structured Organizational issues and corporate activities, are Company and its subsidiaries (“the Reporting Lines and Effective regularly presented to the Board for Group”). In compliance with Paragraph Performance Evaluation deliberation and approval. 15.26(b) of the Main Market Listing The Group has a well defined Requirements and Practice Note 9 organisation structure that is aligned to Strategic Business Plan issued by Bursa Malaysia Securities business requirements. The structure, The Group has established a 2012 Plan Berhad (“Bursa Malaysia”), the Board which is regularly reviewed, is designed (“the Plan”) that maps out the strategic sets out below the Statement of Internal to ensure the presence of checks and objectives and business direction of the Control for the financial year 2011. This balances in decision making, achieved Group. This Plan was prepared as part statement covers all of the Group’s through the segregation of duties, clear of the annual budgeting process and operations. reporting lines and clear approval was approved by the Board. CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI processes (all reflected in the Delegated Authority Limits described below). In The ongoing financial performance of BOARD RESPONSIBILITY addition, the Group employs a the Group and its business divisions are performance management process for reviewed on a quarterly basis at ARMC The Board is committed to ensuring the and Board meetings. existence of an effective system of all employees known as Performance internal control and risk management Assessment and Capability Enhancement (“PACE”) which assesses competency Delegated Authority Limits (“DAL”) within the Group, and, it continuously The Board’s authority is delegated to pg 44 and leadership skills of all employees reviews and evaluates the adequacy the Management in line with clearly and integrity of this system. However, and also measures executive performance against key performance defined DAL. These DAL govern the the Board recognises that such a business decision making process within system is designed to manage risks to indicators that are aligned with business objectives and strategies. the Group. DAL empower Management acceptable levels rather than eliminate and ensure that a system of checks them. Therefore, it is acknowledged that and balances are in place as a matter the system implemented to this end The Board approves all strategic, business and investment plans and of good internal control. The DAL are provides only reasonable, but not continuously reviewed and updated to absolute, assurance against the monitors the implementation of these plans. The Board is supported in this ensure they are always relevant to the occurrence of any material misstatement Group’s current operations. and/or loss. effort by three (3) Board Committees that provide focus and counsel in the areas of: Policies Procedures and Systems Whilst the Board has overall responsibility Clear, formalized and documented for the Group’s system of internal (1) Audit and Risk Management; internal policies, procedures (including controls, it has delegated the standard operating procedures) and implementation of the system to the (2) Employees’ Share Option Scheme; and systems are in place to ensure Management who regularly report on compliance with internal controls and risks identified and steps taken to (3) Nomination and Remuneration of Directors and CEO. relevant rules and regulations. Regular mitigate and/or minimize the risks. reviews are performed to ensure that These internal control systems are Further details on the Board Committees documentation and systems are current subject to the Board’s regular review so and relevant. that the Board can monitor the are contained in the Statement on effectiveness of these systems as Corporate Governance on pages 38 to required by the “Statement on Internal 43. Control: Guideline for Directors of Public Listed Companies” issued by the Taskforce on Internal Control. Quality Health Safety and Environment The Group also has in place a Internal audit reports are presented to The Company and its subsidiaries have whistleblower framework & policy, which the ARMC during its quarterly meetings adopted an integrated management provide an avenue for employees to which encompass the audit findings system that has been certified by SIRIM raise concerns internally or report any together with recommendations thereon. (the government sponsored research breach or suspected breach of any law Senior and functional line management and development standards organization) or regulation, or Group policy or are tasked to ensure management as compliant with ISO 9001:2008 procedure. Such information may be action plans are carried out effectively (quality management), ISO 14001:2004 provided to a nominated individual (the and regular follow-up audits are (environmental management) and “Disclosure Officer”) in a safe and performed to monitor the continued OHSAS 18001:2007 (safety confidential manner. In implementing a compliance. management). The system is subjected whistleblower framework and policy the to an ongoing program of internal audits, Board has chosen to adopt the In addition to this internal mechanism, as well as annual surveillance audits by framework and policy put in place by the Group also receives reports vide SIRIM. Managers who oversee quality, Scomi Group Bhd. One of the directors management letters from its External health, safety and environmental issues of the Company serves on the steering Auditors that primarily focuses on seek to achieve a “Zero” Accident and committee put in place under this financial controls. The management an incident free environment where framework. letters were also presented to the ARMC progress is monitored against key for deliberations. In the event of any performance indicators. Quarterly reports A learning and development function is non-compliance, appropriate corrective on progress are provided to the Board. implemented by arrangement with actions have been taken in addition to Scomi Group Bhd (“SGB”). The amendments to the relevant procedures, Risk Management employees of the Group participate in a if required. Risk Management is practiced within series of technical and non-technical the group on an iterative basis. All new training and development programmes pg 45 and major investments go through a based on a tailored learning and REVIEW OF THIS STATEMENT process of approval that includes an development framework. As a result As required by Paragraph 15.23 of the evaluation of risks. employees are able to keep up to date Bursa Malaysia Securities Berhad Main with the knowledge and expertise Market Listing Requirements, the The Group’s Enterprise Risk Management required to carry out their duties and external auditors have reviewed this (“ERM”) framework continues to define, responsibilities effectively. Statement on Internal Control. Their highlight, report and manage the key review was performed in accordance SCOMI ENGINEERING BHD Annual Report 2011 business and operational risks faced by Independent Assurance Mechanism with Recommended Practice Guide the Group. Monitoring of the plans The Group has outsourced the activities (“RPG”) 5 issued by the Malaysian generated under the framework is done and function of the internal audit to a Institute of Accountants. Based on their by management and regular reports are professional service provider as it is review, the external auditors have made to the ARMC and when relevant more effective in terms of functional reported to the Board that nothing has to the Board. oversight and costs to do so. The come to their attention that causes outsourcing of this function further them to believe that this Statement is Further information on the Group’s risk enhances the professionalism and inconsistent with their understanding of management activities is highlighted in objectivity exercised by this function the process the Board has adopted in the ARMC Report on pages 46 to 49. over the activities audited. The internal the review of the adequacy and integrity audit plan that covers internal audit of internal control of the Group. Information and Communication coverage and scope of work is Information is communicated and presented for ARMC and the Board’s disseminated effectively to key consideration and approval annually. management personnel within the Group using channels consistent with the organizational structure. AUDIT AND RISK MANAGEMENT COMMITTEE REPORT The Board of Directors (“the Board”) of Scomi Engineering Bhd (“the Company” or “SEB”) and its subsidiaries (“the Group”) is pleased to present the Report of the Audit and Risk Management Committee for the financial year ended 31 December 2011.

TERMS OF REFERENCE OF THE (d) The Committee shall have a • be able to convene meetings AUDIT AND RISK MANAGEMENT mixture of expertise and with the external auditors, the COMMITTEE (“ARMC” OR “THE experience, including an internal auditors or both, COMMITTEE”) understanding of the industry(ies) excluding the attendance of Objective in which the Group operates. the other Directors and employees, whenever deemed To assist the Board of Directors to (e) Members of the ARMC shall elect necessary. CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI review the adequacy and integrity of a Chairman from among the Group’s financial administration themselves who is an Independent (b) The ARMC is not authorized to and reporting, internal control and risk Non-Executive Director. implement its recommendations management systems including the on behalf of the Board but shall management information system and (f) Members of the Committee may report its recommendation back systems for compliance with applicable relinquish their membership in the to the Board for its consideration laws, regulations, rules, directives and Committee with prior written and implementation. pg 46 guidelines. notice to the Company Secretary. (c) Where the ARMC is of the view Balance and Composition (g) In the event of any vacancies that a matter reported by it to the (a) The members of the ARMC shall arising in the Committee resulting Board of Directors has not been be appointed by the Board of in the number of members of the satisfactorily resolved resulting in Directors and shall comprise at Committee falling below four (4), a breach of the Listing least four (4) members, all of the vacancy should be filled within Requirements, the ARMC is whom must be Non-Executive three (3) months of it arising. authorized to promptly report such Directors with a majority of them matters to Bursa Malaysia being Independent Directors. Powers of the ARMC Securities Berhad. (a) In carrying out its duties and (b) None of the members of the responsibilities, the ARMC shall, Duties and Responsibilities of the ARMC shall be an Alternate at the expense of the Company: ARMC Director. (a) To consider the appointment of • have the authority to investigate the external auditor, the audit fee any matter within its Terms of (c) A majority of the members of the and any questions of resignation Reference; Committee must be financially or dismissal; literate with sufficient financial • have full, free and unrestricted access to the Company’s and experience and ability and at least (b) To pre-approve all non-audit Group’s records, properties, one (1) member of the ARMC services to be provided by the p e r s o n n e l a n d o t h e r must be an Accountant as defined independent auditors to the resources; by the Bursa Malaysia Securities Company in accordance with the • have direct communication Berhad Main Market Listing Committee’s policies and channels with the external Requirements (“the Listing procedures, and regularly review: Requirements”). auditors and person(s) carrying out the internal audit function; • be able to obtain independent professional or other advice in furtherance of their duties; and • t h e a d e q u a c y o f t h e (g) To discuss problems and (k) To consider the major findings of Committee’s policies and reservations arising from the internal investigations and procedures for pre-approving interim and final audits, and any Management’s response; the use of the independent matter the auditor may wish to auditors for non-audit services discuss (in the absence of (l) To consider other topics as with a view to auditor Management where necessary); defined by the Board of independence; Directors; • the non-audit services pre- (h) To review the external auditor’s approved in accordance with letter to Management and (m) To review and verify that the the Committee’s policies and Management’s response; allocation of options pursuant to procedures; and the Company’s Employees’ Share • fees paid to the independent (i) In relation to the internal audit Option Scheme (“ESOS”) complies auditors for pre-approved non- function: with the criteria disclosed to the audit services. employees; • review the adequacy of the scope, functions, competency (c) To monitor regular rotation of (n) To review and consider the and resources of the internal audit partners by the external appropriateness and adequacy of audit function, and that it has auditors; internal processes for risk oversight the necessary authority to and management. In particular, carry out its work; (d) To discuss with the external the Committee shall: • review the internal audit plan auditor before the audit and results of the internal audit • Consider whether the Group commences, the nature and process and where necessary has effective management scope of the audit, and ensure ensure that appropriate action systems in place to identify, co-ordination where more than is taken on the recommendation assess, monitor and manage pg 47 one audit firm is involved; of the internal audit function; its key risk areas; • review the independence of • Review, approve and ensure (e) To act as an intermediary between the internal audit function; adherence to the Group’s risk the Management or other • approve any appointment, management policy and employees, and the external termination and assessment of strategies; auditors; the outsourced internal • Establish the roles and

auditors; and respective accountabilities of SCOMI ENGINEERING BHD Annual Report 2011 (f) To review the quarterly and year- • receive reports from the Board, the Committee and end financial statements, focusing Management on resignations Management in managing particularly on: of the other internal audit staff risks; members, their reasons for • Provide for regular review of • any changes in accounting resigning and their performance the effectiveness of the policies and practices; appraisal or assessment Group’s implementation of its • significant adjustments arising conducted by Management. risk management system; from the audit; • Receive regular reports on the • litigation that could affect (j) To consider and report back to risk profile of the Group, results materially; the Board of Directors any related describing material risks (both • the going concern assumption; party transactions and conflict of financial and non-financial) and interest situation that may arise facing the Group and action • compliance with accounting within the Company or Group plans taken by Management standards and other legal including any course of conduct to mitigate the risks; and requirements. that raises questions of • Review the appropriateness of Management integrity; Management’s response to key risk areas. AUDIT AND RISK MANAGEMENT COMMITTEE REPORT

(o) In relation to major business including reviewing the (c) The Company Secretary shall act investment proposals: effectiveness of these systems as secretary of the ARMC and and approving Management’s shall be responsible, with the • to review and evaluate the risk programmes and policies to concurrence of the Chairman of associated with any proposal ensure effectiveness. the ARMC, for drawing up and prepared by the project circulating the agenda and notice sponsor(s), particularly that all Meetings and Minutes of meetings together with risks have been considered (a) The ARMC shall meet at least supporting explanatory and are within the Group’s four (4) times during a financial documentation to all ARMC strategic goals and that action year. In order to form a quorum, members at least five (5) days plans or strategies to mitigate the majority of members present prior to each meeting. If there is a identified risks are adequate; must be Independent Directors. unanimous consent by the • to conduct meetings with the members of the Committee project sponsor(s) and Chief (b) The CEO and a representative of present in the meeting, a short Executive Officer (“CEO”), if the external auditors shall normally notice shall suffice. necessary, to discuss risk attend meetings. Other persons

CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI matters related to the proposal; may attend meetings only upon (d) The Secretary of the ARMC shall and the invitation of the ARMC. record all proceedings and • to make a recommendation to However, at least twice a year the minutes are to be prepared and the Board on the appropriate Committee shall meet with the circulated to the ARMC members course of action to take. external auditors without Executive and the Board of Directors. In Board Members or Management addition, the Chairman of the (p) to oversee the Group’s internal present. ARMC will report significant compliance and control systems matters and resolutions, at each pg 48 established by Management, Board of Directors meeting.

MEMBERS AND MEETINGs The members of the ARMC during the financial year ended 31 December 2011 comprised the following Board Members:

Attendance Name Appoinment Designation (attended/held)

Dato’ Abdul Rahim bin Abu Bakar Member, Independent Non-Executive Director 5/5 Chairman

Encik Edlin bin Ghazaly Member Independent Non-Executive Director 5/5

Encik Fad’l bin Mohamed Member Independent Non-Executive Director 5/5

Encik Abdul Hamid bin Sheikh Mohamed Member Independent Non-Executive Director 4/5

During the financial year under review, the Audit and Risk Management Committee convened five (5) meetings. Meetings were held on 22 February 2011, 18 April 2011, 23 May 2011, 22 August 2011 and 24 November 2011. SUMMARY OF ACTIVITIES FOR (j) reviewed the performance of the (a) prepared and presented a risk- THE YEAR outsourced internal auditor; based audit plan, audit strategy, The following activities were carried out scope of work and resource by the ARMC in the financial year (k) considered and noted the report requirements to the ARMC and under review in accordance with the on the internal audit activities for the Board for deliberation and Committee’s functions and duties as the financial year; approval; outlined in the Terms of Reference: (l) monitored the status and execution (b) evaluated and appraised the (a) reviewed and recommended to of action plans carried out in soundness, adequacy and the Board the nomination and re- response to the recommendations application of accounting, financial appointment of the external of the internal auditor; and other controls and promoting auditors; effective controls in the Group (m) Selected and appointed a new and the Company at reasonable (b) discussed with the external outsourced internal auditor for the cost; auditors the nature and scope of financial year of 2012; their audit and reviewed the audit (c) carried out investigations and plan for the year for the Group (n) Deliberated the proposed Service special reviews requested by and the Company; Level Agreement with Scomi Management; Group Bhd and recommended (c) conducted a meeting with the the same for approval of the (d) ascertained the level of operational external auditors without the Board of Directors; and business compliance with presence of the Executive Board established policies, procedures Members and Management; (o) Reviewed the Statement on and statutory requirements; Corporate Governance, the Statement on Internal Controls (e) ascertained the extent to which (d) reviewed the external auditor’s pg 49 management letter/report and and the Audit and Risk the Group’s and the Company’s Management’s response; Management Committee Report assets are accounted for, 2010 and recommended the verification of their existence and (e) reviewed the quarterly and annual same for approval of the Board of safeguarding assets from losses; financial reports of the Group and Directors; and the Company prior to submission (f) appraised the reliability and to the Board for consideration (p) Considered the amended Terms usefulness of information and approval; of Reference of the Audit and developed within the Group and SCOMI ENGINEERING BHD Annual Report 2011 Risk Management Committee. the Company for Management; (f) reviewed the Group’s systems and practices for the identification (g) identified and recommended and management of risks; INTERNAL AUDIT FUNCTION opportunities for improvements to Through the internal audit function the the existing system of internal (g) reviewed and verified the related Company undertakes regular and control, operations and processes party transactions and conflicts of systematic reviews of the system of in the Group and the Company; interest and provide internal control so as to provide and recommendations on the same to reasonable assurance that such system the Board of Directors; continues to operate satisfactorily and (h) reviewed the annual Statement on effectively in the Group. This function is Internal Control and ARMC report (h) reviewed and verified that the outsourced to an external service to be published in the Annual allocation of options pursuant to provider that is independent from the Report. the Company’s ESOS scheme is Management and operations (“the in compliance with the criteria for Internal Auditors”). All internal audit activities for financial allocation of options as disclosed year 2011 were conducted by the to employees of the Company for During the financial year under review, Internal Auditors. The total costs the financial year; the Internal Auditors carried out the incurred by the Group for the internal following activities: audit function in 2011 was approximately (i) reviewed and evaluated enterprise RM160,234.00. risk and monitored adequacy and implementation of mitigation plans; ADDITIONAL INFORMATION

Share Buy-Backs During the financial year, the Company has not repurchased any of its ordinary shares from the open market.

There has been no resale of the Company’s treasury shares nor has there been any cancellation of shares during the year under review. As at 31 December 2011, a total of 121,800 ordinary shares were held as treasury shares.

NON-AUDIT FEES Non-Audit Fees incurred during the financial year under review ended 31 December 2011 amounted to RM30,000 and is disclosed in Note 9 to the financial statements.

MATERIAL CONTRACTS INVOLVING DIRECTORS’ AND MAJOR SHAREHOLDERS’ INTEREST Other than the Contracts entered into and disclosed as Related Party Transactions in Note 34 to the Financial Statements there are no other material contracts, including contracts relating to loans (not in the ordinary course of business) of the CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI Company involving Directors’ and major shareholders’ interests, either still subsisting at the end of the financial year or if not then subsisting, entered into since the end of the previous financial year.

RECURRENT RELATED PARTY TRANSACTION The Company at the 27th Annual General Meeting held on 28 June 2011, had obtained from its shareholders the mandate for the RRPT in relation to the Service Level Agreement whereby Scomi Group Bhd provides support services to the pg 50 Company. The value of the mandate granted was RM1.945 million while the actual value transacted for the period from 28 June 2011 to 30 April 2012 was RM1.795 million.

OPTIONS AND CONVERTIBLE SECURITIES 75,000 new ordinary shares of RM1.00 each were issued during the financial year pursuant to the conversion of Irredeemable Convertible Unsecured Loan Stocks. INFORMATION IN RELATION TO EMPLOYEES’ SHARE OPTION SCHEME

The Employees’ Share Option Scheme (“ESOS”) is the only share scheme in existence during the financial year ended 31 December 2011.

1. The total number of options granted, exercised and outstanding under the ESOS since its commencement up to 31 December 2011 are set out below:-

Description Number of Options

Granted 47,637,000 Exercised (11,504,500) Cancelled (19,086,500) Outstanding 17,046,000

2. Details of aggregate options granted to and exercised by the Directors and Chief Executive of the Company and the options outstanding under the ESOS since its commencement up to 31 December 2011 are set out below:-

Description Number of Options

Granted 5,700,000 Exercised (1,840,000) Cancelled (540,000) Outstanding 3,320,000

pg 51

3. Details of options granted, exercised and outstanding by the Directors and senior management under the ESOS since its commencement up to 31 December 2011 are set out below:-

Directors and Senior Management 2011

Aggregate maximum allocation 50% Actual granted 42% SCOMI ENGINEERING BHD Annual Report 2011

4. A breakdown of the options offered to and exercised by, or share granted to and vested in Non-Executive Directors pursuant to the ESOS in respect of the financial year ended 31 December 2011 is set out below:-

Non-Executive Director Amount of options granted Amount of options exercised

YBhg Datuk Zainun Aishah Binti Ahmad Nil Nil YBhg Dato’ Abdul Rahim Bin Abu Bakar Nil Nil Edlin Bin Ghazaly Nil Nil Fad’l Bin Mohamed Nil Nil Abdul Hamid Bin Sheikh Mohamed 360,000 Nil

Note:- Further details of the ESOS are set out in Note 25 on pages 119 to 121 of this Annual Report. STATEMENT ON DIRECTORS’ RESPONSIBILITY

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

The Directors are responsible for ensuring that the financial statements give a true and fair view of the:

• state of affairs of the Group and the Company as at the end of the financial year; and • financial results and cash flows of the Group and the Company during the financial year.

In preparing the financial statements, the Directors have:

• adopted appropriate accounting policies and applied them consistently; • made judgments and estimates that are reasonable and prudent; and • prepared the financial statements on a going concern basis.

CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI The Directors are responsible for ensuring that the Company and the Group maintain accounting records which disclose with reasonable accuracy the financial position of the Company and the Group. These financial records are used to ensure that the financial statements of the Group and the Company are compliant with the Act, the Listing Requirements and the AAS.

The Directors are responsible for taking such steps as are reasonably open to them to preserve the interests of stakeholders and to safeguard the assets of the Group and to detect and prevent fraud and other irregularities.

The financial statements of the Company and the Group for the financial year ended 31 December 2011 are set out on pg 52 pages 56 to 143 of this annual report.

Financial Statements

56 Directors’ Report 62 Statements of Comprehensive Income 64 Statements of Financial Position 66 Consolidated Statement of Changes in Equity 67 Company Statement of Changes in Equity 68 Statements of Cash Flows 70 Notes to the Financial Statements 140 Supplementary Information 141 Statement by Directors 141 Statutory Declaration 142 Independent Auditors’ Report Directors’ Report

The Directors hereby submit their report to the members together with the audited financial statements of the Group and Company for the financial year ended 31 December 2011.

Principal Activities The principal activities of the Company are investment holding, provision of management services to subsidiaries and the design, manufacture and supply of monorail trains and related services. The principal activities of the Group comprise the design and manufacture of monorail transportation infrastructure systems equipment and services, commercial coaches and special purpose vehicles.

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

Financial Result Group Company

CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI RM’000 RM’000

Loss for the financial year 81,606 34,387

Dividends No dividend has been paid or proposed by the Company since the end of the Company’s previous financial year. pg 56

The Directors do not recommend any dividend for the financial year ended 31 December 2011.

Reserves and Provisions Material transfers to or from reserves or provisions during the financial year are disclosed in the financial statements.

Issue of Shares During the financial year, 75,000 new ordinary shares of RM1.00 each were issued by the Company pursuant to the conversion of Irredeemable Convertible Unsecured Loan Stock (“ICULS”).

The newly issued shares ranked pari passu in all respects with the existing ordinary shares of the Company.

Details of movements in share capital are disclosed in Note 25(a) to the financial statements.

TREASURY SHARES There was no purchase of Treasury shares during the financial year.

Details of the Treasury shares are set out in Note 25(b) to the financial statements.

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

Details of the ESOS are set out in Note 25(d) to the financial statements.

The Company has been granted an exemption by the Companies Commission of Malaysia from having to disclose names of option holders who were granted less than 600,000 options under the ESOS during the financial year. This information has been separately filed with the Companies Commission of Malaysia.

Details of options granted under the ESOS over the ordinary shares of RM1.00 each in the Company, which are in respect of 600,000 options and above, are as follows:

Number of options over ordinary shares of RM1.00 each in the Company Exercise At At Name of options holders price 1.1.2011 Granted Exercised 31.12.2011 RM/share ’000 ’000 ’000 ’000 pg 57 Hilmy Zaini Zainal 1.00 2,840 - - 2,840 Abdul Rahim Awang 1.18 2,160 - - 2,160 Zubaidi Harun 1.00 2,100 - - 2,100 Rohaida Ali Badaruddin 1.00 1,885 - - 1,885 Mansor Tahir 1.00 1,620 - - 1,620 Mohamed Suhaimi Yaacob 1.00 - 800 - 800 SCOMI ENGINEERING BHD Annual Report 2011

SIGNIFICANT EVENT DURING THE FINANCIAL YEAR There were no significant event during the financial year.

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

Datuk Zainun Aishah binti Ahmad Dato’ Abdul Rahim bin Abu Bakar Edlin bin Ghazaly Fad’l bin Mohamed Shah Hakim @ Shahzanim bin Zain Abdul Hamid bin Sheikh Mohamed Directors’ Report

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

Number of ordinary shares of RM0.10 each in the ultimate holding company Exercise At of share At 1.1.2011 Bought Sold options 31.12.2011 ’000 ’000 ’000 ’000 ’000

Scomi Group Bhd Direct interest: Shah Hakim @ Shahzanim bin Zain 529 2,250 (1) – – 2,779

CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI (2)Indirect interest: Shah Hakim @ Shahzanim bin Zain 172,275 – – – 172,275

Number of ordinary shares of RM1.00 each in the Company Exercise At of share At pg 58 1.1.2011 Bought Sold options 31.12.2011 ’000 ’000 ’000 ’000 ’000

Direct interest: Datuk Zainun Aishah binti Ahmad 250 – – – 250 Dato’ Abdul Rahim bin Abu Bakar 220 – – – 220 Edlin bin Ghazaly 300 – – – 300 (3)Fad’l bin Mohamed 60 – (60) – – Shah Hakim @ Shahzanim bin Zain 500 123 (1) – – 623

Indirect interest: (2)Shah Hakim @ Shahzanim bin Zain 192,568 – – – 192,568 (3)Fad’l bin Mohamed – 60 – – 60

Irredeemable Convertible Unsecured Loan Stocks (“ICULS”) of RM1.00 each in the Company At At 1.1.2011 Bought Sold 31.12.2011 ‘000 ’000 ’000 ’000

Indirect interest: (2)Shah Hakim @ Shahzanim bin Zain 54,782 – – 54,782

(1) Shares held through BHLB Trustee Berhad (2) Deemed interested by virtue of Section 6A(4) of the Companies Act, 1965 through his shareholding in Kaspadu Sdn Bhd, which holds an interest in Scomi Group Bhd, which in turn is a substantial shareholder of Scomi Engineering Bhd. (3) Transfer of ordinary shares to be held through Amsec Nominees (Tempatan) Sdn Bhd. DIRECTORS’ INTERESTS IN SHARES (CONTINUED) Number of options over ordinary shares of RM1.00 each in the Company Exercise At At price 1.1.2011 Granted Exercised 31.12.2011 RM/share ‘000 ‘000 ‘000 ‘000

Datuk Zainun Aishah binti Ahmad 1.00 500 – – 500 Dato’ Abdul Rahim bin Abu Bakar 1.00 300 – – 300 Edlin bin Ghazaly 1.00 300 – – 300 Fad’l bin Mohamed 1.00 360 – – 360 Shah Hakim @ Shahzanim bin Zain 1.00 1,500 – – 1,500 Abdul Hamid bin Sheikh Mohamed 1.00 – 360 – 360

+ Number of options over ordinary shares of RM0.10 each in the ultimate holding company Exercise At At price 1.1.2011 Granted Exercised 31.12.2011 RM/share ‘000 ‘000 ‘000 ‘000

Scomi Group Bhd Direct interest: Shah Hakim @ Shahzanim bin Zain 0.17 1,357 – – 1,357 pg 59 1.12 6,000 – – 6,000

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

By virtue of his interests in the shares and options in the ultimate holding company as disclosed above, Shah Hakim @

Shahzanim bin Zain is deemed to have an interest in the shares of all the ultimate holding company’s subsidiary SCOMI ENGINEERING BHD Annual Report 2011 companies.

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

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

Since the end of the previous financial year, no Director has received or become entitled to receive a benefit (other than Directors’ remuneration as disclosed in Note 10 and significant related party disclosures in Note 34 to the financial statements) by reason of a contract made by the Company or a related corporation with the Director or with a firm of which he is a member, or with a company in which he has a substantial financial interest, except that certain Directors received remuneration as directors of the ultimate holding company. Directors’ Report

STATUTORY INFORMATION ON THE FINANCIAL STATEMENTS Before the financial statements were made out, the Directors took reasonable steps:

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

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

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

(a) which would render the amounts written off for bad debts or the amount of the allowance for doubtful debts in the financial statements of the Group and Company inadequate to any substantial extent; or CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI (b) which would render the values attributed to current assets in the financial statements of the Group and Company misleading; or

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

No contingent or other liability has become enforceable or is likely to become enforceable within the period of twelve months pg 60 after the end of the financial year which, in the opinion of the Directors, will or may affect the ability of the Group or Company to meet their obligations when they fall due.

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

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

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

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

In the opinion of the Directors:

(a) the results of the operations of the Group and Company during the financial year were not substantially affected by any item, transaction or event of a material and unusual nature; and

(b) there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely to affect substantially the results of the operations of the Group or Company for the financial year in which this report is made. ULTIMATE HOLDING COMPANY The Directors regard Scomi Group Bhd, a public limited liability company incorporated and domiciled in Malaysia, as the ultimate holding company.

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

Signed on behalf of the Board of Directors in accordance with a resolution dated 30 April 2012.

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

pg 61 SCOMI ENGINEERING BHD Annual Report 2011 STATEMENTS OF COMPREHENSIVE INCOME for the financial year ended 31 December 2011

Group Company Note 2011 2010 2011 2010 RM’000 RM’000 RM’000 RM’000

Continuing operations Revenue 6 246,796 349,984 52,997 235,676 Cost of sales 7 (247,536) (325,786) (43,074) (168,184)

Gross profit/(loss) (740) 24,198 9,923 67,492 Administrative expenses (55,254) (46,047) (27,751) (36,906) Selling and distribution expenses (2,063) (4,562) – – Gain on disposal of subsidiaries 5 – 19,677 – 37,362 Other operating income 2,232 2,145 152 – Other operating expenses (12,600) (10,037) (4,775) (5,240)

Operating (loss)/profit (68,425) (14,626) (22,451) 62,708 CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI Finance costs 11 (6,004) (6,611) (1,881) (2,238)

(Loss)/profit before taxation 8 (74,429) (21,237) (24,332) 60,470 Tax (expense)/credit 12 (7,177) 7,511 (10,055) 2,730

(Loss)/profit for the year from continuing operations (81,606) (13,726) (34,387) 63,200 pg 62 Discontinued operations Profit for the year from discontinued operations 5 – 2,506 – –

(Loss)/profit for the financial year (81,606) (11,220) (34,387) 63,200

Other comprehensive (loss)/income Currency translation differences arising from foreign operations (6,751) (6,373) – – Available-for-sale financial assets 2,467 (80) – –

Total other comprehensive loss (4,284) (6,453) – –

Total comprehensive (loss)/income for the financial year (85,890) (17,673) (34,387) 63,200 Group Company Note 2011 2010 2011 2010 RM’000 RM’000 RM’000 RM’000

(Loss)/profit attributable to:

Owners of the Company (81,606) (10,950) (34,387) 63,200 Non-controlling interest – (270) – –

(81,606) (11,220) (34,387) 63,200

Total comprehensive (loss)/income attributable to:

Owners of the Company (85,890) (17,403) (34,387) 63,200 Non-controlling interest – (270) – –

(85,890) (17,673) (34,387) 63,200

Group Note 2011 2010 Sen Sen

pg 63 (Loss)/earnings per share from continuing 13 and discontinued operations attributable to owners of the Company: Basic, loss from continuing operations (23.86) (3.36) Basic, profit from discontinued operations – 0.77

Basic, loss for the financial year (23.86) (2.59) SCOMI ENGINEERING BHD Annual Report 2011

Diluted, loss from continuing operations – (3.35) Diluted, profit from discontinued operations – 0.77

Diluted, loss for the financial year – (2.58) STATEMENTS OF FINANCIAL POSITION as at 31 December 2011

Group Company Note 2011 2010 2011 2010 RM’000 RM’000 RM’000 RM’000

Assets Non-current assets Property, plant and equipment 15 76,358 80,175 1,160 848 Intangible assets 16 142,306 104,369 – – Investments in subsidiaries 17 – – 362,268 358,050 Deferred tax assets 28 13,638 19,547 626 7,378 Available-for-sale financial assets 19 1,516 1,516 1,389 1,389

233,818 205,607 365,443 367,665

Current Assets CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI Inventories 21 10,899 17,659 – – Receivables, deposits and prepayments 22 464,234 458,518 220,108 285,632 Tax recoverable 10,966 13,412 10,462 12,972 Derivative financial assets 20 – 240 – – Short term deposits, cash and bank balances 24 53,721 47,241 7,025 26,257

539,820 537,070 237,595 324,861 pg 64 Total assets 773,638 742,677 603,038 692,526

Equity and liabilities Equity attributable to owners of the Company Share capital 25 286,044 285,969 286,044 285,969 Treasury shares 25(b) (103) (103) (103) (103) Share premium 26 46,605 46,605 46,605 46,605 Irredeemable convertible unsecured loan stocks (“ICULS”) 29 51,342 51,411 51,342 51,411 Available-for-sale reserve – (2,467) – – Merger relief reserve 25(c) 21,260 21,260 21,260 21,260 Share option and capital contribution reserve 25(d) 4,423 3,099 4,393 3,069 Currency exchange reserve 25(e) (5,996) 755 – – (Accumulated losses)/retained earnings (77,711) 3,895 (39,868) (5,481)

Total equity 325,864 410,424 369,673 402,730 Group Company Note 2011 2010 2011 2010 RM’000 RM’000 RM’000 RM’000

Non-current liabilities Borrowings 27 482 46,562 – 18,000 ICULS 29 490 2,566 490 2,566

Total non-current liabilities 972 49,128 490 20,566

Current liabilities Payables 30 133,989 131,283 207,858 261,003 Borrowings 27 307,216 143,582 23,000 6,000 Income tax liabilities 1,427 4,639 2 174 Deferred government grant 31 2,155 1,568 – – ICULS 29 2,015 2,053 2,015 2,053

Total current liabilities 446,802 283,125 232,875 269,230

Total liabilities 447,774 332,253 233,365 289,796

Total equity and liabilities 773,638 742,677 603,038 692,526

pg 65 SCOMI ENGINEERING BHD Annual Report 2011

pg CM EGNEIG H nul eot 2011 Report Annual 66 BHD ENGINEERING SCOMI IN EQUITY IN CHANGES o te iaca ya edd 1 eebr 2011 December 31 ended year financial the for CONSOLIDATED Attributable to owners of the Company

Share optionRetained Available- Merger Currencyand capital earnings/ Non- Share Treasury Share for-sale relief exchangecontribution (Accumulated controlling Total Note capital shares premium ICULS reserve reserve reserve reserves losses) Total interest equity RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

At 1 January 2011 285,969 (103) 46,605 51,411 (2,467) 21,260 755 3,099 3,895 410,424 – 410,424

Comprehensive income Loss for the year – – – – – – – – (81,606) (81,606) – (81,606)

Other comprehensive profit/(loss) Currency translation differences – – – – – – (6,751) – – (6,751) – (6,751) Available-for-sale financial assets – – – – 2,467 – – – – 2,467 – 2,467

Total comprehensive profit/(loss) – – - – 2,467 – (6,751) – (81,606) (85,890) – (85,890)

Share options: – net options granted/(forfeited)25(d) – – – – – – – 1,324 – 1,324 – 1,324 STATEMEN Conversion of ICULS 25(a) 75 – – (69) – – – – – 6 – 6

At 31 December 2011 286,044 (103) 46,605 51,342 – 21,260 (5,996) 4,423 (77,711) 325,864 – 325,864

At 1 January 2010 (as previously reported) 276,180 (101) 45,695 – – 21,260 (6,977) 4,865 118,996 459,918 521 460,439 Effect of adopting FRS 139 – – – – (2,387) – – – 1,903 (484) – (484)

At 1 January 2010 (as restated) 276,180 (101) 45,695 – (2,387) 21,260 (6,977) 4,865 120,899 459,434 521 459,955

Comprehensive income Loss for the year – – – – – – – – (10,950) (10,950) (270) (11,220)

Other comprehensive loss Currency translation differences – – – – – – (6,373) – – OF

(6,373) – (6,373) Available-for-sale financial assets – – – – (80) – – – – (80) – (80)

Total comprehensive loss – – – - (80) – (6,373) – (10,950) (17,403) (270) (17,673)

Share options: – net options granted/(forfeited)25(d) – – – – – – – 1,002 – 1,002 – 1,002 – shares issued 25(a),26 4,546 – 910 – – – – (910) – 4,546 – 4,546 Issuance of ICULS 29 – – – 56,215 – – – – – 56,215 – 56,215 Conversion of ICULS 25(a) 5,243 – – (4,804) – – – – – 439 – 439 Purchase of Treasury shares25(b) – (2) – – – – – – – (2) – (2) Disposal of subsidiaries – – – – – – 14,105 (1,858) (12,247) – (251) (251) Dividends 14 – – – – – – – – (93,807) (93,807) – (93,807)

At 31 December 2010 285,969 (103) 46,605 51,411 (2,467) 21,260 755 3,099 3,895 410,424 – 410,424

IN EQUITY IN CHANGES o te iaca ya edd 1 eebr 2011 December 31 ended year financial the for Company Non-distributable Distributable Retained Merger Share earnings/ Share Treasury Share relief option (Accumulated Note capital shares premium ICULS reserve reserve losses) Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

At 1 January 2011 285,969 (103) 46,605 51,411 21,260 3,069 (5,481) 402,730

Loss for the financial year – – – – – – (34,387) (34,387)

Share options STATEMEN – net options granted/(forfeited) 25(d) – – – – – 1,324 – 1,324

Conversion of ICULS 25(a) 75 – – (69) – – – 6

At 31 December 2011 286,044 (103) 46,605 51,342 21,260 4,393 (39,868) 369,673

At 1 January 2010 (as previously reported) 276,180 (101) 45,695 – 21,260 4,835 23,788 371,657 Effect of adopting FRS 139 – – – – – – 1,338 1,338

At 1 January 2010 (as restated) 276,180 (101) 45,695 – 21,260 4,835 25,126 372,995 OF

Profit for the financial year – – – – – – 63,200 63,200

Dividends 14 – – – – – – (93,807) (93,807)

Share options – net options granted/(forfeited) 25(d) – – – – – 1,002 – 1,002 – shares issued 25(a),26 4,546 – 910 – – (910) – 4,546

Issuance of ICULS 29 – – – 56,215 – – – 56,215

Conversion of ICULS 25(a) 5,243 – – (4,804) – – – 439

Purchase of Treasury shares 25(b) – (2) – – – – – (2)

Disposal of subsidiaries – – – – – (1,858) – (1,858)

At 31 December 2010 285,969 (103) 46,605 51,411 21,260 3,069 (5,481) 402,730

pg

SCOMI ENGINEERING BHD67 Annual Report 2011 STATEMENTS OF CASH FLOWs for the financial year ended 31 December 2011

Group Company 2011 2010 2011 2010 RM’000 RM’000 RM’000 RM’000

Cash flows from operating activities (Loss)/profit before taxation from: – continuing operations (74,429) (21,237) (24,332) 60,470 – discontinued operations – 4,587 – – Adjustments for: Net unrealised foreign exchange losses 20,051 21,051 18,243 21,650 Fair value losses/(gain) on derivatives 265 (502) – – Property, plant and equipment – depreciation 6,052 4,130 320 170 – (gain)/loss on disposal (243) 156 – – – write-off – 198 – – Amortisation CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI – intangible assets 1,918 1,638 - – Allowance for inventory obsolescence 1,829 1,268 – – Impairment of investment in subsidiary – – – 2,247 Provision for penalties 805 2,970 – – Allowance/(write back) for impairment of receivables 1,873 (467) – – Allowance for intercompany receivables – – – 1,545 Interest income (999) (1,234) (10,403) (6,566) pg 68 Share option expense 1,324 1,002 1,324 821 Interest expense 29,550 17,466 1,881 2,238 Dividend income (544) - (544) (31,491) Gain on disposal of subsidiaries – (19,677) - (37,362)

Operating (loss)/profit before working capital changes (12,548) 11,349 (13,511) 13,722

Movements in working capital: Inventories 4,736 (7,641) - - Receivables (38,611) (224,659) 50,941 (145,236) Payables 7,335 5,824 (53,935) 135,865 Subsidiary companies – – 41,977 29,189 Related corporations (4,139) 518 (4,387) 746 Ultimate holding company 3,844 (1,818) 3,844 (1,925)

Cash flows (used in)/from operations (39,383) (216,427) 24,929 32,361 Tax paid (837) (6,101) (17) (64) Interest received 999 1,234 47 953

Net cash flows (used in)/from operating activities (39,221) (221,294) 24,959 33,250 Group Company Note 2011 2010 2011 2010 RM’000 RM’000 RM’000 RM’000 cash flows from investing activities Acquisition of property, plant and equipment (3,180) (14,881) (564) (861) Proceeds from disposal of property, plant and equipment 284 257 – – Incorporation of subsidiaries – – (1,180) (100) Additional investment in subsidiaries – – (25,560) (17,093) Purchase of available for sale investment – (847) – (1,389) Proceeds from disposal of subsidiaries (net of cash in subsidiaries) 5 – 300,092 – 299,534 Dividend received 544 – 544 31,491 Government grant received 587 1,137 – – Development expenditure incurred (39,040) (11,770) – –

Net cash flows (used in)/from investing activities (40,805) 273,988 (26,760) 311,582

Cash flows from financing activities Receipt of advances/(Advances to subsidiaries) – – 22,522 (282,974) Proceeds from issuance of shares – exercise of ESOS 25(a) – 4,546 – 4,546 Dividends paid 14 – (93,807) – (93,807) pg 69 Purchase of Treasury shares 25(b) – (2) – (2) Drawdown of borrowings 84,476 3,769 5,000 – Repayment of borrowings (7,589) (7,464) (6,000) (6,000) Finance lease principal repayments (94) – – – Proceeds from issuance of ICULS – 61,353 – 61,353 ICULS interest paid (2,243) (1,647) (2,243) (1,647) Interest paid (28,569) (17,619) (1,745) (2,238) SCOMI ENGINEERING BHD Annual Report 2011 Net utilisation/(settlement) of trade facilities 26,241 (11,030) – – Short-term deposits pledged as security for bank facilities (5,025) (333) – –

Net cash flows from/(used in) financing activities 67,197 (62,234) (17,534) (320,769)

Net (decrease)/increase in cash and cash equivalents during the financial year (12,829) (9,540) (19,335) 24,063 Currency translation differences (238) 452 103 – Cash and cash equivalents at beginning of financial year (69,788) (60,700) 26,257 2,194

Cash and cash equivalents at end of financial year 24 (82,855) (69,788) 7,025 26,257 NOTES TO THE FINANCIAL STATEMENTS 31 December 2011

1 GENERAL INFORMATION The principal activities of the Company are investment holding, provision of management services to subsidiaries and the design, manufacture and supply of monorail trains and related services. The principal activities of the Group comprise the design and manufacture of monorail transportation infrastructure systems equipment and services, commercial coaches and special purposes vehicles.

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

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

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

The registered office of the Company is located at Level 17, 1 First Avenue, Bandar Utama, 47800 Petaling Jaya, CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI Selangor Darul Ehsan, Malaysia.

The principal place of business of the Company is located at Level 18, 1 First Avenue, Bandar Utama, 47800 Petaling Jaya, Selangor Darul Ehsan, Malaysia.

2 BASIS OF PREPARATION pg 70 The financial statements of the Group and Company have been prepared under the historical cost convention except as disclosed in the summary of significant accounting policies. The financial statements comply with the provisions of the Companies Act, 1965, Financial Reporting Standards (“FRSs”) and the Malaysian Accounting Standards Board (“MASB”) Approved Accounting Standards in Malaysia for Entities Other Than Private Entities.

The preparation of financial statements in conformity with FRSs requires the Directors to use certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the financial year. It also requires Directors to exercise their judgment in the process of applying the Group and Company’s accounting policies. Although these estimates and judgment are based on the Directors’ best knowledge of current events and actions, actual results may differ. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 4 to the financial statements.

A subsidiary of the Group did not fulfil a loan covenant ratio during the financial year, substantially due to the impact of unrealised foreign exchange losses, resulting in the reclassification of the long term loan portion amounting to RM58 million from non-current liabilities to current liabilities. Indulgence was obtained from the bank subsequent to the financial year ended 31 December 2011. This reclassification does not materially impact the net current assets position of the Group as at 31 December 2011. 2 BASIS OF PREPARATION (CONTINUED) (a) Standards, amendments to published standards and interpretations that are applicable to the Group and are effective The new accounting standards, amendments and improvements to published standards and interpretations that are effective for the Group and Company’s financial year beginning on or after 1 January 2011 are as follows:

• Revised FRS 1 First-time Adoption of Financial Reporting Standards • Revised FRS 3 Business Combinations • Revised FRS 127 Consolidated and Separate Financial Statements • Amendments to FRS 1 First-time Adoption of Financial Reporting Standards • Amendments to FRS 2 Share-based Payment – Group Cash-settled Share-based Payment Transactions • Amendments to FRS 5 Non-current Assets Held for Sale and Discontinued Operations • Amendments to FRS 7 Financial Instruments: Disclosures – Improving Disclosures about Financial Instruments • Amendments to FRS 132 Financial Instruments: Presentation – Classification of Rights Issues • Amendments to FRS 138 Intangible Assets • IC Interpretation 4 Determining Whether an Arrangement Contains a Lease • IC Interpretation 16 Hedges of a Net Investment in a Foreign Operation • IC Interpretation 17 Distribution of Non-cash Assets to Owners • IC Interpretation 18 Transfers of Assets from Customers • Improvements to FRSs (2010)

Adoption of the above new accounting standards, amendments and improvements to published standards and pg 71 interpretations did not result in any significant changes in the accounting policies and presentations of the financial results of the Group and Company, other than the disclosures on the financial statements of the Group and Company under the Amendments to FRS 7.

(b) Standards, amendments to published standards and interpretations to existing standards that are applicable to the Group but not yet effective

In the next financial year, the Group will be adopting the new International Financial Reporting Standards (“IFRS”) SCOMI ENGINEERING BHD Annual Report 2011 compliant framework, Malaysian Financial Reporting Standards (“MFRS”). In adopting the new framework, the Group will be applying MFRS 1 “First-time adoption of MFRS” which provides for certain optional exemptions and certain mandatory exceptions for first time MFRS adopters. The impact of adoption of MFRS to the Group based on mandatory exemptions and optional exemptions for first time MFRS adoptions is pending assessment by the Directors.

(i) Financial year beginning on/after 1 January 2012 • The revised MFRS 124 “Related party disclosures” (effective from 1 January 2012) removes the exemption to disclose transactions between government-related entities and the government, and all other government- related entities. The following new disclosures are now required for government related entities: – The name of the government and the nature of their relationship; – The nature and amount of each individually significant transactions; and – The extent of any collectively significant transactions, qualitatively or quantitatively.

The initial application of the Standard is not expected to have a material impact to the financial statements of the Group. NOTES TO THE FINANCIAL STATEMENTS 31 December 2011

2 BASIS OF PREPARATION (CONTINUED) (b) Standards, amendments to published standards and interpretations to existing standards that are applicable to the Group but not yet effective (continued) (i) Financial year beginning on/after 1 January 2012 (continued) • Amendment to MFRS 112 “Income taxes” (effective from 1 January 2012) introduces an exception to the existing principle for the measurement of deferred tax assets or liabilities arising on investment property measured at fair value. MFRS 112 currently requires an entity to measure the deferred tax relating to an asset depending on whether the entity expects to recover the carrying amount of the asset through use or sale. It can be difficult and subjective to assess whether recovery will be through use or through sale when the asset is measured using the fair value model in MFRS 140 “Investment property”. As a result of the amendments, IC Interpretation 121 “Income taxes – recovery of revalued non-depreciable assets” will no longer apply to investment properties carried at fair value. The amendments also incorporate into MFRS 112 the remaining guidance previously contained in IC Interpretation 121 which is withdrawn. These changes are not expected to have a material impact on the financial statements of the Group.

CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI • IC Interpretation 19 “Extinguishing financial liabilities with equity instruments” (effective from 1 July 2011) provides clarification when an entity renegotiates the terms of a financial liability with its creditor and the creditor agrees to accept the entity’s shares or other equity instruments to settle the financial liability fully or partially. A gain or loss, being the difference between the carrying value of the financial liability and the fair value of the equity instruments issued, shall be recognised in profit or loss. Entities are no longer permitted to reclassify the carrying value of the existing financial liability into equity with no gain or loss recognised in profit or loss. The initial application of this interpretation is not expected to have a material impact to the financial statements of the Group. pg 72

• Amendments to IC Interpretation 14 “MFRS 119 – The limit on a defined benefit assets, minimum funding requirements and their interaction” (effective from 1 July 2011) permits an entity to recognise the prepayments of contributions as an asset, rather than an expense in circumstances when the entity is subject to a minimum funding requirement and makes an early payment of contributions to meet those requirements. These changes are not expected to have a material impact on the financial statements of the Group.

• Amendment to MFRS 7 “Financial instruments: Disclosures on transfers of financial assets” (effective from 1 January 2012) promotes transparency in the reporting of transfer transactions and improve users’ understanding of the risk exposures relating to transfers of financial assets and the effect of those risks on an entity’s financial position, particularly those involving securitisation of financial assets. These changes are not expected to have material impact on the financial statements of the Group.

(ii) Financial year beginning on/after 1 January 2013 • MFRS 10 “Consolidated financial statements” (effective from 1 January 2013) changes the definition of control. An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. It establishes control as the basis for determining which entities are consolidated in the consolidated financial statements and sets out the accounting requirements for the preparation of consolidated financial statements. It replaces all the guidance on control and consolidation in MFRS 127 “Consolidated and separate financial statements” and IC Interpretation 112 “Consolidation – special purpose entities”. The initial application of the Standard is not expected to have a material impact to the financial statements of the Group. 2 BASIS OF PREPARATION (CONTINUED) (b) Standards, amendments to published standards and interpretations to existing standards that are applicable to the Group but not yet effective (continued) (ii) Financial year beginning on/after 1 January 2013 (continued) • MFRS 11 “Joint arrangements” (effective from 1 January 2013) requires a party to a joint arrangement to determine the type of joint arrangement in which it is involved by assessing its rights and obligations arising from the arrangement, rather than its legal form. There are two types of joint arrangement: joint operations and joint ventures. Joint operations arise where a joint operator has rights to the assets and obligations relating to the arrangement and hence accounts for its interest in assets, liabilities, revenue and expenses. Joint ventures arise where the joint operator has rights to the net assets of the arrangement and hence equity accounts for its interest. Proportional consolidation of joint ventures is no longer allowed. The initial application of the Standard is not expected to have a material impact to the financial statements of the Group.

• MFRS 12 “Disclosures of interests in other entities” (effective from 1 January 2013) sets out the required disclosures for entities reporting under the two new standards, MFRS 10 and MFRS 11, and replaces the disclosure requirements currently found in MFRS 128 “Investments in associates”. It requires entities to disclose information that helps financial statement readers to evaluate the nature, risks and financial effects associated with the entity’s interests in subsidiaries, associates, joint arrangements and unconsolidated structured entities. The initial application of the Standard is not expected to have a material impact to the financial statements of the Group.

• MFRS 13 “Fair value measurement” (effective from 1 January 2013) aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value pg 73 measurement and disclosure requirements for use across MFRSs. The requirements do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards. The enhanced disclosure requirements are similar to those in MFRS 7 “Financial instruments: Disclosures”, but apply to all assets and liabilities measured at fair value, not just financial ones. The initial application of the Standard is not expected to have a material impact to the financial statements of the Group.

• The revised MFRS 127 “Separate financial statements” (effective from 1 January 2013) includes the SCOMI ENGINEERING BHD Annual Report 2011 provisions on separate financial statements that are left after the control provisions of MFRS 127 have been included in the new MFRS 10. The initial application of the Standard is not expected to have a material impact to the financial statements of the Group.

• The revised MFRS 128 “Investments in associates and joint ventures” (effective from 1 January 2013) includes the requirements for joint ventures, as well as associates, to be equity accounted following the issue of MFRS 11. The initial application of the Standard is not expected to have a material impact to the financial statements of the Group.

• Amendment to MFRS 101 “Financial statement presentation” (effective from 1 July 2012) requires entities to separate items presented in ‘other comprehensive income’ (OCI) in the statement of comprehensive income into two groups, based on whether or not they may be recycled to profit or loss in the future. The amendments do not address which items are presented in OCI. The initial application of the Standard is not expected to have a material impact to the financial statements of the Group.

• Amendment to MFRS 119 “Employee benefits” (effective from 1 January 2013) makes significant changes to the recognition and measurement of defined benefit pension expense and termination benefits, and to the disclosures for all employee benefits. Actuarial gains and losses will no longer be deferred using the corridor approach. MFRS 119 shall be withdrawn on application of this amendment. The initial application of the Standard is not expected to have a material impact to the financial statements of the Group. NOTES TO THE FINANCIAL STATEMENTS 31 December 2011

2 BASIS OF PREPARATION (CONTINUED) (b) Standards, amendments to published standards and interpretations to existing standards that are applicable to the Group but not yet effective (continued) (iii) Financial year beginning on/after 1 January 2015 • MFRS 9 “Financial instruments – classification and measurement of financial assets and financial liabilities” (effective from 1 January 2015) replaces the multiple classification and measurement models in MFRS 139 with a single model that has only two classification categories: amortised cost and fair value. The basis of classification depends on the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial asset.

The accounting and presentation for financial liabilities and for de-recognising financial instruments has been relocated from MFRS 139, without change, except for financial liabilities that are designated at fair value through profit or loss (“FVTPL”). Entities with financial liabilities designated at FVTPL recognise changes in the fair value due to changes in the liability’s credit risk directly in other comprehensive income (OCI). There is no subsequent recycling of the amounts in OCI to profit or loss, but accumulated gains or losses may CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI be transferred within equity.

• The guidance in MFRS 139 on impairment of financial assets and hedge accounting continues to apply. These changes are not expected to have material impact on the financial statements of the Group.

3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES pg 74 Unless otherwise stated, the following accounting policies have been used consistently in dealing with items that are considered material in relation to the financial statements.

3.1 Consolidation The consolidated financial statements incorporate the audited financial statements of the Company and its subsidiaries made up to the end of the financial year.

(i) Subsidiaries Subsidiaries are all those entities (including special purpose entities) over which the Group has power to govern the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.

Subsidiaries are consolidated using the acquisition method of accounting. Under the acquisition method of accounting, subsidiaries are fully consolidated from the date on which control is transferred to the Group and are de-consolidated from the date that control ceases. The consideration transferred for acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. In a business combination achieved in stages, the previously held equity interest in the acquiree is re-measured at its acquisition date fair value and the resulting gain or loss is recognised in profit or loss. 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.1 Consolidation (continued) (i) Subsidiaries (continued) The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the gain is recognised in the profit or loss. See accounting policy Note 3.3(i) on goodwill on consolidation.

Non-controlling interest is the equity in a subsidiary not attributable, directly or indirectly, to a parent. On an acquisition-by-acquisition basis, the Group measures any non-controlling interest in the acquiree at fair value. At the end of reporting period, non-controlling interest consists of amount calculated on the date of combinations and its share of changes in the subsidiary’s equity since the date of combination.

All earnings and losses of the subsidiary are attributed to the parent and the non-controlling interest, even if the attribution of losses to the non-controlling interest results in a debit balance in the shareholders’ equity. Profit or loss attribution to non-controlling interests for prior years is not restated.

Change in accounting policy The Group has changed its accounting policy on business combinations and accounting for non-controlling interest when it adopted the revised FRS 3 “Business combinations” and FRS 127 “Consolidated and separate financial statements”.

Previously, contingent consideration in a business combination was recognised when it is probable that payment pg 75 will be made. Acquisition-related costs were included as part of the cost of business combination. Any non- controlling interest in the acquiree was measured at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets. Any adjustment to the fair values of the subsidiary’s identifiable assets, liabilities and contingent liabilities relating to previously held interests of the Group was accounted for as a revaluation.

The Group has applied the new policies prospectively to transactions occurring on or after 1 January 2011.

As a consequence, no adjustments were necessary to any of the amounts previously recognised in the SCOMI ENGINEERING BHD Annual Report 2011 financial statements.

Under the merger method of accounting, the results of entities or businesses under common control are presented as if the merger had been effected throughout the current and previous financial years or from the date when these entities came under the control of the common controlling party (if shorter). The assets and liabilities combined are accounted for based on the carrying amounts from the perspective of the common control shareholder at the date of transfer. On consolidation, the difference between the carrying value of the investment in the subsidiaries over the nominal value of the share acquired is taken to merger reserve and regarded as a non-distributable reserve, which is then set off against suitable reserves on the consolidated financial statements.

Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated. This may indicate an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

The gain or loss on disposal of a subsidiary is the difference between net disposal proceeds and the Group’s share of its net assets as of the date of disposal including the cumulative amount of any exchange differences that relate to the subsidiary is recognised in profit or loss attributable to the parent. NOTES TO THE FINANCIAL STATEMENTS 31 December 2011

3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.1 Consolidation (continued) (ii) Transactions with non-controlling interests The Group applies a policy of treating transactions with non-controlling interests as transactions with equity owners of the Group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share of the carrying value of net assets of the subsidiary acquired is deducted from equity. For disposals to non-controlling interests, differences between any proceeds received and the relevant share of non-controlling interests are also recognised in equity.

(iii) Changes in ownership interests When the Group ceases to have control, joint control or significant influence, any retained interest in the entity is re-measured to its fair value on initial recognition as a financial asset in accordance with FRS 139. Any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities.

Changes in accounting policy CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI The Group has changed its accounting policy prospectively for transactions occurring on or after 1 January 2011 with non-controlling interests and transactions involving the loss of control, joint control or significant influence when it adopted the revised FRS 127 “Consolidated and Separate Financial Statements”.

Previously when the Group ceased to have control, joint control or significant influence over an entity, the carrying amount of the investment at the date control, joint control or significant influence ceased became its cost on initial measurement as a financial asset in accordance with FRS 139. pg 76 (iv) Investments in subsidiaries In the Company’s separate financial statements, investment in subsidiaries is carried at cost less accumulated impairment losses. On disposal of investments in subsidiaries, the difference between disposal proceeds and the carrying amounts of the investments is recognised in profit or loss.

3.2 Property, plant and equipment Property, plant and equipment, other than freehold land and assets under construction, are stated at cost less accumulated depreciation and impairment losses. The cost of an item of property, plant and equipment initially recognised includes its purchase price and any cost that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Cost also includes borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset. See accounting policy Note 3.16 on borrowing costs.

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

Freehold land is not depreciated as it has an infinite life. Leasehold land classified as finance lease is amortised in equal installments over the period of the respective leases. See accounting policy Note 3.9(i) on finance lease. Expenditure relating to assets under construction is capitalised when incurred and depreciated only when the assets are ready for intended use.

When property, plant and equipment are disposed of, the resultant gain or loss on disposal is determined by comparing the disposal proceeds with the carrying amount and is included in the profit or loss. 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.2 Property, plant and equipment (continued) Other property, plant and equipment are depreciated on the straight-line method to allocate the cost of the assets to their residual values over their estimated useful lives. The principal annual rates used for this purpose are as follows:

Freehold buildings 2% Rental equipment 12½% Furniture, fixtures and equipment 10 – 33% Motor vehicles 15 – 20% Monorail test track 3% Plant and machinery 8½ – 20%

Residual values and useful lives of assets are reviewed, and adjusted if appropriate, at the end of the reporting period.

At the end of the reporting period, the Group assesses whether there is any indication of impairment. If such indications exist, an analysis is performed to assess whether the carrying amount of the asset is fully recoverable. A write down is made if the carrying amount exceeds the recoverable amount. See accounting policy Note 3.4 on impairment of non-financial assets.

3.3 Intangible assets (i) Goodwill Goodwill represents the excess of the cost of acquisition of subsidiaries over the fair value of the Group’s pg 77 share of the identifiable net assets of subsidiaries at the date of acquisition.

Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill (inclusive of impairment losses recognised in a previous interim period) are not reversed. Gains and losses on the disposal of a subsidiary include the carrying amount of goodwill relating to the subsidiary sold. SCOMI ENGINEERING BHD Annual Report 2011 Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the synergies of the business combination in which the goodwill arose, identified according to operating segment.

(ii) Research and development Research expenditure is recognised as an expense when incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when the following criteria are fulfilled:

a. it is technically feasible to complete the intangible asset so that it will be available for use or sale; b. management intends to complete the intangible asset and use or sell it; c. there is an ability to use or sell the intangible asset; d. it can be demonstrated how the intangible asset will generate probable future economic benefits; e. adequate technical, financial and other resources to complete the development and to use or sell the intangible asset are available; and f. the expenditure attributable to the intangible asset during its development can be reliably measured. NOTES TO THE FINANCIAL STATEMENTS 31 December 2011

3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.3 Intangible assets (continued) (ii) Research and development (continued) Other development expenditures that do not meet these criteria are recognised as an expense when incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Capitalised development costs recognised as intangible assets are amortised from the point at which the asset is ready for use as follows:

a. over the estimated sales units, not exceeding ten years for monorail development; or b. over a period not exceeding five years for bus development.

Development costs work-in-progress is tested for impairment annually, in accordance with FRS 136 – Impairment of Assets. See accounting policy Note 3.4 on impairment of non-financial assets.

3.4 Impairment of non-financial assets Assets that have an indefinite useful life, for example goodwill, are not subject to amortisation and are tested CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at the end of the reporting period. pg 78 The impairment loss is charged to profit or loss. Impairment losses on goodwill are not reversed. In respect of other assets, any subsequent increase in recoverable amount is recognised in profit or loss.

3.5 Financial assets (i) Classification The Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables and available-for-sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification at initial recognition.

a. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if it is acquired or incurred principally for the purpose of selling or repurchasing it in the near term. Derivatives are also categorised as held for trading unless they are designated as hedges.

b. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities more than 12 months after the end of the reporting period. These are classified as non-current assets. The Group’s loans and receivables comprise ‘trade and other receivables’ and ‘cash and bank balances’ in the statement of financial position (Notes 22 and 24 to the financial statements respectively).

c. Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless the investment matures or management intends to dispose of it within 12 months of the end of the reporting period. 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.5 Financial assets (continued) (ii) Recognition and initial measurement Regular purchases and sales of financial assets are recognised on the trade-date, the date on which the Group commits to purchase or sell the asset.

Financial assets are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in profit or loss.

(iii) Subsequent measurement – gains and losses Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are subsequently carried at amortised cost using the effective interest method.

Changes in the fair values of financial assets at fair value through profit or loss, including the effects of currency translation, interest and dividend income are recognised in profit or loss in the period in which the changes arise.

Changes in the fair value of available-for-sale financial assets are recognised in other comprehensive income, except for impairment losses (see accounting policy Note 3.5(iv)) and foreign exchange gains and losses on monetary assets. The exchange differences on monetary assets are recognised in profit or loss, whereas exchange differences on non-monetary assets are recognised in other comprehensive income as part of fair value change. pg 79 Interest and dividend income on available-for-sale financial assets are recognised separately in profit or loss. Interest on available-for-sale debt securities calculated using the effective interest method is recognised in profit or loss. Dividend income on available-for-sale equity instruments are recognised in profit or loss when the Group’s right to receive payments is established.

(iv) Subsequent measurement – Impairment of financial assets Assets carried at amortised cost SCOMI ENGINEERING BHD Annual Report 2011 The Group assesses at the end of the reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

The criteria that the Group uses to determine that there is objective evidence of an impairment loss include:

a. Significant financial difficulty of the issuer or obligor; b. A breach of contract, such as a default or delinquency in interest or principal payments; c. The Group, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider; d. It becomes probable that the borrower will enter bankruptcy or other financial reorganisation; e. Disappearance of an active market for that financial asset because of financial difficulties; or f. Observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio, including adverse changes in the payment status of borrowers in the portfolio; and national or local economic conditions that correlate with defaults on the assets in the portfolio. NOTES TO THE FINANCIAL STATEMENTS 31 December 2011

3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.5 Financial assets (continued) (iv) Subsequent measurement – Impairment of financial assets (continued) The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The asset’s carrying amount of the asset is reduced and the amount of the loss is recognised in profit or loss. If loans and receivables have a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Group may measure impairment on the basis of an instrument’s fair value using an observable market price.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in profit or loss.

When an asset is uncollectible, it is written off against the related allowance account. Such assets are written CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI off after all the necessary procedures have been completed and the amount of the loss has been determined.

Assets classified as available-for-sale The Group assesses at the end of the reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. pg 80 For debt securities, the Group uses criteria and measurement of impairment loss applicable for ‘assets carried at amortised cost’ above. If, in a subsequent period, the fair value of a debt instrument classified as available- for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through profit or loss.

In the case of equity securities classified as available-for-sale, in addition to the criteria for ‘assets carried at amortised cost’ above, a significant or prolonged decline in the fair value of the security below its cost is also considered as an indicator that the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss that had been recognised directly in equity is removed from equity and recognised in profit or loss. The amount of cumulative loss that is reclassified to profit or loss is the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss. Impairment losses recognised in profit or loss on equity instruments classified as available-for-sale are not reversed through profit or loss.

(v) De-recognition Financial assets are de-recognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership.

When available-for-sale financial assets are sold, the accumulated fair value adjustments recognised in other comprehensive income are reclassified to profit or loss.

3.6 Offsetting financial instruments Financial assets and liabilities are offset and the net amount presented in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.7 Derivative financial instruments and hedging activities Derivative financial instruments are initially recognised at fair value at the date a derivative contract is entered into and are subsequently re-measured to their fair value at each date of the statement of financial position. The resulting gain or loss is recognised in the income statement immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. The Group designates certain derivatives as either hedges of the fair value of recognised assets or liabilities or firm commitments (fair value hedges) or hedges of highly probable forecast transactions or hedges of foreign currency risk of firm commitments (cash flow hedges).

The Group accounts for derivatives used as hedging instruments depending on their designation as follows:

(i) Fair value hedges Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in profit or loss, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.

If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortised to the profit or loss over the period to maturity.

(ii) Cash flow hedges Resulting gains or losses from the subsequent re-measurements of hedging derivatives at their fair values are deferred to the hedging reserves as part of other comprehensive income to the extent of their effective portion. pg 81 The ineffective portion is recognised directly in the profit or loss as other operating income or expense. Fair value changes from subsequent re-measurements of hedging derivatives deferred to hedging reserves are recycled to the profit or loss under finance cost in the periods when the underlying hedged item affects the profit or loss and statement of financial position of the Group.

When a hedging instrument expires or is sold, or when hedge accounting is discontinued, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is SCOMI ENGINEERING BHD Annual Report 2011 ultimately recognised in the profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in other comprehensive income is immediately transferred to the profit or loss within other operating income/expenses.

3.8 Financial guarantee contracts Financial guarantee contracts are contracts that require the Group or Company to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with the terms of a debt instrument.

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

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

Where financial guarantees in relation to loans or payables of subsidiaries are provided by the Company for no compensation, the fair values are accounted for as contributions and recognised as part of the cost of investment in subsidiaries. NOTES TO THE FINANCIAL STATEMENTS 31 December 2011

3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.9 Leases A lease is an agreement whereby the lessor conveys to the lessee in return for a payment, or series of payments, the right to use an asset for an agreed period of time.

Accounting by lessee (i) Finance leases Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases.

Finance leases are capitalised at the lease’s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate of interest on the remaining balance of the liability. The corresponding rental obligations, net of finance charges, are included in borrowings.

CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI The interest element of the finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the useful life of the asset and the lease term.

Initial direct costs incurred by the Group in negotiating and arranging finance leases are added to the carrying amount of the leased assets and recognised as an expense in profit or loss over the lease term on the same basis as the lease expense. pg 82 (ii) Operating leases Leases of assets where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight line basis over the lease period.

Initial direct costs incurred by the Group in negotiating and arranging operating leases are capitalised as prepayments and recognised in profit or loss over the lease term on a straight-line basis.

3.10 Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first in, first out basis.

The cost of finished goods and work in progress comprises design costs, raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity). It excludes borrowing costs.

Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion and applicable variable selling expenses.

3.11 Construction contracts A construction contract is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and functions or their ultimate purpose or use.

Contract costs are recognised as expenses in the period in which they are incurred.

When the outcome of a construction contract can be estimated reliably and it is probable that the contract will be profitable, contract revenue is recognised over the period of the contract. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.11 Construction contracts (continued) Variations in contract work, claims and incentive payments are included in contract revenue to the extent agreed with the customer and are capable of being reliably measured. Liquidated ascertained damages are disclosed as a deduction of contract revenue, which are deemed variable consideration.

The Group uses the percentage-of-completion method to determine the appropriate amount to recognise in a given period. The stage of completion is measured by reference to the contract costs incurred up to the end of the reporting period as a percentage of total estimated costs for each contract. Costs incurred in the year in connection with future activity on a contract are excluded from contract costs in determining the stage of completion. They are presented as inventories, prepayments or other assets, depending on their nature.

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

The Group presents as an asset the gross amount due from customers for contract work for all contracts in progress for which costs incurred plus recognised profits (less recognised losses) exceed progress billings. Progress billings not yet paid by customers and retention are included within ‘trade and other receivables’. The Group presents as a liability the gross amount due to customers for contract work for all contracts in progress for which progress billings exceed costs incurred plus recognised profits (less recognised losses). The asset balances are classified as current and non-current based on expectation of realisation.

3.12 Cash and cash equivalents For the purposes of the statements of cash flow, cash and cash equivalents comprise cash on hand, bank pg 83 balances, deposits held at call with banks excluding deposits which are pledged for banking facilities, and other short-term, highly liquid investments with original maturities of 3 months or less, and bank overdrafts. Bank overdrafts are included within borrowings in current liabilities on the statement of financial position.

3.13 Share capital (i) Classification

Ordinary shares with discretionary dividends are classified as equity. SCOMI ENGINEERING BHD Annual Report 2011

(ii) Share issue costs Incremental external costs directly attributable to the issue of new shares or options are deducted against share premium account.

(iii) Dividend distribution Distributions to holders of an equity instrument is debited directly to equity, net of related income tax benefit and the corresponding liability is recognised in the period in which the dividends are approved.

(iv) Purchase of own shares Where the Company or its subsidiaries purchase the Company’s equity share capital (treasury shares), the consideration paid, including any directly attributable incremental external costs, net of tax, is included in equity attributable to the controlling equity holders as Treasury shares until they are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related tax effects, is included in equity attributable to the controlling equity holders. NOTES TO THE FINANCIAL STATEMENTS 31 December 2011

3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.14 Compound financial instruments Compound financial instruments are regarded as compound financial instruments, consisting of a liability and an equity component. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for similar convertible loan stocks. The difference between the proceeds of issue of Irredeemable Convertible Unsecured Loan Stocks (“ICULS”) and the fair value assigned to the liability component, representing the conversion option, is included in equity. The liability component is subsequently stated at amortised cost using the effective interest rate method until extinguished on conversion, whilst the value of the equity component is not adjusted in subsequent periods. Attributable transaction costs are apportioned and deducted directly from the liability and equity component based on the carrying amounts at the date of issue.

Under the effective interest rate method, the interest expense on the liability component is calculated by applying the prevailing market interest rate for a similar loan stock to the instrument at the date of issue. The difference between this amount and the interest paid is added to the carrying amount of ICULS.

Upon conversion of ICULS into equity shares, the amount credited to share capital and share premium is the CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI aggregate of the carrying amounts of the liability components classified within liability and equity at the time of conversion. No gain or loss is recognised.

3.15 Financial liabilities Financial liabilities within the scope of FRS 139 are recognised on the statement of financial position when, and only when, the Group becomes a party to the contractual provisions of the financial instrument.

Financial liabilities are recognised initially at fair value, plus, in the case of financial liabilities other than derivatives, pg 84 directly attributable transactions costs.

Subsequent to initial recognition, all financial liabilities are measured at amortised cost using the effective interest method except for derivatives which are measured at fair value.

For financial liabilities other than derivatives, gains and losses are recognised in profit or loss when the liabilities are derecognised, and through the amortisation process. Any gains or losses arising from changes in fair value of derivatives are recognised in profit or loss. Net gains or losses on derivatives include exchange differences.

A financial liability is derecognised when the obligation under the liability is extinguished. When an existing financial liability is replaced by another from the same lender on substantially difference terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss.

3.16 Borrowings and borrowing costs Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between initial recognised amount and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest method, except for borrowing costs incurred for the construction of any qualifying asset.

Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale.

Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw- down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates. 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.17 Current and deferred income tax The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case the tax is also recognised in other comprehensive income or directly in equity, respectively.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Group’s subsidiaries operate and generate taxable income.

Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. This liability is measured using the single best estimate of the most likely outcome.

Deferred tax is recognised, using the liability method, on temporary differences arising between the amounts attributed to assets and liabilities for tax purposes and their carrying amounts in the financial statements. However, deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax is determined using tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.

Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against pg 85 which the deductible temporary differences, unused tax losses or unused tax credits can be utilised.

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

Deferred and income tax assets and liabilities are offset when there is a legally enforceable right to offset current SCOMI ENGINEERING BHD Annual Report 2011 tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

3.18 Employee benefits (i) Short term employee benefits Wages, salaries and bonuses are recognised as an expense in the financial year in which the associated services are rendered by employees of the Group. Short term accumulating compensated absences such as paid annual leave are recognised when services are rendered by employees that increase their entitlement to future compensated absences, and short term non-accumulating compensated absences such as sick leave are recognised when the absences occur.

(ii) Defined contribution plans As required by law, companies in Malaysia make contributions to the Employees’ Provident Fund (“EPF”). A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees benefits relating to employee service in the current and prior periods. NOTES TO THE FINANCIAL STATEMENTS 31 December 2011

3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.18 Employee benefits (continued) (iii) Termination benefits The Group recognises termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. Benefits falling due more than 12 months after the balance sheet date are discounted to present value.

3.19 Share-based compensation The Company operates an equity-settled, share-based compensation plan for the Directors and employees of the Company and its subsidiaries in the form of an Employees’ Share Option Scheme (“ESOS”).

The fair value of the employee services received in exchange for the grant of the options is recognised as an

CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI expense in profit or loss. The total amount to be expensed is determined by reference to the fair value of the options granted. Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of the reporting period, the Company revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to share option reserve in equity. pg 86 When the options are exercised, the Company issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. When options are not exercised and lapsed, the share option reserve is transferred to retained earnings.

In the separate financial statements of the Company, the grant by the Company of options over its equity instruments to the employees of subsidiary undertakings in the Group is treated as a capital contribution. The fair value of employee services received, measured by reference to the grant date fair value, is recognised over the vesting period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity

Salient features of the Company’s share option scheme are disclosed in Note 25(d) to the financial statements.

3.20 Government grants Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions.

Government grants relating to property, plant and equipment are included in non-current liabilities as deferred government grants and are credited to profit or loss on a straight-line basis over the expected lives of the related assets.

Government grants relating to costs are deferred and recognised in profit or loss over the period necessary to match them with the costs that they are intended to compensate. 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.21 Provisions Provisions are recognised when:

• the Group has a present legal or constructive obligation as a result of past events; • it is probable that an outflow of resources will be required to settle the obligation; and • a reliable estimate of the amount can be made.

Where the Group expects a provision to be reimbursed (for example, under an insurance contract), the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as finance cost expense.

Provisions for legal claims are recognised when: the group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. pg 87 Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation SCOMI ENGINEERING BHD Annual Report 2011 using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.

3.22 Contingent assets and liabilities The Group does not recognise a contingent liability but discloses its existence in the financial statements. A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Group or a present obligation that is not recognised because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in the extremely rare case where there is a liability that cannot be recognised because it cannot be measured reliably. However, contingent liabilities do not include financial guarantee contracts.

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

In the acquisition of subsidiaries by the Group under a business combination, the contingent liabilities assumed are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. NOTES TO THE FINANCIAL STATEMENTS 31 December 2011

3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.22 Contingent assets and liabilities (continued) The Group recognises separately the contingent liabilities of the acquirees as part of allocating the cost of a business combination where their fair values can be measured reliably. Where the fair values cannot be measured reliably, the resulting effect will be reflected in the goodwill arising from the acquisitions.

Subsequent to the initial recognition, the Group measures the contingent liabilities that are recognised separately at the date of acquisition at the higher of the amount that would be recognised in accordance with the provisions of FRS 137 “Provisions, contingent liabilities and contingent assets” and the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with FRS 118 “Revenue”.

3.23 Revenue recognition Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group’s activities. Revenue is shown net of goods and services tax, returns, rebates and discounts and after eliminating sales within the Group. CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Group’s activities as described below. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

(i) Construction contracts Revenue from construction contracts is recognised on the percentage of completion method by reference to pg 88 the stage of completion of the contract work to date. See accounting policy Note 3.11 on construction contracts.

(ii) Sale of goods Sale of goods is recognised when significant risks and rewards of ownership of the goods are transferred to the buyer.

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

(iv) Interest income Interest is recognised using the effective interest method. When a loan and receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loan and receivables are recognised using the original effective interest rate.

(v) Rental income Rental income from operating leases is recognised on a straight-line basis over the term of the lease.

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

(vii) Management fee income Management fee income is recognised on an accrual basis, based on services rendered. 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.24 Foreign currencies (i) Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The financial statements are presented in Ringgit Malaysia, which is the Company’s functional and presentation currency.

(ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss, except when deferred in other comprehensive income as qualifying cash flow hedges.

Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in profit or loss within ‘finance income or cost’. All other foreign exchange gains and losses are presented in profit or loss within ‘other operating income or expenses’.

For translation differences on financial assets and liabilities held at fair value through profit or loss and available-for-sale financial assets, refer to accounting policy Note 3.5(iii).

(iii) Group companies

The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary pg 89 economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

• assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position;

• income and expenses for each statement of comprehensive income presented are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates SCOMI ENGINEERING BHD Annual Report 2011 prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and

• all resulting exchange differences are recognised as a separate component of other comprehensive income.

On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other financial instruments designated as hedges of such investments, are recognised in other comprehensive income. When a foreign operation is sold or any borrowings forming part of the net investment are repaid, a proportionate share of such exchange differences is reclassified to profit or loss as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisitions of foreign entities are treated as assets and liabilities of the foreign entity and translated at the closing rate.

3.25 Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer. NOTES TO THE FINANCIAL STATEMENTS 31 December 2011

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

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

(a) Assessment of penalties payable On 7 November 2008, the Mumbai Metropolitan Region Development Authority (“MMRDA”) of India awarded a contract for the Design, Development and Construction of a Monorail System (“the Project” or “the Contract”) for a lump sum amount of Rs2460 crores (RM1.7 billion) to the unincorporated consortium of Larsen & Taubro Ltd and Scomi Engineering Bhd (“the Consortium”), for which Scomi Engineering Bhd’s (“SEB” or “the Company”) share of the value of the Contract is Rs1097 crores (RM777 million) based on its scope of works. The design,

CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI development, construction/manufacture/supply, testing and commissioning of the system including safety certification for commercial operations are to be completed within 30 months from the award of the Contract.

The Consortium has continuously apprised MMRDA of the status of the project and sought extensions of time as allowed under the Contract terms. On 28 January 2011, MMRDA through its project management consultant notified the Consortium of MMRDA’s intent to impose penalties arising out of project delay. On 7 March 2011, the Consortium responded to MMRDA stating its case for extension of time and stating that the Consortium is not liable for any penalties under the Contract. On 25 March 2011, the Consortium submitted an Extension of Time (“EOT”) pg 90 application for both Phase 1 and Phase 2 works. Subsequent to this EOT application, on 31 May 2011 the Consortium was granted an EOT in respect of the completion key-dates for each of the Phase 1 and Phase 2.

For Phase 1, the original contract completion key-date for commissioning was 12 November 2010 and the time for completion was extended to 31 December 2011 via a 31 May 2011 approval of EOT. For Phase 2, the original contract completion key-date for commissioning was 13 May 2011 and time for completion was extended to 22 November 2012 via a 31 May 2011 approval of EOT.

Due to prolonged delays outside of the scope of the Consortium, certain Phase 1 key milestones stated in the Contract have not been met as at 31 December 2011. The Company has engaged specialist advisors to assist in the assessment of delay events, submission of claims for extension of time and assessing the Consortium’s contractual obligations.

Given the expiry of the revised Phase 1 completion key-date, the specialist advisor has evaluated any spill-over/ on-going delay events which will substantiate the application for further EOT to Phase 1 completion key-date from MMRDA as the specialist advisor believes that the Consortium has very strong grounds to apply for a further extension. The specialist advisor submitted their EOT Claim Report for Phase 1 on 7 February 2012.

The same specialist advisor has been further engaged to perform a detailed investigation on the long list of issues affecting the works to serve as contemporary documentation as well as to form up an interim delay assessment for further EOT entitlement. The specialist advisor has submitted their Phase 1 and Phase 2 Delay Assessment Report on 14 February 2012.

The Consortium has requested for a further EOT for Phase 1 till 14 July 2012 vide its letter dated 30 December 2011. The specialist adviser has indicated that there are numerous concrete opportunities to apply for an additional EOT for Phase 2 beyond 22 November 2012. 4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENT (CONTINUED) Critical accounting estimates and assumptions (continued) (a) Assessment of penalties payable (continued) Pending resolution of the discussions between MMRDA and the Consortium about the EOT, the Consortium may be potentially liable for penalties under the provisions of the Contract. It is expected that penalties levied for not achieving intermediate key-dates will be reimbursed in the event the entire Project is commissioned within the stipulated time including any EOTs. The Consortium are giving first priority and doing their utmost to complete the Project within the agreed revised timelines. In the interim, the Project activities and work continue normally with MMRDA approving claims, billings and making payments accordingly, other than withholding an amount of RM1.8 million due to the Company, which arose from a letter sent by MMRDA’s consultant on 17 August 2011. In April 2012, following negotiations, MMRDA has in principal agreed to release the amounts withheld.

SEB has in the interim submitted three variation orders amounting to RM19.3 million in connection with the provision of certain communication and security equipments in relation to the Project, subject to other claims which SEB believes should accrue to the Consortium.

In reliance of the advice received from the Specialist Consultant, the Directors are of the opinion that the Consortium can effectively defend any potential penalty claims, hence no provision for potential penalties is required as at 31 December 2011 as there is remote likelihood of any penalties to be borne by the Company.

(b) Assessment of indirect taxes payable During the course of execution of the Project described in Note 4(a) above, the Company and its wholly-owned subsidiary, Scomi Rail Bhd (“SRB”), will supply goods and services which would typically attract various indirect taxes in India. The tax consultants of the Company have assessed the potential indirect taxes payable to the Central pg 91 Government, State Government and Local Municipality of that country and are of the view that:

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

(ii) Past precedents indicated that the respective Governments and Authorities have exercised their discretionary SCOMI ENGINEERING BHD Annual Report 2011 powers to grant exemptions/concessions for specific projects in the interest of the public; and

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

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

Following the Central Government of India budget in March 2012, the custom duty rates have been reduced from 22% to 16% (2011: 22%). As a result, the total imputed value of custom duties based on delivery of 15 trains and applying the revised applicable tax rates as at 31 December 2011 have reduced by RM13.1 million (Rs 22 crores). Based on the revised rates, there is no residual financial exposure on the custom duties payable, as the impact of any custom duties payable can be offset against the amount reimbursable by MMRDA.

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

(i) There is a reasonable case for claim of tax exemptions/concessions and the likelihood of the Company obtaining such exemptions is high; and

(ii) A reasonable estimate of the likely outcome of additional indirect taxes payable, if any, cannot be ascertained at this stage. NOTES TO THE FINANCIAL STATEMENTS 31 December 2011

4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENT (CONTINUED) Critical accounting estimates and assumptions (continued) (c) Estimated impairment of intangible assets The Group tests goodwill and capitalised development costs work-in-progress for impairment annually in accordance with its accounting policy stated in Note 3.3(i) to the financial statements. The recoverable amounts of cash generating units (“CGUs”) were determined based on the value in use calculations. The calculations require the use of estimates and assumptions as set out in Note 16 to the financial statements.

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

(d) Recognition of deferred tax assets (i) SRB had undertaken research and development (“R&D”) activities for the development of its product, where this research is expected to satisfy the eligibility criteria of research project/activity under Public Ruling No. 5/2004 which allows such R&D expenditure to qualify for double deduction for income tax purposes. CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI The tax consultants of SRB have reviewed the current status of the application and the expenses incurred in relation to the R&D project and, based on the application submitted, are of the view that the R&D would satisfy the definition of research as spelt out in the Public Ruling No. 5/2004, and the R&D expenditure should ordinarily qualify for the double deduction based on past experience.

SRB has consequently recognised a double deduction claim on such expenditure in its provisional tax computation for the financial years 2008 to 2010, resulting in the recognition of a cumulative deferred tax asset pg 92 of RM12.8 million on unabsorbed losses as at the balance sheet date. No double deduction claim on R&D costs is made from 2011 onwards as SRB has commenced the pioneer status tax exemption with effect from January 2011 for a period of 5 years.

As at the date of this report, approvals by the Inland Revenue Board for financial years 2009 and 2010 remain pending.

Based on the above, the Directors are of the opinion that the R&D activity would meet the eligibility criteria of a research project/activity under Public Ruling No. 5/2004 and management will undertake the necessary procedures and endeavour to obtain the required approval from the Inland Revenue Board on the research project/activity. Consequently, the unabsorbed losses will be utilised upon expiry of the pioneer status in 2016.

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

(ii) Urban Transit Private Limited had recognised a deferred tax asset of RM0.8 million out of RM3.8 million arising from unabsorbed tax losses based on projections of future taxable income. 4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENT (CONTINUED) Critical accounting estimates and assumptions (continued) (e) Construction contracts profits The Group recognises contract profits based on the percentage of completion method. The percentage of completion of a construction contract is determined based on the proportion that the contract costs incurred for work performed to-date bear to the estimated total costs for the contract. When it is probable that the estimated total contract costs of a contract will exceed the total contract revenue of the contract, the expected loss of the contract is recognised as an expense immediately.

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

The Group has estimated total contract revenue based on the initial amount of revenue agreed in the contract and variations in the contract work and claims that can be measured reliably based on the latest available information and past experience and reliance on work of specialist.

Where the actual approved variations and claims differ from the estimates, such difference will impact the contract profits/(losses) recognised.

(f) Carrying amount of capitalised development expenditure Capitalised development expenditure is recognised when the criteria for recognition is met. Significant judgement is required in estimating the estimated sales units and amortisation period, which is based on technological obsolescence, secured contracts, projects tendered and expectations of market growth. pg 93 SCOMI ENGINEERING BHD Annual Report 2011 NOTES TO THE FINANCIAL STATEMENTS 31 December 2011

5 DISPOSAL OF SUBSIDIARIES Financial year ended 31 December 2010 On 30 June 2010, the Company completed the disposal of its entire shareholdings in the Machine Shop group.

Details of the assets, liabilities and net cash inflow arising from the disposal of subsidiaries are as follows:

Group 2010 RM’000

Non-current assets 272,557 Current assets 90,085 Current liabilities (53,744) Bank borrowings (26,824) Non-current liabilities (2,217) CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI Net asses disposed 279,857 Gain on disposal 19,677

Total disposal consideration 299,534

Total consideration 311,671 Less: Expenses incurred directly attributable to the disposal (12,137) pg 94 Consideration received, net 299,534 Net cash disposed of 558

Net cash inflow 300,092

An analysis of the results of the discontinued operations is as follows:

Revenue (Note 6) 50,801 Cost of sales (Note 7) (32,847)

Gross profit 17,954 Administrative expenses (12,703) Finance costs (Note 11) (664)

Profit before taxation 4,587 Tax expense (Note 12) (2,081)

Profit for the financial year from discontinued operations 2,506

Other comprehensive loss Currency translation differences (8,503)

Total comprehensive loss from discontinued operations (5,997) 6 REVENUE Group Company 2011 2010 2011 2010 RM’000 RM’000 RM’000 RM’000

Continuing operations Interest income – – 10,403 6,566 Construction contract income 198,694 258,252 31,296 185,248 Sale of goods and services 48,102 91,732 – – Management fee – – 10,754 12,371 Dividend income – – 544 31,491

246,796 349,984 52,997 235,676 Discontinued operations Sale of goods and services (Note 5) – 50,801 – –

246,796 400,785 52,997 235,676

7 COST OF SALES Group Company 2011 2010 2011 2010 pg 95 RM’000 RM’000 RM’000 RM’000

Continuing operations Raw materials, consumables and factory overheads used in construction contracts 184,849 196,515 43,074 168,184 Raw materials and consumables used

for sale of goods and services 34,699 77,760 – –SCOMI ENGINEERING BHD Annual Report 2011 Staff costs 23,226 34,446 – – Others 4,762 17,065 – –

247,536 325,786 43,074 168,184 Discontinued operations Raw materials and consumables used, staff costs and others (Note 5) – 32,847 – –

247,536 358,633 43,074 168,184 NOTES TO THE FINANCIAL STATEMENTS 31 December 2011

8 (LOSS)/PROFIT BEFORE TAXATION Group Company 2011 2010 2011 2010 RM’000 RM’000 RM’000 RM’000

(a) (Loss)/profit before taxation is stated after charging: Allowance for intercompany receivables – – – 1,545 Allowance for impairment of receivables 1,872 – – – Intangible assets (Note 16) – amortisation 1,918 1,638 – – Property, plant and equipment – depreciation (Note 15) 6,052 4,130 320 170 – net loss on disposal – 156 – – – write-off – 198 – – Operating lease rentals CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI – plant and machinery – 55 – – Rental expenses – premises 2,348 540 385 219 – equipment 629 44 73 44 Impairment of investment in subsidiary - - – 2,247 Allowance for inventory obsolescence 1,829 1,268 – – Provision for penalties 2,153 2,970 – – Net foreign exchange losses 22,461 28,237 21,223 22,971 pg 96 Impairment of available for sale investment 2,467 – – – Fair value losses on derivatives 265 – – –

(Loss)/profit before taxation is stated after crediting: Fair value gain on derivatives – 502 – – Gain on disposal of property, plant and equipment 243 – – – Interest income – deposits 999 1,234 – – Write back of impairment for receivables – 467 – – Rental income – 151 – – Write back of provision for penalties 1,348 – – –

(b) Employee information – staff costs (including Executive Director) – wages, salaries and bonuses 39,396 34,902 3,524 5,398 – defined contribution plan 3,950 3,519 577 886 – termination benefits – 1,582 – – – other employment benefits 6,319 7,599 1,445 1,661 – share option expense (Note 25(d)) 1,324 1,002 1,324 821

50,989 48,604 6,870 8,766

The loss before taxation in the previous financial year includes items charged or credited to the Group statements of comprehensive income in respect of the discontinued operations. 9 AUDITORS’ REMUNERATION Group Company 2011 2010 2011 2010 RM’000 RM’000 RM’000 RM’000

PricewaterhouseCoopers Malaysian firm – statutory audit 221 371 70 70 – under provision in previous year 1 3 – - – non-audit fees 30 82 30 30 Other external auditors – statutory audit 49 106 – -

Total remuneration 301 562 100 100

10 DIRECTORS’ REMUNERATION The Directors who held office during the financial year were as follows: Executive Director Shah Hakim @ Shahzanim bin Zain Non-executive Directors Datuk Zainun Aishah binti Ahmad pg 97 Dato’ Abdul Rahim bin Abu Bakar Edlin bin Ghazaly Fad’l bin Mohamed Abdul Hamid bin Sheikh Mohamed

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

Group Company SCOMI ENGINEERING BHD Annual Report 2011 2011 2010 2011 2010 RM’000 RM’000 RM’000 RM’000

Executive Director (Note 34(b)) – salaries and bonus 959 527 – 527 – share option expense (Note 25(d)) 25 36 25 36

984 563 25 563

Non-executive Directors – fees 294 309 294 294 – other benefits 61 131 61 71 – share option expense – 61 – 61

355 501 355 426

1,339 1,064 380 989

Estimated monetary value of benefits-in-kind 199 558 – – NOTES TO THE FINANCIAL STATEMENTS 31 December 2011

11 FINANCE COSTS Group Company 2011 2010 2011 2010 RM’000 RM’000 RM’000 RM’000

Continuing operations Interest expense – bank overdrafts 14,150 8,805 – – – term loans 5,061 2,029 1,552 2,029 – finance lease liabilities 32 49 – – – bankers’ acceptances/trust receipts 1,536 2,091 – – – revolving credits 2,525 2,121 114 – Others 6,246 1,707 215 209

29,550 16,802 1,881 2,238

Discontinued operations (Note 5) CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI Interest expense – term loans – 121 – – – bank overdrafts – 343 – – – finance lease liabilities – 200 – –

– 664 – –

29,550 17,466 1,881 2,238 pg 98

Finance costs included within cost of sales amounted to RM23,546,000 (2010: RM10,191,000).

12 TAX EXPENSE/(CREDIT) Group Company 2011 2010 2011 2010 RM’000 RM’000 RM’000 RM’000

Continuing operations Current tax: Malaysian income tax 1,043 311 11 238 Foreign tax 552 4,234 3,532 –

1,595 4,545 3,543 238 Over provision in prior years (238) – (238) –

1,357 4,545 3,305 238 Deferred tax (Note 28): Relating to origination and reversal of temporary differences 8 (8,803) 938 – Reversal of/(Benefit from) previously unrecognised tax losses 5,812 (2,968) 5,812 (2,968) Over provision in prior years – (285) – –

5,820 (12,056) 6,750 (2,968)

Total tax expense/(credit) from continuing operations 7,177 (7,511) 10,055 (2,730) 12 TAX EXPENSE/(CREDIT) (Continued) Group Company 2011 2010 2011 2010 RM’000 RM’000 RM’000 RM’000

Discontinued operations Current tax: Malaysian income tax – 255 – – Foreign tax – 1,337 – –

– 1,592 – – Deferred tax (Note 28): Relating to origination and reversal of temporary differences – 489 – –

Total tax expense from discontinued operations (Note 5) – 2,081 – –

Total tax expense/(credit) 7,177 (5,430) 10,055 (2,730)

Domestic current income tax is calculated at the statutory tax rate of 25% (2010: 25%) of the taxable profit for the financial year.

Taxation for other jurisdictions is calculated at rates prevailing in the respective jurisdictions.

A reconciliation of income tax expense applicable to (loss)/profit before taxation at the statutory tax rate to income tax pg 99 expense at the effective income tax rate of the Group (using the weighted average tax rate applicable to profits of the consolidated entities) and Company is as follows:

Group Company 2011 2010 2011 2010 RM’000 RM’000 RM’000 RM’000

(Loss)/profit before taxation: SCOMI ENGINEERING BHD Annual Report 2011 Continuing operations (74,429) (21,237) (24,332) 60,470 Discontinued operations (Note 5) – 4,587 – –

(74,429) (16,650) (24,332) 60,470 Tax calculated at the domestic tax rates applicable to profits in the foreign country/ Malaysian tax rate of 25% (2010: 25%) (18,607) (2,870) (6,083) 15,118 Tax effects of: – expenses not deductible for tax purposes 6,642 6,158 5,257 2,668 – deferred tax assets recognised from previously unrecognised tax losses – (2,740) – (2,449) – deferred tax assets recognised on double deduction – (2,387) – – – deferred tax assets not recognised in respect of tax losses and unabsorbed capital allowances 17,499 5,024 9,238 – – income not subject to tax (2,589) (8,860) (2,589) (18,067) – under/(over) provision of tax expense in prior years (238) 10 (238) – – over provision of deferred tax in prior years – (285) – – – deductible temporary difference for which no deferred tax assets was recognised 938 520 938 – – others 3,532 – 3,532 –

Tax expense/(credit) 7,177 (5,430) 10,055 (2,730) NOTES TO THE FINANCIAL STATEMENTS 31 December 2011

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

Group 2011 2010 RM’000 RM’000

Loss from continuing operations attributable to owners of the Company (81,606) (10,950) Profit from discontinued operations attributable to owners of the Company – 2,506

Loss attributable to owners of the Company (81,606) (8,444) CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI Weighted average number of ordinary shares in issue (‘000) 341,958 325,871

Basic (loss)/earnings per share (sen) – continuing operations (23.86) (3.36) – discontinued operations – 0.77

(23.86) (2.59) pg 100

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

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

The ICULS is assumed to have been converted into ordinary shares, and the net loss is adjusted to eliminate the interest expense less the tax effect. The ICULS is anti-dilutive as the interest net of tax exceeds the basic (loss)/ earnings per share at 31 December 2011. 13 (LOSS)/EARNINGS PER SHARE (CONTINUED) (b) Diluted (loss)/earnings per share (continued) Group 2011 2010 RM’000 RM’000

Loss from continuing operations attributable to owners of the Company (81,606) (10,950) Profit from discontinued operations attributable to owners of the Company – 2,506

Loss attributable to owners of the Company (81,606) (8,444)

Weighted average number of ordinary shares in issue (’000) 341,958 325,871 Adjustment for: – share options (‘000) – 1,470

Weighted average number of ordinary shares for diluted (loss)/earnings per share (‘000) 341,958 327,341

Diluted (loss)/earnings per share (sen) – continuing operations – (3.35) – discontinued operations – 0.77 pg 101

– (2.58)

14 DIVIDENDS 2011 2010 SCOMI ENGINEERING BHD Annual Report 2011 Gross Amount of Gross Amount of dividend dividend, dividend dividend, per share net of tax per share net of tax Sen RM’000 Sen RM’000

Interim dividend; – for financial year 2009 paid on 10 May 2010 – – 5.0 13,861 – for financial year 2010 paid on 26 August 2010 – – 29.5 79,946

Total – – 34.5 93,807

The Directors do not recommend any dividend for the financial year ended 31 December 2011. NOTES TO THE FINANCIAL STATEMENTS 31 December 2011

15 PROPERTY, PLANT AND EQUIPMENT Furniture, Freehold Freehold Rental fixtures and Motor Plant and Monorail Group land buildings equipment equipment vehicles machinery test track Total 2011 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Cost At 1 January 8,020 36,601 3,653 11,258 1,953 20,015 14,795 96,295 Additions – – – 2,426 – 828 – 3,254 Disposals – – – (360) (523) – – (883) Currency translation differences – – – (160) – – – (160)

At 31 December 8,020 36,601 3,653 13,164 1,430 20,843 14,795 98,506 CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI Accumulated depreciation At 1 January – 2,123 2,370 3,586 1,109 4,606 2,326 16,120

Recognised in income statement (Note 8(a)) – 716 474 2,697 286 1,756 123 6,052 Capitalised under development costs – – – 241 – 233 370 844 pg 102 Charge during the financial year – 716 474 2,938 286 1,989 493 6,896 Disposals – – – (327) (515) – – (842) Currency translation differences – – – (26) – – – (26)

At 31 December – 2,839 2,844 6,171 880 6,595 2,819 22,148

Net book value at 31 December 8,020 33,762 809 6,993 550 14,248 11,976 76,358 15 PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Furniture, Freehold Freehold Leasehold Leasehold Rental fixtures and Motor Plant and Monorail Group land buildings land buildings equipment equipment vehicles machinery test track Total 2010 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Cost At 1 January 8,020 35,344 6,075 16,594 3,653 9,090 1,442 96,245 14,795 191,258 Additions – 1,478 – – – 8,343 785 6,539 – 17,145 Disposals – – – – – (418) (83) – – (501) Disposal of subsidiaries – – (6,075) (16,000) – (6,217) (191) (82,769) – (111,252) Write-offs – (221) – – – (85) – – – (306) Reclassification – – – (594) – 594 – – – – Currency translation differences – – – – – (49) – – – (49)

At 31 December 8,020 36,601 – – 3,653 11,258 1,953 20,015 14,795 96,295

Accumulated depreciation At 1 January – 2,241 354 4,245 1,896 3,706 865 18,882 1,833 34,022

Recognised in income statement (Note 8(a)) – 12 67 – 474 1,642 348 1,587 – 4,130 Capitalised under development costs – 4 – – – 188 – 315 493 1,000 pg 103

Charge during the financial year – 16 67 – 474 1,830 348 1,902 493 5,130 Disposals – – – – – (5) (83) – – (88) Disposal of subsidiaries – – (421) (4,034) – (2,115) (21) (16,178) – (22,769) Write-offs – (76) – – – (32) – – – (108) Reclassification – – – (211) – 211 – – – – Currency translation differences – (58) – – – (9) – – – (67) SCOMI ENGINEERING BHD Annual Report 2011

At 31 December – 2,123 – – 2,370 3,586 1,109 4,606 2,326 16,120

Net book value at 31 December 8,020 34,478 – – 1,283 7,672 844 15,409 12,469 80,175 NOTES TO THE FINANCIAL STATEMENTS 31 December 2011

15 PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Furniture, fixtures and Motor Company equipment vehicles Total RM’000 RM’000 RM’000

2011 Cost At 1 January 865 256 1,121 Additions 632 – 632

At 31 December 1,497 256 1,753

Accumulated depreciation

CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI At 1 January 120 153 273 Charge during the financial year (Note 8(a)) 268 52 320

At 31 December 388 205 593

Net book value at 31 December 1,109 51 1,160 pg 104 2010 Cost At 1 January 4 256 260 Additions 861 – 861

At 31 December 865 256 1,121

Accumulated depreciation At 1 January 1 102 103 Charge during the financial year (Note 8(a)) 119 51 170

At 31 December 120 153 273

Net book value at 31 December 745 103 848

Certain property, plant and equipment of the Group are charged as security for banking facilities as disclosed in Note 27 to the financial statements.

Certain property, plant and equipment of a subsidiary of the Group were tested for impairment due to losses incurred. The value-in-use calculations were based on secured contracts, with an estimated margin of 20% and discounted at 14%, which resulted in no impairment arising.

The net book value of property, plant and equipment acquired under finance lease arrangements by the Group as at the balance sheet date was RM811,000 (2010: RM9,748,000). 16 INTANGIBLE ASSETS Development Capitalised cost work-in- Development costs progress Mass Rapid Group Goodwill Monorail Bus Transit/Bus Total RM’000 RM’000 RM’000 RM’000 RM’000

2011 At cost As at 1 January 27,914 77,121 112 904 106,051 Additions during the financial year – 37,297 – 2,558 39,855 Reclassification – – 904 (904) –

As at 31 December 27,914 114,418 1,016 2,558 145,906

Accumulated amortisation As at 1 January – 1,616 66 – 1,682 Charge during the financial year (Note 8(a)) – 1,816 102 – 1,918

As at 31 December – 3,432 168 – 3,600 pg 105 Net book value at 31 December 27,914 110,986 848 2,558 142,306

2010 At cost As at 1 January 211,613 65,065 108 569 277,355 Additions during the financial year – 12,431 4 335 12,770 SCOMI ENGINEERING BHD Annual Report 2011 Disposal of subsidiaries (183,699) (375) – – (184,074)

As at 31 December 27,914 77,121 112 904 106,051

Accumulated amortisation As at 1 January – – 44 – 44 Charge during the financial year (Note 8(a)) – 1,616 22 – 1,638

As at 31 December – 1,616 66 – 1,682

Net book value at 31 December 27,914 75,505 46 904 104,369 NOTES TO THE FINANCIAL STATEMENTS 31 December 2011

16 INTANGIBLE ASSETS (CONTINUED) Amortisation included within construction contract costs during the financial year amounted to RM1,719,000 (2010: RM1,638,000).

The remaining useful life for the monorail capitalised development cost and bus capitalised development cost is 7 years (2010: 8 years) and 4 years (2010: 5 years) respectively.

(a) The recoverable amounts of Rail Operations (cash generating unit) goodwill have been based on value in use calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by the Directors covering a five-year period.

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

Terminal values used in the calculation for the Rail Operations goodwill are determined based on perpetual CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI discounted cash flows.

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

Terminal Pre-tax growth Discount pg 106 Growth rate in the first 5 years rate rate

2011 Rail operations Existing secured projects and expected terminal value 0% 14% from operations

2010 Rail operations Existing secured projects and expected terminal value 0% 13% from operations

(b) Development cost work-in-progress has been tested for impairment based on expectations of market growth and industry growth.

The assumptions used to determine value-in-use are a margin of 10% and a pre-tax discount rate of 13%, which resulted in no impairment.

A reasonable possible change in the assumptions used will not result in any change to the impairment conclusion. 17 INVESTMENTS IN SUBSIDIARIES Company 2011 2010 RM’000 RM’000

Investments in subsidiaries Unquoted shares, at cost

At 1 January 77,323 321,266 Additions during the year 26,740 17,581 Disposal during the year – (261,524)

104,063 77,323 Less: Impairment loss (2,247) (2,247)

101,816 75,076 Amounts receivable from subsidiaries 260,452 282,974

At 31 December 362,268 358,050

(a) Acquisition of subsidiaries Financial year ended 31 December 2011

(i) On 12 July 2011, the Company acquired the entire issued and paid-up capital of Scomi Transit Projects Brazil pg 107 Sdn Bhd and Scomi Transit Projects Brazil (Sao Paulo) Sdn Bhd (“STPSP”) for a cash consideration of RM2.00 respectively. As at 31 December 2011, the issued and paid-up capital of STPSP is RM100,000 comprising 100,000 ordinary shares of RM1.00 each, fully paid by the Company.

The acquisition of the subsidiary does not have a material impact to the financial statements of the Group and the Company. SCOMI ENGINEERING BHD Annual Report 2011 (ii) On 17 August 2011, the Company and its subsidiary Scomi Rail Bhd (“SRB”) acquired the entire issued and paid-up capital of Urban Transit Services Do Brasil LTDA (“UTSB”), a Brazilian company, for a cash consideration of USD6,000 (approximately RM17,860). As at 31 December 2011, the stock capital of UTSB is Brazilian Real (R$) 601,613 (approximately RM1,080,518) comprising 601,613 stock capital of R$1.00 each, distributed as follows: – the Company holds 601,612 stock capital, with a total par value of R$601,612 (approximately RM1,080,516); and – SRB holds 1 stock capital, with par value of R$1.00 (approximately RM1.80).

The acquisition of these subsidiaries did not have a material impact to the financial statements of the Group and the Company.

(iii) The Company increased its paid up capital in Urban Transit Private Limited by RM25.56 million during the year. NOTES TO THE FINANCIAL STATEMENTS 31 December 2011

17 INVESTMENTS IN SUBSIDIARIES (CONTINUED) (b) Disposal of subsidiaries Financial year ended 31 December 2010 On 30 June 2010, the Company completed the disposal of its entire machine shop business in Scomi OMS Oilfield Holdings Sdn Bhd and Scomi OMS Oilfield Services Pte Ltd, both wholly owned subsidiaries of the Company, for a total consideration of approximately USD101.5 million (approximately RM327.9 million).

On 9 November 2010, the final sale consideration was determined at USD96.7 million (approximately RM311.7 million) less expenses incurred directly attributable to the disposal of RM12.1 million.

Details of subsidiaries are as follows:

Country of Group’s effective Name incorporation equity interest Principal activities 2011 2010

CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI % %

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

Scomi Transportation Malaysia 100 100 Investment holding. pg 108 Systems Sdn Bhd

Urban Transit Private India 100 100 Engage in the business of development, Limited * manufacture and supply of monorail transportation infrastructure systems equipment and services.

Scomi Transit Projects Malaysia 100 100 Engage in the business of development, Sdn Bhd manufacture and supply of monorail transportation infrastructure systems equipment and services.

Scomi OMS Oilfield British Virgin 100 100 Investment holding. Services Ltd * Island

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

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

Urban Transit Services Brazil 100 – Development, manufacture and supply of Do Brasil LTDA* monorail transportation infrastructure systems equipment and services. 17 INVESTMENTS IN SUBSIDIARIES (CONTINUED)

Country of Group’s effective Name incorporation equity interest Principal activities 2011 2010 % %

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

Subsidiaries of Scomi Transportation Systems Sdn Bhd Scomi Rail Bhd Malaysia 100 100 Design, manufacture and supply of monorail trains and related services.

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

Subsidiary of Scomi Coach Sdn Bhd pg 109 Scomi Coach Marketing Malaysia 100 100 Dormant Sdn Bhd

* Not audited by PricewaterhouseCoopers.

18 FINANCIAL INSTRUMENTS BY CATEGORY SCOMI ENGINEERING BHD Annual Report 2011 Assets at fair value through Loans and profit Available- Group receivables or loss for-sale Total RM’000 RM’000 RM’000 RM’000

Assets as per statements of financial position 2011 Available-for-sale financial assets (Note 19) – – 1,516 1,516 Trade and other receivables excluding prepayments 462,971 – – 462,971 Short term deposits, cash and bank balances (Note 24) 53,721 – – 53,721

Total 516,692 – 1,516 518,208

NOTES TO THE FINANCIAL STATEMENTS 31 December 2011

18 FINANCIAL INSTRUMENTS BY CATEGORY (CONTINUED) Assets at fair value through Loans and profit Available- receivables or loss for-sale Total Group RM’000 RM’000 RM’000 RM’000

Asset as per statements of financial position 2010 Available-for-sale financial assets (Note 19) – – 1,516 1,516 Derivative financial assets – 240 – 240 Trade and other receivables excluding prepayments 451,315 – – 451,315 Short term deposits, cash and bank balances (Note 24) 47,241 – – 47,241 CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI

Total 498,556 240 1,516 500,312

Other financial liabilities at pg 110 amortised Group cost Total RM’000 RM’000

Liabilities as per statements of financial position 2011 Borrowings (excluding finance lease liabilities) (Note 27) 307,155 307,155 Finance lease liabilities (Note 27) 543 543 Trade and other payables excluding statutory liabilities 133,039 133,039

Total 440,737 440,737

2010 Borrowings (excluding finance lease liabilities) (Note 27) 189,506 189,506 Finance lease liabilities (Note 27) 638 638 Trade and other payables excluding statutory liabilities 120,474 120,474

Total 310,618 310,618 18 FINANCIAL INSTRUMENTS BY CATEGORY (CONTINUED) Loans and Available- Company receivables for-sale Total RM’000 RM’000 RM’000

Assets as per statements of financial position 2011 Available-for-sale financial assets (Note 19) – 1,389 1,389 Trade and other receivables excluding prepayments 220,092 – 220,092 Short term deposits, cash and bank balances (Note 24) 7,025 – 7,025

Total 227,117 1,389 228,506

2010 Available-for-sale financial assets (Note 19) – 1,389 1,389 Trade and other receivables excluding prepayments 285,616 – 285,616 Short term deposits, cash and bank balances (Note 24) 26,257 – 26,257

Total 311,873 1,389 313,262

Other financial pg 111 liabilities at amortised Company cost Total RM’000 RM’000

Liabilities as per statements of financial position

2011 SCOMI ENGINEERING BHD Annual Report 2011 Borrowings (Note 27) 23,000 23,000 Trade and other payables excluding statutory liabilities 207,816 207,816

Total 230,816 230,816

2010 Borrowings (Note 27) 24,000 24,000 Trade and other payables excluding statutory liabilities 254,750 254,750

Total 278,750 278,750 NOTES TO THE FINANCIAL STATEMENTS 31 December 2011

19 AVAILABLE-FOR-SALE FINANCIAL ASSETS Group Company 2011 2010 2011 2010 RM’000 RM’000 RM’000 RM’000

At fair value: Quoted shares in Malaysia 127 127 – – Unquoted investment in Malaysia 1,389 1,389 1,389 1,389

1,516 1,516 1,389 1,389

Available-for-sale financial assets are denominated in Ringgit Malaysia.

20 DERIVATIVE FINANCIAL ASSETS CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI Group 2010 Assets Liabilities RM’000 RM’000

Forward foreign exchange contracts – cash flow hedges 240 – pg 112 The notional principal amounts of the Group’s outstanding forward foreign exchange contracts are as follows:

Group 2010 RM’000

Maturity Less than 6 months 13,830

The foreign currency amounts to be received and the contractual exchange rates of the Group’s outstanding contracts are as follows: Currency Average to be RM’000 contracted received* equivalent rate

Hedged item Future receivables 2010 USD 13,830 3.1431

In the previous financial year, the fair value of outstanding foreign exchange contracts of the Company at the balance sheet date was favourable by RM240,000.

* Currency being hedged i.e. currency of the underlying receivable/purchase transactions. 21 INVENTORIES Group 2011 2010 RM’000 RM’000

Raw materials 5,969 6,925 Work-in-progress 4,545 10,162 Finished goods – 182 Consumables 385 390

10,899 17,659

22 RECEIVABLES, DEPOSITS AND PREPAYMENTS Group Company 2011 2010 2011 2010 RM’000 RM’000 RM’000 RM’000

Trade receivables 86,543 51,436 23,295 3,437 Less: Allowance for impairment of trade receivables (5,637) (3,765) – – pg 113 80,906 47,671 23,295 3,437 Amounts due from customers on contracts (Note 23) 330,454 364,692 185,562 264,052

Amounts receivable from: – subsidiaries – – 7,342 13,112 – related corporations 2,372 1,478 2,680 1,478 – ultimate holding company 1,118 – 696 SCOMI ENGINEERING BHD Annual Report 2011

2,372 2,596 10,022 15,286

Other receivables 47,103 33,134 351 1,590 Deposits 2,136 3,222 862 1,251 Prepayments 1,263 7,203 16 16

50,502 43,559 1,229 2,857

464,234 458,518 220,108 285,632

Amounts due from subsidiaries, related corporations and ultimate holding company are unsecured with no fixed terms of repayment and are non-interest bearing.

Included in trade receivables is an amount of RM1.8 million withheld by MMRDA as disclosed in Note 4(a). NOTES TO THE FINANCIAL STATEMENTS 31 December 2011

22 RECEIVABLES, DEPOSITS AND PREPAYMENTS (CONTINUED) The currency exposure profile of receivables, deposits and prepayment is analysed as follows:

Functional currency Group Company Ringgit Indian Brazilian Ringgit Malaysia Rupee Real Total Malaysia RM’000 RM’000 RM’000 RM’000 RM’000

2011 Currency exposure profile: – Ringgit Malaysia 148,131 – – 148,131 9,175 – US Dollar 1,626 – – 1,626 2,075 – Indian Rupee 187,314 98,972 – 286,286 187,314 – Brazilian Real 21,544 – 6,273 27,817 21,544

CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI – Others 374 – – 374 –

358,989 98,972 6,273 464,234 220,108

Functional currency Group Company Ringgit Indian Ringgit pg 114 Malaysia Rupee Total Malaysia RM’000 RM’000 RM’000 RM’000

2010 Currency exposure profile: – Ringgit Malaysia 93,567 – 93,567 17,038 – US Dollar 8,660 – 8,660 1,105 – Indian Rupee 267,489 88,681 356,170 267,489 – Others 121 – 121 –

369,837 88,681 458,518 285,632

The credit quality of receivables that were neither past due nor impaired as at the 31 December 2011 is as follows:

Group Company 2011 2010 2011 2010 RM’000 RM’000 RM’000 RM’000

– neither past due nor impaired 413,037 412,314 186,775 267,665 – past due but not impaired 47,562 36,405 23,295 2,665 – past due or impaired 5,637 3,765 – –

466,236 452,484 210,070 270,330 22 RECEIVABLES, DEPOSITS AND PREPAYMENTS (CONTINUED) Trade receivables that were past due their contractual payment date but not impaired relate to a number of external parties where there are no expectations of default and relate to slow paying but long outstanding customers. The age analysis of these trade receivables is as follows:

Group Company 2011 2010 2011 2010 RM’000 RM’000 RM’000 RM’000

Less than three months 27,853 2,224 18,284 2,224 Between three to six months 6,327 3,680 – 441 Between six months and one year 5,011 24,789 5,011 – More than one year 8,371 5,712 – –

47,562 36,405 23,295 2,665

As at 31 December 2011, the amount of allowance for impairment of trade receivables was RM5,637,000 (2010: RM3,765,000). The individually impaired receivables mainly relate to trade receivables that were past due their contractual payment which are in unexpectedly difficult economic situations. The other classes within trade and other receivables do not contain impaired assets.

The carrying amounts of the Group’s and Company’s trade, other and intercompany receivables and deposits equal to their fair values. pg 115

The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. The Group does not hold any collateral as security.

The movements of the Group’s allowance for impairment of trade receivables are as follows:

Group SCOMI ENGINEERING BHD Annual Report 2011 2011 2010 RM’000 RM’000

At 1 January 3,765 4,083 Allowance/(reversal) for receivables impairment 1,872 (34) Bad debts recovery – (284)

At 31 December 5,637 3,765

The movements of the Group’s allowance for impairment of other receivables are as follows:

Group 2011 2010 RM’000 RM’000

At 1 January – 149 Reversal for receivables impairment – (149)

At 31 December – – NOTES TO THE FINANCIAL STATEMENTS 31 December 2011

23 AMOUNTS DUE FROM CUSTOMER ON CONTRACTS Group Company 2011 2010 2011 2010 RM’000 RM’000 RM’000 RM’000

Construction contract costs incurred to date and attributable profits 852,472 653,777 394,508 384,120 Less: Progress billings (522,018) (289,085) (208,946) (120,068)

Amounts due from customers on contracts (Note 22) 330,454 364,692 185,562 264,052

Advance received on contract, included under other payables – 859 – – CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI

24 SHORT TERM DEPOSITS, CASH AND BANK BALANCES Group Company 2011 2010 2011 2010 RM’000 RM’000 RM’000 RM’000 pg 116 Short term deposits with licensed banks 20,515 29,194 500 17,320 Cash and bank balances 33,206 18,047 6,525 8,937

53,721 47,241 7,025 26,257 Bank overdrafts (Note 27) (116,320) (101,798) – –

(62,599) (54,557) 7,025 26,257 Short term deposits with licensed banks pledged as security for bank facilities and restricted cash (20,256) (15,231) – –

(82,855) (69,788) 7,025 26,257 24 SHORT TERM DEPOSITS, CASH AND BANK BALANCES (CONTINUED) The currency exposure profile for short term deposits with licensed banks and cash and bank balances is as follows:

Functional currency Group Company Ringgit Indian Brazilian Ringgit Malaysia Rupee Real Total Malaysia RM’000 RM’000 RM’000 RM’000 RM’000

2011 Currency exposure profile: – Ringgit Malaysia 34,645 – – 34,645 4,659 – US Dollar 2,366 – – 2,366 2,366 – Others – 1,260 15,450 16,710 –

37,011 1,260 15,450 53,721 7,025

Functional currency Group Company Ringgit Indian Ringgit Malaysia Rupee Total Malaysia RM’000 RM’000 RM’000 RM’000 pg 117 2010 Currency exposure profile: – Ringgit Malaysia 39,463 – 39,463 18,548 – US Dollar 7,738 – 7,738 7,709 – Others – 40 40 –

47,201 40 47,241 26,257 SCOMI ENGINEERING BHD Annual Report 2011 NOTES TO THE FINANCIAL STATEMENTS 31 December 2011

25 SHARE CAPITAL Group and Company 2011 2010 Number of Nominal Number of Nominal shares value shares value ‘000 RM’000 ‘000 RM’000

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

Issued and fully paid ordinary shares of RM1.00 each: At 1 January 285,969 285,969 276,180 276,180 Issued during the financial year – Conversion of ICULS 75 75 5,243 5,243 CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI – Exercise of share options – – 4,546 4,546

At 31 December 286,044 286,044 285,969 285,969

(a) Increase in share capital During the financial year, the issued and paid-up capital of the Company was increased from RM285,969,224 comprising 285,969,224 ordinary shares of RM1.00 each, to RM286,044,224 comprising 286,044,224 ordinary pg 118 shares of RM1.00 each, by way of the issuance of 75,000 new ordinary shares of RM1.00 each pursuant to the conversion of ICULS at a price of RM1.00 per share.

In the previous financial year, the issued and paid-up share capital of the Company was increased from RM276,180,067 comprising 276,180,067 ordinary shares of RM1.00 each, to RM285,969,224 comprising 285,969,224 ordinary shares of RM1.00 each, by way of the issuance of:

(i) 5,242,657 new ordinary shares of RM1.00 each pursuant to the conversion of ICULS at a price of RM1.00 per share; and

(ii) 4,546,500 new ordinary shares of RM1.00 each pursuant to the exercise of options granted under the Employees’ Share Option Scheme (“ESOS”) at an option price of RM1.00 per share.

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

(b) Treasury shares The shareholders of the Company, by an ordinary resolution renewed their approval for the Company to repurchase its own shares. The Directors of the Company are committed to enhancing the value of the Company to its shareholders and believe that the repurchase plan can be applied in the best interests of the Company and its shareholders.

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

In the previous financial year, the Company repurchased 2,000 of its issued and paid-up capital from the open market at an average price of RM1.12 per share. The total consideration paid for the repurchase including transaction costs was RM2,314. The repurchase transaction was financed by internally generated funds. The shares repurchased are being held as Treasury shares in accordance with Section 67A of the Companies Act, 1965. As Treasury shares, the rights attached as to voting, dividends and participation in other distribution are suspended. None of the Treasury shares repurchased has been sold as at 31 December 2011. 25 SHARE CAPITAL (Continued) (b) Treasury shares (continued) As at the balance sheet date, 121,800 (2010: 121,800) ordinary shares are held as Treasury shares at a carrying value of RM103,333 (2010: RM103,333), and the number of outstanding shares in issue after setting off against Treasury shares is 285,922,424 (2010: 285,847,424).

(c) Merger relief reserve The merger relief reserve is not distributable as cash dividends.

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

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

The principal features of the ESOS are as follows:

(i) The total number of shares comprising options exercised, options remaining exercisable and unexercised offers pending acceptance under the ESOS shall not exceed 15% of the total issued and paid-up share capital of the Company, such that not more than fifty percent (50%) of the shares available under the ESOS are allocated, in aggregate, to the Directors and senior management of the Group. pg 119 (ii) Not more than ten percent (10%) of the shares available under the ESOS is allocated to any individual Director or employee who, either singly or collectively through his/her associates, holds twenty percent (20%) or more in the issued and paid-up capital of the Company.

(iii) Options shall lapse if the Director ceases his/her directorship with the Company or employee ceases his/her employment with the Company or its subsidiaries prior to the full exercise of his/her options, except when such cessation occurs by reasons as provided by the Company’s ESOS By-Laws such as retirement, ill health, SCOMI ENGINEERING BHD Annual Report 2011 injury, physical or mental disability, and subjected always to the discretion and written approval of the Options Committee of the Company.

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

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

(vi) The options granted are exercisable upon receipt of notice of entitlement to exercise from the Options Committee by or before 1st April of each year. The entitlement to exercise is dependent on the Employee Performance Rating achieved in the preceding year. NOTES TO THE FINANCIAL STATEMENTS 31 December 2011

25 SHARE CAPITAL (Continued) (d) Employees’ Share Option Scheme (“ESOS”) (continued) The movements in the number of share options outstanding and their related weighted average exercise prices are as follows:

Group and Company 2011 2010 Average Average exercise exercise price Options price Options RM/share ’000 RM/share ’000

At 1 January 1.03 16,846 1.03 31,156 Granted 1.00 2,160 – – Forfeited 1.01 (1,960) 1.05 (9,764) Exercised – – 1.00 (4,546) CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI

At 31 December 17,046 16,846

Out of the outstanding options, 5,466,500 (2010: 5,613,500) units of options were exercisable. There were no options exercised during the financial year. Options exercised in the previous financial year resulted in 4,546,500 shares being issued at an average price of RM1.00. pg 120 The weighted average share price during the financial year was RM0.77 (2010: RM1.12) per share. The exercise price of the share options outstanding at the end of the financial year ranged from RM1.00 to RM1.18 (2010: RM1.00 to RM1.18) and had a remaining contractual life of 4 years (2010: 5 years).

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

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

Group and Company

Weighted average share price at date of grant (RM/share) 1.06 Exercise price (RM) – 1st tranche 1.00 – 2nd tranche 1.18 – 3rd tranche 1.00 – 4th tranche 1.00

Valuation assumptions: Expected volatility of share prices 64% Expected option life (year) 3 Risk free interest rate (per annum) 3.74% Expected dividend yield 5%

Weighted average fair value of option granted (RM/option) 0.49 (using Trinomial valuation model) 25 SHARE CAPITAL (Continued) (d) Employees’ Share Option Scheme (“ESOS”) (continued) The expected volatility of the share price in the previous financial year was based on the expected share price volatility of the Company measured based on statistical analysis of monthly share prices over the last 4 years. The expected life of options is based on historical data and is not necessarily indicative of exercise patterns that may occur.

During the financial year, the Group recognised total expenses of RM1,324,000 (2010: RM1,002,000) in respect of share based payment transactions, all of which are in respect of the ESOS.

(e) Currency Exchange Reserve The currency exchange reserve represents the cumulative translation differences arising from translation of foreign operations.

26 SHARE PREMIUM Group and Company 2011 2010 RM‘000 RM’000

As at 1 January 46,605 45,695

Issue of shares Transfer from share option reserve on exercise of share options – 910

pg 121 As at 31 December 46,605 46,605

27 BORROWINGS Group Company 2011 2010 2011 2010 RM’000 RM’000 RM’000 RM’000 SCOMI ENGINEERING BHD Annual Report 2011

Secured Non-current Term loans – 18,000 – 18,000 Revolving credits – 28,000 – – Finance lease liabilities 482 562 – –

482 46,562 – 18,000

Current Bank overdrafts (Note 24) 116,320 101,798 – – Others: Term loans 37,290 6,000 18,000 6,000 Bankers’ acceptances 4,128 5,45 – – Trust receipts 69,191 28,293 – – Finance lease liabilities 61 76 – – Revolving credits 80,226 2,000 5,000 –

190,896 41,784 23,000 6,000

307,216 143,582 23,000 6,000 NOTES TO THE FINANCIAL STATEMENTS 31 December 2011

27 BORROWINGS (continued) Group Company 2011 2010 2011 2010 RM’000 RM’000 RM’000 RM’000

Total Bank overdrafts 116,320 101,798 – – Term loans 37,290 24,000 18,000 24,000 Bankers’ acceptances 4,128 5,415 – – Trust receipts 69,191 28,293 – – Finance lease liabilities 543 638 – – Revolving credits 80,226 30,000 5,000 –

Total borrowings 307,698 190,144 23,000 24,000 CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI The currency exposure profile of borrowings is analysed as follows:

Functional currency Group Company Ringgit Indian Brazilian Ringgit Malaysia Rupee Real Total Malaysia RM’000 RM’000 RM’000 RM’000 RM’000 pg 122 2011 Currency exposure profile: – Ringgit Malaysia 225,196 – – 225,196 23,000 – US Dollar – – 19,290 19,290 – – Indian Rupee – 63,212 – 63,212 –

225,196 63,212 19,290 307,698 23,000

Functional currency Group Company Ringgit Indian Ringgit Malaysia Rupee Total Malaysia RM’000 RM’000 RM’000 RM’000

2010 Currency exposure profile: – Ringgit Malaysia 152,886 – 152,886 24,000 – Indian Rupee – 37,258 37,258 –

152,886 37,258 190,144 24,000 27 BORROWINGS (continued) Group Company 2011 2010 2011 2010 RM’000 RM’000 RM’000 RM’000

Maturity of borrowings: – not later than 1 year 307,216 143,582 23,000 6,000 – later than 1 year and not later than 2 years 64 9,083 – 6,000 – later than 2 years and not later than 5 years 211 29,211 – 12,000 – later than 5 years 207 8,268 – –

307,698 190,144 23,000 24,000

The carrying amounts and fair value of the non-current borrowings are as follows:

Group Carrying amount Fair value 2011 2010 2011 2010 RM’000 RM’000 RM’000 RM’000

Term loans – 18,000 – 16,222 Revolving credits – 28,000 – 22,065 Finance lease liabilities 482 562 – 460 pg 123

482 46,562 – 38,747

Company Carrying amount Fair value

2011 2010 2011 2010 SCOMI ENGINEERING BHD Annual Report 2011 RM’000 RM’000 RM’000 RM’000

Term loan – 18,000 – 16,222

The carrying amounts of current borrowings approximate their fair value. NOTES TO THE FINANCIAL STATEMENTS 31 December 2011

27 BORROWINGS (CONTINUED) The effective interest rate range per annum on the Group’s and Company’s borrowings at the balance sheet date are as follows: Effective interest rates 2011 2010 % per annum % per annum

Group Bank overdrafts 5.60 – 11.00 5.33 – 13.80 Term loans 3.30 – 7.60 7.02 – 7.55 Revolving credit 7.10 – 7.60 6.45 – 6.98 Bankers’ acceptances 1.00 1.00 Trust receipts 7.10 – 7.60 6.49 – 7.55 Finance lease liabilities 2.70 2.63 – 2.73

CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI Company Term loans 7.60 7.02 – 7.55 Revolving credits 6.05 –

The borrowings of the Group and Company are secured as follows: pg 124 (i) the term loan drawn down by the Company is secured by way of a charge over shares in a subsidiary company;

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

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

(iv) the revolving credit loan drawn down by subsidiaries are secured by way of assignment of contract proceeds and charge over a subsidiary company land and building, assignment over rental agreement, charge over escrow account and debentures over its machinery, and a corporate guarantee from Danajamin of up to 80% of the facility amount.

Finance lease liabilities are effectively secured as the rights to those assets held under finance lease arrangements revert to the lessors in the event of default. The minimum lease payments at the balance sheet date are as follows:-

Group 2011 2010 RM’000 RM’000

Not later than 1 year 89 104 Later than 1 year and not later than 5 years 558 668

647 772 Future finance charges (104) (134)

Present value of finance lease liabilities 543 638 27 BORROWINGS (CONTINUED) Breach of loan covenant As at 31 December 2011, Scomi Transit Projects Sdn Bhd, a wholly owned subsidiary of the Company, did not fulfil a financial covenant clause in relation to its RM264.7 million bank loan facilities. Accordingly, the banks were contractually entitled to request for immediate repayment of the outstanding balance of RM55.7 million as at 31 December 2011. As a result RM58 million has been reclassified to short term borrowings under current liabilities.

Subsequent to the end of the reporting period, management has obtained indulgence from the bank in respect of the breach.

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

Group Company 2011 2010 2011 2010 RM’000 RM’000 RM’000 RM’000

Deferred tax assets 13,638 19,547 626 7,378

pg 125 At 1 January 19,547 4,197 7,378 2,844 Credited/(charged) to income statement (Note 12) – property, plant and equipment – 822 – – unabsorbed tax losses (5,812) 15,953 (5,812) 2,968 – reinvestment allowance – (4,019) – – others (8) (1,189) (938) –

(5,820) 11,567 (6,750) 2,968 SCOMI ENGINEERING BHD Annual Report 2011 Recognised in equity (2) 1,566 (2) 1,566 Disposal of subsidiaries – 2,217 – – Exchange difference (87) – – –

At 31 December 13,638 19,547 626 7,378 NOTES TO THE FINANCIAL STATEMENTS 31 December 2011

28 DEFERRED TAX (CONTINUED) Group Company 2011 2010 2011 2010 RM’000 RM’000 RM’000 RM’000

Subject to income tax Deferred tax assets (before offsetting) Unabsorbed tax losses 18,739 23,865 – 5,812 ICULS 626 1,566 626 1,566 Others 167 969 – –

19,532 26,400 626 7,378 Offsetting (5,894) (6,853) – –

Deferred tax assets (after offsetting) 13,638 19,547 626 7,378 CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI

Deferred tax liabilities (before offsetting) Property, plant and equipment 5,894 5,894 – – Others – 959 – –

5,894 6,853 – – pg 126 Offsetting (5,894) (6,853) – –

Deferred tax liabilities (after offsetting) – – – –

The amount of unabsorbed tax losses (which is subject to agreement by the tax authorities), unabsorbed capital allowances and other temporary differences for which no deferred tax asset is recognised on the statement of financial position is as follows:

Group Company 2011 2010 2011 2010 RM’000 RM’000 RM’000 RM’000

Unabsorbed tax losses 57,981 35,846 17,498 – Unabsorbed capital allowances 1,255 1,627 – –

Deferred tax assets have not been recognised on the above balances as it is uncertain that there will be future taxable profits to utilise those temporary differences. 29 IRREDEEMABLE CONVERTIBLE UNSECURED LOAN STOCKS (“ICULS”) On 23 March 2010, the Company issued 61,352,936 three (3)-year 4% ICULS at a nominal value of RM1.00 each for cash for working capital requirements of the Group. The salient features of the ICULS are as follows:

(a) The conversion price is fixed at RM1.00 per share;

(b) The registered holder of the ICULS has the right at any time during the conversion period to convert the ICULS at the conversion price into fully paid new ordinary shares of RM1.00 per share in the Company;

(c) The ICULS can be converted into fully paid new ordinary shares of RM1.00 each in the Company at any time during its 3 year tenure. At the end of the tenure, any outstanding ICULS will be automatically converted into fully paid new ordinary shares of RM1.00 per share;

(d) The ICULS are not redeemable;

(e) The ICULS bear interest at 4% per annum based on the nominal amount of the ICULS. The interest shall be payable quarterly in arrears;

(f) The holders of the ICULS are not entitled to participate in any distribution and/or offer of securities in the Company until and unless such holders of the ICULS convert the ICULS into new ordinary shares in the Company; and

(g) The new ordinary shares allotted and issued upon conversion of the ICULS will be considered as fully paid-up and will rank pari passu in all respects with the existing ordinary shares of the Company. pg 127 The fair value of the liability component was calculated using a market rate for an equivalent loan stock. The residual amount, representing the value of the equity component, is included in reserves, net of income taxes.

Group and Company 2011 2010 RM’000 RM’000 SCOMI ENGINEERING BHD Annual Report 2011 Face value of ICULS issued 61,353 61,353 Liability component on initial recognition (6,851) (6,851) Deferred tax assets 1,713 1,713

56,215 56,215

Liability component on initial recognition 4,619 6,851 Conversion of ICULS (8) (585) Repayment during the financial year (2,243) (1,720) Interest expense 137 73

2,505 4,619

Liability component analysed as: Current liabilities 2,015 2,053 Non-current liabilities 490 2,566

2,505 4,619 NOTES TO THE FINANCIAL STATEMENTS 31 December 2011

30 PAYABLES Group Company 2011 2010 2011 2010 RM’000 RM’000 RM’000 RM’000

Trade payables 114,515 100,750 198,049 246,056 Other payables 15,455 25,995 2,984 8,853 Amounts payable to: – subsidiaries – – 2,500 1,869 – related corporations 1,293 4,538 1,177 4,225 – ultimate holding company 2,726 – 3,148 –

4,019 4,538 6,825 6,094

133,989 131,283 207,858 261,003 CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI

The currency exposure profile of payables is analysed as follows:

Functional currency Group Company Ringgit Indian Ringgit pg 128 Malaysia Rupee Total Malaysia RM’000 RM’000 RM’000 RM’000

2011 Currency exposure profile: – Ringgit Malaysia 125,966 – 125,966 206,628 – US Dollar 1,163 – 1,163 1,230 – Indian Rupee – 5,131 5,131 – – Euro 97 – 97 – – Singapore Dollar 70 – 70 – – Others 1,562 – 1,562 –

128,858 5,131 133,989 207,858

2010 Currency exposure profile: – Ringgit Malaysia 115,201 – 115,201 261,003 – US Dollar 8,629 – 8,629 – – Indian Rupee 590 2,969 3,559 – – Euro 1,607 – 1,607 – – Australian Dollar 2,047 – 2,047 – – Sterling Pound 240 – 240 –

128,314 2,969 131,283 261,003

Amounts due to subsidiaries, related corporations and ultimate holding company are unsecured with no fixed terms of repayment and are non-interest bearing. 31 DEFERRED GOVERNMENT GRANT Group 2011 2010 RM’000 RM’000

Deferred government grant 2,155 1,568

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

As at 31 December 2011, the grant of RM2,155,000 was fully disbursed to the Group. Amortisation over the expected life of the related assets will commence in the next financial year to mirror the pattern of consumption of the related intangible asset.

32 COMMITMENTS (a) Future capital expenditure Capital expenditure not provided for in the financial statements are as follows:

Group 2011 2010 RM’000 RM’000 pg 129

Approved and contracted for – 49 Approved but not contracted for 14,161 18,091

14,161 18,140 SCOMI ENGINEERING BHD Annual Report 2011 Analysed as follows: – property, plant and equipment 10,549 12,508 – development costs 3,612 5,632

14,161 18,140

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

Group Company 2011 2010 2011 2010 RM’000 RM’000 RM’000 RM’000

Not later than 1 year 2,444 1,414 384 384 Later than 1 year and not later than 2 years 2,485 1,414 395 384 Later than 2 years and not later than 5 years 29 1,455 – 395

4,958 4,283 779 1,163 NOTES TO THE FINANCIAL STATEMENTS 31 December 2011

33 BANK GUARANTEES Group Company 2011 2010 2011 2010 RM’000 RM’000 RM’000 RM’000

Bank guarantees given to third party in respect of performance guarantee given by subsidiaries 121,968 100,365 10,742 9,947

34 SIGNIFICANT RELATED PARTY DISCLOSURES (a) In the normal course of business, the Group and Company undertake a variety of transactions at mutually agreed terms with subsidiary companies and other related parties. The related parties with whom the Group and Company transact with, include the following companies:

CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI Related parties Relationship Scomi Group Bhd Ultimate holding company Scomi Oilfield Ltd Fellow subsidiary Scomi Marine Berhad Associate of ultimate holding company

In addition to the related party disclosures mentioned elsewhere in the financial statements, set out below are the Group’s other significant related party transactions in relation to these transactions: pg 130 Group Company 2011 2010 2011 2010 RM’000 RM’000 RM’000 RM’000

Subsidiaries: Management fee receivable – – 10,754 12,371 Dividend income – – – 31,491 Contract costs payable – – 43,074 168,184 Ultimate holding company: Management fee payable 1,795 1,672 – –

Fellow subsidiary: Payments on behalf 2,203 – 2,203 – Expenses incurred on behalf 830 – 830 –

Airline ticketing services provided by Lintas Travel & Tours Sdn Bhd, a company connected to a Director 1,341 2,008 23 295 34 SIGNIFICANT RELATED PARTY DISCLOSURES (CONTINUED) (b) Compensation of key management personnel The remuneration of Directors and other members of key management during the financial year was as follows:

Group Company 2011 2010 2011 2010 RM’000 RM’000 RM’000 RM’000

Short-term employee benefits 4,538 3,961 1,261 2,229 Post-employment benefits: Defined contribution plan 418 474 260 241 Share-based payment 302 484 245 401 Estimated monetary value of benefits-in-kind 868 558 265 –

6,126 5,477 2,031 2,871

The Executive Director and other members of key management have been granted the following number of options under the ESOS:

Group and Company 2011 2010 RM’000 RM’000 pg 131 At 1 January 12,435 13,850 Granted 2,160 – Exercised – (1,415) Forfeited (1,800) –

At 31 December 12,795 12,435 SCOMI ENGINEERING BHD Annual Report 2011

The share options were granted on the same terms and conditions as those offered to other employees of the Group (Note 25(d)).

Key management personnel of the Company are defined as the Directors and senior management. NOTES TO THE FINANCIAL STATEMENTS 31 December 2011

35 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, interest rate risk and price risk), credit risk and liquidity risk.

The Group’s overall financial risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses derivative financial instruments to hedge certain risk exposures.

Financial risk management is carried out through risk reviews, internal control systems, a global insurance programme and adherence to Group financial risk management policies. The Board regularly reviews these risks and approves the related treasury policies which cover the management of these risks.

(a) Market risk (i) Foreign exchange risk Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are

CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI denominated in a currency that is not the entity’s functional currency.

The Group has a project in India and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Indian Rupee. Foreign currency denominated assets and liabilities together with expected cash flows from highly probable purchases and sales give rise to foreign exchange exposures.

At 31 December 2011, if the INR had weakened/strengthened by 5% against the Ringgit Malaysia with all other variables held constant, post-tax loss for the year would have been RM10.1 million (2010: RM14.0 pg 132 million) higher/lower, mainly as a result of foreign exchange losses/gains on translation of INR denominated trade receivables and amounts due from customers on contracts.

(ii) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of the Group’s financial instruments will fluctuate because of changes in market interest rates.

The Group’s primary interest rate risk relates to interest bearing borrowings. The investments in financial assets are mainly short term in nature and have been placed mostly in fixed deposits.

The Group manages its interest rate exposure by obtaining financing at competitive rates, which is a mix of fixed and floating interest rates borrowing instruments. The Group reviews its debt portfolio, taking into account the investment holding period and nature of its assets.

The information on maturity dates and effective interest rates of financial assets and liabilities are disclosed in the respective notes to the financial statements. 35 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) (a) Market risk (continued) (ii) Interest rate risk (continued) The interest rate profile of the Group’s interest bearing borrowings, based on carrying amounts as at the end of the reporting period was:

2011 2010 RM’000 RM’000

Fixed rate borrowings Finance lease liabilities 543 638

Floating rate borrowings Bank overdrafts 116,320 101,798 Term loans 37,290 24,000 Bankers’ acceptances 4,128 5,415 Trust receipts 69,191 28,293 Revolving credits 80,226 30,000

307,155 189,506

Total borrowings 307,698 190,144

pg 133 As at 31 December 2011, the Group’s borrowings at floating rate were denominated in Ringgit Malaysia, Indian Rupee and US Dollar. If interest rates on these borrowings had been 1% higher/lower with all other variables held constant, post-tax loss for the year would have been RM2.4 million (2010: RM2 million) higher/lower, mainly as a result of higher/lower interest expense on floating rate borrowings.

(iii) Price risk The Group is exposed to equity price risk because of investments held by the Group and classified on the SCOMI ENGINEERING BHD Annual Report 2011 balance sheet at fair value.

The Group is not significantly impacted by an increase or decrease in the fair value of these instruments.

(b) Credit risk Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to trade receivables.

Credit risk, when making deposits at financial institutions, are minimised through careful selection of interest bearing investments and selection of reputable and creditworthy financial institutions.

Customer credit risk arises when services are rendered and sales are made on credit terms. Default by customers may lead to material loss but risks are mitigated by ensuring sales and services are made to customers with appropriate credit history. The Group monitors exposure to credit risk on an on-going basis. The Group considers the risk of its main customers defaulting in payments to be unlikely in view that its credit exposure is mainly to government bodies. At the reporting date, approximately 67% (2010: 85%) of the Group’s trade receivables and amounts due from customer on contracts were due from one individual customer in India who is a government body.

At the reporting date, the Group’s and Company’s maximum exposure to credit risk is represented by the carrying amount of each class of financial assets recognised in the statement of financial position. Information regarding trade receivables that are neither past due nor impaired and either past due or impaired are disclosed in Note 22 to the financial statements. NOTES TO THE FINANCIAL STATEMENTS 31 December 2011

35 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) (c) Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting financial obligations due to shortage of funds. The Group’s exposure to liquidity risk arises primarily from mismatches of the maturities of financial assets and liabilities. The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of stand-by credit facilities.

The Group manages its debt maturity profile, operating cash flows and the availability of funding so as to ensure that refinancing, repayment and funding needs are met.

At the reporting date, approximately 76% (2010: 69%) of the Group’s borrowings will mature in less than one year based on the carrying amount reflected in the financial statements, after incorporating reclassifications arising from loan covenant breaches, and the Group is in a negative cash and cash equivalents position. The Group had available short-term deposits with banks and cash and bank balances of RM32,669,000 (2010: RM23,189,000), unutilised banking facilities amounting to RM263 million, indulgence from bankers for waivers of loan breaches and receipts from rail projects to manage liquidity risk in the next 12 months. CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI

The table below analyses the financial liabilities into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows:

Between 1 Between 2 Less than and 2 and 5 Over pg 134 1 year years years 5 years RM’000 RM’000 RM’000 RM’000

As at 31 December 2011 Group Borrowings 309,980 2,922 3,079 600 Trade and other payables 135,551 – – –

Company Borrowings 24,117 670 447 – Trade and other payables 207,858 – – –

As at 31 December 2010 Group Borrowings 146,578 11,847 33,163 10,883 Trade and other payables 126,745 – – –

Company Borrowings 7,564 7,117 13,117 – Trade and other payables 254,909 – – – 35 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) (d) Capital risk management The Group manages its capital to ensure that the entities in the Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of debt and equity and ensuring that all financial covenants relating to debt and/or equity are met.

The capital structure of the Group consists of net debt (borrowings offset by short term deposits, cash and bank balances) and equity of the Group (comprising issued capital, reserves and retained earnings). The Group’s gearing ratio at the end of the reporting date is as follows:

2011 2010 RM’000 RM’000

Current borrowings 307,216 143,582 Non-current borrowings 482 46,562

Total borrowings 307,698 190,144 Less: Short term deposits, cash and bank balances (53,721) (47,241)

Net debt 253,977 142,903

Equity 328,652 410,424 pg 135

Net debt to equity ratio 77.3% 34.8%

During the financial year, the Group did not meet a financial covenant ratio as disclosed in Note 27 which has however been rectified past year end. SCOMI ENGINEERING BHD Annual Report 2011 (e) Fair values Fair value estimation Effective 1 January 2011, the Group adopted the Amendment to FRS 7 for financial instruments that are measured in the statement of financial position at fair value. This requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:

– Quoted prices (unadjusted) in active markets for identical assets and liabilities (Level 1);

– Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2);

– Inputs for the asset and liability that are not based on observable market data (that is, unobservable inputs) (Level 3). NOTES TO THE FINANCIAL STATEMENTS 31 December 2011

35 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) (e) Fair values (continued)

The following table presents the Group’s assets that are measured at fair value:

Level 1 Level 2 Level 3 Total RM’000 RM’000 RM’000 RM’000

At 31 December 2011: Assets Available-for-sale financial assets 127 – 1,389 1,516

At 31 December 2010: Assets

CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI Available-for-sale financial assets 127 – 1,389 1,516 Derivative financial assets 240 – – 240

Total assets 367 – 1,389 1,756

36 SEGMENTAL REPORTING pg 136 The Group is organised into two main business segments:

• Rail – development, design, manufacture and supply of monorail transportation infrastructure systems equipments and services, and related engineering support services.

• Coach and Special Purpose Vehicles (“Coach and SPV”) – manufacture, fabrication and assembly of commercial coaches, truck vehicle bodies and special purpose vehicles.

As disclosed in Note 5, the Group has discontinued its Energy Engineering operations, which have been disclosed under a separate segment as discontinued operations in the previous financial year.

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

Capital expenditure comprises additions to property, plant and equipment, prepaid land lease payments and intangible assets. 36 SEGMENTAL REPORTING (continued)

Coach 2011 Rail and SPV Reconciliation Group RM’000 RM’000 RM’000 RM’000

Revenue External sales 202,201 44,595 – 246,796

Revenue from continuing operations 202,201 44,595 – 246,796

Results Segment results (34,881) (10,927) – (45,808) Unallocated expenses (70) Interest income 999 Interest expense (29,550)

Loss before taxation (74,429) Tax expense (7,177)

Loss after taxation for the financial year (81,606)

pg 137

Assets Segment assets 565,732 61,015 – 626,747 Unallocated corporate assets 146,891

Consolidated total assets 773,638

SCOMI ENGINEERING BHD Annual Report 2011

Liabilities Segment liabilities 334,638 63,582 – 398,220 Unallocated corporate liabilities 49,554

Consolidated total liabilities 447,774

Other information Depreciation and amortisation (7,106) (1,388) – (8,494) Unallocated depreciation – – – (320) Unrealised foreign exchange (losses)/gain (20,559) – 483 (20,076)

NOTES TO THE FINANCIAL STATEMENTS 31 December 2011

36 SEGMENTAL REPORTING (CONTINUED) Coach 2010 Rail and SPV Reconciliation Group RM’000 RM’000 RM’000 RM’000

Revenue External sales 276,683 73,301 – 349,984

Revenue from continuing operations 276,683 73,301 – 349,984

Revenue from discontinued operations 50,801

Revenue 400,785

CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI Results Segment results (6,223) (14,140) – (20,363) Unallocated expenses (4,319) Interest income 1,234 Interest expense (17,466) Gain on disposal of subsidiaries 19,677

Loss before taxation (21,237) pg 138 Tax credit 7,511

Loss after taxation from continuing operations (13,726) Profit after taxation from discontinued operations 2,506

Loss after taxation for the financial year (11,220)

Assets Segment assets 600,962 78,866 – 679,828 Unallocated corporate assets 62,849

Consolidated total assets 742,677

Liabilities Segment liabilities 231,298 79,966 – 311,264 Unallocated corporate liabilities 20,989

Consolidated total liabilities 332,253

Other information Depreciation and amortisation (4,892) (1,639) – (6,531) Unallocated depreciation – – – (237) Gain on disposal of subsidiaries – – 19,677 19,677 Unrealised foreign exchange losses (17,377) – (3,674) (21,051) 36 SEGMENTAL REPORTING (CONTINUED) The Group operates in the following geographical areas: • Malaysia* – Design, manufacture and supply of monorail, urban transportation (including buses, special purpose vehicles and coaches), rail solutions and related engineering support services. • India and Brazil – Supply of transportation infrastructure systems, equipments and services.

* Company’s home country.

The Energy Engineering operations provided in Malaysia, Singapore and other countries have been disclosed as discontinued operations in the previous financial year. Total Total non-current revenue assets RM’000 RM’000

2011 Malaysia 173,965 217,846 India 37,024 774 Brazil 35,807 44

246,796 218,664

2010 pg 139 Malaysia 124,431 183,530 Singapore 20,843 – India 239,863 1,014 Other countries 15,648 –

400,785 184,544 SCOMI ENGINEERING BHD Annual Report 2011

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

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

37 SIGNIFICANT EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE There were no significant events subsequent to the balance sheet date.

38 APPROVAL OF FINANCIAL STATEMENTS The financial statements have been approved for issue in accordance with a resolution of the Board of Directors on 30 April 2012. SUPPLEMENTARY INFORMATION

39 REALISED AND UNREALISED RETAINED PROFITS The breakdown of the unappropriated profits or accumulated losses as at 31 December 2011 into realised and unrealised profits or losses is presented in accordance with the directive issued by Bursa Malaysia Securities Berhad dated 25 March 2010 and prepared in accordance with Guidance on Special Matter No. 1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, as issued by the Malaysian Institute of Accountants.

Group Company 2011 2010 2011 2010 RM’000 RM’000 RM’000 RM’000

Realised and unrealised profits/(losses) of the Company and its subsidiaries:

– realised (54,217) 10,236 (3,703) 5,607 – unrealised (25,637) (4,503) (36,165) (11,088) CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI (79,854) 5,733 (39,868) (5,481) Less: Consolidation adjustments 2,143 (1,838) – –

Total retained earnings/(accumulated losses) (77,711) 3,895 (39,868) (5,481)

pg 140 STATEMENT BY DIRECTORS pursuant to section 169(15) of the companies act, 1965

We, Datuk Zainun Aishah binti Ahmad and Shah Hakim @ Shahzanim bin Zain, being two of the Directors of Scomi Engineering Bhd do hereby, state that, in the opinion of the Directors, the accompanying financial statements set out on pages 56 to 140 are drawn up so as to give a true and fair view of the state of affairs of the Group and Company as at 31 December 2011 and of the results and cash flows of the Group and Company for the financial year ended on that date in accordance with the provisions of the Companies Act, 1965 and MASB Approved Accounting Standards in Malaysia for Entities Other Than Private Entities.

The information set out in Note 39 to the financial statements have been prepared in accordance with the Guidance on Special Matter No. 1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, as issued by the Malaysian Institute of Accountants.

Signed on behalf of the Board of Directors in accordance with a resolution dated 30 April 2012.

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

pg 141 STATUTORY DECLARATION pursuant to section 169(16) of the companies act, 1965

I, Yan Siew Ching, being the officer primarily responsible for the financial management of Scomi Engineering Bhd, do solemnly SCOMI ENGINEERING BHD Annual Report 2011 and sincerely declare that the financial statements set out on pages 56 to 140 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.

YAN SIEW CHING

Subscribed and solemnly declared by the abovenamed Yan Siew Ching at Kuala Lumpur on 30 April 2012 before me.

COMMISSIONER FOR OATHS INDEPENDENT AUDITORS’ REPORT to the members of Scomi Engineering Bhd (Incorporated in Malaysia) (Company No. 11633-M)

REPORT ON THE FINANCIAL STATEMENTS We have audited the financial statements of Scomi Engineering Bhd on pages 62 to 139, which comprise the statement of financial positions as at 31 December 2011 of the Group and Company, and the statements of comprehensive income, changes in equity and cash flows of the Group and Company for the financial year then ended, and a summary of significant accounting policies and other explanatory notes, as set out in Notes 1 to 38.

Directors’ Responsibility for the Financial Statements The Directors of the Company are responsible for the preparation of financial statements that give a true and fair view in accordance with Financial Reporting Standards in Malaysia, the MASB Approved Accounting Standards in Malaysia for Entities Other than Private Entities and the Companies Act, 1965, and for such internal control as the directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in

CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation of financial statements that give a true and fair view in order to design audit procedures that are pg 142 appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the financial statements have been properly drawn up in accordance with Financial Reporting Standards in Malaysia, MASB Approved Accounting Standards in Malaysia for Entities Other than Private Entities and the Companies Act, 1965 so as to give a true and fair view of the financial position of the Group and Company as of 31 December 2011 and of their financial performance and cash flows for the year then ended.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report the following:

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

(b) We have considered the financial statements and the auditors’ reports of all the subsidiaries of which we have not acted as auditors, which are indicated in Note 17 to the financial statements.

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

(d) The audit reports on the financial statements of the subsidiaries did not contain any qualification or any adverse comment made under Section 174(3) of the Act. OTHER REPORTING RESPONSIBILITIES The supplementary information set out in Note 39 on page 140 is disclosed to meet the requirement of Bursa Malaysia Securities Berhad and is not part of the financial statements. The directors are responsible for the preparation of the supplementary information in accordance with Guidance on Special Matter No. 1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, as issued by the Malaysian Institute of Accountants (“MIA Guidance”) and the directive of Bursa Malaysia Securities Berhad. In our opinion, the supplementary information is prepared, in all material respects, in accordance with the MIA Guidance and the directive of Bursa Malaysia Securities Berhad.

OTHER MATTERS This report is made solely to the members of the Company, as a body, in accordance with Section 174 of the Companies Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report.

PRICEWATERHOUSECOOPERS YEE WAI YIN (No. AF: 1146) (No. 2081/08/12(J)) Chartered Accountants Chartered Accountant

Kuala Lumpur pg 143 30 April 2012 SCOMI ENGINEERING BHD Annual Report 2011 ANALYSIS OF SHAREHOLDINGS as at 30 April 2012

Authorised Share Capital : RM400,000,000.00 divided into 400,000,000 ordinary shares of RM1.00 each Issued and Paid Up Capital : RM285,922,424.00 divided into 285,922,424 ordinary shares of RM1.00 each. This excludes 121,800 ordinary shares purchased by the Company under share buy-back scheme and retained as treasury shares. Types of Shares : Ordinary share of RM1.00 each Voting Rights : One vote per ordinary share

Distribution of Shareholdings Shareholders Shareholdings Size of shareholdings No. of Holders % of Holders No. of Shares % of Shares

Less than 100 50 1.45 575 0.00 100 to 1,000 696 20.15 490,309 0.17 1,001 to 10,000 1,881 54.46 9,571,244 3.35

CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI 10,001 to 100,000 728 21.08 21,667,883 7.58 100,001 to less than 5% of issues shares 97 2.81 61,692,413 21.58 5% and above of issues shares 2 0.06 192,500,000 67.33

Total 3,454 100.00 285,922,424 100.00

pg 144 Thirty largest registered shareholders Registered Shareholders No. of Shares % of Shares

1. Malaysia Nominees (Tempatan) Sendirian Berhad Oversea-Chinese Banking Corporation Ltd Labuan Branch for Scomi Group Bhd 112,500,000 39.35 2. UOBM Nominees (Tempatan) Sdn Bhd Pledged securities account for Scomi Group Bhd (PIB) 80,000,000 27.98 3. Bara Aktif Sdn Bhd 8,949,000 3.13 4. Eagletron Venture Corp. 8,489,000 2.97 5. Malaysia Nominees (Tempatan) Sendirian Berhad Great Eastern Life Assurance (Malaysia) Berhad (LPF) 4,186,910 1.46 6. Amanahraya Trustees Berhad Public Islamic Select Treasures Fund 4,147,600 1.45 7. HSBC Nominees (Asing) Sdn Bhd Exempt an for Credit Suisse (SG-BR-TST-Asing) 3,800,200 1.33 8. Public Nominees (Tempatan) Sdn Bhd Pledged securities account for Nik Awang @ Wan Azmi bin Wan Hamzah (E-KPG/JRL) 3,000,000 1.05 9. Kenanga Nominees (Tempatan) Sdn Bhd Pledged securities account for Nik Awang @ Wan Azmi bin Wan Hamzah 2,776,214 0.97 10. Amanahraya Trustees Berhad Public Islamic Opportunities Fund 2,370,900 0.83 Thirty largest registered shareholders (continued)

Registered Shareholders No. of Shares % of Shares

11. Maybank Nominees (Asing) Sdn Bhd Pledged securities account for San Tuan Sam 1,857,000 0.65 12. Malaysia Nominees (Tempatan) Sendirian Berhad Great Eastern Life Assurance (Malaysia) Berhad (DR) 1,248,200 0.44 13. Cimsec Nominees (Tempatan) Sdn Bhd Pledged securities account for Chan Thye Thian (J DEDAP-CL) 919,400 0.32 14. Public Nominees (Tempatan) Sdn Bhd Pledged securities account for Tee Kim Hew (E-KLG/BTG) 740,900 0.26 15. Wong Chock Faa 641,839 0.22 16. Shah Hakim @ Shahzanim bin Zain 623,000 0.22 17. Foong Seng 620,662 0.22 18. Cimsec Nominees (Asing) Sdn Bhd CIMB for Mervyn Mahon (PB) 605,000 0.21 19. Public Nominees (Tempatan) Sdn Bhd Pledged securities account for Koay Ean Chim (IMO/TAS) 532,888 0.19 20. Ee Bee Pheng 500,000 0.17 21. Public Invest Nominees (Tempatan) Sdn Bhd Pledged securities account for Chong Kwong Chin (M) 500,000 0.17 pg 145 22. Mansor bin Tahir 484,900 0.17 23. Cimsec Nominess (Tempatan) Sdn Bhd CIMB Bank for Haris Onn bin Hussein (MM0614) 483,400 0.17 24. TA Nominees (Tempatan) Sdn Bhd Pledged securities account for Koay Ean Chim 360,000 0.13 25. Pang Chin Kan 354,800 0.12

26. Maybank Nominees (Tempatan) Sdn Bhd SCOMI ENGINEERING BHD Annual Report 2011 Pledged securities account for Tang Sing Ling 338,000 0.12 27. Lim Hock Lai 320,900 0.11 28. Maybank Nominees (Tempatan) Sdn Bhd Pledged securities account for Chew Pok Oi 317,411 0.11 29. Ng Kian Bing 317,000 0.11 30. Saw Chai Soon 315,466 0.11

Total 242,300,590 84.74 ANALYSIS OF SHAREHOLDINGS as at 30 April 2012

SUBSTANTIAL SHAREHOLDERS Direct Shareholding Indirect Shareholding Substantial Shareholders No. of Shares % of Shares No. of Shares % of Shares

Scomi Group Bhd 192,567,567 67.35 – – Kaspadu Sdn Bhd – – (1)192,567,567 67.35 Shah Hakim @ Shahzanim bin Zain (3)623,000 0.22 (2)192,567,567 67.35 Dato’ Kamaluddin bin Abdullah – – (2)192,567,567 67.35

Notes: (1) Deemed interested by virtue of Section 6A(4) of the Act through its interest in Scomi Group Bhd, which in turn is deemed interested in Scomi Engineering Bhd. (2) Deemed interested by virtue of Section 6A (4) of the Act through his shareholding in Kaspadu Sdn Bhd, which in turn is deemed interested in Scomi Engineering Bhd. (3) 123,000 ordinary shares held through BHLB Trustee Berhad. CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI

Directors’ Shareholdings Direct Interest Indirect Interest Directors No. of Shares % of Shares No. of Options No. of Shares % of Shares

Datuk Zainun Aishah binti Ahmad 250,000 0.09 500,000# – – pg 146 Dato’ Abdul Rahim bin Abu Bakar 219,700 0.08 300,000# – – Edlin bin Ghazaly 300,000 0.10 300,000# – – Fad’l bin Mohamed 60,000@ 0.02 360,000# – – Abdul Hamid bin Sheikh Mohamed – – 360,000# – – Shah Hakim @ Shahzanim bin Zain 623,000* 0.22 1,500,000# 192,567,567^ 67.35

Notes # Options granted pursuant to the Company’s Employees’ Share Options Scheme to subscribe for ordinary shares in the Company. ^ Deemed interested by virtue of Section 6A(4) of the Act through his shareholding in Scomi Group Bhd, which in turn is deemed interested in Scomi Engineering Bhd. * 123,000 ordinary shares held through BHLB Trustee Berhad. @ 60,000 ordinary shares held through Amsec Nominees (Tempatan) Sdn Bhd. ANALYSIS OF IRREDEEMABLE CONVERTIBLE UNSECURED LOAN STOCKS (“ICULS”) HOLDINGs as at 30 April 2012

Total Number of ICULS Issued : 61,352,936 Total Number of Outstanding ICULS : 56,035,279 Issued Price of ICULS : RM1.00 per ICULS Conversion of ICULS : two (2) units of ICULS for nine (9) ordinary share of RM1.00 each

Distribution of ICUSLS Holdings ICULS holders ICULS holding Size of ICULS holdings No. of ICULS holders % of ICULS holders No. of ICULS % of ICULS

Less than 100 11 3.85 233 0.00 100 to 1,000 105 36.71 72,065 0.13 1,001 to 10,000 141 49.30 457,427 0.82 10,001 to 100,000 27 9.44 607,063 1.08 100,001 to less than 5% of issues 1 0.35 116,000 0.21 ICULS 5% and above of issues ICULS 1 0.35 54,782,491 97.76

Total 286 100.00 56,035,279 100.00

Thirty Largest Registered ICULS Holders Name of ICULS holder No. of ICULS % of ICULS pg 147 1. OSK Nominees (Tempatan) Sdn Berhad OSK Trustees Berhad for Scomi Group Bhd 54,782,491 97.76 2. Maybank Nominees (Asing) Sdn Bhd Pledged securities account for San Tuan Sam 116,000 0.21 3. Amsec Nominees (Tempatan) Sdn Bhd Pledged securities account for Kong Siok Lian 50,000 0.09 SCOMI ENGINEERING BHD Annual Report 2011 4. Tharumanathan A/L S. Eliathamby 50,000 0.09 5. HLB Nominees (Tempatan) Sdn Bhd Pledged securities account for Lee Chiah Cheang 44,444 0.08 6. Public Invest Nominees (Tempatan) Sdn Bhd Pledged securities account for Chong Kwong Chin (M) 33,244 0.06 7. Lee Kok Hoong 33,000 0.06 8. Lee Chiah Cheang 31,700 0.06 9. HDM Nominees (Asing) Sdn Bhd UOB Kay Hian Pte Ltd for Lim Leong Kheng Richard 30,000 0.05 10. Mathews K. Simon A/L Mathai 29,000 0.05 11. Noor Asiah Binti Mahmood 28,755 0.05 12. Maybank Nominees (Tempatan) Sdn Bhd Pledged securities account for Tee Chun Yeh 23,000 0.04 13. Wong Yok Son 23,000 0.04 14. Maybank Securities Nominees (Tempatan) Sdn Bhd Maybank Kim Eng Securities Pte Ltd For Noor Asiah Binti Mahmood 22,222 0.04 15. Teh Seng Hin 20,000 0.04 16. Muhamad Aloysius Heng 19,333 0.03 17. Ng Hock @ Ng Ying Hock 16,000 0.03 ANALYSIS OF IRREDEEMABLE CONVERTIBLE UNSECURED LOAN STOCKS (“ICULS”) HOLDINGs as at 30 April 2012

Thirty Largest Registered ICULS Holders (continued) Name of ICULS holder No. of ICULS % of ICULS

18. Beh Teik Aun 15,555 0.03 19. Cimsec Nominees (Tempatan) Sdn Bhd CIMB for Syalin Sdn Bhd (PB) 15,555 0.03 20. HLB Nominees (Tempatan) Sdn Bhd Pledged securities account for Koay Ean Chim 14,911 0.03 21. Yan Meng Kwai 13,400 0.02 22. Chan Kooi Lim 13,300 0.02 23. CIMB Commerce Trustee Berhad Exempt an For Employees Provident Fund (PCM) 13,022 0.02 24. Tan Swee Fong 13,000 0.02 25. Seah Moon Ho 11,200 0.02

CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI 26. Yeoh Phaik Suan 11,200 0.02 27. Seow Foung Ying 11,110 0.02 28. Alliancegroup Nominees (Tempatan) Sdn Bhd Pledged securities account for Ridzwan Bin Abu Bakar (8051988) 11,000 0.02 29. Voon Jye Wah 11,000 0.02 30. Ting Pek Hing 10,222 0.02 pg 148 Total 55,516,664 99.07

SUBSTANTIAL SHAREHOLDER Direct Shareholding Name of ICULS Holder No. of Shares % of Shares

OSK Nominees (Tempatan) Sdn Berhad OSK Trustees Berhad for Scomi Group Bhd 54,782,491 97.76

Total 54,782,491 97.76

Directors’ iculs holdings Direct interest Indirect interest Directors No. of ICULS % of ICULS No. of ICULS % of ICULS

Datuk Zainun Aishah binti Ahmad – – – – Dato’ Abdul Rahim bin Abu Bakar – – – – Edlin bin Ghazaly – – – – Fad’l bin Mohamed – – – – Abdul Hamid bin Sheikh Mohamed – – – – Shah Hakim @ Shahzanim bin Zain – – 54,782,491^ 97.76

Notes ^ Deemed interested by virtue of Section 6A(4) of the Act through his shareholding in Scomi Group Bhd, which in turn is deemed interested in Scomi Engineering Bhd. LIST OF PROPERTy as at 31 December 2011

Tenure of land: freehold Audited net or leasehold Approximate book value Registered Description/location (years)/date Land area/ age of as at owner address Existing use of acquisition Built-up area building 31.12.2011 RM’000

Scomi Coach Land and Building: Office and Freehold/ Land area: Building 1: Land: 8,020 Sdn. Bhd. EMR 2751 Lot 795 and EMR 2616 Factory 15.04.1996 61,714 sq 2½ years Building 1: Lot 796, Mukim Serendah, Daerah metres. Building 2: 24,236 Hulu Selangor, Malaysia Built-up area: 15 years Building 2: 26,556 sq 9,526 metres

pg 149 SCOMI ENGINEERING BHD Annual Report 2011 CORPORATE DIRECTORY

CORPORATE Malaysia (Kuala Lumpur) Scomi Coach Sdn Bhd Scomi Rail Bhd Scomi Coach Marketing Sdn Bhd Scomi Engineering Bhd Level 17, 1 First Avenue Lot 795, Jalan Monorel, Sungai Choh Level 17, 1 First Avenue Bandar Utama 48000 Rawang, Selangor Darul Ehsan Bandar Utama 47800 Petaling Jaya Malaysia 47800 Petaling Jaya Selangor Darul Ehsan, Malaysia Tel: +603 6092 3888 Selangor Darul Ehsan, Malaysia Tel: +603 7717 3000 Fax: +603 6091 9203 Tel: +603 7717 3000 Fax: +603 7728 5195 Fax: +603 7727 7935 Scomi Special Vehicles Sdn Bhd Malaysia (Kuala Lumpur – North) Lot 9683, Kawasan Perindustrian Engineering, Technology & Desa Aman TRANSPORT SOLUTIONS Innovation Centre Batu 11, Desa Aman Lot 795, Jalan Monorel, Sungai Choh 47000 Sungai Buloh India (Mumbai) 48000 Rawang, Selangor Darul Ehsan Selangor Darul Ehsan Urban Transit Pvt Ltd Malaysia Malaysia Mumbai Monorail Project Office Tel: +603 6092 3888 Tel: +603 6140 3362 CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI Unit 102, B Wing, Business Square Fax: +603 6091 9203 Fax: +603 6140 3425 Chakala, Andheri (E) Mumbai 400093 India Brazil (Sao Paulo) Tel: +91 22 6140 0000 Urban Transit Servicos Do Brasil Fax: +91 22 6140 0001 Ltda Head office: Rua Geraldo Flausino Gomes 61, 9th floor, Cidade Monções pg 150 Zip Code 04575-060, Sao Paulo Sao Paulo, Brazil Tel: +55(11) 5105 1555 notice of Annual General meeting

NOTICE IS HEREBY GIVEN that the Twenty Eighth Annual General Meeting of SCOMI ENGINEERING BHD [“the Company”] will be held at Ballroom 3, 1st Floor, Sime Darby Convention Centre, 1A Jalan Bukit Kiara 1, 60000 Kuala Lumpur on Tuesday, 26 June 2012 at 10.00 a.m. for the following purposes:

Agenda

As Ordinary Business: 1. To receive the Audited Financial Statements for the financial year ended 31 December 2011 and the Reports of the Directors and Auditors thereon.

2. To re-elect the following Directors who retire pursuant to Article 80 of the Company’s Articles of Association: (i) En Shah Hakim @ Shahzanim Bin Zain (Resolution 1) (ii) En Edlin Bin Ghazaly (Resolution 2)

3. To approve the payment of Directors’ fees for the financial year ended 31 December 2011. (Resolution 3)

4. To re-appoint Messrs PricewaterhouseCoopers as Auditors of the Company for the ensuing year (Resolution 4) pg 151 and to authorise the Directors to fix their remuneration.

AS SPECIAL Business: To consider and, if thought fit, to pass the following Ordinary resolutions:

5. Authority to Allot Shares Pursuant to Section 132D of the Companies Act, 1965 (“the (Resolution 5) Act”) SCOMI ENGINEERING BHD Annual Report 2011 “THAT pursuant to Section 132D of the Act, and subject to the approval of the relevant authorities, the Directors be and are hereby empowered to issue shares in the Company from time to time and upon such terms and conditions and for such purposes as the Directors may, in their absolute discretion, deem fit provided that the aggregate number of shares issued pursuant to this resolution does not exceed 10% of the issued share capital of the Company for the time being and that the Directors be and are hereby also empowered to obtain approval from Bursa Malaysia Securities Berhad for the listing of and quotation for the additional shares so issued and that such authority shall continue in force until the conclusion of the next Annual General Meeting.”

6. Proposed Renewal of Share Buy-Back Authority (Resolution 6) “THAT subject to the Company’s compliance with all applicable rules, regulations, orders and guidelines made pursuant to the Main Market Listing Requirements of Bursa Malaysia Securities Berhad (“Bursa Securities”), Companies Act, 1965, the provisions of the Company’s Memorandum and Articles of Association and the approvals of all relevant regulatory authorities, the Company be and is hereby authorised, to the fullest extent permitted by law, to buy-back and/or hold from time to time and at any time such amount of ordinary shares of RM1.00 each in the Company as may be determined by the Directors of the Company from time to time through Bursa Securities (“the Proposed Share Buy-Back”) upon such terms and conditions as the Directors may deem fit and expedient in the interests of the Company, in the manner set out in the Share Buy-back Statement to the Company’s shareholders dated 4 June 2012 [“ Statement”]; nNototice of Annual General Mee meeting

THAT the maximum number of shares which may be purchased and/or held by the Company at any point of time pursuant to the Proposed Share Buy-Back shall not exceed ten per centum (10%) of the total issued and paid-up share capital of the Company for the time being quoted on Bursa Securities provided always that in the event that the Company ceases to hold all or any part of such shares as a result of, amongst others, cancellation of shares, sale of shares on the market of Bursa Securities or distribution of treasury shares to shareholders as dividend in respect of shares bought back under the previous shareholders’ mandate for share buy-back which was obtained at the Annual General Meeting (“AGM”) held on 28 June 2011, the Company shall be entitled to further purchase and/or hold such additional number of shares and shall (in aggregate with the shares then still held by the Company) not exceed ten per centum (10%) of the total issued and paid-up share capital of the Company for the time being quoted on Bursa Securities;

The shares purchased by the Company pursuant to the Proposed Share Buy-Back may be dealt with by the Directors in all or any of the following manner: a) the shares so purchased may be cancelled; and/or b) the shares so purchased may be retained as treasury shares for distribution as dividend to

CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI the shareholders and/or resold on the market of Bursa Securities and/or subsequently cancelled; and/or c) part of the shares so purchased may be retained as treasury shares with the remainder being cancelled.

THAT such authority shall commence upon the passing of this resolution, until the conclusion of the next AGM of the Company or the expiry of the period within which the next AGM is required by law to be held unless revoked or varied by Ordinary Resolution of the shareholders of the pg 152 Company in general meeting but so as not to prejudice the completion of a purchase made before such expiry date;

AND THAT the Directors of the Company be and are hereby authorised to take all steps as are necessary or expedient to implement or to give effect to the Proposed Share Buy-Back with full powers to amend and/or assent to any conditions, modifications, variations or amendments (if any) as may be imposed by all relevant regulatory authorities from time to time and with full powers to do all such acts and things thereafter in accordance with the Companies Act, 1965, the provisions of the Company’s Memorandum and Articles of Association and the Main Market Listing Requirements of Bursa Securities and all other relevant regulatory authorities.”

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

By Order of the Board

CHUA HOOI SIAN (MAICSA 7014565) CATHERINE MAH SUIK CHING (LS 01302) Company Secretaries Selangor Darul Ehsan

Date: 4 June 2012 Notes: Explanatory Notes: (1) A member of the Company who is entitled to attend and vote at Resolution 5 on Authority to allot shares the Meeting is entitled to appoint a proxy or more than one proxy The Company is seeking a renewal of mandate to allot and issue shares to attend and vote in his/her stead. A proxy may but need not be in the Company up to an amount not exceeding in total 10% of the a member of the Company and the provisions of Section 149(1)(b) issued share capital of the Company for such purposes as the Directors of the Companies Act, 1965 shall not apply to the Company. consider would be in the interest of the Company.

(2) When a member appoints more than one proxy, the appointments This mandate is a renewal of the last mandate granted to the directors shall be invalid unless he/she specifies the proportions of his/her at the Twenty Seventh Annual General Meeting held on 28 June 2011 holdings to be represented by each proxy. and will lapse at the conclusion of the Twenty Eighth Annual General Meeting. As at the date of this Notice, no new shares have been issued (3) Where a member is an authorized nominee as defined under the pursuant to the mandate granted to the Directors at the last AGM held Securities Industry (Central Depositories) Act, 1991, it may appoint on 28 June 2011 and which will lapse at the conclusion of the forthcoming at least one proxy but not more than two proxies in respect of 28th Annual General Meeting to be held on 26 June 2012. each securities account it holds with ordinary shares standing to the credit of the said securities account. The proposed Ordinary Resolution 5, if passed, will provide flexibility to the Company for any possible fund raising activities including but not (4) The instrument appointing a proxy shall be in writing under the limited to any placing of shares for purposes of funding future investments, hands of the appointor or his/her attorney duly authorised in writing working capital and/or acquisition or such other purposes as the or, if the appointor is a corporation, either under its common seal Directors consider would be in the interest of the Company without or under the hand of its officer or its duly authorised attorney. If incurring additional costs by having an Extraordinary General Meeting. no name is inserted in the space for the name of the proxy, the Chairman of the Meeting will act as your proxy. Resolution 6 on Proposed Renewal of Share Buy-Back Authority

(5) The instrument appointing a proxy must be completed and The ordinary resolution under item 6, if passed, will empower the deposited at the office of the Share Registrar of the Company, Directors to purchase the shares of up to ten (10%) of the issued and Symphony Share Registrars Sdn Bhd at Level 6, Symphony paid up share capital of the Company by utilizing funds not exceeding House, Block D13, Pusat Dagangan Dana 1, Jalan PJU1A/46, the retained profits and the share premium account of the Company. 47301 Petaling Jaya, Selangor Darul Ehsan, Malaysia not less than pg 153 forty-eight (48) hours before the time set for holding the AGM or For the detailed information on the Proposed Share Buy-Back, at any adjournment thereof or in the case of a poll, not less than shareholders are advised to refer to the Statement to Shareholders dated twenty-four (24) hours before the time appointed for the taking of 4 June 2012 which is circulated together with the Company’s Annual the poll. Report 2011.

(6) Only a depositor whose name appears on the Record of Depositors as at 20 June 2012 shall be entitled to attend the said meeting or appoint proxies to attend and/or vote on his/her behalf. SCOMI ENGINEERING BHD Annual Report 2011 STATEMENT ACCOMPANYING NOTICE OF THE TWENTY EIGHTH ANNUAL GENERAL MEETING pursuant to Paragraph 8.27(2) of the Listing Requirements of the Bursa Malaysia Securities Berhad

1. Directors standing for re-election at the twenty eighth annual general meeting

Directors who are standing for re-election:

Name of Director Director’s profile (page number in this Annual Report)

a) En Shah Hakim @ Shahzanim bin Zain 10 b) En Edlin bin Ghazaly 9

2. Details of directors’ attendance at board meetings

Ten (10) Board Meetings were held during the financial year ended 31 December 2011. CM EGNEIG H nul eot 2011 Report Annual BHD ENGINEERING SCOMI

Name No. of meetings attended

Datuk Zainun Aishah binti Ahmad 10/10 Dato’ Abdul Rahim bin Abu Bakar 9/10 Encik Edlin bin Ghazaly 10/10 Encik Fad’l bin Mohamed 10/10 pg 154 Encik Shah Hakim @ Shahzanim bin Zain 10/10 Encik Abdul Hamid bin Sheikh Mohamed 8/10

3. Details of date, time and place of twenty eighth annual general meeting

Date : 26 June 2012 Time : 10.00 a.m. Venue : Ballroom 3, 1st floor, Sime Darby Convention Centre, 1A Jalan Bukit Kiara 1, 60000 Kuala Lumpur Scomi Engineering Bhd (Company No.: 111633-M) (Incorporated in Malaysia under the Companies Act, 1965) Registered Office: Level 17, 1 First Avenue, Bandar Utama, 47800 Petaling Jaya, Selangor Darul Ehsan, Malaysia

CDS Account No. Form of proxy No. of Ordinary Shares Held

*I/*We NRIC/Passport (Full name in Capital Letters) of (Full address) being a Member/Members of Scomi Engineering Bhd, do hereby appoint (Full name in Capital Letters and NRIC No.) of (Full address) or failing him/her (Full name in Capital Letters and NRIC No.) of (Full address) and/or failing him/her, *the Chairman of the meeting as *my/our proxy/proxies to attend and vote for *me/us and on *my/our behalf at the Twenty Eighth Annual General Meeting of the Company, to be held at Ballroom 3, 1st Floor, Sime Darby Convention Centre, 1A Jalan Bukit Kiara 1, 60000 Kuala Lumpur on 26 June 2012 at 10.00 a.m. and, at any adjournment(s) thereof to vote as indicated below:

Ordinary Business For Against

To re-elect the following Directors who are retiring pursuant to Article 80 of the Company’s Articles of Association and being eligible, offer themselves for re-election: (i) En Shah Hakim @ Shahzanim Bin Zain Resolution 1 (ii) En Edlin Bin Ghazaly Resolution 2

To approve the payment of directors’ fee in respect of the financial year ended Resolution 3 31 December 2011.

To re-appoint Messrs PricewaterhouseCoopers as auditors of the Company for Resolution 4 the ensuing year and to authorise the Directors to fix their remuneration.

Special Business: For Against

Authority to Allot Shares pursuant to Section 132D of the Companies Act, 1965. Resolution 5

Proposed Renewal of Share Buy-Back Authority for purchase by the Company Resolution 6 of its ordinary shares of up to 10% of the issued and paid up share capital.

Please indicate with an “X” in the space provided above on how you wish your vote to be cast. If you do not do so, the proxy will vote or abstain from voting at his discretion.*Strike out whichever is not desired.

The proportion of my holdings to be represented by my *proxy/proxies are as follow:- First name Proxy % Second name Proxy %

100%

In case of a vote taken by a show of hands, the First Proxy shall vote on *my/our behalf

As witness my hand day of 2012. Signature/Common Seal of Member Fold this flap for sealing

Notes: (i) A member of the Company who is entitled to attend and vote at the Meeting is entitled to appoint a proxy or more than one proxy to attend and vote in his/her stead. A proxy may but need not be a member of the Company and the provisions of Section 149(1)(b) of the Companies Act, 1965 shall not apply to the Company. (ii) When a member appoints more than one proxy, the appointments shall be invalid unless he/she specifies the proportions of his/her holdings to be represented by each proxy. (iii) Where a member is an authorized nominee as defined under the Securities Industry (Central Depositories) Act, 1991, it may appoint at least one proxy but not more than two proxies in respect of each securities account it holds with ordinary shares standing to the credit of the said securities account. (iv) The instrument appointing a proxy shall be in writing under the hands of the appointor or his/her attorney duly authorised in writing or, if the appointor is a corporation, either under its common seal or under the hand of its officer or its duly authorised attorney. If no name is inserted in the space for the name of the proxy, the Chairman of the Meeting will act as your proxy. (v) The instrument appointing a proxy must be completed and deposited at the office of the Share Registrar of the Company, Symphony Share Registrars Sdn Bhd at Level 6, Symphony House, Block D13, Pusat Dagangan Dana 1, Jalan PJU1A/46, 47301 Petaling Jaya, Selangor Darul Ehsan, Malaysia not less than forty-eight (48) hours before the time set for holding the AGM or at any adjournment thereof or in the case of a poll, not less than twenty-four (24) hours before the time appointed for the taking of the poll. (vi) Only a depositor whose name appears on the Record of Depositors as at 20 June 2012 shall be entitled to attend the said meeting or appoint proxies to attend and/or vote on his/her behalf.

Then fold here

Affix Stamp The Registrar of Scomi Engineering Bhd Symphony Share Registrars Sdn Bhd Level 6, Symphony House Block D13, Pusat Dagangan Dana 1 Jalan PJU 1A/46, 47301 Petaling Jaya Selangor Darul Ehsan, Malaysia

1st fold here cm Egneig Bhd Engineering Scomi Scomi Engineering Bhd (111633-M)

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

Tel: +603 7717 3000 Fax: +603 7727 7935 www.scomiengineering.com.my 2011 Report Annual

NEW OPPORTUNITIES. MOVING AHEAD. Annual Report 2011